30-year property veteran: The only cure for housing is pain

Andrew Parsons (0:00)

One of two things has to happen, either rents have to go up materially, or we have to see an economic recession. I hate to say it, they're the two options.

There's no unfortunate silver bullet.

Patrick Ian Polk (0:18)

Today on The Rules of Investing podcast, I'm talking with Andrew Parsons, who's the Chief Investment Officer of Resolution Capital. Andrew is a veteran investor in global listed property with over 30 years of experience in the asset class.

He was last on the podcast in 2024, where he discussed some of the supply challenges facing the domestic property market. Some things never change. But to be clear, I'm sure Andrew will be happy to share his views on Australia's favourite barbecue conversation topic today, but his real expertise is in listed real estate, which includes everything from shopping centres and offices through to data centres. Make sure you stick around. We'll ask Andrew to dive into some of his top tips from his career investing in property. We'll also ask him about the rate he'd be happy to own if markets were to shut for the next five years.

Andrew, with that introduction, welcome to The Rules of Investing, and I'm looking forward to our chat today.

Andrew Parsons (1:14)

Thanks, James. So am I.

Patrick Ian Polk (1:15)

Fascinating time in, I guess, the property markets, markets in general. There's a big picture. You've got what's been happening with inflation and rates. And then at a, you know, at a industry level, you've got a new player in the market with the data centers. We've had some headlines around that with with firmness here in Australia and a lot of interest in the data center boom. And even into the residential space, it's really dominating the front pages post the budget. There's been a drawdown in residential property. We've seen some construction companies face some trouble. So a really fascinating time to talk about property.

But maybe just to get people into the podcast, give them a bit of background on your expertise. How did you get into property investing? Why do you love it? You know, what's the passion for you about investing in property?

Andrew Parsons (2:08)

I started out in covering real estate way back in 1989, 1990, when I joined a stockbroking firm. Being young and green, where do they put someone like me? They just put me into real estate until I learn how to then do equities.

And I actually thoroughly enjoyed my time covering listed real estate in the broking firm. At a period of time which was an incredibly fascinating period because it was when we were facing a property crash, a commercial property crash here in Australia. We had obviously a massive amount of overbuilding of office buildings. It was the days of course people remember the bonds and the like. And so everybody wanted to build office buildings. And because we'd had a deregulated financial system in the 80s and superannuation, everybody wanted to lend to it in terms of deploying capital. So it sowed the seeds for a massive property crash and a broader economic recession. And for me, what that formative period taught me was the importance of liquidity and financial strength. And ironically, and this is an anecdote that I don't share too often, when I was at the Broking firm, one of the reits, the Australian reits were actually in great financial shape. So they actually came through the property crash in surprisingly good shape. In fact, they had cash on balance sheet. They weren't borrowers, they actually had net cash. Because in the days of 10%, 15% interest rates, to get 15% return on cash was a pretty good thing. So they didn't borrow, unlike many in the private market, they actually were cash positive. And to share a little anecdote that people don't, a little sort of tidbit, Westpac, believe it or not, was effectively bust in 1990 Yes, there's talk about they got into trouble. No, no, Westpac was effectively bust. They had to do an emergency capital raise. I was working for the firm that did that emergency capital raise for Westpac. And interestingly, one of the REITs actually sub-underwrote the equity raise, right? So a REIT was bailing out a bank in effect in a small way. But that just highlighted to me in that period, the importance of strength, financial strength and liquidity.

And so from there, I decided to focus on real estate as a career. And in 1995, I made the move from the stockbroking side to the investment side. So I've been managing money in listed real estate since 1995 And hence, yes, it's been a fairly lengthy period. And what we're proud of is that it's very much through cycle.