Speaker 1: Well, the trillions. I'm Joel Webber and I'm Eric Beltierness. Eric,
Speaker 1: there's a lot going on in the world, and we're
Speaker 1: gonna talk about reads. Why are we going to talk
Speaker 1: about reads? Yeah, because you know, you can just get
Speaker 1: lost in the news cycle and all the discussions on
Speaker 1: Twitter and just sometimes you just end up in the
Speaker 1: Ivory Tower debating these things that are fun to talk about,
Speaker 1: but I mean maybe aren't practical. And so sometimes you
Speaker 1: have to just cut away, go into an area, a category,
Speaker 1: and just roll up your sleeves and dig around and
Speaker 1: talk about the practicality of a certain area for investors.
Speaker 1: And so UM I thought reats were an interesting one
Speaker 1: because a they're at a cross roads, they're changing dramatically.
Speaker 1: UM And for those who don't know, READS stands for
Speaker 1: real Estate Investment Trust and it's sort of a way
Speaker 1: to buy an et F. And then you know, indirectly
Speaker 1: or directly rather I guess own UM properties and they
Speaker 1: could be anything from like retail properties, malls, storage, industrial infrastructure, hotels, uh,
Speaker 1: stuff you wouldn't buy as a regular person typically. And
Speaker 1: also they yield a lot because they have a certain
Speaker 1: structure where they have to pass on a lot of
Speaker 1: their income, and so we have rates rising, which is
Speaker 1: a threat to them. But then at the same time
Speaker 1: rates are still low. And so I thought there's a
Speaker 1: lot of crossroads going on in the Reek category and
Speaker 1: we could maybe unpack it and talk about, you know,
Speaker 1: the pros and cons of all of the different products.
Speaker 1: You basically get to own real estate without really owning
Speaker 1: real estate. Yeah, I mean, I guess you basically just
Speaker 1: click a button and it's you're pulled in with a
Speaker 1: bunch of investors who are common owners of, you know,
Speaker 1: real estate properties. And one thing I hope to get
Speaker 1: out today is to get some visual on what exactly
Speaker 1: you are owning. I mean, I can see the words, Hey,
Speaker 1: now I own residential and hotel reads, but where are
Speaker 1: these hotels? What do they do? Um? You know, I
Speaker 1: think that sometimes is lost, but yeah, you do end
Speaker 1: up owning these things. And to help us wade through
Speaker 1: the category, we're gonna be joined by Kevin Kelly at
Speaker 1: Benchmark invest and David our back at World at Greek Group,
Speaker 1: this time on Trillians the Red Stuff. David Kevin, welcome
Speaker 1: to Trillions. Thanks for having us, Thank you for having us. David,
Speaker 1: I want to start with you, Um, why why should
Speaker 1: we be talking about reads right now? What are these
Speaker 1: good for? Well? I can tell you right now that
Speaker 1: this is not going to be a sexy conversation like
Speaker 1: tt slaw and bitcoin and buzzy t F. But when
Speaker 1: you talk about reads, they provide one thing that is
Speaker 1: common in times of volatility, and that's safety, dividend income stability,
Speaker 1: high pay at ratio by these companies. You're you're getting
Speaker 1: almost like an annuity or like a long term bond
Speaker 1: when you're buying some of these companies. And as Kevin
Speaker 1: can attest to looking at the long term holdings of
Speaker 1: some of these companies, you're just going along for the
Speaker 1: ride and letting these companies do what they do best.
Speaker 1: Let's just take one second, David, to just bring in
Speaker 1: somebody who knows almost nothing. Explain what a red is
Speaker 1: and why the income is high like that structure that
Speaker 1: I alluded to earlier. Just explain that whole concept. Sure, So,
Speaker 1: as you said to read is a real estate investment trust.
Speaker 1: A real estate investment trust is a shell that you
Speaker 1: would own a property, a portfolio of real estate, and
Speaker 1: as you mentioned, that's office building's, apartment properties, hotel, self storage.
Speaker 1: The list goes on and on with the way that
Speaker 1: a reat is structured of the net income is paid
Speaker 1: out to shareholders in the term of dividends or in
Speaker 1: the form of dividends, and so as a result, off
Speaker 1: the bat, in fact, many of these guys are paying
Speaker 1: out monthly dividends, and so right off the bat, you're
Speaker 1: getting a huge income component because the typical average dividend
Speaker 1: yield right now, according to a reads around four to
Speaker 1: four and a half percent, and with the tenure, which
Speaker 1: is its closest benchmark, trading around one point six, let's
Speaker 1: say right now, you know you still have about three
Speaker 1: hundred basis points in your pocket that you're being paid
Speaker 1: by these companies to own this high quality real estate.
Speaker 1: Taking a step further, another really interesting way to play,
Speaker 1: that's through the preferred stack. And if you played the
Speaker 1: red preferreds, then you're looking at yields anywhere from where
Speaker 1: public starch has the lowest let's say a sub three
Speaker 1: or excuse me, a sub four. You know, quality names
Speaker 1: are yielding around five percent and higher yield stuffs going
Speaker 1: six to seven and higher, so you know it's there's
Speaker 1: just a huge buffer there for reachs in your favor
Speaker 1: And David, can you tell us what you do at
Speaker 1: a world that Grete group? Sure? So I'm lucky. I've
Speaker 1: extraddle a lot of worlds. I'm an institutional all UH
Speaker 1: sales trader at World Equity Group. I've been in the
Speaker 1: red industry for over twenty years. I got my start
Speaker 1: at a firm called Green Street Advisors now known as
Speaker 1: Green Street. So for me now World Equity Group, I
Speaker 1: am trading reads. I am doing corporate access with a partner,
Speaker 1: working on management relationships. We're doing new share issuance working
Speaker 1: with some of these reads. Really it kind of spreads
Speaker 1: expansive globe. I also work on a red newsletter at
Speaker 1: Daily Newsletter. UM, there's just so much information that's out there,
Speaker 1: and with you know, a hundred sixty plus publicly traded
Speaker 1: equity reads, not counting the mortgage side, there's a lot
Speaker 1: of information to digest on a daily basis and won't
Speaker 1: get through more than that. As we go through this,
Speaker 1: and Kevin, I want to bring you into this, UM.
Speaker 1: You know, I've bumped into you a lot over the past,
Speaker 1: like I don't know, eight nine years really, especially at
Speaker 1: the Bloomberg TV studio. You're always in there doing the
Speaker 1: options segment and whatnot. Before we get into some of
Speaker 1: the E t s Just what are you up to
Speaker 1: these days? So today, but I'm really up to is
Speaker 1: trying to give investors access to specific property types and
Speaker 1: specific exposure, especially in the real estate market. And so
Speaker 1: if you look at my what I do on a
Speaker 1: core level, it's actually look at the real estate universe
Speaker 1: and then delineate which actual companies are are doing on
Speaker 1: their property type, tenant type, and uh, you know, revenue type.
Speaker 1: And so what we do is we make indexes off
Speaker 1: of that, and then we license those indexes to e
Speaker 1: t F issuers. And so what you'll see is that
Speaker 1: the top two property type E t F that are
Speaker 1: out there were the index provider to those. You have
Speaker 1: some new um cutting edge kind of indexes that are
Speaker 1: tracked by E t F s. So but let's do
Speaker 1: this in order to again keep this high level at
Speaker 1: least for now. If you look at the re E
Speaker 1: t F category, which has seventy two billion, by the way,
Speaker 1: it is, it's one of the bigger sectors. V n
Speaker 1: Q has half the assets. That's the Vanguard re E
Speaker 1: t F. It's one of those rare vanguard ETF that's
Speaker 1: the biggest in the category and the most traded. Um
Speaker 1: it's a monster. So, Kevin, why don't you take V
Speaker 1: n Q explain that one and the general you know,
Speaker 1: I guess broad re E t F that vn Q
Speaker 1: kind of represents versus some of the newer stuff. Yeah,
Speaker 1: So the way you should look at the re D
Speaker 1: t F market is V and Q is the big behemoth.
Speaker 1: And what that does is it gives access to investors
Speaker 1: to own broad based real estate. It owns everything all
Speaker 1: at once. You're gonna own every publicly traded shopping mall,
Speaker 1: You're gonna own every publicly traded UH hotel, you're gonna
Speaker 1: own every publicly traded apartment company. You're gonna own every
Speaker 1: publicly traded office building in the problem with that is,
Speaker 1: in my opinion, is that property types trade differently. So
Speaker 1: an office is going to perform differently than a retail
Speaker 1: shopping center, than a hotel, than a data center. And
Speaker 1: so what you're getting is you're getting the broad basis
Speaker 1: like owning the all World Index when it comes to
Speaker 1: E t S, right, So you're owning every single country
Speaker 1: and every single company and so that's what V and
Speaker 1: Q does, and really what it's meant to do is
Speaker 1: to give broad based exposure to asset allocators. It's also
Speaker 1: a passive index. And so if you look at the
Speaker 1: bigger picture as far as like COVID is an example
Speaker 1: in the work from home trade versus the return to
Speaker 1: office trade, Let's say V and Q may even though
Speaker 1: it's still invested in office and hotels and malls in
Speaker 1: an active situation, an active red e t F guy
Speaker 1: would have been out of those sectors in the second
Speaker 1: quarter of last year and overweight single family rental reads,
Speaker 1: tower reads, data center reads. The zoom trade basically for
Speaker 1: reat land. And so now what we're seeing is the
Speaker 1: reverse where there's two camps, this zoom trade still being
Speaker 1: on and then returned off his trade, right some of
Speaker 1: the more aggressive pms that are putting back on the hotels,
Speaker 1: the offices and the retail trade. Just as just as
Speaker 1: a point of clarification, well, and to that end, David,
Speaker 1: what kind of innovation are we actually really seeing in
Speaker 1: the category if if we've got the V n Q
Speaker 1: and that's like the big umbrella of everything, like, talk
Speaker 1: to us about what's been changing and what kind of
Speaker 1: ETFs are are now at investor's fingertips. Sure absolutely, and frankly,
Speaker 1: to Kevin's credit, he was one of the first guys
Speaker 1: that was out there really finding the niche sectors well
Speaker 1: ahead of the curve of some of the other guys
Speaker 1: and all let Kevin go more into detail about his two,
Speaker 1: but a couple of other unique plays. Um, you can
Speaker 1: play the net lease read the net lease reads that
Speaker 1: would be the guys like your quick service restaurants, the
Speaker 1: Burger King's, McDonald's, Starbucks, Jim's drug stores, gas stations, and
Speaker 1: that is run by some guys from a company called
Speaker 1: Fundamental Income. The tick of that e t F is
Speaker 1: any t L Nancy Edward Tom Larry, the two executives
Speaker 1: that started that came from a company called store Capital,
Speaker 1: which Warren Buffet and Berkshire Hathaways its largest shareholders. So
Speaker 1: right off the bat, before we even get into net
Speaker 1: least reads, when Warren Buffett is the largest shareholder of
Speaker 1: one of these net least reads, if there's kind of
Speaker 1: that Berkshire touch to it. Another interesting avenue is a
Speaker 1: home builder's housing e t F. They housing one hundred
Speaker 1: the homes h O m Z E t F. This
Speaker 1: is comprised of residential self storage, lodging, anything home depot lows,
Speaker 1: anything that has to do with the home owner space.
Speaker 1: One more I want to touch upon is the newest
Speaker 1: player and Eric, I think I'd love to get your
Speaker 1: comments on that as we go through this. But the first,
Speaker 1: really the one of the first active read e t
Speaker 1: s has come to market. UM, there's a couple that
Speaker 1: are out there, but from the g S excuse me,
Speaker 1: from alps with G S I capitals, the subdvisors the
Speaker 1: actual ticker r E I t read like I said,
Speaker 1: which is the act the opposite act of read ets.
Speaker 1: So there are several different unique rappers to play the
Speaker 1: E t F space besides I Y R v n Q,
Speaker 1: the big daddies of the sector. One of the reasons
Speaker 1: we did want to also talk about this was that
Speaker 1: um my colleague Morgen Varna back last year, UM at
Speaker 1: the end of the year, she wrote about s r
Speaker 1: VR and it was interesting. I actually learned a lot
Speaker 1: from her note and she just really found that these
Speaker 1: towers and data centers, which again are not tended not
Speaker 1: to be in the traditional re E t F s,
Speaker 1: we're a real source of return at the time. UM
Speaker 1: and you know sr VR has like thirty in those respectively,
Speaker 1: whereas v n Q is more like eight and and
Speaker 1: and again this parallel you see it everywhere. Every category
Speaker 1: has a couple of ETFs that are just tip of
Speaker 1: the spear. They're going to these places that you're not
Speaker 1: getting otherwise. Otherwise, why would the launch an e t
Speaker 1: F if you can get it in v n Q.
Speaker 1: So talk about the tower day a center angle here
Speaker 1: and what that's what's going on. Yeah, So I think
Speaker 1: it's really important to note that as you know the
Speaker 1: overall read market has evolved, you've seen new property types.
Speaker 1: And two of those new property types are data centers
Speaker 1: and cell phone towers, and so they're non traditional and
Speaker 1: they're actually growing pretty significantly because, as you see, we're
Speaker 1: digitizing our daily lives. And so when the pandemic happened,
Speaker 1: you actually saw two big beneficiaries in the real estate
Speaker 1: market where you actually had visibility of cash flows, and
Speaker 1: that was the data centers and cell phone towers. Why
Speaker 1: because everyone was working from home, everyone was doing school
Speaker 1: from home, and so these two property types were really, uh,
Speaker 1: the the frontline defense for everybody in their daily lives. Right,
Speaker 1: It's like everyone was using the internet more and more
Speaker 1: and more for personal and professional use. And so when
Speaker 1: you look at what s r V, the s r
Speaker 1: VR in DEX does because it gives you pure play
Speaker 1: access to those property types. And so what we're seeing
Speaker 1: is a lot of technology investors are using s r
Speaker 1: VR to complement it with their cybersecurity exposure, with their
Speaker 1: cloud exposure, with their semiconductors, because it does have the
Speaker 1: growth of technology, but with the safety and security of
Speaker 1: real estate. And so that's why you're seeing a lot
Speaker 1: of adoption with the s r VR index constituents and
Speaker 1: advisors and investors portfolios. So this brings up an interesting point,
Speaker 1: which is because I'm looking at s r VR and
Speaker 1: that's a great pitch for it, and I think, you know,
Speaker 1: the returns UM show that, but the yield is really
Speaker 1: small relative to other re et F s. I have
Speaker 1: one point six percent for a twelve month yield, whereas
Speaker 1: v n Q is about double that um. Can you
Speaker 1: talk a little bit about that trade off? And you
Speaker 1: a lot of free e t P E t F
Speaker 1: s are used for income you're making. You're like, you're
Speaker 1: basically trying to make a whole different case, is that right? Yeah,
Speaker 1: So the reason why you'll see a lower yield on
Speaker 1: that is because the and it's called s r VR
Speaker 1: because it's it stands for server because computer servers are
Speaker 1: rendered useless without the mission critical assets that server index provides.
Speaker 1: So the whole idea here is when you look at this,
Speaker 1: what are you trying to gain from this exposure? And
Speaker 1: that's growth. You're not trying to get income. And so
Speaker 1: that's what really differentiates it from a V and Q
Speaker 1: because if you look at what the actual management teams
Speaker 1: are doing on the data center and cell phone tower side,
Speaker 1: they're developing right so they're building as much as they
Speaker 1: can right now, and so they're using a lot of
Speaker 1: their cash and assets to develop and build. So you're
Speaker 1: going to get a lower yield, but you're going to
Speaker 1: get higher growth. And that's the nice aspect. If you
Speaker 1: want income, go get income else where. If you want growth,
Speaker 1: your your you you you've got it. You've got a
Speaker 1: perfect portfolio here where you can get that aspect. So
Speaker 1: David as a watch of this space, and you know
Speaker 1: someone who gives Kevin a lot of credit for what
Speaker 1: he's done, and especially with s r VR. What perspective
Speaker 1: do you have on on what what he's been sort
Speaker 1: of accomplishing there and and the stuff to watch in
Speaker 1: that space. Kevin mentioned about the tower reachs and data
Speaker 1: center reaches a growth play, and a couple of my
Speaker 1: favorite statistics goes back to a conference from a couple
Speaker 1: of years ago. The former CEO of American Tower, his
Speaker 1: name was Jim Tassel, he left to go to the
Speaker 1: CEO of Lockheed Martin. He made a great data point
Speaker 1: and it's really resonated with me. Knowing that the state
Speaker 1: of points about two years old, just in the back
Speaker 1: of your mind, know that it's gone up. And the
Speaker 1: point was, did you know, wait for the dramatic plause,
Speaker 1: that there's only four hours of video posted to YouTube
Speaker 1: every minute. That's as of a couple of years ago.
Speaker 1: So think about how that number has only increased. As
Speaker 1: Kevinist stated, we're digesting this content on our phones, are tablets,
Speaker 1: every single way that we can more and more. We're
Speaker 1: doing this conversation by way of a zoom. There's that
Speaker 1: demand for bandwidth. If you go read the Tower and
Speaker 1: Data Center transcripts. One more thing to add is their
Speaker 1: growth is not here domestically, Their growth is overseas. These
Speaker 1: guys are making a huge push in the Indias and
Speaker 1: Africa's and Europe's that some of these countries aren't even
Speaker 1: on three G technology yet in the same breath, these
Speaker 1: companies are working on the next six G evolution. What
Speaker 1: does that mean? As far as does that mean it's
Speaker 1: gonna be real time while I'm watching this movie, it's
Speaker 1: almost like I'm watching a live event. I don't know,
Speaker 1: but our content is only going up and up that
Speaker 1: we're using this and so again, the datas and towers
Speaker 1: is an income play. Necessarily, it is a growing sector.
Speaker 1: And you know, you ask anybody in the industry, I
Speaker 1: don't know the answer to this. But if you say,
Speaker 1: what what ending of development are we in and the
Speaker 1: towers and datas, my gut tells me a lot of God,
Speaker 1: I'm gonna tell you we're still in the early ending
Speaker 1: stages of the tower and data center, please not the
Speaker 1: not the later innings. Yeah, And I think that case
Speaker 1: is made pretty effectively. Um and that that would be
Speaker 1: It's almost like Kevin, You're you're almost making a pitch
Speaker 1: for a theme etf for a new industry. Whereas I
Speaker 1: want to bring it back real quick to just general
Speaker 1: read E t f s that are a little more traditional,
Speaker 1: like van Q and the Schwab and I shares um
Speaker 1: read E t f s David, How sensitive are they too? Rates?
Speaker 1: The tenure is rising? Um? Is this? What about timing wise?
Speaker 1: Would you wait for the rates to rise a little
Speaker 1: more um as an entry point? How do you work
Speaker 1: in rates to your decision on investing in reads traditional
Speaker 1: ones traditionally, I honestly don't know if it's that much
Speaker 1: of an event against some of these reads, the big
Speaker 1: the big cap guys, the SMP five names, They've been
Speaker 1: around for so long and have dealt with so much
Speaker 1: volatility and interest rates, and I don't think it impacts
Speaker 1: them so much. Eric, to be quite honest, you know
Speaker 1: one point six tenuere environment. You know, if they went
Speaker 1: to three percent, yeah we got some problems and we're
Speaker 1: gonna be freaking out. But if you remember back last
Speaker 1: year when everybody was talking about the tend to yield
Speaker 1: curve and version and everybody was all freaking out about that.
Speaker 1: Obviously again with COVID all the other hiccups that are
Speaker 1: in the market, but you know, really what happens is
Speaker 1: reads bounced back pretty quickly. That trade, the COVID trade
Speaker 1: for the reach sector disappeared in about a month. Looking
Speaker 1: at the prefers and everything that that windows shrunk in
Speaker 1: about a month. So really, I think in the grand
Speaker 1: scheme of things right now, I think the reads are
Speaker 1: shaking off the interest rate concerns in the grand scheme
Speaker 1: of things. I have a couple of thoughts on that,
Speaker 1: and I think there's there's stats that people should really
Speaker 1: be aware of. And the first one comes from nay
Speaker 1: Read and they've actually looked at a rising interest rate
Speaker 1: environment and how did broad based reats perform And according
Speaker 1: to the research, fifty four percent of the time when
Speaker 1: rates are rising, reats outperformed the SMP five hundred and
Speaker 1: so I think that's pretty significant. And the question you
Speaker 1: need to ask is why, And it's because rents rose
Speaker 1: faster than rates, and so you want to focus on
Speaker 1: rising rents, not rising rates, and that's the most important thing.
Speaker 1: So if the economy is getting better, you're gonna see
Speaker 1: rents go up faster than rates do and that is
Speaker 1: a huge tail win for for reats in general. Okay,
Speaker 1: so let's keep talking about that. Because here we are,
Speaker 1: vaccination is happening, at least in the US at a
Speaker 1: pretty rapid clip. We could we could actually be uh
Speaker 1: in a version of of normal again before long. So
Speaker 1: what does the read industry look like post COVID, especially
Speaker 1: like in regards to things like malls, now that we've
Speaker 1: we've all transitioned to this this world where everything can
Speaker 1: kind of go remote, Like, what roll could the read
Speaker 1: industry kind of look like post COVID? I think the
Speaker 1: read industry is going to do exceptionally well post COVID
Speaker 1: for several reasons. One is their actual structure. So we
Speaker 1: taught touch base on it before. But what they're gonna
Speaker 1: do is come out of this pandemic leaner and meaner. Right,
Speaker 1: So they're gonna have stronger balance sheets. Uh they've done,
Speaker 1: They've basically right sized uh their entire portfolios. There's been
Speaker 1: a lot of asset dispositions. They can work with state,
Speaker 1: local municipalities to do some redevelopment. And so what I
Speaker 1: think is going to happen is post pandemic, what you
Speaker 1: will see is you will see a lot of reads
Speaker 1: be opportunistic because they have most of them are investment grade.
Speaker 1: They've got great balance sheets, so they're gonna be able
Speaker 1: to buy a lot of the distressed assets. Why, because
Speaker 1: of their financial flexibility, they can issue read preferred airs,
Speaker 1: they can actually issue shares into the secondary market and
Speaker 1: raise money. And so what's nice about it is they
Speaker 1: are known entities. The management teams are are very well known.
Speaker 1: They've been around for a long time, so they have
Speaker 1: a huge advantage to take uh to to to be
Speaker 1: opportunistic going forward. And same question to you, David, like,
Speaker 1: what what do you think post COVID reats are gonna
Speaker 1: look like? Yeah, I echo a lot of what Kevin said,
Speaker 1: you know, going back to the housing crisis or the
Speaker 1: financial crisis wo nine, twelve thirteen. For some of these guys,
Speaker 1: reachs traditionally learn from historical events. So from the O
Speaker 1: Way oh nine financial crisis, a lot of the reds
Speaker 1: decided to go less leverage equals the better position. They
Speaker 1: diversified their tenant base, they just became stronger and stronger
Speaker 1: to combat the you know, financial pitfalls that were thrown
Speaker 1: at them. So to answer your question post COVID, I
Speaker 1: think a lot of folks are going to continue to leaner.
Speaker 1: Meter if you were having troubles before COVID, You're probably
Speaker 1: not going to survive after COVID. A lot of these
Speaker 1: guys could go back and read their transcripts. They had said,
Speaker 1: we've spent this period developing, improving, managing our relationships, growing
Speaker 1: our tenant base. They're trying to get, you know, stronger
Speaker 1: relationships with their existing tenants. You know, traditionally you think about,
Speaker 1: let's use a net least read as an example. If
Speaker 1: they do a deal with the Dollar general, it's not
Speaker 1: just one property that they're talking about. You're talking net
Speaker 1: least properties so that they're dealing with. So I think
Speaker 1: it's just going to improve relationships across the specter um.
Speaker 1: But then you're also going to see newer plays come out,
Speaker 1: like as we're seeing with the growth of cannabis as
Speaker 1: an example, there's several cannabis replays that are out there.
Speaker 1: Um are ready to see a whole slew of new
Speaker 1: red et s come to market. I don't know. I
Speaker 1: leave that to my my friendly Bloomberg read e t
Speaker 1: F analysts, My Bloomberg ETF analysts answer that question. But
Speaker 1: I think that the reefs, you know, there's an expression
Speaker 1: and trading volatility equals opportunity. And I think that really
Speaker 1: holds true for the read guys right now that they're
Speaker 1: you know, look at Simon Property Group is a prime example.
Speaker 1: Simon Property Group has been extremely active during COVID. They
Speaker 1: acquired authentic brands, Lucky Jeans, Brooke Brothers, Oh, and they
Speaker 1: bought another mall, Rate and Tommins Centers and so where
Speaker 1: people said, oh, the mall is dead, the mall is dead.
Speaker 1: David Simon and the team are like, no, it's not.
Speaker 1: Look what we're doing here. Let me come in here
Speaker 1: with this idea and bring it back to the beginning.
Speaker 1: We talked about everybody likes investing in real estate. I
Speaker 1: think you know, they got their house, they like to
Speaker 1: see it go up minus like the late two thousand's
Speaker 1: which I bought a condo in two thousand six. Remember
Speaker 1: the mortgage agent was like, oh, yeah, this will double,
Speaker 1: like it was that normal that your property would double
Speaker 1: in every year. Um, and it's I sold it for
Speaker 1: the same price like fifteen years later because I bought
Speaker 1: it right anyway, that win, didn't you. Yeah, I mean
Speaker 1: my wife just wanted to get rid of it. I
Speaker 1: was like, it's it might still go up, and we
Speaker 1: just we cut the dead weight. But anyway, my story aside,
Speaker 1: I do like real estate, like owning something physical. This
Speaker 1: just trying to explain to me, you know, and institutions
Speaker 1: are known for implying the Yale model, which is about
Speaker 1: buying less liquid assets, which could be actual real estate
Speaker 1: where they go in on a land deal or farmland
Speaker 1: or something. These are equities. How much of that thing
Speaker 1: where you own physical property is water water down as
Speaker 1: you go through the equity, the public equity system, and
Speaker 1: now I own it through a reat. Just can you
Speaker 1: explain that difference between owning it in a public equity
Speaker 1: versus like the real deal. Sure, I'm going to push
Speaker 1: back at you a little bit because to use the
Speaker 1: single family rentals as an example. You know, several of
Speaker 1: the big saw side firms, the JP Morgan's of the world,
Speaker 1: the Goldman Sachses of the World, Bank of America all
Speaker 1: last year announcing single family rental um partner ships that
Speaker 1: they're launching their own single family rental platforms to compete
Speaker 1: against the invitation homes in the American homes for rent,
Speaker 1: the public and trade of reads that are out there.
Speaker 1: So there are guys that are sinking direct money into
Speaker 1: real estate away from the reach structure. But when I
Speaker 1: buy a share of Boston properties, you're buying a share
Speaker 1: of high quality real estate across New York, San Francisco,
Speaker 1: across the country. Do I necessarily can I walk into
Speaker 1: the GM building and say, I'm a shareholder, let me
Speaker 1: up to this top four? No, But in the same breath,
Speaker 1: you know your own. There's only one New York City,
Speaker 1: there's only one, you know, GM building. They're not going
Speaker 1: to tear it down anytime soon. The last time I recall,
Speaker 1: that building is worth a couple billion with a B dollars.
Speaker 1: And so therefore I can say I have a tangible stake.
Speaker 1: Granted's one share of the GM building. Um so I
Speaker 1: think that they're you know, there's that name association. A
Speaker 1: great other examples the Empire State Building, Empire State Realty Trust.
Speaker 1: If I own Empire State Realty Trust, I own the
Speaker 1: Empire State Building. That's a historical landmark. There's only one
Speaker 1: Empire State Building. You're not going to tear it down
Speaker 1: and rebuild it. And they always say they're not growing
Speaker 1: more land. One other interesting play eric one other name
Speaker 1: to mention too is a company called Safehold and the
Speaker 1: ticker of that is s a FE. The only reason
Speaker 1: why I mentioned that is they are a ground lease
Speaker 1: rate that they're selling points a little bit about what
Speaker 1: you're talking about, that you're owning a ninety nine year
Speaker 1: ground lease of let's say the GM building as an example,
Speaker 1: they're just going to go in and buy the underlying
Speaker 1: land of the property and let the building owner focus
Speaker 1: on owning the building. So there's a couple of unique
Speaker 1: ways to actually play the actual property structure. Eric, if
Speaker 1: I could, I want to answer your question you were taught.
Speaker 1: I think at the core of your question was how
Speaker 1: much dilution is there from actually owning a property versus
Speaker 1: owning a reet and so where's the dilution in that?
Speaker 1: And the answer is reates are exactly what they sound like.
Speaker 1: It's a real estate investment trust. So it's an accumulation
Speaker 1: of properties. It's just like an e t F so
Speaker 1: E t F S is an accumulation of securities and
Speaker 1: then it trades sort of at its net asset value.
Speaker 1: The same thing holds true for real estate investment trust.
Speaker 1: It's just an accumulation of properties and then what those
Speaker 1: properties are valued at on the exchange and so you know,
Speaker 1: obviously they do have some debt that's associated with it
Speaker 1: on their balance sheets, but you're an actual shareholder in
Speaker 1: every single one of those properties that they own, So
Speaker 1: you're owning equity in those actual buildings that they own.
Speaker 1: So it is a portfolio of real estate that you own,
Speaker 1: and so there really isn't much dilution. UH. You just
Speaker 1: have hired these management teams to run, own and operate
Speaker 1: these buildings or properties that that that are in the reade.
Speaker 1: One thing that I find really interesting here is like
Speaker 1: because of what you've been able to do and others
Speaker 1: in this space, it's like you can be you know,
Speaker 1: we talked about thematic ETFs a lot, Like basically it
Speaker 1: sounds like there's like hyper focus focused UH strategies that
Speaker 1: you can basically get into as an investor. So so
Speaker 1: because the space has not only that, but then you
Speaker 1: know the V and Q s that have a little
Speaker 1: bit of everything in it. Like as like a as
Speaker 1: an investor who does might not know this space, Like
Speaker 1: what are the questions that you need to be asking
Speaker 1: when you when you get into this stuff. Yeah, so
Speaker 1: I think the most important thing to know is what
Speaker 1: is what are the drivers of the Z T F
Speaker 1: S right, and so we talked about s R v R.
Speaker 1: That's a play on you know, every device being connected
Speaker 1: to the internet. When I look at the other uh,
Speaker 1: the other one, which is I N D S, it's
Speaker 1: industrial real estate. Well, well, what is the driver of that?
Speaker 1: It's e commerce? Right. The Amazon CFO said himself he
Speaker 1: needs fifty percent more real estate than he has today
Speaker 1: just to meet current demand. So it owns all the
Speaker 1: distribution centers that get you your package in a day
Speaker 1: or less. So say David was to buy something from
Speaker 1: Lows and it gets delivered to him in two hours, right,
Speaker 1: it's coming from the distribution center. So so so e
Speaker 1: commerce is driving that. If you look at another one,
Speaker 1: homes we mentioned earlier, it's the consumer that's driving it
Speaker 1: because it's based off of you know, um, the consumer
Speaker 1: owning homes. So it's home builders and owns some some
Speaker 1: residential reads. And so you have to look at the
Speaker 1: drivers behind it. Right, So broad based real estate will
Speaker 1: be sort of a play on the economy. That's why
Speaker 1: when you saw in the first quarter of you know,
Speaker 1: broad based real estate I think was down some twenty
Speaker 1: one cent right, So it's sold often sentiment with the
Speaker 1: market because it was a reflection of the economy. So
Speaker 1: that's what you really need to look at. Where are
Speaker 1: the drivers of this going forward? So you know, I
Speaker 1: anice to pay, there's gonna be a hotel et F
Speaker 1: coming out within the next month. What it's going to
Speaker 1: be the drivers of that. It's gonna be the reopening.
Speaker 1: That's that's really what's gonna drive it, right, It's not
Speaker 1: gonna it's you know, initially it's going to be that,
Speaker 1: but then it's also going to be focused on businesses
Speaker 1: going back to conventions and consumers actually going out and
Speaker 1: do doing leisure vacations. So it's it's the fundamental underpinnings
Speaker 1: of that that you need to look at the drivers.
Speaker 1: And that's how you play these quote unquote themes within
Speaker 1: real estate. Um, real quick, you know, you just sort
Speaker 1: of hinted at a at a new filing and I
Speaker 1: think in generally you have a lot of liberty and
Speaker 1: being able to talk about the e t f s
Speaker 1: that your index is track. Um, you're kind of like
Speaker 1: Dave Portnoy of the Reeds, and you bring up a
Speaker 1: good point because Portnoy is the from the index company
Speaker 1: of the new buzzy TF and there was a lot
Speaker 1: of people questioning how he could be so dramatically bold
Speaker 1: with marketing the E T s because all either other
Speaker 1: E T fishers were like, I could never say that,
Speaker 1: compliance would hammer me. And he found this kind of
Speaker 1: not a loophole, but it's just the way it is.
Speaker 1: The index maker can say a lot more. And that's
Speaker 1: what you are. You just talked about that difference between
Speaker 1: the index maker and the e T f person. Yeah,
Speaker 1: I think it's a great point to bring up, because
Speaker 1: the important thing to note is you cannot directly invest
Speaker 1: in an index. And so that's that's the caveat that
Speaker 1: every index maker comes out there with and saying, hey,
Speaker 1: this is a this is a portfolio. You actually can
Speaker 1: invest in this. You would need to invest in a
Speaker 1: product that seeks to track the performance of this index.
Speaker 1: And so that's what he's really, uh, you know, hinging
Speaker 1: his hat on is is saying, hey, listen, I'm talking
Speaker 1: about this portfolio. You can invest in it. There is
Speaker 1: a product that does track it, but you know, it's
Speaker 1: up to those guys. And so the important thing to
Speaker 1: note is that there are hundreds of thousands of millions
Speaker 1: of billions of indexes out there. Bloomberg's got tons of them.
Speaker 1: They don't have products that track them. You can go
Speaker 1: out there, Eric and talk your heart's content and hype up,
Speaker 1: but no one can invest in him because the product
Speaker 1: doesn't track it. So I kind of laid the groundwork
Speaker 1: for Dave Portoy, which is great because now he's testing
Speaker 1: the thesis of of sort of what we can and
Speaker 1: cannot say, and so I'll let him be the trail
Speaker 1: blazer on that front. But you know, my my position
Speaker 1: is I'm trying to provide investment intelligence to people out there.
Speaker 1: I'm trying to get let them know about, you know,
Speaker 1: different ways to think about investing and and and how
Speaker 1: they can do it. A lot of times they talk
Speaker 1: about the constituents within the portfolios. So hey, I say, hey,
Speaker 1: here's here's the difference between American Tower and Crown Castle
Speaker 1: and Server. Here's the difference between pro Logists and Duke Realty.
Speaker 1: And so I can go out there and talk about
Speaker 1: individual constituents and how they how they how how they
Speaker 1: actually differentiate from each other, and why they serve a
Speaker 1: purpose within the overall index itself. So, you know, I
Speaker 1: think eventually the sec will come around and come up
Speaker 1: with rules due to the fact that I think people
Speaker 1: are going it's all. It always just takes a couple
Speaker 1: of people to ruin it for everybody else, uh, in
Speaker 1: certain things, so well, you know, to be honest, I
Speaker 1: think the e t F fishers aren't allowed to like
Speaker 1: they should be allowed to say more. I think somehow
Speaker 1: there's a happy medium there. I hope it doesn't get
Speaker 1: overly ruined. I do think though, you're going to see
Speaker 1: more job postings from index issues or index companies for
Speaker 1: communications people. Well, you know, the important thing is that
Speaker 1: index providers are kind it's kind of you kind of
Speaker 1: have these reverse roles in that E t f issuers
Speaker 1: tend to be the ones at the forefront, forward thinking
Speaker 1: and they've got they they they are the ones that
Speaker 1: that would be able to push and say great things
Speaker 1: and and do a lot of quote unquote hype as
Speaker 1: Portnoy does. But the index providers are kind of slow
Speaker 1: and steady. They're kind of archaic people, right, They're coming
Speaker 1: up with no they're like the lab. Yeah, they're coming
Speaker 1: up with classifics like the science lab. Yeah. Absolutely, that's
Speaker 1: what I'm saying. I could see them hiring even see
Speaker 1: the E t F fishure. We're saying, hey, let's take
Speaker 1: this person here, like our Kevin Kelly, and we'll just
Speaker 1: send them over to sele Active. Yeah yeah, and they'll
Speaker 1: just and they'll just be able to say everything we
Speaker 1: can't there you go. Yeah, I've had I've had other
Speaker 1: issuers come to me and say, hey, can we hire you?
Speaker 1: And you know, we'll do this index together. And but
Speaker 1: you can go around with our wholesalers and talk about
Speaker 1: it and do the whole thing. And so you talk
Speaker 1: about the index, our wholesaler talks about this and and
Speaker 1: and it'll be great. So you're actually kind of seeing
Speaker 1: seeing requests from issuers to have an index sales person
Speaker 1: with So I think that's that's where you're going. And
Speaker 1: you're absolutely right. But but the but the big you
Speaker 1: have to think about it. I am the drop in
Speaker 1: an ocean. Where are all the indexes at there at
Speaker 1: you know smp M, s c I and you know
Speaker 1: NASDAC and all the big ones. So they don't really
Speaker 1: specialize in that, so they may they may move towards that,
Speaker 1: or what I think you will see happen is the
Speaker 1: big E T F companies will actually move away from
Speaker 1: those guys and come up with their their own index
Speaker 1: provider or use different providers like myself. Hey David, as
Speaker 1: we start to wrap here, I want to bring it
Speaker 1: back to you and investors, um, since you know you're
Speaker 1: talking to institutional investors a lot, how are we supposed
Speaker 1: to think about how reats fit into the portfolio of
Speaker 1: the future. You know, there's a ton of talk about
Speaker 1: sixty forty and sort of the forty not being what
Speaker 1: it used to be. Like, talk to us about how
Speaker 1: institutional investors and maybe what retail investors can learn from
Speaker 1: them in terms of how we should think about how
Speaker 1: reats fit into portfolios going forward. Certainly, and and so
Speaker 1: obviously you know there's the rededicated community to dedicated institutional
Speaker 1: re investors, the Cone and Steers as of the world Brookfield.
Speaker 1: You know, they have obviously huge, huge stakes their portfolios
Speaker 1: tied up in real estate. From an average retail investor,
Speaker 1: let's say the typical advisors recommend anywhere from five to
Speaker 1: fifteen percent of your portfolio should be involved in reach
Speaker 1: real estate. And that's for that did and income and safety.
Speaker 1: It's the you know, call it the counter hedge and
Speaker 1: the tech and volatility. Traditionally, reads are a safe haven
Speaker 1: during times of volatility. So really it's anywhere from I
Speaker 1: would say five or fiftcent from an institutional perspective, again
Speaker 1: because of a hedge from the law of the other
Speaker 1: crazy volatility names. You know, it's definitely it definitely needs
Speaker 1: to have a presence that's there. But think about it. Obviously,
Speaker 1: you know, Reads faced a real tough time during COVID.
Speaker 1: A lot of the guys did cut their dividends. They
Speaker 1: have come back, a lot of the guys are trying
Speaker 1: to get back to higher dividend structure. Remember, they have
Speaker 1: to pay out their net income in the form of dividends.
Speaker 1: So think about it. Most of these management teams, if
Speaker 1: not all, these management teams have executives that own huge
Speaker 1: steaks directly in their companies because they're getting paid so
Speaker 1: much dividend income on the backside of it that they
Speaker 1: have what they call skin in the game, and so
Speaker 1: they want to make sure that as a company continues
Speaker 1: to perform, they continue to perform and play along with
Speaker 1: those returns as well. So I feel like it's just
Speaker 1: going to continue to grow and grow. Um, you know,
Speaker 1: it's it's again, a momentum player is it's not necessarily
Speaker 1: geared towards a momentum guy. It's where a long term
Speaker 1: holding type of growth play. Okay, come to that point
Speaker 1: in the program where I have to ask you both
Speaker 1: for your favorite ticker. And it can't be one that
Speaker 1: you have yourself. Can't be s r VR so Kevin favorite.
Speaker 1: I know you're in you're an index marketing mode, but
Speaker 1: let's just take that hat off and just be an
Speaker 1: E t F industry favorite TAT guy favorite et F
Speaker 1: ticker that is not your own, you know what, so
Speaker 1: and and this is outside of of reeds obviously, so,
Speaker 1: uh my favorite, I actually hate to say it. It's
Speaker 1: got to be Hack. I love that ticker. I just
Speaker 1: love It's just it's so raw, like if you think
Speaker 1: about it like hack, like it's got like a negative connotation,
Speaker 1: but it crushed it when it launched. So you've got
Speaker 1: to you've got to you've got a word that you
Speaker 1: know exactly what that means, right, and you tell anybody
Speaker 1: it's also it's a verb and it now and the
Speaker 1: E t F is trying to stop what the word is.
Speaker 1: The whole thing is, it's just it's very multidimensional. I agree,
Speaker 1: amazing ticker. It's my favorite one of Let me preface
Speaker 1: that for those that don't know. One of my favorite
Speaker 1: pastimes and I can't wait to get back out there
Speaker 1: is going to see the rock band Fish and so
Speaker 1: to med favor, I'm gonna go Toke is probably my
Speaker 1: favorite E T F ticker that's out there. That's also
Speaker 1: a good one. Also a verb. I'm telling you verbs
Speaker 1: are the way to go and and and out on
Speaker 1: that one. So we got a two for both. Yeah,
Speaker 1: to be selfish, I do want to say the fact
Speaker 1: that the R E I T ticker was available and yeah,
Speaker 1: that's weird. That's amazing to me. That is amazing because
Speaker 1: it's probably what the launched or et F launched. What
Speaker 1: were people thinking? Why were they? Was it too obvious?
Speaker 1: I've gotten more foam various folks asking me how did
Speaker 1: how did they get this ticker? How is that possible?
Speaker 1: And my answers, I don't know. But it's the steel
Speaker 1: of the century that they finally release the REET ticker.
Speaker 1: All right, Kevin David, thank you so so much for
Speaker 1: joining us on Trillions. Thanks, thank you, thanks for listening
Speaker 1: to Trillions. Until next time, You can find us on
Speaker 1: the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify, and
Speaker 1: wherever else you like to listen. We'd love to hear
Speaker 1: from you. We're on Twitter, I'm at Joel Webber Show,
Speaker 1: He's at Eric Faltunas, and you can find David at
Speaker 1: Daily Beat, and you can find Kevin at Kevin R.
Speaker 1: Kelly Underscore. This episode of Trillions was produced by Magnus Hendrickson.
Speaker 1: Francesca Levy is the head of Bloomberg Podcast. Bye