Since their poor Q3 earnings preview, healthcare REITs have been under the weather. The sector is the one most at risk for poor performance in the coming months mainly due to increased supply in senior housing, according to investment banking firm Jefferies.

REITs in general have been having a hard time. But while all equity REITs reported YTD returns of 1.67% through the end of October, healthcare REITs reported a loss of 11.07%.

The toughest issue for healthcare REITs is that they don't have a cost of capital advantage compared to private capital buyers, Stifel's Dan Bernstein says, and that could be like overpaying for assets. 

In Q3, senior housing grew by 7.9%, and it's expected to grow by 3% of inventory in 2016, scaring investors. This is bad news for stocks such as Ventas and Welltower.

But there's hope. If healthcare REITs become flexible and shift investment strategies to assets like medical office properties, they might be able to survive—and even grow. [NREI]