Special Episode: 2024 Real Estate Investing Outlook with Brian Kingston and Lowell Baron
Summary
TLDRIn this Brookfield Perspectives podcast, Lauren Stephy discusses the current real estate investment environment with Brian Kingston and L Baron from Brookfield's real estate division. They explore the cyclical nature of real estate, the impact of the pandemic, and the potential for a favorable investment period due to market volatility and high occupancies. The conversation also covers the future of office spaces, the importance of demographics and deglobalization, and strategies for navigating interest rate changes. The guests emphasize the opportunities in distressed real estate and the appeal of real estate as a hedge against inflation, suggesting now is a great time to invest in the sector.
Takeaways
- 🌐 Brookfield Perspectives podcast discusses how Brookfield invests in critical assets that support global economic progress.
- 🏢 Real estate is a familiar investment touching daily life aspects like living, working, shopping, and vacationing.
- 📈 Despite recent volatility, Brookfield sees the next couple of years as potentially the best investment period since the financial crisis.
- 💹 Current real estate fundamentals are strong with high occupancies and rent growth, but over-leveraged investments may lead to forced sales and more attractive pricing.
- 🔄 Real estate operates on two cycles: the operational cycle based on supply, demand, and occupancy, and the capital market cycle influenced by economic factors.
- 🏗️ The pandemic disrupted the real estate cycle, but the market has since stabilized with a surge of cash and cautious optimism for growth.
- 🏦 Concerns about distress debt in commercial real estate are mitigated by the strong position of banks and lenders compared to the 2008 financial crisis.
- 📊 The office sector is bifurcated, with high-quality and non-US offices performing well, while lower-quality US offices face challenges.
- 💲 Rising interest rates impact real estate investments, but historically, they are not high, and real estate can still offer strong returns, especially with quality assets.
- 🌟 Brookfield identifies three key themes for growth in real estate: demographics driving affordable housing, deglobalization affecting supply chains and manufacturing, and lasting trends from COVID-19 impacting hotel and leisure sectors.
Q & A
What does the podcast 'Brookfield Perspectives' focus on?
-The podcast 'Brookfield Perspectives' focuses on exploring how Brookfield invests in the backbone of the global economy, such as solar panels, warehouses, shipping containers, and data centers.
What is the current investment environment in real estate according to Brian Kingston?
-Brian Kingston suggests that the current investment environment in real estate is one of the most exciting since the financial crisis, with high occupancies, good rents, and potential for rent growth, despite some market participants having over-leveraged or overpaid for assets.
How does the cyclical nature of real estate impact investment decisions?
-The cyclical nature of real estate means that investors must consider both the operating cycle, which includes supply and demand, and the capital market cycle, which involves the availability and cost of capital. The intersection of these cycles can create opportunities for value creation.
What was the impact of the pandemic on the real estate cycle?
-The pandemic interrupted the normal real estate cycle by initially causing a slowdown in the economy and business activities, followed by an influx of cash and stabilization measures that led to a quick recovery and even a surge in some sectors.
How does the current state of distress debt in commercial real estate affect banks and lenders?
-Brian Kingston believes that while there may be some distress in certain real estate sectors, the banking system is in a much stronger position than in 2008, with better capital ratios and credit standards, meaning potential losses would be small relative to the size of the banking system.
What are the key themes driving growth in real estate according to L Baron?
-L Baron identifies three main themes driving growth in real estate: demographics impacting the need for affordable housing, deglobalization and supply chain diversification, and lasting trends from the COVID-19 pandemic affecting preferences for flexibility and quality of life.
How does the current interest rate environment affect real estate underwriting?
-Higher interest rates mean that real estate investors need to focus on higher yields and generating growth through operational improvements. Unlevered returns become more important in this environment as leveraged returns are more challenging to achieve.
What opportunities does the current market present for private real estate credit?
-With increased regulation and pressure on banks to reduce risk, private real estate credit has opportunities to originate attractive loans with high returns, filling the gap left by more conservative banking practices.
What are Brian Kingston's thoughts on whether it's a good time to invest in real estate?
-Brian Kingston believes it's a good time to invest in real estate due to the bifurcation in ownership and the opportunity to buy high-quality assets at attractive prices, especially with the potential for a future with healthier capital markets.
How do individual investors view alternative assets and real estate investments?
-Individual investors and wealth advisors are increasingly looking towards alternative assets and real estate to hedge against inflation and create long-term predictable cash flows, following a similar journey to that of institutional investors over the past decades.
Outlines
🌐 Introduction to Brookfield Perspectives Podcast
The podcast 'Brookfield Perspectives' is introduced with a focus on exploring how Brookfield invests in critical assets that support global economic progress. Host Lauren Stephy, an experienced financial markets writer, sets the stage for discussions with business leaders from Brookfield, one of the world's largest alternative asset managers. The first episode features Brian Kingston, CEO of Brookfield's real estate business, and L Baron, President and CIO of Brookfield's Real Estate Group. They discuss the current state of the real estate investment environment, highlighting the cyclical nature of real estate and the differences between the current market and past cycles. The conversation emphasizes the importance of understanding both the operating cycle and the capital market cycle in real estate, and how the current market presents an exciting investment opportunity due to high occupancies, good rent growth, and the potential for more attractive pricing.
🏢 Real Estate Cycles and Market Distress
In this segment, the discussion delves into the differences between real estate cycles, focusing on the current market's unique position following the pandemic's impact. The speakers note the rapid shift from economic slowdown to an influx of cash, which stabilized the economy but also led to increased pricing and new supply. The conversation addresses concerns about distress debt in commercial real estate and its potential effects on banks and lenders. Brian and L Baron provide insights into how the current market differs from the 2008 financial crisis, emphasizing the improved capital positions of banks and the lessons learned from past cycles. They also discuss the potential for distress opportunities across various asset classes, driven by over-leveraging and aggressive lending practices in the past few years.
📈 Office Space Dynamics and Global Market Comparisons
The conversation shifts to the office space sector, with a focus on the分化 between high-quality and lower-quality office spaces. The speakers discuss the challenges faced by the office sector, particularly in the US, where excess supply and dampened demand have led to a bifurcated market. They highlight the preference for high-quality office spaces with amenities and交通便利, which are in high demand and under-supplied. The discussion also contrasts the US market with the rest of the world, noting that while work from home has been more 'sticky' in the US, other regions have seen a quicker return to offices and less oversupply, leading to a healthier office sector overall.
💹 Interest Rate Impact and Investment Strategies
This part of the podcast focuses on the impact of interest rates on real estate investments. The speakers discuss how higher interest rates have influenced the underwriting of deals, emphasizing the need for higher cash flow yields and growth generation. They note that while interest rates are higher than in recent years, they are not historically high and do not preclude earning high real estate returns. The conversation also touches on the opportunities in real estate credit, as banks face regulatory pressure and private real estate credit steps in to fill the gap. The speakers highlight themes that are driving growth in real estate, such as demographics, deglobalization, and lasting trends from the COVID pandemic.
🚀 Current Investment Opportunities and Future Outlook
The final paragraph discusses the current investment climate in real estate, with the speakers expressing optimism about the opportunities presented by market stress and the potential for strong returns. They note the bifurcation in real estate ownership and the advantage of being able to invest in high-quality assets at attractive prices. The conversation also addresses the potential surprises in the market, such as the resilience of consumers and companies in the face of rising interest rates. The speakers advise investors to look beyond the immediate stress and focus on the long-term opportunities in real estate, particularly for those who can capitalize on the current market dynamics. The podcast concludes with a look forward to future discussions on topics such as decarbonization, deglobalization, and digitalization.
Mindmap
Keywords
💡Real Estate
💡Investment Environment
💡Cyclical Business
💡Occupancy Rates
💡Debt
💡Capital Markets
💡Distressed Debt
💡Office Space
💡Interest Rates
💡Inflation Hedge
💡Demographics
Highlights
Brookfield invests in critical assets that support global economic progress.
Real estate is a recognizable investment touching everyday life.
The investment environment in real estate is currently experiencing volatility.
Real estate fundamentals are strong with high occupancies and good rent growth.
Over-leveraged investments from the past may lead to attractive pricing as sellers emerge.
Real estate is cyclical with two main cycles: the operating cycle and the capital market cycle.
The current moment is favorable for investing due to the alignment of real estate and capital market cycles.
Past cycles were marked by oversupply, but the current cycle is different with supply in check.
The pandemic interrupted the real estate cycle, leading to a compressed period of high activity.
Distress debt in commercial real estate is a concern, but the banking system is in a stronger position than in 2008.
Office space is bifurcated, with high-quality assets in high demand and low-quality assets struggling.
Interest rates are higher, but real estate can still offer strong returns, especially with quality assets.
Real estate credit presents an opportunity as banks face pressure to reduce risk.
Three main themes driving real estate growth are demographics, deglobalization, and lasting trends from COVID-19.
Investing in real estate is currently a good time due to a bifurcation in ownership and forced sellers.
Brookfield's strengths in capital, relationships, and operations position it well in the current market.
The supply impact on real estate is significant, with construction starts falling and future deliveries limited.
Consumer and corporate health has been resilient despite interest rate hikes.
Investors should view the real estate cycle with a long-term perspective, seizing opportunities amidst market stress.
Individual investors are increasingly looking towards alternative assets and real estate for diversification and cash flow.
Transcripts
[Music]
welcome to Brookfield perspectives a
podcast from Brookfield that explores
how the firm invests in the backbone of
the global economy what do we mean by
that the things that quietly enable your
everyday life like solar panels
warehouses shipping containers and data
centers investing in these critical
assets helps support and accelerate the
pace of progress in businesses and
communities around the world I'm Lauren
Stephy and I've been writing about
investing in financial markets for the
better part of three decades I'll be
your guide as we meet the Business
Leaders at one of the world's largest
alternative asset
managers in today's episode you'll get
the lay of the land on the real estate
industry what's driving growth and what
the future of the business looks like my
guests today are Brian Kingston the
Chief Executive Officer of brookfield's
real estate business and L Baron
president and chief investment officer
of brookfields Real Estate Group
Brian's been with Brookfield for nearly
25 years and LOL for 18 I kicked off the
discussion by asking Brian to give a big
picture overview of the real estate
space Brian I thought maybe you could
start us off real estate is a very
recognizable investment it sort of
touches everybody on a daily basis
whether it's where people live where
they work where they shop where they
stay on vacation it's it's followed
pretty closely everyone seems to have an
opinion about what's happening in the
space but I'm wondering from where
you're sitting what does the investment
environment in real estate look like
today I guess it's true like everybody
owns real estate or interacts with real
estate on an almost daily basis and they
think that gives them an informed view
on what's happening with real estate or
they certainly have questions about how
it impacts them directly I think for LOL
and I it's a little different obviously
with the way we're spending our time is
actually thinking about the investment
environment a lot of times just a
beautiful hotel that doesn't necessarily
make it a good investment we're in a
period of time right now where I think
we have gone through a fair bit of
volatility over the last 12 months but
we're pretty excited well you would
agree like the next couple of years
could be the best investment environment
that we've seen possibly since the
financial crisis more than 10 years ago
and that was a very good time to be
investing I actually think we're coming
into a period of time where the real
estate fundamentals are okay occupancies
are high rents are good we're seeing
lots of rent growth but there's just a
lot of people who put on too much debt
or paid too high a price for Real Estate
last couple of years and they're all
going to have to sell at the same time
and fewer buyers around means the
pricing should get more attractive feel
like we see this over and over again
because real estate is such a cyclical
business but there's really two cycles
that you watch one is the actual
fundamentals of real estate which is
supply and demand and how much demand is
there for specific real estate what's
happening with rents and with
occupancies and then at the same time
there's a separate cycle which is your
Capital Market cycle what's happening
with capital and its desired to own or
to land on real estate and we're at that
interesting moment in time where the
Capital Market cycle is at a tough
period we're seeing a lot of Capital
Market stress and yet the actual
operating cycle for Real Estate is
actually pretty positive when you hit
those moments it's sort of rare where
you get both of those lines up in that
way is a really great time to start
investing because there's a lot of
stress in the system it allows us to
acquire assets for really good value but
at the same time with a good runway for
growth where the operating fundamentals
are good and we should be able to create
a lot of value in that real over time
well since you made reference to the
cyclical nature of real estate let me
follow up on that the place we're at now
how does it compare with past Cycles
it's a good question no two cycles are
quite exactly the same they all have
similarities but they're always
different something creates or starts a
down cycle in real estate and it could
be an extraneous event could be
something geopolitical whatever it is it
puts us into a tougher period of time
but what's most important is how deep
and how long that cycle is and always
what it is that creates that length or
that depth of the cycle is where we are
in Supply what i' say is very different
today is usually we end up in these
longer down Cycles because we've over
supplied maybe Capital was too plentiful
it was too easy to build and so you saw
over Supply in various sectors in
various regions around the world and
then in that down cycle you need to
digest all of that what we're seeing
today is we never really gotten into
that point of over Supply there may be
slight Pockets but for the most part
across the world suppli has been in
check which means that we're probably in
for a cycle that's relatively short and
that coming out of it will be pretty
positive and pretty long Tailwinds for
growth Brian maybe you want to jump in
here but I'm wondering what impact the
pandemic had on what might have been a
more traditional cycle in this time
frame I think in a lot of ways there was
a period of time during the pandemic
that really interrupted the normal cycle
that we were in and I think as we were
coming into 2019 we had decent growth
economy was in pretty good shape we were
starting to see some new Supply coming
into a lot of these sectors and things
was kind of bumbling along like normal
and then you had this huge shock that
was very negative so a lot of businesses
slowed down GDP growth slowed down lots
of fear in the market Etc and that was
very quickly Then followed by this
waterfall of cash and that did the job
that it was intended to do which was
really stabilize the economy and if
anything probably went a little too far
and so then we saw pricing takeoff and
there was lots of capital around and
lots of freely available debt and so you
started to see new Supply picking up a
little bit in some of these markets and
then really about a year or so ago when
conditions started to tighten because
the FED started raising rates that
quickly got nipped in the bud and so
that's normally a cycle that you would
have seen play out over a much longer
period of time but instead it was
compressed into a pretty small period of
relatively High activity we're hearing a
lot about distress debt in commercial
real estate and how that's going to
affect the health of Banks and lenders
and that sort of thing what's your view
on that it's a little like L was talking
about I think a a lot of times people
tend to assume that all Cycles are the
same and whatever the problem or the
Catalyst was for the last cycle they
assume it will be for the next one and
so in 2008 2009 when we had the global
financial crisis it was really driven by
for Real Estate anyway two things one
excess Supply just a lot of homes
getting built and so the lesson we all
learned out of that was Supply became
much more constrained and I think for
that reason over the last 15 years we
really have never seen a return to the
same kind of supply issues that we saw
last time around the other thing that
caused a lot of that distress though was
a highly leveraged Financial system and
obviously people were very concerned
about the bank's viability going forward
and so that's the other lesson that we
all learned The Regulators the banks and
frankly depositors so for the last 15
years the regulatory scrutiny that these
banks have been under the credit
standards that they've been underwriting
to the types of loans that they've been
making and importantly the amount of
those loans that they've held on their
balance sheet versus syndicating out to
other investors it's dramatically
different and we're in a very different
position today than the banks were in
20072 2008 their Capital ratios are in
excellent shape outside of real estate
they really don't have any credit issues
to speak of so they can withstand there
will probably be some distress in
certain sectors within real estate and
there may even be some credit losses
within the banks but in the context of
the $23 trillion of assets that sit in
the US banking system today those losses
are going to be very small so I think
people are worried about something we
saw last time around not something
that's particularly relevant for this
cycle I agree exactly with what Brian
said this is not going to be something
that's catastrophic or overly material
to the banking system we may see some
smaller Regional Banks get into some
trouble but for the most part across the
industry will be in good shape but what
will come out of it still will be plenty
of distressed opportunities and that's
going to be really a cross asset classes
so when we first started heading into
this the Assumption was well it'll
really just be office and office is a
tougher sector in the US so we'll see
distress there the reality is that we're
starting to see it already but there are
distressed opportun ities across the
housing sectors across Logistics so even
the asset classes that were most in
favor pricing got too aggressive lending
against those assets became very
aggressive and as interest rates moved
up you end up in a position where those
assets are very stressed they can't
cover their Debt Service and there's
significant debt maturities coming over
the next couple of years so when we sit
back and think about the opportunity set
for investing that'll create a very
robust opportunity set for us for the
near term since you brought up office
space why don't we talk about that a
little bit just what you see the current
environment being and where things are
headed in that sector it's very
difficult and often times when you're
investing dangerous to make really broad
generalizations about an overall asset
class and office is a great example of
that today we're seeing a dramatic
difference in the performance of
highquality and non us office versus
lower quality commodity us office so the
lower quality e commodity us office
tends to be what gets a lot of the
headlines and then people conflate that
with the sector as a whole I think it's
very important to distinguish between
the two in some ways in the US we are in
a situation where there is excess Supply
in office partly because there has been
some dampening of demand there as hiring
plans and expansion amongst tech
companies has slowed down somewhat the
banking sector as well is occupying less
space than it did in the past so that's
disproportionately impacting this older
space because in markets like this we
always see tenants pursue a flight to
Quality so they want to move into the
better buildings and particularly now
coming back from Co a key strategy for a
lot of these businesses and attracting
workers back into the office is giving
them a great place to work one where
there's a lot of the sort of natural
interaction between people they're
highly amenitized they're in
transportation linked locations and so
that means that Office Buildings that
meet that standard are in high demand
right now and in fact are under supplied
and we're seeing that within our own
portfolio so we have a very high
occupancy in our newest buildings we're
hitting record rents in many of the
markets around the world and in fact are
undersupplied in that higher quality
office space and I would maybe add to
what Brian said no doubt we're seeing
this really large bation that's grown
quite a bit between highest quality
assets versus the commodity assets but
the other bifurcation and Brian touched
on this is the US opposed to most of the
rest of the world and while part of that
has to do with the stickiness of work
from home in the US which we have seen
ease up over time it also has to do with
the fact that the US office stock has
significantly more inventory than the
rest of the world on average 60 % more
square footage per person of office in
the US versus the rest of the world and
the office stock in the US is really
almost the oldest over 50 years old on
average so the US started from a weaker
place what we're seeing in most of the
rest of the world number one work from
home never really got that sticky so
people came back very quickly to the
office and number two you were never
dealing with that issue of over Supply
so the health of the office sector and
most of the other markets in the world
is actually quite good still bifurcated
by quality so the better quality assets
no doubt are doing the best but
occupancies are high rents continue to
grow and so the Assets in most other
places are actually pretty good okay so
LOL let me ask you about interest rates
because that's something that always
comes up when we're talking about real
estate it seems now that we're in an
environment where interest rates are
likely to be higher for the foreseeable
future at least how does that impact how
you underwrite deals yes it's a great
question it's something that there's no
doubt in the real estate business
leverage and the cost of Leverage is a
really important factor and creating
returns but that being said where
interest rates are today is quite a bit
higher than it was over the last couple
of years but from a historical sense
interest rates aren't really that high
they're actually at a place that are I'd
say not something that gets in the way
of earning High real estate returns it's
just a matter of adjusting where one
gets those returns from so what that
means today in real estate is focusing
on higher yields going in so we need to
have better cash flow yield going into
our assets and we need to be focused on
generating growth we're looking at
assets where we can through our business
plans and what we're doing with the
operations of our assets we're
generating higher revenues higher
occupancies we're managing expenses
often times that means you're renovating
and repositioning assets but you need to
be able to generate significant growth
in the underlying real estate the
combination of those two things gets you
to a very healthy unlevered return and
so you really need to think about
unlevered returns in this type of
environment whereas in an environment
where interest rates were quite low
unlevered returns may have been lower
but you still could generate a higher
lever return today the unlevered Returns
on transactions that we're doing are
significantly higher than what they were
a number of years ago by the order of
three to six or 700 basis points so
that's pretty significant and I think
the other thing to remember the reason
why interest rates are modestly higher
than they were over the last couple of
years is because of the presence of
inflation and owning real estate is an
excellent hedge against inflation so by
definition a higher interest rate
environment generally is a pretty good
environment for investing in real estate
if you've got high quality real estate
where you can grow the rents at or above
inflation 4% interest rates are not that
difficult to make good returns in the
other opportunity we haven't really
spoken about at all because we've really
been focused on real estate Equity is
real estate credit we talked about the
health of the banking system while we
believe the banking system will remain
healthy there's a lot of Regulation and
pressure being put on the banking system
to curil how much risk they take when
they lend so whereas banks in the past
may have been willing to take 60% loan
to value or 70% loan to value loan and
under right that themselves we're seeing
a lot of pressure on them to reduce that
risk so they're very big opportunities
today for private real estate credit to
step into that hole that's going to be
created and originate very attractive
loans with high returns that's something
we're spending a lot of time on and
seeing a lot of growth opportunities as
well as a number of our peers are really
stepping into
that so I'm going to ask each of you to
throw this forward a little bit talk
about what themes you see out there that
you find compelling what are you seeing
out there right now that's getting your
attention so when we sit back and take a
higher level view of real estate we
really look at what are the themes that
will generate long Tailwinds of growth
for specific parts of real estate so we
really have three main themes we're
focused on today number one demographics
and in particular how demographics are
impacting the need for affordable
housing secondly would be what we're
calling deglobalization but really is a
case of supply chain diversification and
diversification of manufacturing that's
happening around the world
and third would be some of the lasting
Trends The New Normal that came out of
covid so just looking at each one of
them and demographics we continue to see
higher growth in household formations
which means higher demand for housing
particularly rental housing is a place
we're focused on because the cost to own
a home today has become so prohibitive
with higher mortgage rates and higher
home prices so we see a long Tailwind
for growth for rental housing and
particularly for more affordable rental
housing as far as de globalization we
see that impacting very much on
e-commerce and on manufacturing so
things like life science and
biomanufacturing Logistics assets around
the world these are asset classes that
will continue to have a lot of growth
because of the demand from companies to
diversify where they hold their
inventories and where they create their
inventories and then with some of the
lasting Trends coming out of Co those
are impacting people's demands or
desires for flexibility for quality of
life which directly impacts the way
hotel and Leisure assets are being used
so those are sectors as well we see
pretty good growth coming over the next
decade Brian I'm wondering are there any
things that you're staying away from
anything you think you should be wary of
at this point I think throughout our
history we've always tried to be a
contrarian investor and what that means
is staying open to really any asset
classes or different sectors so there's
nothing really that we're avoiding
actively but as L said there's certain
things that we think there's a stronger
secular Tailwind behind them and so a
lot of the growth is related to housing
but we do think there's going to be
opportunity as well that are driven by
distress and moving in the direction of
the markets that others may not be
moving in or or in fact may be moving
away from so there may be certain asset
classes where the pricing just becomes
so attractive because of the turmoil
that we're seeing in the market that we
may invest and so I'm thinking of places
like needs-based retail or grocery
anchored shopping centers we think those
sectors continue to have a solid
underpinning of growth and cash flow to
them but the pricing may be very
attractive you guys have already kind of
answered this question in detail but I
want to make it super Broad and super
basic given all of these factors is it a
good time to invest in real estate we
really do think we're sitting at a
moment in time that's the very beginning
of uh what looks like over the next
several years to be a great time to
invest in real estate this is about the
opportunity set in front of us that's
coming from a real bifurcation in
ownership of real estate there are
plenty of owners out there that don't
have the right access to Capital today
that are dealing with debt maturities
that coming Debt Service with these
higher interest rates that they can't
cover and are in a position where
they're going to become forced Sellers
and we're seeing it happen already that
has created an opportunity to buy very
high quality assets that are not broken
that are performing yet the owner
because of that Capital Market stress is
needing to sell and there's not really a
lot of competition at this point to
acquire assets like that so we can buy
high quality assets but buy them at a
very attractive basis and in today's
environment where you're buying in the
face of higher interest rates and higher
cap rates you're in a position where
it's more likely than not over time over
your whole period that will end up
exiting in a time when the capital
markets are much healthier where capital
is flowing into real estate so you're
really just working in a moment where
less capital is chasing deals today
that's good for us when we go to exit
likely is a time when more Capital will
be chasing those opportunities I think
we're really coming into a market or a
period of time that plays to our
strengths and and really what we've
built the business for so we enjoy
access to tremendous amounts of capital
which as L said means we can move
quickly and large scale which is going
to distinguish us from others we've got
excellent deep long-term relationships
with lenders and Banks and other
financial institutions which means we'll
continue to have access to attractively
priced debt and importantly we have over
30,000 operating people in our business
able to run these assets so in a market
environment like we're in now where it's
a little more volatile things are a
little less even in terms of how they're
performing having that operating
capability and being a best-in-class
operator is really going to distinguish
us from simp a Buy and Hold strategy one
thing we should be careful not to
underestimate is supplies impact on real
estate and whether it is a good time to
invest or not we talked a bit about how
in this past cycle we never saw excess
over Supply which is a positive thing
which is what's going to allow us to
come out of the cycle relatively quickly
but even probably more important than
that because debt is less available
today because construction costs have
gone up so much we've seen construction
starts fall off a cliff so over the last
couple of quarters you've seen
construction starts for new assets
whether it's industrial assets or multif
Family Assets come down 50 to 75% that's
really significant and what it means is
a year or two or three from now we're
going to see very limited deliveries of
new assets which means that existing
assets that we own should be able to
compete that much more effectively and
be able to raise rents in a pretty good
environment given the fact that this is
a cyclical business what were some
things that surprised you the most in
the last few years yeah I'd say for me
what's been surprising has been just the
relative health of consumers and of
companies really across most of the
developed markets that were involved
with if you had told me that interest
rates were going to be increased four or
500 basis points over a pretty short
period of time I would have thought that
would have a very negative impact on
corporate credit and on consumer balance
sheets and yet what we've seen is
continued Health which has allowed us to
really Drive growth in our housing
assets and our industrial assets across
our retail so really across the board
our tenants are able to continue to pay
and they're willing to pay for high
quality assets as we talked about so
that's been i' say to me probably the
most surprising
thing how do you think investors should
be looking at the real estate cycle
today and over the next five or even 10
years I think it's been interesting
watching as we talk to our partners and
how they're experiencing this part of
the cycle you can really see two totally
disperate points of view on the one hand
you see people who get somewhat
Paralyzed by the moment that we're in
and they see the stress that comes with
high interest rates they're worrying
about what about this debt maturity and
this asset that's coming what am I going
to do capital's not coming back fast
enough maybe I just can't invest in real
estate for a while and that's definitely
a point to view and we're seeing it but
then on the opposite side we see many
groups that we talk to our partners that
we talk to who recognize that this is
what creates the great opportunity and
the fact that others are worried about
putting Capital to work means it is a
great time to put Capital to work so
we're seeing it as we're on the road and
we're talking to our partners those who
are the most Forward Thinking who can
look further into the future recognize
these are the kinds of moments in time
you don't want to miss as a real estate
investor and so you really need to put
your Capital to work and search out the
best opportunities and really seize on
them at the moment and what about
individual investors are they coming
around to investing in alternative
assets and real estate in particular
yeah I think one of the things we've
observed over the last 20 25 years is 20
years ago a lot of institutional
investors were making the shift from the
typical 60/40 equity and bond port folio
to having real assets and Alternatives
as part of the conversation and it went
from 2% of their portfolio to 5% of
their portfolio to 10% to today we're
seeing 15 or 20% we're now starting to
see private investors and high- net
worth clients and wealth advisors
embarking on the same Journey so many of
them today still sit in largely public
Equity based portfolios for their
retirement accounts Etc but increasingly
those advisors and those investors are
becoming more sophisticated they're
looking to Alternatives and to real
Assets in particular to help hedge
against inflation to create real
long-term predictable cash flows exactly
the same Journey that these
institutional investors went on so the
kind of products that we're creating are
evolving they generally used to be
targeted toward institutional investors
we're now creating many products that
are targeted to the those High net worth
and private investors because their
needs are exactly the same and they're
trying to hedge and invest for exactly
the same kind of future and so we think
that's a continued growth area for the
business as well going forward thank you
guys this has been a great discussion
thank you Lauren thank
you that's all for today's episode
thanks to Brian and LOL for sharing
their perspectives to hear more from
Business Leaders at Brookfield and
Beyond check out our other episodes on
decarbonization De globalization and
digitalization wherever you listen and
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