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Thornburg Investments Managing Director Josh Gonze on the pros and cons of investing in continuing-care retirement communities.
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Well as I was saying move over Munis investors searching for attack three broke -- turning to bonds that are tied to the retirement communities and -- buyers they need to be aware of these investments have higher risk you Johnstone actually -- seven billion dollars in Munis as co portfolio manager with or worked.
Investor management jobs he joins us right now just before.
We get to the pros and cons risk reward to these bonds expects -- is exactly what what what we're talking about here.
OK so we're talking about a segment of the tax exempt bond market that.
Called CC RCs are continuing care retirement communities.
These are bonds that are issued to been to construct and operate.
-- in retirement homes.
There are approximately 500 of these transactions that have been done so far across the US.
So now we're talking about the retirees who are depending on Medicare Medicaid.
I mean apparently one of the things that I read as we have got a lot of cash as a retiree -- get a -- the one of these things.
Well that's right the young the world of retirement homes has been divided into.
Nursing homes where were the principal source of payment as Medicare and Medicaid and at the high NBC CR -- merger principally private pay.
And I'm generally the way the economic that this this model works is.
That there's a very high entrance -- roughly equivalent to the sale price of a home so typically somewhere in the range of 200000 to 500000 dollars as if up -- entry fee and then there's a monthly fee on top on top of that says the DC CRC.
Projects.
Our.
Occupy our address to a fairly high end audience and they basically become.
The preferable place for people to retire -- quite comfortable there think of a pleasant amenities swimming pools gymnasiums social clubs.
Manicured grounds that type of thing -- they're very comfortable places for people to retire.
So the investment thesis that is used by us at Thornburg and another an institutional investors is that the aging of the population.
Is is right through this CC RC model.
And it it brings the possibility that some of these bonds will make very good investments.
Now how did they give tax free -- they become tax free and I mean this seems like.
A bunch of individuals get together and they built these communities and about how we're that the tax free -- coming because that's pretty attractive.
Right well about 80% of BC's -- -- are owned by not for profit corpses so.
They are legally allowed to issue -- them revenue bonds they're not tax backed -- backed by the revenues of the facility itself so.
They have the legal ability to issue taxes and bonds.
And we're able to do to invest in them and use them in our municipal bond funds that we operate and manage at Thornburg right and and other companies Jon we got less than two minutes so wanna go real quick on -- pros and cons I read where.
The default rate was two point 1%.
Out of 46 types of municipal investments that six -- -- so that's kind of frightening there on the other -- I've read that the return to be more of five and a half percent.
How to we will probably -- the restored here.
Well that's exactly right -- there's a great deal of -- of analysis involved in investing in these bonds that's what we do here.
We have a staff of people who pick through the operating and financial numbers and ordered it.
It's determine the good ones separate them from the bad ones we've been able to this discard the vast majority of the deals that have come to market.
We believe we've got about five to ten in our -- -- funds out of -- more than 500 deals that have been issued.
So far so it isn't -- quite a difficult thing for individual investor to buy their own.
However the advantage of borrowing them is that they are higher yielding that's why we like to use them and our former strategic municipal income fund which.
Higher yielding bond fund they do yields typically on the in the range of five to 7% tax exempt which is -- -- Most people would take that all day long and if you can find a good bond yielding that type of yield.
Doesn't take too long to figure out that the answer is yes you wanna you wanna invest in that facility.
And and thirty seconds.
That does the pages the the bid the people of these homes in the possibility of them -- passing the way that that interrupt the investment.
Cash flow or anything like that is that it added investment risk.
Well that well how the actuarial tables are -- big part of how we do this and frankly -- That.
Not to be gruesome but the turnover is is a positive for the on.
For the economics of these facilities so OK generally speaking no that's not a problem at all I got to jobs go through Thornburg investment management.
You guys my a bit of stuff there really had to -- have got to look deeper into the thanks for spending time and explaining it weapons.
Thanks for having me.
