Words and how you use them matter, according to a newly released year-long study from Invesco Global Consulting and Maslansky + Partners entitled, Building Opportunities: The Compelling Language of Real Estate Investment Trusts.
Using instant-dial-response technology to measure the emotional response that 500 accredited investors had to the language of real estate, the study revealed that 60% thought it was a good time to invest in real estate, but only 40% said they were likely to make an investment.
One of the reasons for this lack of action, according to Paul Brunswick, Head of Invesco Global Consulting, is that while financial professionals know the benefits of investing in real estate, they might not know that using some words and phrases but avoiding others can make a world of difference with real estate investors.
Jargon is a turn-off
“Language matters,” says Brunswick. “Being plainspoken is helpful. In other words, avoid using jargon. Jargon can fuel misunderstanding, miscommunication, and mistrust.”
When speaking with investors about the potential benefits of real estate and what they would like to add to their portfolio for inflation protection, 24% of the investors chose “an inflation hedge,” while 76% preferred “a source of income that can rise to stay head of inflation.” The word “hedge” is one that might see in a negative light, says Brunswick, because it doesn’t specifically describe something they know they want.
Another key takeaway from the study was that not all real estate is perceived equally.
Positive views on tech, medical, and housing
The study showed that 78% of investors thought it was a good time to invest in technology projects, followed by 72% in medical offices, 67% in senior housing, and 64% in suburban housing and apartments. On the contrary, only 31% of investors believed that they should currently be investing in office buildings, followed by just 25% for retail centers.
“Investors currently see risk in office buildings,” Brunswick says. “They may drive through their community post-pandemic and see empty office buildings and empty shopping malls.”
Of the 500 investors in the study — the majority of whom have more than $1 million in investible assets — 68% were more interested in a “premium” real estate investment, versus 32% who wanted an “exclusive” real estate investment. According to the study, one reason for this could be that “exclusive” suggests higher fees and less value.
“Portion” and “comprehensive diversification” are helpful
Additionally, investors considering real estate for their income needs gravitated toward using it for a “portion” of their portfolio. If that key word isn’t spoken, investors could interpret a real estate conversation as describing a big change in their portfolio. While it “seems subtle, it can be a bit of a trap,” Brunswick says, “but it resonated with investors.”
One surprise in the study, adds Brunswick, is that investors felt that diversification was a relatively low-priority concern. “Part of that was because they already thought they were diversified,” says Brunswick. “They looked at that as something they had already accomplished. However, they responded a lot better to the phrase ‘comprehensive diversification.’” Overall, 44% of the accredited investors preferred “comprehensive” diversification over “true” diversification (29%) and “enhanced” diversification (27%). Emphasizing a move into alternatives is about achieving better diversification, the study concluded.
When building a diversified portfolio, 73% of the investors believe that it should be supported by as many different pillars as possible, rather than just the three main pillars of stocks, bonds, and real estate.
“It’s common sense. If there are more opportunities, more options, that’s something they’ll look at,” says Brunswick.
Accentuate the positive
When asked to name the best way that a REIT manager could improve how a property is managed, 67% of investors preferred the phrase “increasing efficiencies,” while only 33% favored “reducing inefficiencies.” Investors often prefer the language of “more” over the language of “less,” according to the study. Those investors would also prefer to invest in a REIT management strategy that “enhances returns by increasing property values” rather than in “one that enhances returns by increasing rents,” something that might make it appear that the investors were profiting at the expense of others.
Additionally, investors would rather add “long-term growth potential” to their portfolios instead of “long-term appreciation potential,” because “growth” is client-friendly language.
Brunswick mentions one of Invesco’s oldest studies, New Work Order, which includes what he calls the four communication principles, or “four Ps,” that an advisor should remember when talking to a client about any investment topic (including real estate): Be positive, plausible, plainspoken, and personal. These principles have been used for years, he says, and it’s never too late to change the way you communicate.
“I like to say that language is like an oil tanker,” says Brunswick. “It can change direction, but it takes a long time. The fact that principles in place 20 years ago still resonate today is a key takeaway.”