Expert: Chris Bedingfield – What everyone gets wrong about Australian residential property

Bryce: [00:00:14] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. Whether you're an absolute beginner or approaching Warren Buffett status, our aim is to help break down your barriers from beginning to dividend. My name is Bryce and as always, I'm joined by my equity buddy, Ren. How you going? 

Alec: [00:00:30] I'm very good, Bryce. I am excited for this interview. We often talk about real estate here. We dream of one day owning real estate. The great news is until you can afford that home deposit, you can invest in real estate through the stock market. And we've got an expert here to help us understand this world.

Bryce: [00:00:49] It is our absolute pleasure to welcome Chris Bedingfield to the studio. Chris, welcome. 

Chris Bedingfield: [00:00:53] Thank you very much, Bryce Alec, great to be here. 

Bryce: [00:00:55] So Chris is the principal and portfolio manager at Quay Global Investors. He has more than 30 years of experience working as a real estate specialist with a background in investment, banking, equities, research and investment management. He's co-founder of Quay Global Investors and co launched the QUAY Global Real Estate Fund in 2014 that we're going to be unpacking today. 

Alec: [00:01:16] So Chris, before we get into the world of real estate investing, we always like to start with the story of your first investment. So to kick us off today. How did you get started? 

Chris Bedingfield: [00:01:27] Oh, my God. It's a shocker. So. So I left school and I didn't start it. I didn't know what I was going to do, to be honest. So I took a year work and I worked for this little merchant bank called Rothwell's, and now your audience would be too young to remember. But this was like high flying 1980s, West Australia Inc, really dodgy loans. But anyway, I was just. Believe it or not, my job was to courier. This is when faxes were not even that but used. I used to courier documents around the city that was just to run anyway. So I had a bit of money and I said, you should invest, you should invest in Rothwell. And so that's what I saw, bought some shares in Rothwell's, which I think was like September 1987. So it was like a month before the stock market crash and of course it was, it was only downhill after events wasn't good.

Bryce: [00:02:18] And so Chris, following on from first investments, you've obviously then had plenty of experience in in markets and figuring out what investment style works for you. So how would you define your investment philosophy? 

Chris Bedingfield: [00:02:32] Again, I when I left uni, I worked in stockbroking and I was a research analyst and I fell into real estate to be honest to my background is just finance and accounting economics. I didn't have I didn't study real estate at uni and when I was sort of working in that stockbroking area, I started investing in all sorts of things technology stocks and oil and gas companies, resources. And and what I quickly discovered and what shaped by philosophy was that, you know, stick to what you know and what you're good at. And if you're not good at it, then let someone else do it for you. You know, I'm not an oil and gas specialist. I don't really I'm not really on top of tech, but I do understand real estate. And so, you know, pretty early in my career, I just started focussing, just investing in the real estate. You know, I think that's the biggest thing. And individually, what I take is a heart beat is to just constrain yourself and just recognise what you are good at and stick to that. And, and, you know, some things might be really exciting. You know, right now energy is really exciting. And in the past it was crypto and it's really tempting to chase those things. But if you if you don't really good at it, you know, it's better to constrain yourself. And that's really been my philosophy. [00:03:46][73.8]

Alec: [00:03:47] I love that idea of stick to what you know and then find other experts to invest in those other areas. And I think, you know, for years retail investors have so not been locked out. But, you know, there's been high minimums, too, to access some of those areas or some of those experts. And that's coming down. And, you know, more and more funds are listing on market. So it's definitely become more accessible for, you know, people like price in order to access experts like yourself. And part of that is key global investors that you launched the first fund, I think, in 2014. So talk us through, you know, going out on your own, putting out your own shingle and starting your own fund. How is that process and what have you learnt about markets in along the way? [00:04:32][45.8]

Chris Bedingfield: [00:04:33] You have to talk about, but I just can't go back all the way to what you just said a moment ago about, you know, retail investors, not just retail investors. It's, you know, the biggest and the smartest fund managers make that mistake as well. You know, they they start out picking stocks and then they're successful. And then all of a sudden, they're commentating on bonds. They commentating on macro, they're commentating on the thing that gets me most upset is when they start commentating on real estate with, you know, every every fund manager with this, I'll just call the Australian property market a bubble for the past 20 years. It's just so it's it's a human thing. It's everyone does it, don't worry about it. But in terms of starting to yeah. I mean I rolled out of investment banking. 2013. I've been doing that for ten years. My business partner and I saw an opportunity in the global real estate space where, you know, it's a massive market like global. Mr. Global real estate is bigger than the Australian share market in terms of market cap. There's nowhere near as many participants like this. Millions of fund managers trying to eke out returns. The Australian share market, the global real estate really is a is a niche area and there's not that many people looking at it. So it's hugely inefficient. And so we started 2014 with that opportunity and we, we decided that instead of trying to beat in this and an index like what most of the peers try to do, we just set about with a philosophy of trying to do a CPR plus five strategy. And so we we started that on to that in 2014. We went out, we got our own licence, we bonded our own presentations. We became we outsource compliance. We wrote our own investment memorandum. And and then in 2014, we ceded our strategy, which is an index on a way concentrated global real estate strategy. We started it with our own money. I've never taken a cent out since this is back in 2014. And, and, and then we managed to get the three FS like every fund manager that starts out, you need the three years to get going. Family, friends and fools came in and and we go the fund going and we just had a building track record and we, we, we got some interest from, from people in the marketplace because our early performance, thank goodness, was very good. And, and then Bennelong about a year later, 2015 and we formed a joint venture with them. They take care of all of the back office and brand marketing and then converted our funding to a CDs. So we have, you know, daily pricing. People get in and out of the fund on a daily basis and and really we just sort of built the business from there and and it's been a blast. I've enjoyed every minute of it, which my only regret is I wish I did that earlier. You know, it's it can be scary going in on your own, but it can be a lot of fun and a lot of stress. And I don't really see it as work. It's just it's just an adventure. [00:07:16][163.0]

Bryce: [00:07:16] So, Chris, for those sitting there at home listening to this at the moment without any sort of real estate exposure in their portfolio, what's the sales pitch as to why real estate? Why should we consider it as part of our portfolio mix? [00:07:29][12.9]

Chris Bedingfield: [00:07:30] There's a couple of things I push back against the idea that if you're going into global real estate, it's kind of like a proxy for Australian real estate. I'm more than happy to talk about Australian real estate separately, but the pitch for global real estate is that it's, you know, it's a huge market, it's, it's inefficient, as I was mentioning before. And if you look at the long term returns for global real estate, it's very, very good. In fact, if you just look at this century from 2000 to 2021, so last 21 years, global real estate has outperformed Australian equities, it's outperformed international equities, have formed infrastructure to form bonds except for gold. So it's sort of thinking about the main asset classes. It's actually been a really good performer. And don't forget in that time we've had the GFC, which was bad for real estate, we've had that Koven, which was really bad for a lot of real estate. A lot of real estate companies were asked to step up during COVID and I would just say to people it's a it's if you're thinking about it in your equities mix, if you're thinking like Australian shares, global shares, infrastructure, global real estate is actually a pretty, pretty good part of that mix. But I would trade it separately to say, you know, buying a home in Australia or buying apartment in Australia because global real estate, it's massively diverse. You know when you in our fund for instance, we have exposure to things like data storage and self-storage, manufactured housing, which is really kind of a weird sort of sector, but also life sciences. So, you know, those things are just not correlated with traditional real estate. They are very different. And so I would just say to people, you know, you need to sort out your real estate situation in terms of where you live. That's one decision. And then separately and when you think about investing, Aussie shares, global shares, etcetera, you know, that's where you think about the global real estate as as exposure. [00:09:20][110.7]

Alec: [00:09:21] Now Chris, you've kind of already answered it, but I do just want to ask the question anyway to make it a little bit explicit, because everyone dreams of owning real estate, less people dream of owning rates. But I want you I want you to make the case for listed real estate as opposed as opposed to it's sort of unlisted p r y y listed real estate. [00:09:45][23.9]

Chris Bedingfield: [00:09:45] When you, when you think about unlisted commercial real estate, you sort of get locked up. You don't have that liquidity. I think that's the that's the biggest issue. And you don't have a lot of choice either. So in Australia we have a really bland kind of asset mix in commercial real estate, it's office industrial or retail, and when you go to listed you, you just have incredible diversity across different types of asset classes and geographies as. Well. And I think the other thing to take into account is also, you know, currency, you know, you get currency diversification as well. So the big thing there is, is that you just get this diversification, you get liquidity, you get diversification of companies and managers and currency as well. And and choice. You just get this great choice. To give you an example, one of the best things to have owned in the last 25 years in the United States was self-storage. Self-Storage is like as it as it sounds, it's they're just simple boxes where if you're moving house, you need to, you know, store your furniture for a couple of weeks. Or if you're going overseas, you need to do it. You just you pay your rent, you put it in a box and you go away. And you know, that business in the United States, if you bought a company called Public Storage in the US in the 1990s, you would have killed the kill the index you would have wiped out, you know, you outperform the Nasdaq, you to outperform S&P, you would have outperformed everything. It's a wonderful, wonderful business right now in Europe. Europe has got it's it's a self-storage industry is right at the beginning of that cycle. So going back in time in the US and being able to, you know, invest in those companies, you know, 20, 30 years ago. And so, you know, those opportunities are really, really rare. It's very hard to get access to them directly as an investor, but in the listed space, you can get access to them. And in those those sorts of stories, those long term, you know, ten, 15 years secular growth stories are just not available in the unlisted space. And I can say the same for senior housing, the population. I know your your audience is is at the other end of the spectrum, but the first of the baby boomers is turning 80 in just three years time. They're going to need senior housing. It doesn't matter what central banks do, it doesn't matter what prime ministers do, it doesn't matter what presidents do. The population is just getting older every day. And that silver tsunami we like to call it is coming. And senior housing is just a really great way to do it and you just can't get access to it in the unlisted space. But in the list format, you can buy companies like Ventas, which is a $30 billion company, expertly managed a massive portfolio, you know, sensibly geared. And you can apply that cycle in the listed space so much more easily. [00:12:23][157.3]

Bryce: [00:12:23] Love that. The silver tsunami. Yeah, my parents. I'm sorry, Chris. Let's turn to the macro environment. We've seen interest rate rises occur around some of the major economies globally. We've seen five consecutive months of rate rises here in Australia. So I guess simply what does this mean for your investment approach and how you're actually thinking about the macro environment at the moment? [00:12:50][26.6]

Chris Bedingfield: [00:12:50] I think one of the best things that investors can do if you're a long term investor, I would pay less attention to the macro environment than than what a lot of people do. I mean, it's great for clients and it's great for people to sort of like get their attention to talk about what central banks are doing here and there. But it really is, you know, if your long term investor really is just noise, if you look at the if you look at the long if you look at the long term returns, say in the let's take the US market, the S&P 500. If you look at the total return of the S&P 500 between 2010 and 2020, 100% of your total returns came from dividend yield and earnings growth 100%. There was no sort of PD rates or rewrites. There was no none of that. And you think about that period between 2010 and 2020, you had quantitative easing going on around the world. You had interest rates falling. Secondly, going around the world, how many times people were talking about all this nonsense and all it really mattered was dividend yield plus long term growth. And if you think about share markets, everyone, period. So that's that's pretty much the same thing. And I would say exactly the same thing about real estate. People get caught up thinking of real estate is just this big interest rate driven sort of story and nothing can be further from the truth. You know, the best performing real estate market, residential real estate market in the world right now is Turkey, which is up 100% just in the last 12 months, and interest rates in Turkey of 15%, 16%. But one of the worst residential performing markets in the world right now is Japan. And interest rates in Japan are zero. You can sort of get caught up in this this idea that interest rates are really important in the macro environment is really important. But if you're a long term investor, you need to you have to get the asset class right, get the initial valuation right. And so long as you've got a bit of a growth story and your initial yield is okay, that's where your total return kind of comes from. And so, you know, I sort of disarmed people a little bit when they say, you know, how's the macro environment affecting the way you think on the way you're investing? And my answer is it doesn't really affect the way I think at all. It's so easy to just jump at shadows when, you know, central banks right now are raising interest rates since. But they're going to pivot at some stage. And are you going to be the person that's going to be a head of everyone else when they pivot? Does that look seriously? Yeah, no chance. So. So why why play that game? It doesn't make any sense. Hmm. [00:15:07][136.9]

Alec: [00:15:08] Well, Chris, you said talking about the macro environment is. Great for clicks. I want to ask you another question that's great for clicks about residential real estate here in Australia. But first of all, we're going to take a quick break to hear from our sponsors. So, Chris, before the break, we spoke about why real estate, why listed real estate. We spoke a little bit about the macro economy and why you think conversations about interest rates are great for clicks, but maybe not for returns. I want to turn to residential real estate, real estate, because it's always front of mind in Australia, but especially now because we have seen a pullback in some of the major cities, Sydney and Melbourne in particular, after just an unbelievable couple of years. I know you invest in global real estate, but do you have any thoughts on Aussie Residential at the moment? [00:15:58][50.6]

Chris Bedingfield: [00:15:59] Yeah, I've definitely always had thoughts and I think this is this is an asset class that I think people desperately need an education on because it just frustrates me whenever I read the economists or the equity managers becoming these so-called experts in this space. And I really do miss them. The best way to think about residential or real estate generally, but I will focus on residential, is there's a cycle and there's a structural element to real estate. The cycle is driven by a combination of sentiment, fear of missing out or panic, and that's largely driven by interest rates in the short term. We're seeing that right now. And so access to funding and cost of funding creates this sort of cycle over time. And right now, we're seeing, as you quite rightly point out, we're seeing some softness in residential prices. And I expect that to last at least for the next 6 to 12 months. And then there's a structural element which which is very different. The way to think about real estate is that it prices itself around replacement cost over time. If you can buy an office building in Sydney today for $100 and that's and it costs $100 to build, right in 20 years time, if it costs $200 to build, it's going to be priced at around $200. Otherwise, the development equation doesn't stack up and you'll never get another office building built in Sydney ever again. When you explain real estate in that context, people kind of get that straight away. And what I miss in that conversation is you haven't mentioned interest rates once in that conversation. So what happens is that prices move around replacement cost over time. And that's why from a macro point of view, we don't really worry about interest rates too much. If we if we buy our underlying investments below the cost to build, we're going to be protected to the downside and we'll get a CPI plus lift to the upside over time as the cost of build gradually increases. And so when you're thinking about real estate in Australia, residential real estate for a variety of historical reasons, we've made it extremely expensive to build in this country and that goes down to planning government sort of charging taxes and rights and charges. Cost to build a house in Sydney out near the dingo fence that costs $0.40 in the dollar of the construction costs the government rates and taxes and charges you just so yeah and that's why you get these international investors come down saying that it's a property bubble because they compare the price of housing to the price of housing in Texas. And it's a completely different cost structure. You also can pay the price of cigarettes in Australia, best price cigarettes in Texas, which is wildly different as well. And so when you think about real estate in Australia, that's that's the secular, that's the long term trend of what's going on. And so in the short term your interest rate is going to move around and sentiment and headlines. And I got very little doubt that over the next 12 months we're going to see some more softness in the market. But if you think about three, four or five, ten years out, you're going to have that sort of replacement cost. The cost of construction is always going up. And that's that's kind of like your underwriting. We're seeing that right now in the data. We're seeing the market. We're seeing two things. We're seeing prices are falling and we're seeing building costs going up. And so is it any surprise that we're seeing housing approvals fall? You know, is it any surprise we're seeing housing starts for because developers aren't silly, they're not going to put $100 into a project to get $95 back. So they're going to move away and they can start doing that. They're going to start building other things. Right. And then and then then you'll continue to get population growth. We're going to need more houses. And so the value equation has to stack up again, otherwise the developers won't come back and build more. So, you know, I would just say to people, I would say a couple of things to your listeners. I would say, look, beware of people who are not experts in this space trying to scare the bejesus out of you by talking about a house price crash. Right. That's the first thing. Like make sure that they're experts on what they do. I mean, I'm incredibly cynical when it comes to this. I just find that, you know, sometimes you get a money manager who says, you know, house prices are going to fall 40%, so you should sell your investment property and then, oh by the way, I've got a product that I can invest and I'll just charge you a nominal fee, right. You know, it just really and then the other thing that annoys me is they say managers who are selling businesses, they make a lot of money out of the funds management business. First thing I do with their money is they buy great big stonking house and most of them. Or a great big stonking house in the suburbs you. So, you know, do as I say, not as I do kind of mentality. So I would say just be wary of those sorts of commentary. And I know there's another global fund manager on the Fin Review today talking about another big downturn. But anyway, and the second thing I would say is just think about it from the point of view that don't drink for crash, right? As best as the thing as Australian real estate is underwritten by, unfortunately, and that's a policy problem, is underwritten by very high cost of production. That's what really drives it over time. And if you buy sensibly, if you give yourself sensibly, if you're patient, you know, you'll look back in five, ten years time and you'll realise, you know, how that's actually turned out to be better than I thought. And the other thing I'd say is, you know, for people that are thinking about, you know, making the plunge is that there's a lot of talk about how investors get this unfair advantage of the tax breaks in terms of capital gains tax and a negative gearing tax break. The best tax breaks in this country by far is your principal place of residence. It's the last tax free asset you you have. And and and so I would never and I have done this many time have many people say, I'm saving for a deposit. I'm going to put my money into a fund, you know, and into and I'm just like, just find something because your life choices, you're going to write forever or you're going to buy. And so that LTV cost is there whether you like it or not. So I'll just think about it in that context. [00:21:53][353.9]

Bryce: [00:21:53] So let's move to the commercial side. There's a lot of change in that space. There's been some pretty interesting, not demographic change since COVID took place. With the work from home shift and the debate around, will people be moving back to offices in the CBD or is that the satellite approach now? Warehouse boom, e-commerce, there's plenty happening in that space. So let's start with the work from home debate. Which side do sit on? [00:22:20][26.1]

Chris Bedingfield: [00:22:20] If the question is are people going to work from home or office, value is going to be okay. The answer is yes. And that's a deliberate sort of why framing the question both are true. Both are true. So I see a scenario and we've written a lot of papers on this. We see a scenario where work from home is here to stay in some way, shape or form. The employers have to be very flexible about about that. And at our business week, we have a work from home policy and we find that productivity is fine. So that's staying. So how does so why are office values going to be okay? Well, when you think about it and we have to do this whole process ourselves when we think about our business, when you start initiating a work from home policy, the second question is, well, how much space do we need in our office? And the answer to us, and I think the answer for a vast majority of office tenants is the amount of space you need is exactly the same amount of space you needed before that. The provision of space you need as an office tenant is for the maximum number of people in the office, not the average. Again, you see some commentary where, you know, a company might say, you know, people are going to work from home, but we're going to allow people to work from home two days a week out of five. So that's a 40% reduction in demand. And that's not true because if people decide to work from home on a Friday and a monday, Friday is very popular in particular, then everyone's then on Tuesday, Wednesday, Thursday. And so as an office, as a, as a business and thinking about our office space requirements, it hasn't changed our requirement at all. I think what you're going to end up getting is you will get that work from home environment, but the amount of office demand is not going to change that much. And we're seeing it in the data. So we own a company in the United States called Empire State Realty. It's as the name suggests, it owns the Empire State Building, but bunch of other office buildings in midtown Manhattan and the volume there, leasing volumes are no different today than what they were pre-COVID, even though on average the buildings are only occupied on a weekly basis, only occupied 44% of the time during the week. Now, of course, that's 10% on Fridays and it's 95% on a Wednesday. That means that the amount of space you need hasn't changed. So and the exciting thing for us is that in the investment markets people are trashing office values and so we're, we're taking advantage of that. [00:24:41][141.4]

Alec: [00:24:42] Yeah, I remember looking at Empire State Realty during the early days of COVID and from memory, they got smashed in there. [00:24:49][7.1]

Chris Bedingfield: [00:24:49] Yeah, sorry they did. I mean, office and that hasn't recovered. The other thing about Empire State, which is really interesting, is that it's office buildings, but up to a third of its income comes from its observatory deck or the observatory deck? Yeah, the observatory deck. So the company makes three and it makes about 400 million a year and the observatory deck makes about 120 odd million of that. So it's kind of a play on New York. It's kind of a play on tourism and with with everything opening up right now, you know, people are getting on planes again and travelling again. You know, there's a. Recovery coming up. You know, in terms of the observatory deck. [00:25:25][36.2]

Alec: [00:25:26] So, Chris, moving to the other big, I guess, covered story when we're talking about commercial real estate, the warehouse boom, and we've seen some of the biggest players in the space like Amazon spend a lot and get a lot of real estate and now pull back a little bit. At the same time, we're seeing a number of e-commerce related companies struggle. Shopify is a big one that comes to mind. How are you seeing demand for real estate for the warehouse sector, I guess, and what are your thoughts on this sort of longer term warehousing and e-commerce boom going forward? [00:26:00][34.0]

Chris Bedingfield: [00:26:00] There's no doubt that the secular demand for industrial has been really positive for the space for a long, long time and trying to accelerate back as more and more people shop online and companies needed to have improved logistics and warehousing to cope. I think that the problem is from an investment perspective is that the Pacific would be a victim of its own success. And what I mean by that is that real estate companies have seen this particular trend as well. Prices have gone way above the custom built in industrials, and that's attracting a lot of capital to build more and more of these warehouse space. Remember what I was saying before about residential? You know, prices go up in line with inflation over time. So what's been happening in industrial is prices are way of the cost of goods. And and as I said, that's creating a real surge in supply. And it's a risky time in that space because that surge in supply is coming just as e-commerce is normalising. And we are also hearing, you know, in the US, retailers are saying they have way too much inventory. I stocked up during 2021 as the consumer came back post cable and now everything's starting to normalise and they just have too much inventory. Too much inventory means they have too much warehouse space. So you're hearing stories like Amazon saying they've sort of overshot their expectations of online retail. Shopify is saying the same thing on e-commerce payments, like traditional retailers are saying it's too much inventory and at the same time, you've got a lot of new supply being built because the sector, as I said, gives some of the same access patterns, attracted a lot of capital and a lot of new supplies as a result. [00:27:53][112.3]

Bryce: [00:27:54] So, Chris, just before we move to our final three questions that we closed all interviews with, we're just interested if you could perhaps talk us through one or two of the key holdings of key holdings, no pun intended there, but some of the major holdings in their key global portfolio. Just to give a bit of insight into. Yeah, some of the investments that you've got. [00:28:17][23.1]

Chris Bedingfield: [00:28:17] I'll give you one local that everyone should know. Citigroup, which is the owner of shopping centres in Australia, Westfield Shopping Centres in Australia. That this is the other side of that e-commerce story I was talking about. It's really clear in a post-COVID world that retailers are struggling to make money. Online distribution costs are really high, customer acquisition costs are really high. They need physical bricks and mortar space to complement their online offering. And so we're seeing tenants coming back into shopping centres in a major way and and customers are coming back as well because that the novelty of sitting in front of your screen at home and clicking on things you want to buy, probably more a little bit lighter environments. And so people want to get out and about. So you can buy Citigroup at a massive discount to its book value. They just reported their results are really strong. Something a bit more interesting and I touched on this a moment ago is is a company like Ventas, which is senior housing in the United States, 80 year olds are the target market basically for senior housing. And the first of those baby boomers turned 80 in 2025. So that that population bubble is coming through. And the good news is that you can buy these companies for low the costs to build. So there's no supply coming in senior housing in the US at the moment or very little I should say. And the cost of build is going up and we've got this huge demand story coming through. So great demand supply fund and a third company that we own and we really like this space is single family housing in the United States. So post GFC, the housing industry was completely decimated not only from a price point of view but from a industry point of view. A lot of people left the industry a lot of work just I think the street now in the United States, you need to build around 600,000 homes a year just to cope with replacement and general population growth and post GFC that were building around 2 to 300000 homes a year. So half what they needed and they did that for ten years. And so as a result you've got this enormous undersupply of single family housing in the United States. And as a result of that, you've got rental growth running at around 12, 13, 15%. And thank goodness we have Jerome Powell, who is raising interest rates and restricting supply even more as the builders run for cover as as they're worried about higher interest rates and the cost to build is going up very, very quickly. So this is a really set these are really simple businesses, company. We are they're sort of American homes for rent and roughly 60,000 homes across the United States, they're 98% occupied and the tenants are just paying their monthly rents. And unfortunately for them, fortunately for us, they rates are going at about 12 to 13% per annum. And the markets on the supply side and supply is getting worse or better. [00:31:22][185.1]

Alec: [00:31:23] Just just on that that sort of style of company that listed American company that owns a lot of residential property price. And I often chat about the fact that we don't really see that in Australia. Now that might be our naivety and there might be listed Australian companies that own a lot of residential real estate, but you don't really hear about it. You hear so much about how well Australian residential property is performed as an asset class, but then you don't really see rates spring up that own a bunch of it. Do you know why that is the case? [00:31:55][31.7]

Chris Bedingfield: [00:31:55] Yeah, it's, you know, one of the best tax free investments in this country really is residential. It's rational for an owner occupier to buy a house that has a yield or not much, two or 3%, because if you get a two or 3% saving on your, you know, on rent, which is basically the yield in your house, it's a little bit of growth. That's an after tax return of about four or 5%, that's a pre-tax return of about eight or 9%. So Australian yields are structurally lower because of our tax structure essentially. And so in the US you get much better yields, you get much higher yields. So that's the company I was talking about a moment ago that Names for Rent has a yield of close to four and a half percent and so the yields are a little bit better. So we are, as an industry in this country, moving down this build to rent industry. And I think you will see more of that product in the future, that the initial yields will be very, very low when you compare it to global peers. [00:33:00][64.8]

Bryce: [00:33:01] So, Chris, unfortunately, we have run out of time, but I personally want to thank you for taking your time today to share with the Equity Mates community. It's an asset class that well, firstly, we'd love access to in residential space, that's for sure, but that we don't often speak about a lot on the show. So thank you very much. But it is time for our Final Three and we always start with a book recommendation. Are there any books that you would consider a must read either in in terms of investing or otherwise. [00:33:31][29.7]

Chris Bedingfield: [00:33:31] The seven deadly innocent frauds of economic policy? [00:33:34][3.0]

Bryce: [00:33:36] No, I haven't heard of it. [00:33:37][1.5]

Chris Bedingfield: [00:33:37] I think it's one of the most enlightening books anyone could read. And and I know that sounds very consistent with what I was saying before about ignoring the macro, but it's really good from the point of view of understanding just how little macro context feeds through to investment decisions, but it also gives a great framework of understanding just macro from a policy perspective. Ah, I couldn't recommend that highly enough. It's by Warren Mirza and it's free. Oh well if you go to major economic Stockholm, you'll see a link to that oh seven deadly insistence on excellent economic policy. And yeah, and it's a simple, right, it's about 110 pages, very, very simple rate and very important. [00:34:23][45.6]

Alec: [00:34:23] Nice love that, love it that it's free as well. So the second question we always like to end with, forget the investment case for the company at the moment, forget its valuation just purely on what the company is, what it does, and who it's run by. What's the best company you've ever come across? [00:34:40][17.3]

Chris Bedingfield: [00:34:41] I would say equity, lifestyle properties. [00:34:44][2.2]

Alec: [00:34:45] Okay. And why is that? [00:34:46][1.1]

Chris Bedingfield: [00:34:46] It's an incredibly powerful business model. It's a business model where the company owns the land and the tenant owns the house. Oh, okay. And there's just so many advantages for that. So first of all, all of the depreciation costs, maintenance costs and upkeep is to the tenant. The second issue is that the tenants aren't going to leave anytime soon, and a combination of both those factors means that the business generates heaps of cash and is immune to the cycle and is very, very receptive and resilient and and very, very safe. So this business has never dropped its rates in 25 years. The rates have only ever gone up. Pandemics with the GFC, rising interest rates, falling interest rates and business is incredibly powerful. Basically land banking and someone pays you rent and they take care of all the upkeep and you just get that land accretion over time. [00:35:45][58.6]

Alec: [00:35:45] Chris I love that you have explained that model so well because Bryce and I are looking at each other way. We invested in a company that was trying to do something similar in Australia Gateway Lifestyle Group. I don't know if you know. Yeah, they got taken out by a big US company, hometown, I think it was called. That's right. But you've just made the investment thesis more succinctly than Bryce and I ever could have, so thank you for that. [00:36:11][25.8]

Chris Bedingfield: [00:36:12] I don't know about that because for the biggest cost in real estate, it's the dirty little secret in your. Biggest cost in real estate is depreciation. And if you can get someone to fund that depreciation for you and then you get the growth and the cash flows, you cannot beat that business. [00:36:28][16.7]

Alec: [00:36:29] If only Gateway was still listed. But Chris, we have got to our final question. And if you think back to your younger self, you know, starting out in investment banking, getting convinced to buy that first stock. What advice would you have for your younger self like yourself? [00:36:45][15.9]

Chris Bedingfield: [00:36:46] Just like yourself. It can be really scary to sort of put yourself out there from a business point of view and starting your own company not. If you're young, what you want your downside if you fail and people kind of admire that, you've had a go and come back and get a job again. I just think about my years as a 23 year old, you know, whiling my 2 hours away on weekends and late nights for other people when you can do it yourself. I love that. I just think back is so far it's not. There's a lot of very average people out there who've become very successful. And I don't mean this in a disparaging way. There's nothing particularly special about a lot of people who succeed financially. The missing ingredient nine times out of ten is they just back on. So. 

Bryce: [00:37:39] Well, Chris, awesome way to finish the interview. Something that Alec and I constantly remind ourselves of here, trying to launch a small business. So it's it's a great reminder to to just back yourself in. So thank you so much for sharing your time with with us and the Equity Mates community today. You know, as I said, it's an asset asset class that we're all very interested in and always hearing from the experts is very enjoyable. So we do appreciate it and we certainly look forward to catching up again in the future. 

Chris Bedingfield: [00:38:08] It's been my pleasure.