Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. We've talked about all kinds of investing here at Fear and Greed from equities to bonds, even fine art, but few topics are more furiously debated at barbecues and water coolers than real estate. I wanted to take a closer look at real estate investing from a global perspective. Chris Bedingfield is principal and portfolio manager of Quay Global Investors, which is part of the broader Bennelong Funds Management group. Chris, welcome to Fear and Greed.

Welcome to the Fear and Greed Daily Interview. I'm Sean Aylmer. We've talked about all kinds of investing here at Fear and Greed from equities to bonds, even fine art, but few topics are more furiously debated at barbecues and water coolers than real estate. I wanted to take a closer look at real estate investing from a global perspective. Chris Bedingfield is principal and portfolio manager of Quay Global Investors, which is part of the broader Bennelong Funds Management group. Chris, welcome to Fear and Greed.

Thank you very much, Sean. Great to be here.

Thank you very much, Sean. Great to be here.

Why are you in real estate? Tell me.

Why are you in real estate? Tell me.

Well, I sort of fell into it after uni. During the last recession, 1991, really wanted to get into finance, stockbroking, and that was a job available for me at ANZ McCaughan, an old stockbroker. And it was about the time that commercial property was sort of collapsing around Australia, in fact, globally as well. And almost took down a few of our banks. And suffice to say, it wasn't a particularly popular sector for people to cover. So I kind of fell into it because no one else wanted to do it. The more interesting sectors like paper and packaging and tobacco. So I started in real estate back in 1991 and fell in love with it.

Well, I sort of fell into it after uni. During the last recession, 1991, really wanted to get into finance, stockbroking, and that was a job available for me at ANZ McCaughan, an old stockbroker. And it was about the time that commercial property was sort of collapsing around Australia, in fact, globally as well. And almost took down a few of our banks. And suffice to say, it wasn't a particularly popular sector for people to cover. So I kind of fell into it because no one else wanted to do it. The more interesting sectors like paper and packaging and tobacco. So I started in real estate back in 1991 and fell in love with it.

It's only 30 years Chris. It's only 30 years.

It's only 30 years Chris. It's only 30 years.

I fell in love with it. It's got its nuances. It's got its jargon. And personally, I've done quite well out of it. So I've just stuck with it ever since.

I fell in love with it. It's got its nuances. It's got its jargon. And personally, I've done quite well out of it. So I've just stuck with it ever since.

And now you're global real estate, I suppose it's a bigger world global real estate. It's stating the obvious, but it must be pretty fascinating because you're actually thinking about all sorts of geographies, economies, lifestyles, culture, all sorts of things.

And now you're global real estate, I suppose it's a bigger world global real estate. It's stating the obvious, but it must be pretty fascinating because you're actually thinking about all sorts of geographies, economies, lifestyles, culture, all sorts of things.

Yeah, it's a great job. I love my job. Looking at the world of global real estate is a lot of fun. And you're right, there's lots to look at. You could really get yourself caught in the weeds, as it were. We try to just keep it really simple and focus on what we see as big long- term themes and really just try and focus on those, rather than get too caught up in all of the day- to- day noise and the distractions, which can sort of send you in the wrong path sometimes.

Yeah, it's a great job. I love my job. Looking at the world of global real estate is a lot of fun. And you're right, there's lots to look at. You could really get yourself caught in the weeds, as it were. We try to just keep it really simple and focus on what we see as big long- term themes and really just try and focus on those, rather than get too caught up in all of the day- to- day noise and the distractions, which can sort of send you in the wrong path sometimes.

So I want to get to those things, but firstly, the last 18 months. Everywhere I read, be it European papers, US papers for sure, certainly in Australia, there seems to be a real estate boom in industrial and residential. Obviously retail is struggling a bit and office is mixed. Why is it that real estate is so hot at the moment?

So I want to get to those things, but firstly, the last 18 months. Everywhere I read, be it European papers, US papers for sure, certainly in Australia, there seems to be a real estate boom in industrial and residential. Obviously retail is struggling a bit and office is mixed. Why is it that real estate is so hot at the moment?

You would have heard a lot of discussion lately about inflation, and real estate is a microcosm of what's happening in terms of inflation more generally. So what's really happened is there's a lack of supply in areas in real estate that is pretty short duration to build. So anything that's being supplied, new supply this year, had to be built last year or it had to be under construction last year, if it were. And so when you had all of the shutdowns associated with the pandemic last year and then the supply chain bottlenecks that occurred during the re- opening, you've got this almost perfect storm where demand has come back quickly, but supply is not there yet. And so we're getting this squeeze, as it were. And it's classically in those sectors that you're talking about. So things like industrial and housing, which can take six to nine months to build. It's also happening in self storage. Rents are up 20%, 30% in self storage as well. So it's those sectors that are what we say is a short duration between shovel and key. So a very short duration to build, supply hasn't been able to respond as quickly as demand has come back. I don't envisage these big booms that are occurring right now to last. So it really is just that perfect storm of what happened last year and the surge of demand this year.

You would have heard a lot of discussion lately about inflation, and real estate is a microcosm of what's happening in terms of inflation more generally. So what's really happened is there's a lack of supply in areas in real estate that is pretty short duration to build. So anything that's being supplied, new supply this year, had to be built last year or it had to be under construction last year, if it were. And so when you had all of the shutdowns associated with the pandemic last year and then the supply chain bottlenecks that occurred during the re- opening, you've got this almost perfect storm where demand has come back quickly, but supply is not there yet. And so we're getting this squeeze, as it were. And it's classically in those sectors that you're talking about. So things like industrial and housing, which can take six to nine months to build. It's also happening in self storage. Rents are up 20%, 30% in self storage as well. So it's those sectors that are what we say is a short duration between shovel and key. So a very short duration to build, supply hasn't been able to respond as quickly as demand has come back. I don't envisage these big booms that are occurring right now to last. So it really is just that perfect storm of what happened last year and the surge of demand this year.

Okay. So, Quay Global Real Estate Fund invests in a portfolio of securities listed on stock exchanges around the world. Whereabouts have you got your money? What do you like at the moment?

Okay. So, Quay Global Real Estate Fund invests in a portfolio of securities listed on stock exchanges around the world. Whereabouts have you got your money? What do you like at the moment?

Well, you just brought it up a moment ago. We like retail. We're well diversified. We do have some industrial, we have some housing and residential. We've done really well out of that. We've been reducing that a little bit. So looking forward, we do like retail. We think that's a very interesting market right now. Shopping centers have been on the nose for five, six years now. And there's been a bit of a misconception as to what is causing that. The easy answer is the Internet's here, it's all e- commerce, it's all Amazon. And that's part of the story, but hasn't been the whole story. Part of the story is also been very weak wage growth, elevated levels of unemployment. Just a weak household balance sheet essentially for the last 10 years, really since the global financial crisis. And what's happened during this pandemic has been really interesting. We've seen huge amount of government spending in response to the pandemic and the shutdown, and that has lined the pockets of businesses. But it's also lined the pockets of households. Household balance sheets have been recapitalised in such a great extent, not since we've seen since the Second World War really. And our thesis is those consumers are busting to just get out and spend. I think they're going to get out and spend they're going to travel. As soon we get a chance, we're going to travel. And the whole sitting in a home and ordering things online, I think people might be getting sick of that. After the 18 months, they might actually want to go shopping. And we're seeing that in the tea leaves already. We're seeing that in the United States where it is opening up. Retail sales are coming back very strongly. Even in Australia where states haven't been shut down like WA and Queensland, we're seeing really strong retail numbers. So we like retail. The other area I like is healthcare, particularly senior housing. Aging population. It's such an easy story to understand, it just requires patience and picking the right company. So they're the two sectors we like right now.

Well, you just brought it up a moment ago. We like retail. We're well diversified. We do have some industrial, we have some housing and residential. We've done really well out of that. We've been reducing that a little bit. So looking forward, we do like retail. We think that's a very interesting market right now. Shopping centers have been on the nose for five, six years now. And there's been a bit of a misconception as to what is causing that. The easy answer is the Internet's here, it's all e- commerce, it's all Amazon. And that's part of the story, but hasn't been the whole story. Part of the story is also been very weak wage growth, elevated levels of unemployment. Just a weak household balance sheet essentially for the last 10 years, really since the global financial crisis. And what's happened during this pandemic has been really interesting. We've seen huge amount of government spending in response to the pandemic and the shutdown, and that has lined the pockets of businesses. But it's also lined the pockets of households. Household balance sheets have been recapitalised in such a great extent, not since we've seen since the Second World War really. And our thesis is those consumers are busting to just get out and spend. I think they're going to get out and spend they're going to travel. As soon we get a chance, we're going to travel. And the whole sitting in a home and ordering things online, I think people might be getting sick of that. After the 18 months, they might actually want to go shopping. And we're seeing that in the tea leaves already. We're seeing that in the United States where it is opening up. Retail sales are coming back very strongly. Even in Australia where states haven't been shut down like WA and Queensland, we're seeing really strong retail numbers. So we like retail. The other area I like is healthcare, particularly senior housing. Aging population. It's such an easy story to understand, it just requires patience and picking the right company. So they're the two sectors we like right now.

I always find an interesting, I have lived in the states at different times over the last 30 years or so, and malls are kind of destination centres. They have the big box retailers. So you might go to Costco and do your groceries and come back. But it's an actual leisure activity. Where I live, I might go to the beach or I might go and watch my kids sport or something like that. That's sort of my leisure activities. Thought it was interesting, in a lot of cities in the US, malls were leisure activities. So once things do reopen, and I think there's a bit of that in Australia too, they're destinations because we're all sick of lockdown.

I always find an interesting, I have lived in the states at different times over the last 30 years or so, and malls are kind of destination centres. They have the big box retailers. So you might go to Costco and do your groceries and come back. But it's an actual leisure activity. Where I live, I might go to the beach or I might go and watch my kids sport or something like that. That's sort of my leisure activities. Thought it was interesting, in a lot of cities in the US, malls were leisure activities. So once things do reopen, and I think there's a bit of that in Australia too, they're destinations because we're all sick of lockdown.

Yeah, the good ones are destination service. Now, they're not all good. At one stage in the 1980s, three shopping centres were opening every day in the United States. So they've got a huge supply problem and they're working their way through that. A lot of shopping centres are shutting all the time. The really good shopping centres are exactly what you're describing. They're destination centres. So, the good landlords understand that their malls are about entertainment as much as they are about shopping. So it's about food, it's about leisure, it's about restaurants, it's about cinemas, it's about going to the gym, booking your next holiday flight centre. And we think those shopping centres will do quite well. The shopping centres that are in the business of just selling stuff, they're the ones that are most at risk because you need to be very, very convenient in retail, just around the corner, servicing the local neighborhood. Or you have to be, as you say, you have to be a destination, a day out. If you're anything in between, that's where the risk lies.

Yeah, the good ones are destination service. Now, they're not all good. At one stage in the 1980s, three shopping centres were opening every day in the United States. So they've got a huge supply problem and they're working their way through that. A lot of shopping centres are shutting all the time. The really good shopping centres are exactly what you're describing. They're destination centres. So, the good landlords understand that their malls are about entertainment as much as they are about shopping. So it's about food, it's about leisure, it's about restaurants, it's about cinemas, it's about going to the gym, booking your next holiday flight centre. And we think those shopping centres will do quite well. The shopping centres that are in the business of just selling stuff, they're the ones that are most at risk because you need to be very, very convenient in retail, just around the corner, servicing the local neighborhood. Or you have to be, as you say, you have to be a destination, a day out. If you're anything in between, that's where the risk lies.

Stay with me Chris, we'll be back in a minute. My guest this morning is Chris Bedingfield, Principal and Portfolio Manager of Quay Global Investors. Are there things that are going on in Europe or the US potentially that we're likely to see in Australian shopping centres over the next decade or so? What can we expect?

Stay with me Chris, we'll be back in a minute. My guest this morning is Chris Bedingfield, Principal and Portfolio Manager of Quay Global Investors. Are there things that are going on in Europe or the US potentially that we're likely to see in Australian shopping centres over the next decade or so? What can we expect?

Well, actually, it's more the other way. Australians might be a little bit surprised to hear this, but in our view, Australia leads the world in shopping centre management and development.

Well, actually, it's more the other way. Australians might be a little bit surprised to hear this, but in our view, Australia leads the world in shopping centre management and development.

Ah, Frank Lowy has a lot to answer for.

Ah, Frank Lowy has a lot to answer for.

Yeah. So in Australia, it's not unusual to go to a shopping centre, pre- pandemic, to see a movie, to go to a restaurant, to have those services. Fashion, as a percentage of shopping centres in Australia is half that compared to the US. So it's a lot more service orientated. So it's more going the other way, quite frankly. But I think the big trends overseas coming to Australia are more in other sectors. I think one of the really attractive things about global real estate is you have so much choice of different types of things you can invest in. We can invest in single family rental, apartment rental, senior housing, data centres, self storage, some people invest in communication towers. There's just a wide array of opportunity to invest globally. And I think the one trend that we're seeing overseas that could come to Australia hopefully is more and more investment choice. Student accommodation is another one that we've invested in. Just really interesting sectors that I think in Australia, hopefully we can start seeing more and more of those investment opportunities here. But in the meantime, we're just taking advantage of those sectors globally.

Yeah. So in Australia, it's not unusual to go to a shopping centre, pre- pandemic, to see a movie, to go to a restaurant, to have those services. Fashion, as a percentage of shopping centres in Australia is half that compared to the US. So it's a lot more service orientated. So it's more going the other way, quite frankly. But I think the big trends overseas coming to Australia are more in other sectors. I think one of the really attractive things about global real estate is you have so much choice of different types of things you can invest in. We can invest in single family rental, apartment rental, senior housing, data centres, self storage, some people invest in communication towers. There's just a wide array of opportunity to invest globally. And I think the one trend that we're seeing overseas that could come to Australia hopefully is more and more investment choice. Student accommodation is another one that we've invested in. Just really interesting sectors that I think in Australia, hopefully we can start seeing more and more of those investment opportunities here. But in the meantime, we're just taking advantage of those sectors globally.

I mean, data centres, student accommodation, towers, which sometimes fall a little bit close to infrastructure in my mind. I suppose they're all real assets. There certainly seems to be a push to look beyond just equities and bonds into alternative assets. Now, depending on how you define that, but I'm thinking about real assets. So, property infrastructure, as almost as one grouping.

I mean, data centres, student accommodation, towers, which sometimes fall a little bit close to infrastructure in my mind. I suppose they're all real assets. There certainly seems to be a push to look beyond just equities and bonds into alternative assets. Now, depending on how you define that, but I'm thinking about real assets. So, property infrastructure, as almost as one grouping.

Yeah, there is a fine line. We get asked this question all the time, where do you draw the line? And for real estate, for us, it's about alternate use. So you might own an office building. This happened early in the 1990s a lot. You might own an office building, office markets are terrible. You can convert it to residential. You might own a warehouse in inner city Sydney or inner city Melbourne, you can't find a tenant or suddenly the residential market's booming, you convert it to residential. So for us, real estate is the ability to convert to an alternate usage. It's your ultimate get out of jail free card. We're seeing it in the United States with shopping centres that are closing, they're being converted to distribution centres or self storage facilities or residential developments. And it's one of the reasons why real estate outperforms equities over the long term, which it does. It's got that get out of jail free card, that alternate use. If your current use is not working for you, you can turn it into something else. Now with infrastructure, that's not always the case. I mentioned cell towers before. Generally, those cell towers aren't sitting on land that you even own. It's usually leased. So you can't always turn that into something else. Same with roads. You might own a road. And if people decide not to drive down that road anymore, you can't exactly turn that into a house or kind of turn it into something else. So we spend a lot of time thinking about that distinction. And so for real estate, we think it's all about being able to convert what you have into something else if you need to.

Yeah, there is a fine line. We get asked this question all the time, where do you draw the line? And for real estate, for us, it's about alternate use. So you might own an office building. This happened early in the 1990s a lot. You might own an office building, office markets are terrible. You can convert it to residential. You might own a warehouse in inner city Sydney or inner city Melbourne, you can't find a tenant or suddenly the residential market's booming, you convert it to residential. So for us, real estate is the ability to convert to an alternate usage. It's your ultimate get out of jail free card. We're seeing it in the United States with shopping centres that are closing, they're being converted to distribution centres or self storage facilities or residential developments. And it's one of the reasons why real estate outperforms equities over the long term, which it does. It's got that get out of jail free card, that alternate use. If your current use is not working for you, you can turn it into something else. Now with infrastructure, that's not always the case. I mentioned cell towers before. Generally, those cell towers aren't sitting on land that you even own. It's usually leased. So you can't always turn that into something else. Same with roads. You might own a road. And if people decide not to drive down that road anymore, you can't exactly turn that into a house or kind of turn it into something else. So we spend a lot of time thinking about that distinction. And so for real estate, we think it's all about being able to convert what you have into something else if you need to.

Now we are running out of time, but I do want to ask you a couple of things. Industrial. It seems to me, if there's an e- commerce boom, and someone the other day was saying to me, you almost need three times the space in a warehouse as you do in a shop, simply because of the supply chain and the logistics of getting stuff around. I don't know whether that's true or not, but it does seem the outlook for industrial is pretty good.

Now we are running out of time, but I do want to ask you a couple of things. Industrial. It seems to me, if there's an e- commerce boom, and someone the other day was saying to me, you almost need three times the space in a warehouse as you do in a shop, simply because of the supply chain and the logistics of getting stuff around. I don't know whether that's true or not, but it does seem the outlook for industrial is pretty good.

You've got to be really careful in real estate. It's not just about demand, it's about supply and the elasticity of supply. So you could go back to the 1970s, 1960s and say, air travel is going to boom. And you would have been right on the demand side, but owning an airline might not have been your path to riches. So you've got to think about what are the barriers to supply? And for industrial, it's very low. So the demand story is easy to understand, but the supply is coming. And the thing about industrial is around the world, people are paying crazy prices for industrial assets and the supply is going to come and be a real threat. So I just caution people to, when you're thinking about real estate, don't just think about the demand equation. Think about the elasticity of supply or how quickly supply can come. You own a house in Bellevue Hill, you'll probably do well over time. It's very hard to build more houses in Bellevue Hill. You're not building more land in places like that. So it's not just about demand. You've got to get both equations right. So we're a bit cautious on industrial offering.

You've got to be really careful in real estate. It's not just about demand, it's about supply and the elasticity of supply. So you could go back to the 1970s, 1960s and say, air travel is going to boom. And you would have been right on the demand side, but owning an airline might not have been your path to riches. So you've got to think about what are the barriers to supply? And for industrial, it's very low. So the demand story is easy to understand, but the supply is coming. And the thing about industrial is around the world, people are paying crazy prices for industrial assets and the supply is going to come and be a real threat. So I just caution people to, when you're thinking about real estate, don't just think about the demand equation. Think about the elasticity of supply or how quickly supply can come. You own a house in Bellevue Hill, you'll probably do well over time. It's very hard to build more houses in Bellevue Hill. You're not building more land in places like that. So it's not just about demand. You've got to get both equations right. So we're a bit cautious on industrial offering.

And that explains then the residential real estate market in Australia does it, the housing versus apartments?

And that explains then the residential real estate market in Australia does it, the housing versus apartments?

Yeah, that's exactly right. If you buy a house on a block of land, you tend to do better over time. Mainly because, it's the old saying, they're not building more land. Or in some places in Asia and the Middle East they are, but yeah, you tend to do a lot better. Whereas with apartments, the sky literally is the limit, and supply is much more easily responsive and your price performance generally, isn't quite as good.

Yeah, that's exactly right. If you buy a house on a block of land, you tend to do better over time. Mainly because, it's the old saying, they're not building more land. Or in some places in Asia and the Middle East they are, but yeah, you tend to do a lot better. Whereas with apartments, the sky literally is the limit, and supply is much more easily responsive and your price performance generally, isn't quite as good.

I apologise to the listeners for the next Dorothy Dixer, but I'm just interested. So if I want to invest in some of these sorts of assets, I can go to Quay Global Real Estate, to you guys, and you have a range of options which you can choose from. And I hasten to add that all listeners need a financial plan and should use a financial advisor. I'm a great believer in them. But that's how it works. So it's actually buying into a managed fund, assuming you hit certain limits and can invest enough money, et cetera.

I apologise to the listeners for the next Dorothy Dixer, but I'm just interested. So if I want to invest in some of these sorts of assets, I can go to Quay Global Real Estate, to you guys, and you have a range of options which you can choose from. And I hasten to add that all listeners need a financial plan and should use a financial advisor. I'm a great believer in them. But that's how it works. So it's actually buying into a managed fund, assuming you hit certain limits and can invest enough money, et cetera.

Yeah. I'm going to get into trouble saying this as well, but I'm not afraid of people going into an index fund either. I mean, we're an active fund. We are very different to the index and we've done better than the index over time. Significantly better, I should say. But having said that, sometimes the easier option is to go into a low-cost index fund as well and you get those opportunities. I think it does make sense if you're thinking about real estate to think more global than local, because the opportunities are just so much more significant and the diversification benefits are greater because of the wide opportunities there.

Yeah. I'm going to get into trouble saying this as well, but I'm not afraid of people going into an index fund either. I mean, we're an active fund. We are very different to the index and we've done better than the index over time. Significantly better, I should say. But having said that, sometimes the easier option is to go into a low-cost index fund as well and you get those opportunities. I think it does make sense if you're thinking about real estate to think more global than local, because the opportunities are just so much more significant and the diversification benefits are greater because of the wide opportunities there.

Chris, thank you for talking to Fear and Greed.

Chris, thank you for talking to Fear and Greed.

It's been my pleasure. Thanks for having me.

It's been my pleasure. Thanks for having me.

That was Chris Bedingfield, Principal and Portfolio Manager of Quay Global Investors. This is a Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed podcast, with all the business news you need to know. I'm Sean Aylmer, enjoy your day.

That was Chris Bedingfield, Principal and Portfolio Manager of Quay Global Investors. This is a Fear and Greed Daily Interview. Join me every morning for the full Fear and Greed podcast, with all the business news you need to know. I'm Sean Aylmer, enjoy your day.