David Bodamer Discusses what wealth managers look for in CRE InvestmentsDavid Bodamer, Executive Director at National Real Estate Investor (NREI) joined us on the podcast to discuss research on what wealth managers look for in real estate.

David Bodamer is Executive Director of Content & User Engagement for NREI. He has been with NREI since September 2011 and has been covering the commercial real estate sector since 1999 for Retail Traffic, Commercial Property News and Shopping Centers Today. He also previously worked for Civil Engineering magazine. His writings on real estate have also appeared in REP.and the Wall Street Journal’s online real estate news site. He has won multiple awards from the National Association of Real Estate Editors and is a past finalist for a Jesse H. Neal Award.

David Bodamer’s Links

Check out NREI’s research reports on high net worth investment trends in commercial real estate:

Exclusive Research: Deep Pockets

What HNWIs Want from Commercial Real Estate

You can reach out to David Bodamer directly at david.bodamer@informa.com.

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Transcript

RealCrowd – All opinions expressed by Adam, Tyler, and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing, please consult your advisors.

Tyler Stewart – Hey listeners, Tyler here. Before we start today’s episode I wanted to quickly remind you to head to RealCrowdUniversity.com to enroll into our free six week course on the fundamentals behind commercial real estate investing. That’s RealCrowdUniversity.com. Thanks.

Adam Hooper – Hey Tyler.

Tyler Stewart – Hey Adam, how are you today?

Adam Hooper – I’m great. Yeah, it’s a good day.

Tyler Stewart – Another good day in Portland, Oregon.

Adam Hooper – Yep, I got my coffee. We had another great podcast episode this morning.

Tyler Stewart – We had David Bodamer who is the Executive Director of Content and User Engagement for both WealthManagement.com and NREI.com.

Adam Hooper – NREI is National Real Estate Investor. We’ve known David for a while. We’ve done some webinars and some other stuff with them, but they did a really interesting research project, because they’re at the intersection of these two audiences that we work with, one being real estate practitioners, investors, managers, service providers and the other is this WealthManagement.com audience which are investment advisors, brokered you as registered reps. And so they did some really unique research that we’ll talk about today in the episode. Listeners out there would be, I know I was certainly surprised how to kind of compare and contrast the perceptions of these two different audiences, where they overlap and largely where they differ.

Tyler Stewart – It was interesting to have two different sides, both experts in what they do look at the same product type and have a completely different view.

Adam Hooper – Completely different views.

Tyler Stewart – Completely different views.

Adam Hooper – We talked about kind of the overall size of the markets. What are some the driving factors for why they invest in these asset classes? What their views on different product type is? Just fascinating.

Tyler Stewart – It was. Yeah, and part of the research was showing what respondents said over the previous years. It was interesting to see those trends.

Adam Hooper – We talked and the projections to of our, where are allocations going, the increasing decreasing. What product types are going to be a hot topic. In the show notes you guys will find the links to both of these articles that were on NREI online.com, WealthManagement.com. Stay tuned to the end. Dave graciously gave out his email. And if you have any feedback or thoughts on this episode, ping him. Also, again, we’re happy to hear comments and reviews everything on iTunes or wherever you listen to us or just send us a note to podcast@realcrowd.com. Click on the show notes, would recommend having these articles up so you can kind of cross reference some of the charts that we talked about. Go ahead and get that going. With that Tyler, I think, let’s get to it.

RealCrowd – This podcast is brought to you by RealCrowd, the leader in online real estate investing. Visit RealCrowd.com to learn more about how we provide our members with direct access to commercial real estate investments. Don’t forget to subscribe to the podcast on iTunes, Google Music or SoundCloud. RealCrowd, invest smarter.

Adam Hooper – Well Dave thanks for joining us this morning. We’re excited to dig in on some of the research that you guys have found between high net worth individuals, wealth managers, how they mirror each other, where they differ, and should be a really good conversation, Dave. Thanks for joining us.

Dave Bodamer – Absolutely, thank you for inviting me.

Adam Hooper – Well, why don’t you take us a little bit of your background, and this is a different episode than what we’ve done before. Care tell us a little bit about how you got involved with NREI, with WealthManagement.com and kind of what you do there today in your day-to-day.

Dave Bodamer – Sure, so I’m the basically the Editorial Director for National Real Estate Investor which has been around for about 60 years covering commercial real estate. I myself have been covering commercial real estate for almost 20 years. Before I was here I was with Commercial Property, then it was Commercial Property Executive. Then it was Commercial Property News. Now it’s CPE and also I was with Shopping Centers Today before that. I’ve been around commercial real estate for a while. NREI is part of a bigger company called Informa which has all sorts of publications and data products and a bunch of other things. One of our sister publications is WealthManagement.com which primarily goes to financial advisors, registered representatives, wealth managers, that sort of audience. That gives us some opportunities, given that we have the commercial real estate audience. We also then have access to this wealth management office. That’s stuff where some of this research sort of came about.

Adam Hooper – Tell us a little bit about the audience of NREI. That would be, I would assume, more of our typical listener, right, either real estate manager or someone that’s looking to invest in the asset class themselves.

Dave Bodamer – Exactly. It’s people that who are day-to-day in this business, owners, investors, brokers, lenders, intermediaries, a little bit of and then some consultants, contractors. But the bulk of the audience is, are people that invest in this space on a day-to-day basis. Whereas Wealth Management is your advisors who are working with clients of all kinds who may have exposure to commercial real estate as part of a broader, as, part of a broader investment strategy but are not, that’s not their primary what they’re doing. So, but yeah that, that’s a much bigger audience. And so they cover investment into every kind of ETFs, mutual funds, everything.

Adam Hooper – Broad and wealth management. As we said in the intro, before we get into too much of this research here in discussion, it would probably be good listeners out there for you to go to those articles, so you can see some of these slides that we’re going to be referencing that Dave’s talking about, this research that they did in kind of combining this project. Why don’t you walk us through kind of 30,000 foot level, what you guys are looking for? I think you guys have done this over a number of years. Why don’t you just kind of set the groundwork of the study that you guys did?

Dave Bodamer – It started with, we’ve been doing it targeting to the NREI audience now for four straight years. Now we do have, it’s interesting to sort of see what has stayed the same and what has changed in that time. That’s asking the commercial real estate pros what their understanding of specifically high net worth investors and what they are trying to get out of commercial real estate, how they are investing in the business. Some of that came from just, I, from my conversations with people in the industry. It just, this is us growing pot of money that’s out there that, and they are advised to have some percentage of their portfolios in commercial real estate. So, there’s, but then the question is how do you reach them, because a lot of times these are not people that you can just get on the phone. It’s either you have to try to find your way to their wealth managers or get in front of them in some other ways. So that’s, parks, so part of it was trying to understand how much business companies in our space are already doing. What, you got how they understand the audience and that sort of thing. Then this past year we decided to, since we’ve been doing it for a few years and asking the commercial real estate , we decided well why don’t we also, since we have this other audience that which is dedicated, are dedicated wealth managers a similar set of questions around commercial real estate. That then yielded some, I found to be pretty interesting results in terms of again what, how they saw things as a,

Dave Bodamer – where the perceptions aligned and where they misaligned, and then trying to figure out why, what that might be. Now that we’ve sort of established this as a baseline, we’ll kind of keep doing these on a regular basis. Then both for our NREI and Wealth Management, we are kind of cross pollinating our content so that some of our stories appear, some stories appear on both of those sites as a way of… Since we sit as a potential intersection.

Adam Hooper – That’s again a really interesting point where you guys are at with both sides of the access to this audience, right. You can really make some interesting inferences there. Why don’t we take a look first at the NREI and the high net worth research side? We can then kind of look at the wealth manager side and then kind of compare and contrast, if that makes sense?

Dave Bodamer – Yep.

Adam Hooper – Starting with the survey that you did, again, four years running through NREI audience, more focused on how high net worth individuals themselves are interacting with this asset class. What have you seen in terms of just total volume or growth of interest from that audience in terms of when you first started the survey to today?

Dave Bodamer – I also pulled some data from Capgemini’s World Wealth Report, since that’s they take a good look at this. And in terms of the total universe, they estimated that now that high net worth investors which I believe they define as anyone with over a million dollar in liquid assets, that now accounts for $60 trillion of wealth as of their 2018 report. They are projecting that that will reach $100 trillion by 2025. Then, a subset of that are the ultra high net worths who have at least 30 million in liquid assets. That universe is also growing as well. I think they saw that… The total amount of wealth that that group had grew 11% from 2017 to 2018 alone.

Adam Hooper – Wow.

Dave Bodamer – We don’t know yet what the figure went from 2018 to 2019. But again, they’re projecting 70 trillion now to 100 trillion by 2025. That’s a fairly significant increase.

Adam Hooper – That’s a pretty big increase. And is that just kind of general market trends or is there anything specific that you attribute that growth to?

Dave Bodamer – They pointed to the both, the growth in both the returns that the assets of those investors and also the population of investors that qualify has also grown. Primarily, they track that in North America and Asia as being the fastest growing regions for high net worth.

Adam Hooper – Now drilling down into real estate, how does that fit into the typical portfolio makeup of a high net worth individual?

Dave Bodamer – They estimated, again, from Capgemini estimated that real estate is the third largest asset class for high net worth investors overall accounts for 17% of their total assets. That then further breaks down into, about half of that is in residential real estate. Another share, about 13% of that is in land. Then 15, and then they break, then they sort of break commercial real estate down in to sort of different, in, it’s a separate bucket. They have 15% in what they classify as commercial real estate. And they break off hotels as a separate thing that 6% of their assets are in hotels. And then they say 6% are in equities, including REITs. So, I think if… And again, for, I, what, I’m also not clear if they consider multi-family just part of their residential bucket or commercial. There might be some definitional, things that we would look at differently in the commercial real estate space that may be defining differently, since their wealth, a wealth manager.

Adam Hooper – Then when we look at your research it seemed like the majority of, at least again the NREI audience, was investing in private equity funds or multi-family. Those were pretty close at the top, right? And then it kind of fell off from there. Can you maybe walk us through the asset profile for the that you found in the NREI audience?

Dave Bodamer – What wee found is again asking the NREI audience what they think the high net worth are doing. We sort of, we asked both by property type, and then we also asked by the method, whether it was direct or equities or those kind of things. On the property type side we found not surprisingly that multi-family was the top rated. They feel like that multi-family is the top rated asset that high net worth prefer. That number has, that’s consistently been the top rated asset. The share has gone up a little bit. In survey was, I think it was, we also allowed people to select all asset classes that apply. So they didn’t have to just pick one or the other. They could pick whatever they thought that high net worth preferred. But overall at 76% of respondents in this year identified multi-family. Secondarily, industrial has now outgrown three to the number two, where they in this year’s survey it was 48% that grew from 36% 2016 and 40% 2017 to 48%. Medical office was actually third. And then office and that number has gone up. Actually sorry, that one’s gone down. That one used to be 36%. Now it’s about 30. And then the numbers for office and retail have also gone down in the recent years compared to when we first started asking the question. Then we, then there’s smaller numbers for things like self-storage and seniors housing. And all of this, seniors was interesting to me which it more than double. The number of people that have made seniors housing doubled from 2017 to 2018. I don’t know if that is just some. We have a baseline of

Dave Bodamer – about usually, we had 600 respondents this year. In past years we’ve had 400 and 500. It’s a good sample size, but I think there might be a little bit of noise in that number particularly, because the other ones are, you don’t see that much variation. I’m curious to see what happens with the seniors housing number when we ask again in 2019.

Adam Hooper – Yeah and that’s interesting. That that’s been a hot topic in the industry, right, as this boomer generation continues to age, senior housing is going to be much higher in demand. I wonder if there’s a bit of projection of the real estate practitioners hope that that’s where people are going to be investing? that upcoming demand.

Dave Bodamer – When we talk about the wealth numbers later, I think it is their property type right now is different. I am curious about in some of these answers whether this is because of what real estate experts know which of the property types are in better, if there’s some projection around like, okay, well these are where they should be investing versus where they are. I don’t know, but we can talk about that when we get to it. I think you also asked about the how they’re investing. And yes we did find that private equity real estate funds were the most popular answer for asking the NREI audience for how high net worth are investing. That was followed by direct investment in multi-finance and direct investment in that lease and then publicly traded REITs were next. And then smaller answers were things like private real estate debt funds, mutual funds, non-rated, non-traded REITs and club deals.

Adam Hooper – Okay. And I wonder again, how much of the bias of this audience. They typically are private equity fund managers themselves. Right, so that’s a little bit of self-serving there, but again, from our perspective you could classify what we see on our space as a private equity fund, right. We’ve seen a number of funds on our platform. That is something that the audience that is listening to the show and uses our platform do like to invest in as well. We touched a little bit on this demographic from the other side with the senior housing increase. How are you seeing the demographics across your investors or respondents to the survey? Are you seeing any difference with different audience segments or different ages, different demographics and how they’re anticipating investing in this class?

Dave Bodamer – That information I got more from the Capgemini, because that’s not a question that we per, we specifically ask. In the Caggemini report they found that investor high net worth over the age of 60 had higher allocations to residential, something out of like 64%. Whereas high net worth under the age of 40 were only 40% residential. Seems like some the older investors are gravitating towards whatever Capgemini’s definition of residential is versus the younger audience liked being more actively pursuant of actual commercial real estate assets.

Adam Hooper – And again, their definition of resi likely includes primary residence would be my guess on that.

Dave Bodamer – I believe so. You’re probably primary residence and then guess their secondary residences, since we’re talking about high net worth.

Adam Hooper – Second or third or fourth or fifth.

Dave Bodamer – And potentially, but I guess the other question that I don’t know the answer is whether if for a high net worth and owns an apartment building, do they just classify that as residential, which they might.

Adam Hooper – They might yeah.

Dave Bodamer – Yeah, I mean, but based on those percentages.

Adam Hooper – Okay, so now we’ve got this pool of wealth growing fairly substantially. We know that there’s a focus on real estate. That would probably suggest that some more of that is going to go into real estate. Do you, did you see within your survey any increase or decrease in their expected activity or expected allocation going forward into real estate?

Dave Bodamer – Overall about from their commercial real estate audience 44% of respondents said they expect high net worth to increase their allocations and then another 36% said they think it would be flat. Only about and then 1/5, so they thought it would fall. Which I thought it was interesting. I think that was slightly more bearish than we had in some of the previous years. We also, I think we asked our audience to, what they thought the average real estate allocations for high net worth are for that audience, and generally I think it fell into a range of about the most popular answers were between 6% and 50%. We have that further broken down which people could see in the chart. But that’s kind of the, their estimate of how much of their portfolio is dedicated to real estate. And then whether it’s increasing, decreasing. The sentiment was just slightly more bearish this year than it had been in the previous two.

Adam Hooper – Did you guys do any further research in terms of what some of those factors are that are helping people make those decisions or the reasoning behind that increase or decrease call?

Dave Bodamer – We had some open ended questions. And we did, some of that stuff we didn’t include in the write-up. There were concerns just about the overall where we are in the economic cycle, where we are in the real estate cycle as being, the rising interest rates and the potential relative returns of commercial real estate to other assets as being some reasons why high net worth may back off. That’s at least, that was at least the NREI percept, the NREI audience perception.

Adam Hooper – Did you have that from prior years? Was there change there? Was it a similar concern? Or was it a different set of concerns in the earlier surveys?

Dave Bodamer – A similar set of concerns where I think just slightly more vocal this year.

Adam Hooper – Which I think rising interest rates, a downturn, that’s been, that’s kind of like the perennial, that’s always there, right.

Dave Bodamer – We do a bunch of these kind of research reports. We do them on some property types, a lot of property types, specific ones and then we do ones on the met lease sector. And we do one on lending. And, we ask similar questions and just rising interest rates is always… We’ve been doing some of these survey for or five years. And that’s just alway. It’s always a concern. Well before it started, now it’s actually happened. It’s well, I mean, it’s guess it’s interesting now that it’s been happening, it’s less of a concern. Aware it was like 90% of people were worried about it. Now it’s like, “Oh, okay now it’s happening. So I’m less worried that it’s going to keep happening.”

Adam Hooper – And what about the tax environment? I know that’s something we’ve talked about quite a bit on the show, whether it’s just the overall impact on the economy or it’s opportunity zone specifically or some of the more real estate specific changes that we’ve seen. Did you guys cover anything about the tax environment or opportunity zones or anything like that in your surveys?

Dave Bodamer – We, again, we asked sort of a open ended… Where, what kind of things people are asking about. Opportunity zones was a massive answer. People are asking. There’s tons and tons of interest in how people can invest in that. Tied to that we also asked what do high net worth and what’s the, what factors are important to high nerth investors why, in terms of why they’re investing in commercial real estate. Our audience actually put wealth preservation as like the most important, followed by income production, asset to value growth, and then tax purposes was the fourth answer. Then estate planning was fifth for what are the most relative important fact. But they all got kind of on a scale of one to five, they all got 3 1/2 or higher. They all were important. But wealth preservation was interestingly the highest scoring one for the when you’re asking the NREI people what they thought high net worth want.

Adam Hooper – That was one of the most interesting kind of points of contrast between the two audiences that we’ll talk about once we get to the WealthManagement.com audience. Again, so for clarification the NREI audience is real estate practitioners view on how they feel high net worth individuals are investing this asset class. The Wealth Management audience are the actual advisors themselves responding on how they view this asset class, right. And so, the contrast between these two I think is going to be really interesting to explore. Let’s maybe start getting into the WealthManagement.com side of the research. What is, maybe you can kind of characterize the overall activity in the commercial real estate space from that audience, and then we can talk about some reasons maybe why behind that that would compare or contrast with what you found in the NREI audience?

Dave Bodamer – The base was similar. We had more than 500 respondents in that audience. We asked them what percent of their clients are invested in commercial real estate. About a full quarter of them, and we broke down the percentages a little bit different than the two surveys. There was one we know was slightly inconsistent. But, over a quarter of the wealth managers said that 40% or more of their clients are invested in commercial real estate. And then there were very, but then on the flip side about 23% said zero to 4% of their clients are invested in commercial real estate. Then the balance was sort of in the middle. That was somewhat interesting, because I thought though that bottom number was a bit high. But I didn’t realize there would be that many, but…

Adam Hooper – That was a very much a barbell there right. In your report you’re about 1/2 of the people said 14% or less of their clients were investing in commercial real estate. You’ve got a very clear distinction of people that are either in it or not, right. There’s not much middle ground there. That was an interesting contrast with the practitioner side that feel that the average allocation is somewhere up to half of someone’s portfolio. That’s a pretty interesting distinction there.

Dave Bodamer – I was struck by that same thing.

Adam Hooper – And do you think that is that just an access issue? Is that an availability issue? Is it a comfort issue? Is it just not understanding and maybe again, we’ll kind of get into that on the wealth management side? But any insights into why that might be there with wealth managers that they’re either clients or heavily, heavily into it or not at all?

Dave Bodamer – It could just be the nature of their clients, since they may be dealing with a family office who just has nothing to do with it or there are some family offices that are just all in. There’s the all the family office real estate associations. I think in some ways it did make sense, because I know that there are, like, when you look at wealthy investors that there can be a pretty wide disparity on it. But I think it might have to do with again, since we asked the whole wealth management universe they just it, they might just have some clients who are just not even thinking about real estate, which mean with some sense. I think this is going to be interesting to kind of track over the years to see how consistent when we ask again next year what kind of changes there might be.

Adam Hooper – That’s interesting. Then so kind of similar question of trends in terms of will that investment in the real estate go up or down. What did you find in the Wealth Management audience in terms of their, the allocations going up or down or flat?

Dave Bodamer – That was also an interesting difference. A similar number said increase. It was about 40% and NREI, which was similar to the NREI perception of around 44%. But then only about 7% of the Wealth Management audience said that they thought allocations were going down. Whereas it was almost 20% of the NRI, NREI audience. And instead for the Wealth Management writers, the majority, 54%, said that the allocations were going to be stable. So, found it interesting that as we’ve asked that question, the NREI audience there’s this perception that their allocations are, they’re slowing down or immediate would be decreasing. There was very little sense in the, from the advisors that attention to commercial real estate would actually decrease going forward. Almost over 93% saying it’s going to go up or going to stay the same.

Adam Hooper – Interesting. For the real estate practitioners out there that’s a good sign, right. That means that it was from this Wealth Management Audience that controls a lot of capital, the general sentiment is that those allocations are going to increase. I think that that should be a good sign for the real estate practitioners out there.

Dave Bodamer – Exactly, especially when you go back to that first thing we talked about, which is that it’s a $70 trillion global pull of liquidity that’s supposed to grow to 100 million, so 100 trillion. Even if their allocations stay the same or flat, you’re talking about a huge growth in potential capital, so. Even if they don’t individually get more aggressive, there’s just going to be more money.

Adam Hooper – What about within the wealth manager audience in terms of their either asset class or vehicle for those investments? Was that similar to the NREI audience or was that unique?

Dave Bodamer – This was also a change. The wealth manager audience identified publicly traded REITs as the top vehicle. Whereas, and it was almost, you could select more than one option, but overall 46% said publicly traded REITs. Whereas you ask the NREI audience and that number was more like 26%. Fairly massive difference. Similarly private real estate equity funds which were the vehicle that most NREI, the most of the NREI audience thought this money was going into was only named by 26% of the wealth manager audience. The numbers for direct investment and multi-tenant and net lease were more consistent between the two. Non-traded REITs were our more popular answer from the advisors than from the NREI space. And then the other ones were kind of like some more work that at that point we’re in the 20, 20% range.

Adam Hooper – Consistent with what, we have a number of advisors and wealth managers that use our platform and we’re in constant contact with. And I think that’s consistent in the sense that for them as a fiduciary it’s hard to have the time or the ability to really diligence and make smart investment decisions on behalf of their clients. For this asset class it can be quite complex. And so I think it’s probably why we see a lot of publicly traded REITs. If their clients were doing direct investments on their own, that might be in there where they have more either access that information in the REIT space, liquidity, and all that I think is obviously a much more utilized tooL from the Wealth Management side.

Dave Bodamer – In terms of a content perspective it also dovetails with what we do, because we cover REITs, but we cover a lot more of just general investment and talk to everybody. Whereas the Wealth Management brand focuses a lot on what’s happening with REITs in terms of their real estate coverage. It mirrors our how we understand our audiences as well.

Adam Hooper – What about property type? Did you see any similarities or differences between property types?

Dave Bodamer – Yes, in the property types… There was a difference there too. Multi-family was number one for wealth management. That was consistent. But then industrial retrent second when we asked NREI readers was fifth for wealth management behind retail, mixed use, and office. That jumped out at me.

Adam Hooper – Yeah. That’s a big change.

Dave Bodamer – Yeah, and especially consider and my and then I don’t have, this is not something we then, we didn’t ask why did you name these property types. So this is going to be speculation on my part. But my think, my guess as to why that might be the case, again, is because asking the NREI audience. These are people who are very, who live and breathe in the space, and so they know that industrial real estate because of just the macro-trends and the trends within the industry and just in time delivery and everything else that’s happening. Industrial real estate has been on this incredible boom to the point where it’s almost on par with multi-family for, as the best performing asset. Whereas retail’s been taking a beating. Whereas for Wealth Management, in some ways I could see their investment in commercial real estate is also a prestige play. You want to be able to point to a building that you own or have. That’s got some appeal to it. Main vanilla box may not be, even though that’s might be the generating the best returns and has got a lot of things in favor, that’s not the…

Adam Hooper – It’s not the sexiest access, asset class. That’s definitely you have that pride of ownership factor right. Well maybe not the best investment decision schemw, certainly plays into it, right. And I think that’s some of the deals that we’ve done. We’ve asked people what they like about. And they say, “I can, I walk past this building everyday on my way to work. And I can tell people that I own that building,” right. That’s, that pride of ownership is a very real thing in the real estate world. But we can call that, we call it anec data, anecdotal data. That’s our anec data on the decision making process.

Tyler Stewart – David I’m curious if you’ve communicated these results from the NREI to the Wealth Management audience or vice versa and what their thoughts were when they see there’s a difference between product types. Does that change the conversation for wealth managers or vice versa for the NREI audience?

Dave Bodamer – We did cross publish the research fairly recently. Haven’t had a ton of feedback yet, but that we did take both reports and publish them to both sites and push them out to both audiences. And I think going forward again it is something that we want to continue to explore just because the expertise that we have in our team and the ability to kind of bridge the gap. That’s the only thing that makes the next year and maybe in the next round of surveys adding some additional questions to kind of now, given some of the differences we see, try to understand what is driving that.

Adam Hooper – One of the most interesting aspects of this which we touched on when we were kind of wrapping up the NREI audience side is why, how important these factors are to invest between what the NREI audience is assuming the decision making process is for high net worth individuals versus what wealth managers are see, siding as their motivations for recommending real estate. Let’s talk a little bit about why wealth managers are recommending real estate and then how that contrasts with the NREI audience.

Dave Bodamer – Yes. There we added an additional factor which now I think we will go back and add to the NREI one which was diversification as being a reason. And that actual, and that was number one. That wasn’t even when we asked the NREI. That’s kind of an oversight given that the wealth managers identify that as the most important reason why they tell people to invest in real estate.

Adam Hooper – And the most important meaning almost 90% it looks like, right.

Dave Bodamer – And then after that was the steady income stream which was also second for on the NREI side. Then tax advantages finished third. And one asset appreciate. Well they were about the same. I mean, they’re slightly, they’re different order for the, on the two, but they’re fairly similar percentages or similar level of importance. But then wealth preservation which was the perception of the NREI audience is like this is the most important reason, was the fifth most important when you ask the wealth advisors.

Adam Hooper – Which I thought was really, really interesting. Yeah, I mean that’s and I wonder if that’s a, again, just kind of speculation here, but from a wealth manager perspective if their primary vehicle for getting into this asset class is the public REIT space, there’s a lot of volatility there right. There’s, you’re still, you’re playing the equity market, right, REITs as a proxy for the underlying real estate themselves. I wonder if that could be also a shift in that. Real estate practitioners in the game so to speak, understand that this is very much a wealth preservation asset class, right. It’s much more stable longterm, much more durable versus the benefits that you might see from that liquidity you gain from a REIT. I wonder if that might have a, an impact on how wealth managers are viewing this wealth preservation piece, a real estate as something that’s less important, because their proxy is by the way of a REIT share.

Dave Bodamer – Yeah, I think that makes a lot of sense.

Adam Hooper – That’s one of the more interesting factors, and I’d be curious again. When you do the survey again when you add diversification in for the NREI audience if that will bubble up as much as it did in the wealth management side.

Dave Bodamer – Yeah,I think we’ll do that. Particularly these questions where we did see the differences, I think I want to add open ended why did you say, why do you say that and just see, be able to sort of draw that, ’cause we get a pretty good response on that, on those kind of questions. That’s just sort of for our macro-understanding of the research.

Adam Hooper – And then you asked another interesting question towards the end which was in what ways has offering advice on commercial real estate helped their business.

Dave Bodamer – Yes.

Adam Hooper – And it seem, I mean, that was a pretty, seems like a pretty impactful asset class to be able to offer from a number of different reasons, right?

Dave Bodamer – Yeah, so there’s the sort of the logic of that question which was I think as a wealth management advisor, if you are able to advise your client intelligently on commercial real estate how important is that. That, and does that help you? And in what ways does that help you? I thought the responses were very interesting. Because it does seem like from their perspective they did see it as a real value proposition to be able to point their clients in the right direction. Or the first half of that was like in what ways you help your business. You could sort of just see the client satisfaction, retaining clients, et cetera were all kind of named as ways that it helped. The second which was how do you feel about providing advice, and 7% were like I try to avoid it if possible, which I thought was interesting. And 48% said it’s something I think offers value to my clients, my business. So I’d like to get more involved. And then 44 is like do it when, basically sounded like they reluctantly do it.

Adam Hooper – Right, if they’re asked, they’ll opine. But they’re not proactively doing it.

Dave Bodamer – All that adds up to, there seems to be some opportunity there in looking up these answers. And there’s opportunity in further educating wealth advisors how to most intelligently guide their clients to invest in commercial real estate. It just seems like, it seems like a real value that value proposition. Yeah, no I think we agree. And again that’s consistent with a lot of folks that we’re in communication with and use our platform and an area that we’re definitely focusing on here 2019 is how to help both individuals make better decisions and also how to help advisors out there better understand this asset class, have tools to make sense of this direct real estate world and how to again get these benefits, right, client satisfaction, retaining existing, obtaining new clients, growing AUM.

Adam Hooper – Those are all pretty key factors that a wealth manager is trying to achieve. It seems like this is a pretty good avenue for that. It seems like these are wildly different survey responses. The only consistencies that we touched on were really in multi-family being the number one product type, right. There’s a lot of these audiences are, the people that are looking for capital and the people that have the capital seem to be pretty far off in terms of their understanding of one another. Does that seem fair?

Dave Bodamer – That was my takeaway of the others. Definitely some suffer the, certainly some gaps that could be bridged. And, then so I think the question is what are the best ways to do that. How do you guys feel about that? Are there, I’m also being curious, are there events out there? Are there, I mean, how are… Are there existing avenues for or these audiences are intersecting or there, is that something that we need to see more of in the world?

Adam Hooper – That’s a really good question? And you kind of turned the tables there on us. We’ll jump in the hot seat. I think it is something we’re very focused on. Our whole existence is around creating more access for the investors and the managers to kind of interact together. The real estate managers that we work with understand that the high net worth individual sector kind of quote, unquote retail investors is a huge, huge area, huge market to go after to try to attract capital. You look at the demographic shifts that we’ve talked about before on the show and in other venues. This transfer of wealth from baby boomers down to the younger millennials, 20 to $30 trillion over the next couple decades. They have different investment styles, right. They might not be as reliant on the wealth managers, so. How does a real estate manager get to a high net worth individual as a potential investor? Then you look at your survey results from the wealth management side, from the advisor side. They know this is an asset class that can win them new business. It can grow their AUM. It can keep their clients satisfied. But the barrier to investing in that and recommending these deals as a fiduciary is really high barrier, right. We have a number of advisors that invest their own capital on their platform, but for one reason or another, whether it’s the structure of how they’re set up with new broker dealer or whatever. It’s just very difficult for them to have access to direct investments. A lot of the investment activity that investment

Adam Hooper – advisors see in the direct real estate space is when a client sees a deal and says hey advisor what do you think about this deal, right. It’s not investment advisors sourcing new product for them to invest in or recommending new investment opportunities. It’s really if their client brings them an investment that that client finds, going to maybe think how does that fit into my portfolio and can you help me understand the market or understand some diligence on this. There’s absolutely a bridge that we’re trying to bridge here between those two audiences, which gets down to fundamentally you, most people have an understanding that real estate is a good thing. They just don’t know how to do it, right. They don’t know how to get into it. They don’t know how to look at things and again on a risk adjusted basis, which is something we’ve been talking about a lot. And so that’s a lot of what we’re trying to position ourselves and kind of play that bridge of how do we help people make those decisions. How do we give them access to that kind of a product so that they can invest responsibly into these deals and start to kind of bridge these two sides, which again are very different opinions of one another when it comes down to the reality of what they’re each looking for. I think that’s a long winded answer of saying yes, there’s a huge opportunity there, and we are absolutely focused on it. How’d I do?

Dave Bodamer – Perfect. I’ll probably make you, I mean talk about turning the tables. I’m more used to asking the questions than answering them.

Adam Hooper – Well maybe we’ll do a sister episode and you can put me in the hot seat for the full time. This is just, this is fascinating studies and it’ll be interesting to watch over time, so. So to the listeners again, have, we have links in the show notes and strongly recommend you take some time to read through both of these articles. But Dave maybe for the listeners there can you kind of, let’s wrap it up and put a little bow on it of what is the takeaway from this as a listener. And maybe look at it from the listener of a potential investor in this asset class or some of the wealth managers that are listening to the show. How can they interpret some of this data and incorporate that into their daily life?

Dave Bodamer – From the wealth manager perspective, the most interesting stuff again comes back to where we saw some of those differences, which is maybe getting more information about the fundamentals of different sectors. You can point your clients to what is going to make the most sense financially, not necessarily just what might be the coolest building to own. If there’s industrial’s just a good place to be. Understanding that. Then and similarly being, trying to be educated on the different other ways that money can be invested in the sector that’s not just buying equities. I think that those are two opportunities for wealth managers, because I think there’s just, it’s a very dynamic industry, commercial real estate. You don’t just have to only buy REIT shares to participate in it. From the NREI audience, they think it’s the speak to perhaps the difference between yourself who is somebody that lives and breathes and is going to be in real estate versus someone who is a more discretionary player in the space. How your goals and investment horizons may be different. That not just to project what you would do versus what their goals might be.

Adam Hooper – That’s a lot of the, again from our perspective the storytelling right. As a real estate manager how you communicate your perspective of why should industrial be your number two asset class right now. Why should senior housing be something that you’re looking more at, right? How do you tell that story and tell that narrative in a truthful, but convincing way as to why those fundamentals are there or what your beliefs are as to why this is the area that you should be focusing on? And I think that’s again an opportunity for whatever shape that bridge takes between these two audiences is to help kind of create more of a common understanding of where the market is, where the markets going, because obviously your NREI audience they’re, they are the pros, right. They’re the ones that are seeing where this industry’s going, and they’re the ones that can help kind of guide and inform how these wealth managers interpret that information and can maybe kind of guide some of their advice or some of their investment decisions for those clients and the end users.

Dave Bodamer – Absolutely.

Adam Hooper – Well I think that’s a good spot to wrap it up. Dave how can are listeners learn more about what you’re up to either on NREI or WealthManagement.com and get access to some more of this research?

Dave Bodamer – The website, WealthManagement.com, NREIOnline.com. We are very old-fashioned URL. You don’t have to worry about finding it. We both produce a lot of, for NREI we have a daily newsletter. Wealth Management has a bunch of newsletters abroad, broad daily ones as well as some that are more cater to specific asset classes. Those are could be of interest. I would be particularly curious for people who do have a chance to read the research if they want to, if they have feedback for us to just reach out to me directly and shoot me an email to let me know or I’m on Twitter as well. So you can and reach me that way.

Adam Hooper – Perfect, and what is your email and we’ll put it in the show notes too?

Dave Bodamer – It’s David.Bodamer at informa dot com.

Adam Hooper – Perfect, yeah, and we’ll put that down in the show notes, so. Again, everybody wants to give Dave some feedback, send him a note, and also again we always appreciate feedback here at the podcast. And that email is just podcast@RealCrowd.com. Well Dave, any new research projects or anything in the next few months upcoming, six to 10 months upcoming that we should be keeping an eye out for?

Dave Bodamer – This year we’ll have about a dozen, at least a dozen early research reports where we do. Like I said we do one on each property type, just the sort of, the fundament, kind of like basic sentiment surveys, what people think are is happening with rents and vacancy rates and et cetera in their spa, in each of the property have spaces. Then we will be doing the next, the high net worth is something we do at the end of the year. So we have a whole section of the site that’s called the NREI research series. So that’s so you could just go there. See all the reports we’ve done. And then we do about one or, we’ll do one or two every month for the, for this year.

Adam Hooper – Perfect, well we’d love to have you back on and do a deeper dive on some of those industry sentiments. I think that’s super interesting information and our listeners would love to hear more about that when you guys launch those.

Dave Bodamer – Well thank you. Thank you so much for the opportunity to talk about the research. It was great.

Adam Hooper – We really appreciate you having on the show. And again listeners out there as always, any comments or feedback or questions send us a note to podcast@realcrowd.com. And with that, we’ll catch you on the next one.

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