With so many touting the importance of real estate in building wealth, it has not been an option for many investors. Hoya Capital Real Estate aims to change that, founder Alex Pettee said.
Mr. Pettee founded Hoya Capital Real Estate in 2015 and began researching REITs and the broader housing markets. One significant finding was younger people faced significant barriers to investing in real estate, with many not even being able to afford a down payment on a modest home.
“They rent by choice, and have not had a great way to invest in housing,” Mr. Pettee said.
That convinced Mr. Pettee he was on the right
track with Hoya Capital Real Estate, which has grown to become an
SEC-registered investment advisor (RIA) committed to making real estate open to
all investors. A research-focused firm, Hoya Capital Real Estate advises ETFs
and individual accounts by managing publicly traded commercial and residential
real estate companies. Services include an ETF, robo-advisor strategy and a
customized real estate portfolio strategy.
“The ETF captures the broader themes of the
housing market, with rising costs and deferred home improvement spending,” Mr.
Pettee said. “It helps younger investors own real estate.”
The fund is made up of a blend of 100 companies
including REITs, home builders and home improvement companies, Mr. Pettee
explained. It is designed to capture total spending on housing and housing
related services. And the represented companies aren’t mom and pop operations
either, Mr. Pettee said. Collectively the REITs represent 1.2 million units
while the 10 largest builders account for 200,000 units. Large home improvement
chains, insurance companies and tech firms such as Zillow are also in the mix.
Basic numbers support Hoya Capital Real Estate’s strategy, Mr. Pettee reasons. Today the average American spends 33-35 percent of their income on housing (up from 15 percent in the 1950s), yet broad-based index funds maybe allot five percent to the sector. Housing-related growth as captured in this fund is essentially the only strong driver in today’s economy.
As we emerged from the recession, fintech promised to democratize access to real estate but it only partially succeeded, Mr. Pettee said. Yes there were new technology applications, but they mostly benefited high new worth individuals and those able to pony up large minimum buy-ins. In 2015, the rules changed where one could market to any investor if they were a non-traded REIT. That created a dark corner for the market as the sector was riddled with high fees and conflicts of interest, Mr. Pettee said.
“The increased use of non-traded REITs was an
unfortunate setback,” Mr. Pettee said.
Hoya Capital Real Estate is a great starting
point for young investors because it avoids the more risky subsectors like
offices and malls, Mr. Pettee said. They also get exposure and can more safely
build some wealth as they enter their higher earning years.
Mr. Pettee said he is bullish on the broader
housing market at least through the end of 2019, as home sales prices are
lagging behind many indicators. The more forward looking housing indicators
started picking up in March and that should help home prices grow just as rents
have been. That has been supported by good wage and job growth so far.
regions have been driving housing growth,” Mr. Pettee said. “Typically that is
where most REITs own units.
stabilization then a reacceleration of home prices in 2020.”