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A Real Estate Veteran Starts From Scratch

Scott Crowe, lead manager of newly launched Resource Real Estate Diversified Income Fund, answers our questions.

Morningstar Advisor, 10/10/2013

1 How did you get into real estate?
I thought I was going to be a professor. But I found real estate fascinating because it pervades every part of the economy.  I noticed there wasn’t any global research. It was the only sector that wasn’t globalized. I went to Cohen & Steers to help it build out its global investment process. I had six very interesting, fun, and fruitful years there.

2 After a recent rally, REITs look pricey. Are there pockets of the REIT universe that look more attractive than others?
We are moving into phase two of this real estate cycle. Phase one was low interest rates and a stabilization of rents and occupancies rates. Phase two is going to be the fundamental part of the cycle. Publicly traded REITs would typically be about a third of the portfolio. But now they account for 42%. I bought a lot of that about a month ago when REITs fell in price. If the market recovers another 5% or 10% from here I will be selling.

3 Did you have reservations about launching a fund in this environment?
It’s actually a pretty good time to launch a fund. Valuations were better 12 to 18 months ago when things bottomed out. But the problem is you can’t raise money in that environment.

4 Why was it important to be able to invest in non-traded REITs, private equity, preferred securities and debt?
I think publicly traded REITs are fantastic. But they aren’t in and of themselves the entire answer. So call them what they are. That allows you to be unshackled from a convenient marketing message. Then, you find that there is a much better approach.

5 What is an example of how that approach shows up in the portfolio’s holdings?
Cole Real Estate Investments. It was trading at like a 10 times or 11 times multiple, yet it probably has one of the best franchises in the non-traded space.

6 Why not start your own firm?
I explored starting my own firm. But Resource Real Estate was really just the perfect fit for me. The firm is very financially sophisticated, yet they are real estate guys.

7 How will the Federal Reserve act over the next 24 months?
Interest rates over the next 12 to 24 months will be low. Why do I think that? Interest rates to me are what I call a self-correcting mechanism. If they go down a lot, they reignite the economy. If they go up a lot, they put a hand brake on the economy. Why put a hand brake on the economy?

8 Is there any investor that has had a profound impact on your career?
Mark Stienert. He wound up the head of research at UBS. I started my career sitting about a half a foot away from him. I learned through osmosis.

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