To Joe Rodriguez, Jr., senior portfolio manager and chief operating officer for REITs at Invesco Ltd., even though investors have become better informed about the REIT approach to commercial real estate investment, some misperceptions about publicly traded real estate securities still persist.

Rodriguez, who has been with Invesco since 1990 and has more than 27 years of experience managing real estate funds, makes it his goal to not only provide the best investment opportunity for his clients, but to educate them about all their financial options. When it comes to REITs, many investors, both individual and institutional, have only a cursory knowledge of the concept. However, according to Rodriguez, that trend has lessened throughout the course of his career. When he first began working with Invesco, most of his clients had barely even heard of a REIT.

“The challenge of educating people about REITs has lessened over time, thanks to organizations like NAREIT,” Rodriguez said. “Historically, people had an interesting belief that REITs had a correlation to interest rates and that the stocks should be bought and sold off of yield. We’ve always been a total return investor, so all our data suggest the higher-yielding REITs tend to underperform over the long run, because they have a lower growth rate over the long term.”

Rodriguez, who manages five different real estate funds for Invesco, spoke about how the preconceptions that individual and institutional investors have about REITs are rooted in what they are trying to accomplish in their investment portfolios. For individual investors, he explained that they often try to treat REITs like bonds, which is a major misconception.

“If interest rates are going up and the values of bonds are going down, that means the economy is growing and so that means they’ll be more tenant demand and that typically means good things for commercial real estate,” Rodriguez said. “Sometimes individuals will have a knee-jerk reaction to sell REITs when there are other things in their portfolio they should be selling before REITs in order to capture economic growth.”

For the institutional investor, Rodriguez pointed to diversification as one of their main goals, making it easier for him to explain the benefits of REITs to those with a solid understanding of commercial real estate fundamentals. 

Rodriguez thinks that the recent downturn is a chance to highlight the strengths of REITs as an investment tool.  

“As of late, the increased volatility in the market has presented an interesting educational opportunity,” Rodriguez said. “The long term cash flow [of REITs] has proven to be more stable when compared to the broader market.”

Despite the evidence that supports the long-term value of REITs, Rodriguez believes that it is incumbent on everyone in the REIT industry to fortify their balance sheets and help continue to distinguish REITs as an investment vehicle.

“I think it is extremely critical for the REIT industry to encourage companies to lower their leverage and create balance sheets that are rock solid,” Rodriguez said. “That will significantly reduce the volatility and enhance the diversification benefits that investors crave.”

For more of our discussion with Joe Rodriguez, Jr., check out the September/October Issue of REIT Magazine.