Special Episode: 2024 Real Estate Investing Outlook with Brian Kingston and Lowell Baron

Summary

In 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

00:00

🌐 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.

05:00

🏢 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.

10:00

📈 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.

15:02

💹 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.

20:03

🚀 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.

Keywords

💡Real Estate

Real estate refers to land, as well as anything permanently affixed to the land such as buildings and other structures. In the context of the video, real estate is a significant investment area that impacts everyday life through residential, commercial, and industrial properties. The discussion revolves around how real estate investments are analyzed and the current investment environment, highlighting the cyclical nature of the real estate market and the opportunities it presents.

💡Investment Environment

The investment environment encompasses the economic, political, and market conditions that influence investment decisions. The video discusses the current real estate investment environment, emphasizing the interplay between market volatility, capital market stress, and strong real estate fundamentals, which together create a potentially attractive period for investment.

💡Cyclical Business

A cyclical business is one whose performance is closely tied to the economic cycle, experiencing periods of growth and contraction. In the script, real estate is described as a cyclical business with distinct cycles of supply and demand, capital market fluctuations, and operational performance. Understanding these cycles is crucial for making informed investment decisions.

💡Occupancy Rates

Occupancy rates indicate the percentage of space in a property that is currently rented or in use. The video mentions high occupancy rates as a positive real estate fundamental, suggesting strong demand for space and potentially leading to rent growth, which is a key factor for investors evaluating the health of a real estate market.

💡Debt

Debt in the context of real estate refers to the loans or mortgages used to finance property acquisitions or developments. The script discusses how some investors have taken on too much debt or paid high prices for real estate, which can lead to financial stress and the need to sell assets, creating opportunities for other investors looking for value.

💡Capital Markets

Capital markets are financial markets where investors can buy and sell securities. In real estate, capital markets include the sources of debt and equity used to finance properties. The video highlights the stress in capital markets due to economic conditions, which can affect the availability and cost of capital for real estate investments.

💡Distressed Debt

Distressed debt refers to debts of borrowers who are experiencing financial difficulties and are at risk of default. The script discusses the potential for distress in commercial real estate due to overleveraging and the impact on banks and lenders. It also suggests that this could create opportunities for investors to acquire assets at discounted prices.

💡Office Space

Office space is a specific type of commercial real estate used for business operations. The video discusses the challenges and分化 in the office space sector, with a bifurcated market between high-quality and lower-quality spaces. It also touches on the impact of the pandemic and work-from-home trends on office space demand.

💡Interest Rates

Interest rates are the cost of borrowing money and are a critical factor in real estate investment, affecting the cost of debt and returns on investment. The video discusses how higher interest rates impact underwriting deals, requiring investors to focus on higher yields and growth potential in their real estate investments.

💡Inflation Hedge

An inflation hedge is an investment made to protect against the eroding effect of inflation on purchasing power. The video suggests that real estate can serve as an effective inflation hedge, as it often allows for rent increases that can outpace inflation, thus protecting and potentially enhancing investors' real returns.

💡Demographics

Demographics refer to the statistical study of populations, including factors like age, income, and household formation. The video highlights how demographic trends, such as increased household formations, influence the demand for housing, particularly affordable rental housing, which is a key area of focus for real estate investors.

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

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