STOREYS editorial team
Words matter. And real estate is no exception, especially in conversations with investors.
According to a new year-long study titled, Creating Opportunity: The Compelling Language of Real Estate Investment Trusts of global investment management firm Invesco Ltd. and research-driven language strategy firm Maslansky + Partners, language can complicate real estate transactions.
The study found that many common words and phrases used in real estate conversations today can be short when used in discussions with investors. One reason may be that while most finance professionals understand the importance of including potential benefits in communications with clients, many do not know how to articulate them using words that fully resonate with investors (or the rest of us, for that matter).
“It is important for finance professionals to effectively communicate with their clients the potential benefits of real estate investing so that they can understand their investment choices, and research has confirmed our long-standing belief that the choice of words is important when introducing real estate investment trusts (REITs),” said Paul Brunswick, head of Invesco Global Consulting. “Although most investors surveyed had a favorable view of real estate investing, their opinion changed depending on how certain concepts were presented.”
Based on extensive research using instant response technology, Invesco Global Consulting found that 60% of investors believe now is a good time to invest in real estate, but only 46% said they were likely to do it. This discrepancy can be attributed to investors not understanding the role real estate can play in a portfolio, Invesco says. “Given this, it is crucial for finance professionals to clearly articulate the potential benefits of REITs for clients,” reads a press release issued by Invesco.
So, Invesco Global Consulting researched how best to articulate the key benefits of real estate investment trusts in a study of 500 accredited investors. Research has proven that word choice can impact the magnitude of potential customer benefits. The following list of phrases has been presented to help finance professionals highlight the potential good benefits of REITs when speaking to clients:
Investors, it turns out, love plain language when describing the potential benefits of real estate.
With interest rates rising, finance professionals can explain to clients that REITs are a potential way to defend against inflation. When asked what they would prefer to add to their portfolio to protect against inflation, 24% chose “an inflation hedge”, while 76% preferred “a source of income that can increase to stay ahead of inflation. The term “hedging” is not a potential benefit per se, and investors often view the term in a negative light.
“We believe it’s important for finance professionals to better understand investment communications from the client’s perspective, and with that knowledge, they can better communicate alternative real estate investments to their clients,” Brunswick said.
According to the study, there are misconceptions about portfolios when it comes to diversification. Historically, retail investors have allocated only a very small portion of their portfolios to alternatives, even though the asset class has potential diversification benefits. When it comes to the benefits of REIT diversification, 44% of accredited investors believe that “full” diversification works better than “true” diversification (29%) and “enhanced” diversification (27%). Of the 500 accredited investors surveyed, only 16% felt diversification was an investment priority, proving that most felt they already had a well-diversified portfolio. Given this, it’s important to emphasize that moving to alternatives is about achieving potentially better diversification, says Invesco.
“Helping retail investors understand the potential benefits of REITs is the first step in closing the knowledge gap that currently exists and democratizing alternative investing for the masses,” said R. Scott Dennis, CEO of Invesco Real Estate. “Through effective communication and education, investors will be made aware of how alternatives like real estate can potentially broaden exposure to different asset classes within their portfolios and potentially achieve better risk-adjusted returns. .”
The study revealed that not all properties are viewed the same way by investors. The majority of investors felt that now was a good time to invest in technology projects, suburban apartments/housing and warehouses, but were less comfortable investing in retail, commercial and office space. offices. When it comes to the office sector, most accredited investors immediately viewed empty office buildings (a reality in today’s hybrid work culture) as a risk, not an opportunity. Given this, it is important that finance professionals cite specific opportunities in real estate when articulating the potential benefits of investing in the asset class, such as technology projects, medical practices and housing for the elderly, says Invesco.
Other key findings from the Create opportunities study include:
- Maintain “portion control”. A majority (70%) of accredited investors find it more attractive to have a “portion” of their income requirement allocated to real estate. If the “part” is not explicitly stated, investors may assume that their finance professional is suggesting changing their entire portfolio.
- Emphasizing the potential benefits of consistent, stable and reliable income resonates with investors. 57% of Accredited Investors surveyed favor “consistent” rental income over “sustainable” and “alternative” rental income as the most valuable potential benefit a real estate investment could offer as he/she contemplates retirement.
- Use the language of “more” rather than the language of “less”. 67% of accredited investors preferred the phrase “increase efficiency” rather than “reduce inefficiencies”. Similarly, 61% of investors found there was a greater benefit to investing in real estate assets when they were described as “more stable than stocks” rather than “less volatile than stocks”.
So if you have an upcoming meeting with potential investors, you might want to bookmark this page (just saying).
STOREYS editorial team