Exclusive Interview: Chase Bolding, Portfolio Manager and CIO of the Invesco Real Estate Income Trust
New Ways To Invest in Real Estate Driven by Key Changes in Housing, Healthcare and the Supply Chain
Ric Edelman: We've been spending an awful lot of time talking about the stock market and the bond market and the crypto market. I mean, everybody is fixated on the economy, but one subject that is getting short shrift is the real estate market. Well, let's talk about it. And to help us do that, I'm happy to bring onto the program Chase Bolding. He's the portfolio manager and chief investment officer of the Invesco Real Estate Income Trust. Chase, great to have you on the show.
Chase Bolding: Thanks, Ric. Good to be with you.
Ric: The Invesco Real Estate Income Trust, known as in InREIT, owns more than $1 billion worth of real estate throughout the country. How are inflation and interest rates affecting the real estate market today.
Chase: Yeah, that is clearly the question on the top of everyone's minds. And to answer it, for private commercial real estate, which I'll distinguish from public real estate, I think you have to break it into two components. Number one is from a capital markets perspective, what return and risk are investors willing to tolerate? Do they want to achieve on commercial real estate investments? And then number two, the demand for real estate.
Ric: Now, it's understandable for homeowners to be very emotional about their properties, but I assume that in commercial real estate, that's not really the case, is it? I mean, this is just another property. You have $1 billion worth of real estate in your portfolio. You're not falling in love with an office tower the way that you would with a house. Is there a different dynamic that goes on when you have a buyer and seller of commercial real estate doing a deal?
Chase: Look, I hope so, right? I mean, I think at Invesco Real Estate, we try to separate the emotion from the math and the facts at hand. So what we like to say is we don't fall in love with our real estate. We value our real estate every month. And if someone thinks it's worth more than we do and they have the money to buy it, they're welcome to have it.
Ric: What are the kind of properties that you own?
Chase: Various forms of rental housing, industrial warehouses and healthcare. People need a place to live. Demographically speaking, we are aging as a population. We're spending an increasing amount of money in the life sciences and the lab space. And then I mentioned warehouses. The secular demand for consumption moving to more of an e-commerce wrapper is well established. Covid pulled forward a lot of the demand, and I think that trend continues. And now with the geopolitical landscape, there's I think there's a further case to be made via onshoring that a lot of these aspects of the supply chain that were located outside of the US perhaps make more sense here domestically. So housing, healthcare, the supply chain - these are sectors that we believe will appreciate long-term and provide durable income throughout the inevitable market cycles.
Ric: Well, it's interesting you mentioned healthcare. So are you referring to buying the buildings that a hospital will occupy, a rehab facility, a nursing home, a laboratory that is engaging in scientific research in healthcare relative to real estate?
Chase: We're big investors there as a firm. We own a large portfolio of medical office buildings located in growing states like Texas and in Florida, where the provision of healthcare being increasingly away from the hospital. The demand for outpatient care, and particularly up the acuity spectrum we think is a is a smart place to invest.
Ric: So it's interesting that you mention this. I would almost call it the cottage industry approach to investing. In other words, I might love the idea of Amazon, but on the other hand, instead of buying Amazon stock, I can invest in real estate that serves as a warehouse for the distribution of the products that Amazon sells. So it allows me to invest riding the coattails of Amazon's success, but in a brick-and-mortar environment, without having to ride the volatility wave of Amazon stock itself. Does that make sense?
Chase: It makes sense. I mean, I think you're hitting on something very important about owning real estate in your portfolios. It is a real diversifier. So there's income benefits. There are some tax benefits associated with the income from real estate investment trusts or REITs. But the diversification is a real component and an argument for the asset class. The performance tends to be low or not correlated at all to what's happening in the public markets that bears out historically. And then in times of inflation, as we sit here today, the asset class does very well traditionally as you can pass through higher rates to the occupiers of your space. So we think having an allocation to private assets, it's been something that institutional investors have been doing for decades, and we think it's time that individual investors enjoy some of that as well.
Ric: And part of the problem historically with individual investors buying real estate is that real estate is expensive. It's easy to buy a share of a stock for $5, but it's hard to buy a piece of real estate that costs hundreds of thousands or millions, or in the case of commercial buildings, they can cost billions of dollars and they're illiquid. You can't easily sell the New York Empire State Building. So that's why institutional investors have been the buyers of this stuff. And retail investors have been largely shut out until funds like yours have come along that kind of democratize and monetize the asset class. You make it much more affordable for people to invest in the fund and you provide much greater diversification by owning dozens, hundreds, thousands of properties in the portfolio as opposed to just one apartment building. And so it makes it more accessible to ordinary investors. And that's something that didn't exist 10 or 15 or 20 years ago. And today it demonstrates that retail investors who have not been paying attention to real estate really ought to start paying attention to it because there are investment opportunities that never existed before. Is that fair to say?
Chase: I think it's very fair to say some of those features you just spoke of with respect to accessibility, transparency and what's being done inside these portfolios and why getting some liquidity along the way. So I just think for a host of reasons, these vehicles have really improved for the benefit of the individual investor and will continue to do so.
Ric: So I think most folks, whether they've ever invested in real estate or not, understand the benefits of real estate investing, meaning if I rent out a property, I'm going to get rental income
Chase: I think it starts with income. It's having that reliable stream of cash flows and ideally growing with inflation and otherwise is very important for individual investors. You layer on top of that the tax benefits that come from the REIT structure. And I don't want to get too wonky here, but you can largely treat the dividend as a return of capital as opposed to a return on capital, and that's beneficial. So you have income, you have tax benefits, you have the diversification benefits when added to a traditional portfolio of stocks and bonds. And then maybe over the top of that right now would be the inflationary benefits that is hard to find elsewhere.
Ric: And the investment minimum?
Chase: So in our fund, it's a $2,500 minimum.
Ric: What would you say, Chase, is the most interesting of the real estate sectors that most investors wouldn't think of?
The “Four Main Food Groups” of Commercial Real Estate
Chase: It is a great question. Historically, people have thought about commercial real estate in four main food groups. You have an office building, you have a retail property, maybe it's a mall, maybe it's a strip center. You have an apartment building and you have an industrial building. And that's how most institutional investors allocated to the asset class. Well, the asset class has evolved in a major way. And if you think about it, it goes so far beyond those four property types. I mean, it is truly where we as people and companies consume, live, innovate and connect with one another. It houses the economy. So you're seeing things like studio space for content creation, which is obviously very popular right now. You have it in self-storage properties, right? Because people need a place to store things and they can't always do it in their homes, particularly with those homes costing more and more money. You see it in the healthcare space, which we've talked about. People need a place to receive healthcare and increasingly that's outside of a hospital. So that creates demand for real estate. The other one that I think is very interesting is in the single-family home market. You've mentioned it several times. That is where most investors have the majority of their equity today and for really forever. The single-family home market has been highly fragmented, not owned by institutional investors. But increasingly you are seeing groups like us take a harder look at that sector as a real value proposition for people to get the experience of owning a home, but without the down payment that comes with it. And maybe they can age and grow into that down payment in that home. But with multifamily or apartment rents ticking up, we know what home prices have done, not to mention the cost of a mortgage. So that payment has gone up a lot for most people. There's a place right in the middle for renting a single-family home that is becoming more institutionalized. And we think it's a very elegant investment option for an income-oriented investor.
Ric: Well, I think what you've demonstrated for us is that there's a wide array of investment opportunities in the world of real estate, just on par with the wide array of investment opportunities in the stock market. And rather than trying to become an expert in all of that, better for us to hire a fund manager who spends their full-time career figuring out what those investment opportunities are, packaging them for us in one convenient investment offering so that our life is a lot simpler and easier to deal with. And yet we get the exposure to a diversified real estate position within our portfolio that we would otherwise lack. So I would encourage you to take a serious look at the Invesco Real Estate Income Trust and the other real estate investment trusts that Invesco offers. You can learn about them from your financial advisor or by visiting Invesco's website at Invesco.com. That's Chase Bolding, the portfolio manager of Invesco Real Estate Income Trust . Chase, thanks so much for joining us on the show.
Chase: Thanks, Ric. Enjoyed the conversation.
Ric Edelman: Chase and I actually spoke for more than what you just heard on the show. If you'd like to read, watch or listen to the entire conversation, just visit TheTruthAYF.com.