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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 2: And I'm totally alamito of senior and list covering real

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Speaker 2: estate at Bloomberg Intelligence. This week, we are very pleased

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Speaker 2: to welcome our Fonso Monk from Heinz. Heines is a

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Speaker 2: leading real estate and investment manager with a history of

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Speaker 2: almost seventy years that owns and operates more than ninety

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Speaker 2: billion dollars of assets across several countries. Alfonso oversees the

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Speaker 2: debt business and is also closely involved in the day

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Speaker 2: to day operations of the firm.

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Speaker 3: How are you, Alfonso, good, Thank you very much for

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Speaker 3: having me.

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Speaker 1: Great to see you. And so we are here, obviously

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Speaker 1: to talk about real estate, which tumble into distress during

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Speaker 1: the pandemic as everyone worked from home and bricks and

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Speaker 1: mortar shops closed down. Only a year ago, we had

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Speaker 1: the CEO of Fortress on this show describing a one

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Speaker 1: trillion dollar opportunity in distressed real estate debt. But by

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Speaker 1: the end of twenty twenty four we were hearing more

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Speaker 1: and more about the real estate recovery. Some of the

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Speaker 1: guests were even saying that the opportunity to buy the

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Speaker 1: cheap debt was already over so at that time. Obviously,

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Speaker 1: at the end of last year, there were very high

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Speaker 1: hopes about a new supposedly pro business US administration, and

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Speaker 1: that sparked a huge rally of cross markets, including real estate.

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Speaker 1: But fast forward to now with markets getting hammered by

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Speaker 1: the trade war, where are we now in that cycle?

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Speaker 3: Off on?

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Speaker 1: So will we back down again?

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Speaker 3: Yeah? I think real estate is a till of cycles.

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Speaker 3: As you will mention, James, there's always some news to

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Speaker 3: some event that really moves the markets around, like any

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Speaker 3: other client sector in the economy. You're writing the COVID.

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Speaker 3: It was a quick, short lived downturn because it quickly recovered,

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Speaker 3: as it did in a lot of sectors. The next

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Speaker 3: The next area or event to hit real estate because

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Speaker 3: it is such an intra sensitive area, was the increase

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Speaker 3: in interest rates in the middle of twenty twenty two

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Speaker 3: as a result of Federal Reserve and all the central

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Speaker 3: banks trying to fight inflation, which obviously was the central

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Speaker 3: theme at the time. In mid twenty twenty two, we

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Speaker 3: saw the researcher Old Reserve increase rates and then all

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Speaker 3: of a sudden, real estate got on the spotlight again

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Speaker 3: because we need debt and leverage and interest rates in

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Speaker 3: order to invest in real estate. So all of a sudden,

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Speaker 3: some of the stress and some opportunity came around between

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Speaker 3: twenty twenty two and I would say in the mid

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Speaker 3: of twenty twenty four. So for a couple of years

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Speaker 3: we started to see interesting areas if you were an investor,

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Speaker 3: but also those who had real estate and depending on

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Speaker 3: leverage and that we're suffering a little bit. We saw

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Speaker 3: the light on the second half of twenty twenty four,

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Speaker 3: as you mentioned, James, because we felt that with the

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Speaker 3: change in administration in the US and the pro business

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Speaker 3: cyclecality that we were seeing things will get better. As

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Speaker 3: you might know, James were saying survive until twenty five

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Speaker 3: in the real estate world, and people were thinking, well,

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Speaker 3: we survived in twenty five, Things will get better. Rates

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Speaker 3: will come down, which is a big thing for real state,

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Speaker 3: as I mentioned, and then all of a sudden, we'll

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Speaker 3: be back in the game the up cycle. What we're

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Speaker 3: seeing is that we didn't expect what was going to

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Speaker 3: happen in twenty five, which is I don't know if

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Speaker 3: we have to survive now twenty five or we're going

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Speaker 3: to survive a few more years because the uncertainty and

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Speaker 3: volatility related to some of the actions that are taking

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Speaker 3: place around the world is creating issues. Right. Rates are

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Speaker 3: no longer expected to go down because inflation is likely

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Speaker 3: to stay high. Investors and banks who were financing real

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Speaker 3: estate are now saying, well, that's the case, then maybe

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Speaker 3: we should start taking more drastic actions. And I think

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Speaker 3: the opportunity for the distress might come quicker than people expect,

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Speaker 3: but the recovery of the real estate market world so

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Speaker 3: take a little bit more time for two reasons. One

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Speaker 3: and dependence on leverage, and also that depends you know,

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Speaker 3: real city is very sensitive, like a lot of industries

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Speaker 3: to the economy. It's all about demand and supply, and

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Speaker 3: you know, the economic headwinds that we're facing as a

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Speaker 3: result of the trig terriffs and some of the actions

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Speaker 3: that we're seeing. My impact real STY, no question, will

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Speaker 3: not impact talk about it will not impact all real

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Speaker 3: city equally, but obviously it's going to impact Real STY.

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Speaker 2: Yeah, and we're definitely going to I think talk about

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Speaker 2: the big tea in the room, which is tariffs for sure,

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Speaker 2: but before we get onto that, I mean you've already

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Speaker 2: outlined what happened over the last two to three years

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Speaker 2: in terms of performance of real estate, and that's definitely

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Speaker 2: also what we've seen on the public siders, and the

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Speaker 2: bonds did spectacularly well in twenty three, did okay in

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Speaker 2: twenty twenty four, so looking this year, it was already

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Speaker 2: going to be very difficult, I think, to beat those

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Speaker 2: two years of very very strong performance. So twenty twenty

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Speaker 2: five was challenging from the start. So you mentioned survive

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Speaker 2: to twenty five, we've also heard people say make it

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Speaker 2: to twenty six now, so I guess that's now the catchphrase.

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Speaker 2: With that in mind, what sort of returns do you

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Speaker 2: think that investors like yourself should expect to see in

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Speaker 2: real estate this year compared to last year and the

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Speaker 2: year before.

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Speaker 3: Yeah, I think it depends on what sector in real

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Speaker 3: estate you're investing, and also what part of the capital

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Speaker 3: structure you're investing. So when I mean capital structure is

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Speaker 3: investigated on the equity side of the real state or debt,

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Speaker 3: and then obviously depending on the sector, some sectors are

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Speaker 3: going to be impacted more than others. So the return

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Speaker 3: expectations will be better for some than others. I think

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Speaker 3: the credit side of the equation continues to be more

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Speaker 3: attractive on relative terms, because obviously there's limited credit and

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Speaker 3: high interest rates taking place, There's a lot of refinancings,

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Speaker 3: a lot of maturity is taking place. The banks are

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Speaker 3: continued to be cautious in real state and therefore investing

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Speaker 3: in the credit side it continues to be attractive. But

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Speaker 3: then there's obviously parts of pure real state investing that

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Speaker 3: that are are continue to be attractive. I think we

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Speaker 3: use a term in real estate that is discounts to

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Speaker 3: replacement cost. So oftentimes you when you're evaluating an opportunity,

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Speaker 3: you look at what that acquisition if it's an existing asset,

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Speaker 3: what acquisition that the price you're paying for a real

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Speaker 3: estate asset compared to the price that we will cost

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Speaker 3: to rebuild it from scratch, So that's the replacement cost.

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Speaker 3: So we're in an environment right now where we're seeing

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Speaker 3: the opportunity to acquire assets at significant discounts to what

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Speaker 3: it will cause them to replace. So for that will

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Speaker 3: be if you're buying assets, you're expected returns today will

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Speaker 3: be interesting. I think will be on a non lever

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Speaker 3: basis somewhere between eight and twelve percent. While if you're

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Speaker 3: planning and those who are developers to develop assets, you know,

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Speaker 3: by land and develop is going to be probably harder

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Speaker 3: because the numbers don't pencil, so those returns are gonna

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Speaker 3: be much lower. It's just too expensive, you know, costs

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Speaker 3: are increasing, Labors hard to find, so developing an asset

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Speaker 3: is not something that works very well now if we

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Speaker 3: continue this way at some point, because we are not

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Speaker 3: developing a lot of new acids in the US and

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Speaker 3: in the globe for that matter, there'll be a shortage

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Speaker 3: of assets at some point in the future which will

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Speaker 3: present an opportunity. Is not today, but despite two three

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Speaker 3: years on the line.

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Speaker 2: So I mean, you've already mentioned that the performance of

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Speaker 2: subsectors within real estate can differ quite a lot, and

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Speaker 2: we've definitely seen that here in Europe and in some markets.

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Speaker 2: Residential properties have done extraordinarily well because of what you

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Speaker 2: mentioned on the demand and supply dynamic, but offices have

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Speaker 2: done less well. How are you thinking about the subsectors

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Speaker 2: that in office versus rezi versus malls and logistics and

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Speaker 2: so on. At this point, where would you be putting

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Speaker 2: more money to WAPT.

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Speaker 3: It's a great question, and you highlight something to all that.

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Speaker 3: It's also interesting, which is the differences and at support

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Speaker 3: we can talk about the differences between the market, so US,

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Speaker 3: the the globalization that we're seeing, and I know we're

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Speaker 3: going to talk about the T word is creating imbalances

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Speaker 3: between different regions. So the opportunity is not equal in

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Speaker 3: the US or the Americas versus Europe and Asia. It

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Speaker 3: depends now as a result of some only actually we're

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Speaker 3: seeing we might be favoring some parts, you know, some

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Speaker 3: parts of the world versus others. But in terms of

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Speaker 3: but we go first to the to the to the

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Speaker 3: sectors right now. You know, we were very keen on

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Speaker 3: industrial historically and logistics, given the supply chain and growth

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Speaker 3: data centers, given the artificial intelligence, and obviously the retail

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Speaker 3: was the sector that you know, shopping moss weren't doing

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Speaker 3: well in the US it's a certain extent in Europe,

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Speaker 3: but it was recovering as a result of COVID. People

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Speaker 3: were coming back to you know, shop into physical places,

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Speaker 3: not necessarily mold, but place making lifestyle oriented retail where

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Speaker 3: you have experiences for in velterors, entertainment, and by services.

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Speaker 3: I think the world has changed a little bit in

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Speaker 3: twenty five. So if I were to rank the sectors

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Speaker 3: that I feel are more impacted or more favored right now,

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Speaker 3: I would say the hospitality and travel sector is probably

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Speaker 3: the one that is in the worse position in our minds,

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Speaker 3: and that's because travel is decreasing significantly in twenty twenty

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Speaker 3: five as a result of some of the imbalances in

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Speaker 3: the world. If you look at year today, inbound travel

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Speaker 3: to the US from places like Latin America, Cana, Europe,

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Speaker 3: and Asia compared to last year is down anywhere between

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Speaker 3: ten and twenty percent, So that that impacts you know,

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Speaker 3: hospitality assets, hotels, entertainment because people are traveling less. So

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Speaker 3: I'm a little more concerned on that sector to start with.

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Speaker 3: The second sector that would be a little bit concerned

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Speaker 3: goes back to retail, and I think real tell the

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Speaker 3: grocery anchored, necessity based retail will continue to perform well.

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Speaker 3: But you know, discretionary spending in the US and Europe,

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Speaker 3: if we go into an economic downturn, is going to

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Speaker 3: likely to decrease, and if inflation continues to be high,

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Speaker 3: people spend less, So some of it that discretionary spending

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Speaker 3: in some of the retail assets is likely going to

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Speaker 3: be suffering a little bit. So it will be the

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Speaker 3: second sector that I'm concerned about. The third will be

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Speaker 3: potentially some industrial assets and logsics acts that are related

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Speaker 3: to trade. This is obvious given what we're seeing on

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Speaker 3: the news, but you know, if you have port located

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Speaker 3: industrial or logistics which depends on you know, import goods

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Speaker 3: coming from Asia into the US, China into the US,

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Speaker 3: or trade related assets, obviously they're going to suffer significant

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Speaker 3: reduction on activity as a result of terrorists. Some of

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Speaker 3: the policies that we're seeing. We haven't seen it yet

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Speaker 3: because people have been stockpiling and anticipation for the tariff increases,

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Speaker 3: but I think at some point we're going to see

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Speaker 3: reduction trade. You you probably have seen the amount of

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Speaker 3: vessels coming in from China into the US as increased significantly.

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Speaker 3: That's the first component. The second is they're going to

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Speaker 3: we're gonna be stockpiling less inventory through those logistics access

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Speaker 3: that they're going to suffer. The fifth sector, the four

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Speaker 3: sector that I think will be impacted, but to a

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Speaker 3: lesser extent to be honest is office. And I think

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Speaker 3: office is a sector that has been beaten down, as

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Speaker 3: you guys mentioned Tolian James in the past, and you know,

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Speaker 3: over the last several years for variety reasons. I feel

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Speaker 3: that the new wave is for corporates and companies to

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Speaker 3: require their employees to come back to work. That's been

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Speaker 3: gone on very strongly recently. You've seen a lot of

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Speaker 3: big companies asking and tell empties to come back to work.

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Speaker 3: If we if we go into an environment of economic headwinds,

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Speaker 3: I think people will probably come back to the office

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Speaker 3: as opposed to stay home. That's going to be a

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Speaker 3: wake up signal that don't want to lose their jobs.

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Speaker 3: I think people will come back. And I think you know,

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Speaker 3: there's been a very limited increase in office stock. In fact,

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Speaker 3: office stock has been being reduced in some areas like

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Speaker 3: the US, So I think the office sector, given how

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Speaker 3: BADI has suffered over the years, it's unlikely to be

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Speaker 3: impacted so much. People. You know, particularly domestic investments in

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Speaker 3: the US is going to generate more demand for office

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Speaker 3: and we're seeing that, you know, But what the administration

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Speaker 3: is doing. The last sector, the fifth one that I

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Speaker 3: think We're very favored and I think will not be

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Speaker 3: as impacted as anything else is what we call the

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Speaker 3: living sector. No matter what happens with trade, no matter

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Speaker 3: what happens with some of the issues related to geopolitical events,

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Speaker 3: people need a place to live, and the question is

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Speaker 3: either you buy it or you rent it, because people

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Speaker 3: obviously people, you know, E commerce or artificial intelligence is

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Speaker 3: not going to replace the necessity for people to live,

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Speaker 3: whether it's in an apartment, a house, or student housing.

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Speaker 3: There's a shortage of housing globally and very significantly in

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Speaker 3: the US in Europe, and I think the key aspect

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Speaker 3: of the living sector will be developed or own real

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Speaker 3: state in the living sector that it's affordable for people,

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Speaker 3: you know, that people can afford given the cronent economic environment.

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Speaker 3: So we're very keen on the living sector. That's probably

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Speaker 3: our top call right now.

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Speaker 1: From what you're saying, Alfonso, it seems like your current

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Speaker 1: outlook on the economy is quite bearish, and your assumptions

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Speaker 1: around what the administration are going to is going to

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Speaker 1: do somewhat you know, continuation of what's going on right now.

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Speaker 1: Though when we look at credit markets, we look at

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Speaker 1: other markets, there seems to be this sense of you know, well,

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Speaker 1: this isn't really going to happen, or the administration will

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Speaker 1: change course before it gets too bad, and actually it's

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Speaker 1: going to be fine in the end. You know, if

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Speaker 1: you look at just current public market pricing of bonds

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Speaker 1: and bonds and loans, it seems that the market just

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Speaker 1: doesn't believe that all of this is going to really

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Speaker 1: end in a bad situation, that gonna get through it

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Speaker 1: and everything's gonna be fine. But all of you on

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Speaker 1: the ground is not that.

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Speaker 3: What's interesting. I'm not an economy, so I will not

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Speaker 3: gonna predict if there's gonna be a recession or what's

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Speaker 3: gonna happen in the economy. What I do think is

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Speaker 3: you're right. I think there's there's differing views of what's

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Speaker 3: going to happen. Some people believe that this is just

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Speaker 3: a short term impact about some policies, but the economies

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Speaker 3: and the US and Europe's gonna be fined, as you know,

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Speaker 3: the current US administration normalizes what's going on. It could

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Speaker 3: be true, but what I would say is real state

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Speaker 3: is not. Real state is a long term game. It's

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Speaker 3: an in liquid acid. It takes a while to develop.

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Speaker 3: It takes a while to buy and sell. It's not

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Speaker 3: like stocks and bonds, so and then credible side as well.

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Speaker 3: So I think regardless of what happens in some of

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Speaker 3: the policies that are taking place around the world, I

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Speaker 3: think a little bit of damage has been done right,

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Speaker 3: and the damage means creating and environment of volatility. Today

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Speaker 3: could be the big t words as Tolo said, tomorrow

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Speaker 3: can be something else right and the big uncertainty. So

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Speaker 3: we are in a bit of a storm. There's obviously

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Speaker 3: days that are cloudier than others, but I think we're

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Speaker 3: going to continue with a certain level of uncertainty over

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Speaker 3: the coming months, potentially years. That creates investment investors potentially

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Speaker 3: take a bit of a pause. You know, things can

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Speaker 3: go well, but you're you're just waiting to see for

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Speaker 3: the rain to stop a little bit before making certain

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Speaker 3: level of decisions. If investors pause, which is what drives

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Speaker 3: the financial markets. In real estate, for no matter transaction

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Speaker 3: volume decreases, and the transaction volume decreases, there's going to

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Speaker 3: be less activity and potentially impact on pricing, impact on

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Speaker 3: overall demand. So regardless of where the economy goes, I

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Speaker 3: think there's a level of concern that the shoppingness of

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Speaker 3: the markets and the volatility is going to continue. You

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Speaker 3: and therefore investors, big institutions, you know, smaller, big, larger,

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Speaker 3: sovereign wealth funds, you know, retail investors, high now worth investors,

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Speaker 3: they're all stepping back for a second, saying, hold on

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Speaker 3: a second. Should I just take it easy and see

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Speaker 3: what happens, or should I continue to plow in mind

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Speaker 3: into the into into financial and real see assets. I

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Speaker 3: think that's where we are, and I think it's going

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Speaker 3: to continue no matter how if things get resolved or

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Speaker 3: not yet you'll see the stock market go up and

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Speaker 3: now by years, but some of these decisions, you know,

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Speaker 3: take a little more time.

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Speaker 2: Right, Let's talk about the big ted then, since we've

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Speaker 2: kind of alluded to it and a lot of what

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Speaker 2: you said. So real estate is clearly not the sector

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Speaker 2: that's most directly affected by tariffs going up or down

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Speaker 2: or disappearing or reappearing. But we, for instance, had a

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Speaker 2: conference here last month where we asked about the potential

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Speaker 2: impact of tariff's on performance in the public markets, and

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Speaker 2: the overall view was that it could be moderately negative

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Speaker 2: for both bonds and equity primarily because of the effect

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Speaker 2: on rates, but you've also talked about the potential effect

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Speaker 2: on transaction volumes. Are there other effects that you think

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Speaker 2: investors are not as focused as they should be in

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Speaker 2: terms of how tariffs might affect real estate. You've mentioned,

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Speaker 2: as I said, transaction volumes, A lot of people have

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Speaker 2: talked about rates. What else do you think people are

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Speaker 2: missing in terms of the effect of tariffs well in

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Speaker 2: real estate?

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Speaker 3: More specifically, I think you mentioned good ones of the

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Speaker 3: transaction volume. I think inflation, you know, tariffs is perceived

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Speaker 3: again not an accountant, is perceived to be in action

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Speaker 3: that is going to increase pricing because it gets passed

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Speaker 3: on to the consumers. It's basically attacks. So if pricing

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Speaker 3: continues to be high, inflation will continue be highd therefore

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Speaker 3: that that impacts real estates, you know, significantly in a

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Speaker 3: few ways. One, construction costs and labor costs continue to

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Speaker 3: be high, and therefore not you know, building your real state,

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Speaker 3: building new assets becomes harder. They don't necessarily pencil as

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Speaker 3: we call it, The numbers don't work right. When you

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Speaker 3: make your equation how much things cost, obviously it doesn't

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Speaker 3: work out. So I think the costs themselves. We're monitoring

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Speaker 3: at heins and we're very conscious about it, whether it's

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Speaker 3: imported goods, raw materials, and quite frankly, even labor costs.

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Speaker 3: So I think that's an area where we're concerned. The

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Speaker 3: interesting part about real estate is that when we talk

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Speaker 3: about inflation and some of the terriers what's creating realty,

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Speaker 3: to a certain extent, it becomes a bit of a

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Speaker 3: hedge to inflation because remember, real estate has a revenue

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Speaker 3: line item sometimes is adjusted by inflation or inflation brings item,

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Speaker 3: so rents, whether it's office rents or industrial and logistic rents,

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Speaker 3: or you know, or apartments. You know, when there's high inflation,

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Speaker 3: we tend to grow those revenues up. So inflation is

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Speaker 3: an aspect that you know, we as create a bit

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Speaker 3: of a hedge because we don't fixed revenues. So but yeah,

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Speaker 3: I think overall, the the the terrorsts are going to create.

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Speaker 3: On one hand, you know, issues also related to demand

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Speaker 3: for space, particularly the logistics. Although at some point I

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Speaker 3: think if this ends up being an exercise of reshoring,

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Speaker 3: some of the activity in some countries like the US

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Speaker 3: is going to benefit for the medium long term, you

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Speaker 3: know some some you know, whether it's office or industrial assets,

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Speaker 3: right because people you know, there's gonna be more internal demand.

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Speaker 3: But I think those are primarily the areas where I

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Speaker 3: see the terrors, you know, impacting impacting real estate, right. Yeah.

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Speaker 2: I was going to sort of follow up on the

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Speaker 2: geographical positioning if if you like, so, you've already talked

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Speaker 2: about how within sectors you prefer homes to hotels, if

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Speaker 2: I can summarize it in that way, even though obviously

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Speaker 2: you went through lots of detail for US ranking the sectors.

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Speaker 2: We like that definitely, But how about US versus Europe

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Speaker 2: or US versus the rest of the world. We know

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Speaker 2: there's this trend towards deglobalization, and in some of the

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Speaker 2: podcasts that we've hosted, a lot of people have talked

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Speaker 2: about positioning more towards Europe rather than the US, which

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Speaker 2: is not where they were let the start.

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Speaker 3: Of the year.

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Speaker 2: How are you thinking about where to be geographically now

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Speaker 2: and has that changed this year as a result of

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Speaker 2: the developments in the US.

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Speaker 3: Yeah, it has changed to the margin. It's a good question.

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Speaker 3: Told I, you know, we were like everybody else at

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Speaker 3: the end of twenty twenty four, feeling that the US

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Speaker 3: we called the Americas there was really the main economy

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Speaker 3: in the US, and the Americans of the US was

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Speaker 3: leading the pack from an overall investment appeal, growth, easiness

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Speaker 3: to do business, availability of opportunities to invest. Is the

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Speaker 3: largest and most liquid market in the world in the

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Speaker 3: real estate sector. So you know, when you're investing in

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Speaker 3: real estate, not only do you want to market that

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Speaker 3: is strong and growing, but also one that is very

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Speaker 3: liquid because you need to trade those assets. Remember we're

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Speaker 3: not stocks and monds. They can trade anytime. Although I

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Speaker 3: wouldn't I wouldn't say has drastically changed, we have we have.

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Speaker 3: You know, in real estate, we basically I would say underweight,

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Speaker 3: overweight certain regions. I wouldn't say we completely make them disappear, right,

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Speaker 3: So at some point, you know, over the last five years,

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Speaker 3: we were overweghing a little bit Asia because of the growth,

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Speaker 3: we were underweting a little bit Europe because of the stagnation,

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Speaker 3: and we're being neutral in the US. Then over the

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Speaker 3: last year I would say US became more attractive, more

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Speaker 3: appealing because of the growth prospects, I was doing business

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Speaker 3: and abilities, so we overweighted the US. We underweighted Europe.

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Speaker 3: We kept underweight Europe and then and then we had

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Speaker 3: Asia as as sort of a neutral because I think

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Speaker 3: it's been hard to accessation, to get you know, the

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Speaker 3: right opportunities as a turn of the year because of

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Speaker 3: what we've seen in the market. I think the US

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Speaker 3: has in the volatility and uncertainty that I mentioned, has

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Speaker 3: made us pause a little bit. So we are we

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Speaker 3: do invest in the US. We obviously have a lot

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Speaker 3: of projects, but we're we're more neutral at this point

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Speaker 3: and overwhetting a little bit more Europe because I think

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Speaker 3: Europe as a result of what has happened, has declared

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Speaker 3: and announced more stability in more intent to invest in

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Speaker 3: certain countries. You so, what's what happened in Germany, what's

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Speaker 3: happening in France, in Spain, or we stand in the

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Speaker 3: blackout of last week last week in the UK. We

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Speaker 3: feel that the governments are waking up to the need

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Speaker 3: to invest in their countries to become a little bit

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Speaker 3: less dependent on the global economy, particularly the US. And

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Speaker 3: therefore when we real estate investors look at that as well,

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Speaker 3: that means opportunity they're going to need to invest in

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Speaker 3: the countries and because they seem to be less volatile

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Speaker 3: than what the US is right now now and be

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Speaker 3: having less geopolitical tensions. We felt overwinning Europe makes more sense,

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Speaker 3: and I think in the logistics on the living side,

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Speaker 3: we feel there's gonna be a lot of investment in

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Speaker 3: these countries, and therefore we're taking a stance that we're

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Speaker 3: going to probably spend all more time in Europe that

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Speaker 3: we have being in the last couple of years.

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Speaker 1: Okay, and you also do a lot of work with

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Speaker 1: the big LPs in Europe, like Germany's BVK. Do you

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Speaker 1: see any sign of European or Asian investors trying to

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Speaker 1: get out of the US or shift allocations out of

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Speaker 1: the US and into other regions at the moment.

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Speaker 3: No, we haven't seen. It's a great question because we've

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Speaker 3: been talking to our investors over the last few weeks.

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Speaker 3: I wouldn't say their intent to stay get out, not

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Speaker 3: at all, But yes, we've seen a bit of more cautiousness,

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Speaker 3: so I think they've been if they had intents to

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Speaker 3: re up and invest more, some of these investors have

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Speaker 3: put things on pass. I would say until they see

434
00:23:55,000 --> 00:23:57,240
Speaker 3: more clarity in the environ What I mentioned earlier, so

435
00:23:58,119 --> 00:24:02,120
Speaker 3: that ultimately translates in capital potentially coming to the US

436
00:24:02,200 --> 00:24:05,800
Speaker 3: over the coming months from international sources, no question about that.

437
00:24:06,000 --> 00:24:08,280
Speaker 2: I think one of the bits of pushback that we

438
00:24:08,359 --> 00:24:11,439
Speaker 2: get when we talk about US versus Europe is especially

439
00:24:11,480 --> 00:24:14,200
Speaker 2: in real estate, is that the market is much more

440
00:24:14,640 --> 00:24:18,359
Speaker 2: fragmented and much more location specific than that. So in

441
00:24:18,400 --> 00:24:21,040
Speaker 2: the US we've heard people say it's even sort of

442
00:24:21,040 --> 00:24:25,080
Speaker 2: street to street, building to building type investing, and what

443
00:24:25,160 --> 00:24:28,000
Speaker 2: happens on one street can differ marketly from what happens

444
00:24:28,040 --> 00:24:30,399
Speaker 2: on the one that's just you know, right next door.

445
00:24:30,960 --> 00:24:35,600
Speaker 2: In that context, how are you thinking about cities in

446
00:24:35,640 --> 00:24:39,560
Speaker 2: the USA, like the Sun Belt versus New York versus

447
00:24:40,359 --> 00:24:44,399
Speaker 2: the West Coast maybe and within Europe other specific countries

448
00:24:44,560 --> 00:24:47,800
Speaker 2: that you think are more interesting than some others.

449
00:24:48,320 --> 00:24:50,280
Speaker 3: Yeah, that's that's that's where we spend a lot of

450
00:24:50,320 --> 00:24:53,960
Speaker 3: our time with our investors talking about different markets, different

451
00:24:54,000 --> 00:24:56,760
Speaker 3: cities different In the US, we don't even talk about

452
00:24:56,880 --> 00:24:59,639
Speaker 3: markets or cities, we talk about sub markets. So for instance,

453
00:24:59,640 --> 00:25:02,639
Speaker 3: if you to your question, so if we if we

454
00:25:02,680 --> 00:25:04,880
Speaker 3: look at New York, but we look at Atlanta, it's

455
00:25:04,880 --> 00:25:09,120
Speaker 3: not just Atlanta as a city. There is multiple sub

456
00:25:09,160 --> 00:25:11,720
Speaker 3: markets that are behaving very differently, even within the city

457
00:25:11,760 --> 00:25:15,240
Speaker 3: of Atlanta or the MSA of Atlanta. So and that's

458
00:25:15,240 --> 00:25:18,320
Speaker 3: no where. I think. The US is a lot more

459
00:25:18,359 --> 00:25:22,800
Speaker 3: transparent market with a lot more information for investors to decide.

460
00:25:23,200 --> 00:25:25,960
Speaker 3: So therefore you have to be very micro oriented and

461
00:25:26,000 --> 00:25:29,440
Speaker 3: make decisions that are very focused and detailed. What's interesting

462
00:25:29,440 --> 00:25:33,360
Speaker 3: about Europe is the level of information accessibility in transparency

463
00:25:33,440 --> 00:25:36,520
Speaker 3: is not as high, and therefore you find better arbit

464
00:25:36,600 --> 00:25:40,240
Speaker 3: charge opportunities in Europe because the market is not as developed.

465
00:25:40,240 --> 00:25:42,680
Speaker 3: You know, the amount of data available to investors and

466
00:25:43,480 --> 00:25:47,720
Speaker 3: liquidity and transparency is not as high. We do going

467
00:25:47,760 --> 00:25:51,440
Speaker 3: back to the US. We analyze so a research team

468
00:25:51,480 --> 00:25:54,919
Speaker 3: of proprietary researching together with the Massive Management team. We

469
00:25:54,960 --> 00:25:57,520
Speaker 3: look at the US in about three thousand sub markets.

470
00:25:57,600 --> 00:25:59,800
Speaker 3: We don't look at cities. We look at sub markets

471
00:25:59,840 --> 00:26:05,840
Speaker 3: and we look at their historical performance over the last

472
00:26:05,840 --> 00:26:08,760
Speaker 3: twenty to three years. We created a regression analysis using

473
00:26:08,800 --> 00:26:12,000
Speaker 3: economic data. We'll see data et cetera coring system and

474
00:26:12,040 --> 00:26:15,520
Speaker 3: a tiering system for the different markets. So we start

475
00:26:15,560 --> 00:26:18,760
Speaker 3: top down and look at those that we think based

476
00:26:18,800 --> 00:26:22,439
Speaker 3: on under historical performance plus some future leading indicators like

477
00:26:22,760 --> 00:26:26,680
Speaker 3: new construction, new supply, growth in employment, growth in demographics,

478
00:26:26,880 --> 00:26:29,280
Speaker 3: and we created aggression select our top sub markets, which

479
00:26:29,280 --> 00:26:31,720
Speaker 3: out other three thousand probably goes to the top one

480
00:26:31,760 --> 00:26:36,800
Speaker 3: thousand submarkets. And then once we have that the top

481
00:26:36,840 --> 00:26:39,080
Speaker 3: down approach, we then go to our teams. We have

482
00:26:39,200 --> 00:26:42,520
Speaker 3: ninety five offices in the US, We have over three

483
00:26:42,520 --> 00:26:46,400
Speaker 3: thousand employees, So we get our teams in our over

484
00:26:46,480 --> 00:26:50,960
Speaker 3: ninety officer to start looking and scouting each individual sub

485
00:26:51,000 --> 00:26:53,200
Speaker 3: market that we like on those one thousand and look

486
00:26:53,240 --> 00:26:55,800
Speaker 3: for opportunities. Knocking on people's doors, are you willing to

487
00:26:55,800 --> 00:26:58,000
Speaker 3: sell an asset? Looking for assets that we think we

488
00:26:58,040 --> 00:26:59,840
Speaker 3: can buy. We don't wait until the brokers come to

489
00:26:59,880 --> 00:27:01,960
Speaker 3: our and say this is for sale. Were trying to

490
00:27:01,960 --> 00:27:04,320
Speaker 3: manufacture some of those sales because it's a very competitive

491
00:27:04,359 --> 00:27:06,360
Speaker 3: market in the US, so you have to do something

492
00:27:06,560 --> 00:27:10,480
Speaker 3: very very strategic in order to access assets. And you know,

493
00:27:10,560 --> 00:27:13,000
Speaker 3: over the last over the last twelve months, I think

494
00:27:13,040 --> 00:27:15,920
Speaker 3: we we continue to favor major markets where we see

495
00:27:16,320 --> 00:27:20,080
Speaker 3: you know, two things, One is strong economic growth. We

496
00:27:20,160 --> 00:27:25,480
Speaker 3: see demographic migrations, we see corporate migrations. So the sum

497
00:27:25,520 --> 00:27:28,680
Speaker 3: belt is an overweight still because I think we see

498
00:27:28,680 --> 00:27:32,199
Speaker 3: a lot of corporate growth and demographic growth in in

499
00:27:32,240 --> 00:27:35,120
Speaker 3: places like Texas. You know, there's hostin in dallasa Houston,

500
00:27:36,280 --> 00:27:40,480
Speaker 3: the southeast of the US, which starts in the Carolinas, Georgia,

501
00:27:40,520 --> 00:27:44,200
Speaker 3: and then down to Florida and then and then some

502
00:27:44,280 --> 00:27:47,119
Speaker 3: pockets of the major cities. New York has a market

503
00:27:47,119 --> 00:27:49,960
Speaker 3: that has recovered significantly. We do like people are starting

504
00:27:50,000 --> 00:27:53,840
Speaker 3: to reinvest in New York. We do like Boston. Other

505
00:27:53,840 --> 00:27:57,600
Speaker 3: markets become a little software like Washington, d C. And Chicago. Uh,

506
00:27:57,800 --> 00:27:59,520
Speaker 3: you know, and if you go to the West coast, Seattle,

507
00:27:59,600 --> 00:28:02,520
Speaker 3: Portland and those markets are a little bit soft in demand,

508
00:28:03,520 --> 00:28:07,200
Speaker 3: so that's the growth. Then you have the good pricing

509
00:28:07,280 --> 00:28:10,520
Speaker 3: markets like San Francisco or Partners that software significantly in

510
00:28:10,520 --> 00:28:12,560
Speaker 3: New York and now standing the fact that they might

511
00:28:12,600 --> 00:28:15,760
Speaker 3: still be in a bit of a turmoil. You find

512
00:28:15,760 --> 00:28:18,359
Speaker 3: what we call in real estate good basis. You buy

513
00:28:18,440 --> 00:28:21,080
Speaker 3: real estate a very good values, very cheap. So real

514
00:28:21,160 --> 00:28:22,800
Speaker 3: estate has to do with what you expect the growth

515
00:28:22,920 --> 00:28:26,159
Speaker 3: is going to be or the single most important indicator

516
00:28:26,280 --> 00:28:29,320
Speaker 3: in real estate performance, the single most important indicator of

517
00:28:29,359 --> 00:28:31,400
Speaker 3: you're going to make it a good investment is common sense,

518
00:28:31,400 --> 00:28:35,200
Speaker 3: which is what price you're buying it at so basis.

519
00:28:35,240 --> 00:28:38,160
Speaker 3: Buying something at a very attractive basis is like they're

520
00:28:38,200 --> 00:28:41,320
Speaker 3: going to guarantee a significant component of your return. So

521
00:28:41,360 --> 00:28:43,640
Speaker 3: you go to places that have been suffering economically, like

522
00:28:43,680 --> 00:28:47,360
Speaker 3: San Francisco, like La, like New York. If you've got

523
00:28:47,360 --> 00:28:50,840
Speaker 3: a good bay, you buy a good basis, even though

524
00:28:50,840 --> 00:28:53,760
Speaker 3: the markets are not recovered economically, over time, you'll do well.

525
00:28:54,080 --> 00:28:56,600
Speaker 3: So that's why you know, we're focusing on growth and basis,

526
00:28:57,680 --> 00:29:01,720
Speaker 3: and I would say really discerned on which you're right tool,

527
00:29:01,800 --> 00:29:03,880
Speaker 3: because if you go to New York and you sit

528
00:29:03,960 --> 00:29:06,720
Speaker 3: on Madison Avenue and forty second Street, if you're on

529
00:29:06,760 --> 00:29:09,800
Speaker 3: the right side of Madison near Grand Central, you're probably

530
00:29:09,800 --> 00:29:11,680
Speaker 3: going to do a lot better that if you sit

531
00:29:11,720 --> 00:29:13,560
Speaker 3: on the left side of Madison and a little bit further

532
00:29:13,640 --> 00:29:16,160
Speaker 3: north a you're further away from Grand Central station. So

533
00:29:16,720 --> 00:29:19,240
Speaker 3: you really have to know every little piece of sub

534
00:29:19,320 --> 00:29:21,000
Speaker 3: market and that's why our three thousand people on the

535
00:29:21,040 --> 00:29:23,720
Speaker 3: ground do. So that's the first part of your question.

536
00:29:24,200 --> 00:29:26,640
Speaker 3: The second one is Europe. We see two types of Europe.

537
00:29:26,760 --> 00:29:29,760
Speaker 3: One the one that is growing. You know, Spain historically

538
00:29:29,760 --> 00:29:33,120
Speaker 3: have been that way, so that southern countries have seen

539
00:29:33,240 --> 00:29:36,040
Speaker 3: a significant world. Italy as well, we do like, and

540
00:29:36,040 --> 00:29:38,720
Speaker 3: then you have a bit of the distressing markets like Germany.

541
00:29:38,760 --> 00:29:42,840
Speaker 3: Germany has been on a bit of an economic downwind

542
00:29:42,880 --> 00:29:46,239
Speaker 3: for a few years which has impacted real estate. So

543
00:29:46,720 --> 00:29:49,800
Speaker 3: similar to the US, for US, Germany is a place

544
00:29:49,840 --> 00:29:52,680
Speaker 3: that is still very large, the most liquid, biggest market

545
00:29:52,760 --> 00:29:56,600
Speaker 3: in Europe, and therefore, to combined with the UK, we

546
00:29:56,600 --> 00:29:59,640
Speaker 3: can buy a good basis in Germany compared to historical standards.

547
00:30:00,120 --> 00:30:03,360
Speaker 3: In Spain, you're not buying as that of good basis.

548
00:30:03,360 --> 00:30:05,440
Speaker 3: We mentioned the eventsa portfolio being a little bit too

549
00:30:05,480 --> 00:30:08,520
Speaker 3: expensive for us, but you do have more growth. So

550
00:30:08,560 --> 00:30:11,120
Speaker 3: as a real estate investor, we went and balance both. Right,

551
00:30:11,200 --> 00:30:13,800
Speaker 3: markets that we buy really well at good pricing, markets

552
00:30:13,800 --> 00:30:15,360
Speaker 3: that we see a lot of growth, We're not focused

553
00:30:15,360 --> 00:30:18,000
Speaker 3: as much in pricing, and therefore that that's where are

554
00:30:18,040 --> 00:30:20,600
Speaker 3: struting in Europe focus on. I would say the top

555
00:30:20,600 --> 00:30:24,560
Speaker 3: five economy is UK, Germany, France, Italy, Spain, Spain. Now

556
00:30:24,560 --> 00:30:27,280
Speaker 3: we're including Portugal. We did our first investment in Portugal recently.

557
00:30:27,400 --> 00:30:30,440
Speaker 3: The market that is we really like obviously small and

558
00:30:30,480 --> 00:30:33,680
Speaker 3: then sometimes some peripherical markets. I would say, like you know,

559
00:30:33,760 --> 00:30:36,720
Speaker 3: Netherlands is part of it in Eastern Europe like Poland.

560
00:30:37,160 --> 00:30:41,720
Speaker 2: That's really helpful, thank you, Alphonso. So you've mentioned quite

561
00:30:41,760 --> 00:30:44,600
Speaker 2: a few things there. One of the interesting points that

562
00:30:44,720 --> 00:30:48,160
Speaker 2: you made was about looking back twenty or thirty years,

563
00:30:48,200 --> 00:30:50,200
Speaker 2: which I guess you're being a little bit modest about,

564
00:30:50,200 --> 00:30:52,600
Speaker 2: giving that your firm has been around for seventy years,

565
00:30:52,600 --> 00:30:54,560
Speaker 2: as we said at the start, so you maybe have

566
00:30:54,640 --> 00:30:57,880
Speaker 2: a little bit more data than the twenty or thirty

567
00:30:57,960 --> 00:31:01,920
Speaker 2: years to draw on, I guess. But the other thing

568
00:31:01,960 --> 00:31:06,480
Speaker 2: that you mentioned was on the differences in the sort

569
00:31:06,520 --> 00:31:10,200
Speaker 2: of information that you get and in the level of

570
00:31:10,400 --> 00:31:15,480
Speaker 2: information that is disclosed by Europe versus the US. Does

571
00:31:15,520 --> 00:31:21,400
Speaker 2: this translate into very different returns in the countries that

572
00:31:21,440 --> 00:31:26,280
Speaker 2: you mentioned Germany, UK, et cetera, versus the Sunbelt in

573
00:31:26,360 --> 00:31:29,680
Speaker 2: the US where you're knocking on doors and so on

574
00:31:29,840 --> 00:31:31,640
Speaker 2: with the colleagues and so on.

575
00:31:32,120 --> 00:31:35,120
Speaker 3: It does. It does your first statement of data. It's

576
00:31:35,200 --> 00:31:38,120
Speaker 3: interesting because when I join Hines, although we've been around

577
00:31:38,120 --> 00:31:42,600
Speaker 3: for almost seventy years, are databases. Because I'm very data driven,

578
00:31:42,640 --> 00:31:47,000
Speaker 3: I want to see what we've done. Really were started

579
00:31:48,200 --> 00:31:51,040
Speaker 3: in an organized fashion nineteen ninety three, so our data

580
00:31:51,160 --> 00:31:53,680
Speaker 3: from ninety three onwards. About thirty two years is very

581
00:31:53,680 --> 00:31:56,200
Speaker 3: strong because we start tracking every single little piece of

582
00:31:56,240 --> 00:31:59,600
Speaker 3: data in databases. You think about before the nineties and

583
00:31:59,800 --> 00:32:02,320
Speaker 3: eight these, et cetera. I think data was harder to

584
00:32:03,240 --> 00:32:05,960
Speaker 3: store and to track and to put into databases. So

585
00:32:06,440 --> 00:32:08,880
Speaker 3: we use about I would say, thirty years with the

586
00:32:08,960 --> 00:32:11,760
Speaker 3: data to make a lot of the analysis that we make.

587
00:32:11,800 --> 00:32:17,560
Speaker 3: And then yeah, I think, look what's interesting, and I

588
00:32:17,600 --> 00:32:20,920
Speaker 3: said earlier, is that certain markets that Europe, because there

589
00:32:20,960 --> 00:32:24,440
Speaker 3: are multiple countries, different jurisdictions, different ways of tracking some

590
00:32:24,480 --> 00:32:27,320
Speaker 3: of the information things are not as transparent and bail

591
00:32:27,360 --> 00:32:30,240
Speaker 3: will as no data. You don't need to go as

592
00:32:30,320 --> 00:32:33,040
Speaker 3: granular as we do in the US to make a

593
00:32:33,040 --> 00:32:36,600
Speaker 3: certain level of decisions. The fact that we might know something.

594
00:32:37,400 --> 00:32:42,480
Speaker 3: We have teams on the ground that know something about

595
00:32:42,480 --> 00:32:44,440
Speaker 3: an asset, whether we own it in the past or

596
00:32:44,480 --> 00:32:47,920
Speaker 3: we own an asset across the street. We see what's

597
00:32:47,960 --> 00:32:52,040
Speaker 3: being demanded by tenants in that particular market, We see

598
00:32:52,040 --> 00:32:54,400
Speaker 3: where the pricing is going ahead of what is published

599
00:32:55,040 --> 00:33:00,400
Speaker 3: in the public domain. Makes us make calls that have

600
00:33:00,480 --> 00:33:03,640
Speaker 3: a little more volatility in nature, meaning the outcome is

601
00:33:03,640 --> 00:33:06,760
Speaker 3: a little more dispersed because of the lack of data,

602
00:33:06,880 --> 00:33:09,760
Speaker 3: but ultimately return In other words, the standing deviation might

603
00:33:09,760 --> 00:33:11,760
Speaker 3: be a little bit bigger, but the returns tend to

604
00:33:11,760 --> 00:33:13,720
Speaker 3: be outsized in that matter, if you do it well.

605
00:33:14,080 --> 00:33:17,000
Speaker 3: That's what we're thinking about Europe. In the US being

606
00:33:17,040 --> 00:33:22,560
Speaker 3: such a transparent and data focused market, the results are

607
00:33:22,800 --> 00:33:25,920
Speaker 3: more down the fairway, meaning the difference between hinds buying

608
00:33:25,920 --> 00:33:28,880
Speaker 3: and asset or developing and another third party, the difference

609
00:33:28,920 --> 00:33:31,600
Speaker 3: in returns are not going to be huge because there's

610
00:33:31,800 --> 00:33:35,440
Speaker 3: so much data available and information is so widely transparent

611
00:33:36,080 --> 00:33:40,440
Speaker 3: that we really have to employ a different tactic, I

612
00:33:40,440 --> 00:33:43,040
Speaker 3: would say in the US, and our tactic in the US,

613
00:33:43,600 --> 00:33:47,480
Speaker 3: as opposed to using data and selecting the specific markets

614
00:33:47,520 --> 00:33:50,440
Speaker 3: that everybody can do or see even the specific ACIDS,

615
00:33:51,120 --> 00:33:55,280
Speaker 3: is selecting assets and investments that we can come in

616
00:33:55,360 --> 00:34:00,640
Speaker 3: as a very clear integrative firm and generate alpha. So

617
00:34:00,720 --> 00:34:03,160
Speaker 3: it's less about the market itself, it's more about the

618
00:34:03,880 --> 00:34:06,400
Speaker 3: firm generating alf a individual ass And what does that

619
00:34:06,440 --> 00:34:09,640
Speaker 3: mean by that? I mean we take assets that anybody

620
00:34:09,640 --> 00:34:12,720
Speaker 3: can buy and have different business plans and we try

621
00:34:12,760 --> 00:34:16,160
Speaker 3: to look at it and see how do we generate

622
00:34:16,920 --> 00:34:20,000
Speaker 3: additional alpha at the asset level. By making an improvement

623
00:34:20,040 --> 00:34:23,319
Speaker 3: in the ASCID as opposed to writing the market. Because

624
00:34:23,320 --> 00:34:25,560
Speaker 3: the market is so transparent, everybody can write it. So

625
00:34:25,960 --> 00:34:27,600
Speaker 3: what we do is, like we look at it, I

626
00:34:27,600 --> 00:34:30,000
Speaker 3: don't know a shopping center, a retail facility, and apartment

627
00:34:30,040 --> 00:34:32,799
Speaker 3: building that is older logistics as what can we do,

628
00:34:32,840 --> 00:34:34,640
Speaker 3: what sort of improvements can we do on the asset

629
00:34:34,680 --> 00:34:38,879
Speaker 3: to drive more revenue? Sometimes it's revenue items that we're

630
00:34:38,880 --> 00:34:41,799
Speaker 3: looking for, you know, you know, improve the asset, making

631
00:34:41,960 --> 00:34:44,680
Speaker 3: better looking and therefore we can charge more rents. And

632
00:34:44,719 --> 00:34:47,439
Speaker 3: we have our own engineering teams and conceptual construction teams

633
00:34:47,440 --> 00:34:49,040
Speaker 3: that do that. Sometimes when you look at it is

634
00:34:49,080 --> 00:34:51,759
Speaker 3: improve the costs. We can operate it more efficiently from

635
00:34:51,760 --> 00:34:54,400
Speaker 3: a cost perspective and generate more income and therefore that

636
00:34:54,440 --> 00:34:57,400
Speaker 3: asset is worth more. So the US is more about

637
00:34:58,360 --> 00:35:01,680
Speaker 3: what can we individually do to drive that alpha because

638
00:35:01,719 --> 00:35:04,840
Speaker 3: everybody else knows what's going on all these markets. Europe

639
00:35:04,880 --> 00:35:06,719
Speaker 3: is more about where do we see the arbit charge

640
00:35:06,719 --> 00:35:08,800
Speaker 3: because there's a lack of information, and we can buy

641
00:35:08,880 --> 00:35:12,480
Speaker 3: things by knowing these markets at pricing that we know

642
00:35:12,640 --> 00:35:14,840
Speaker 3: is going to change, and then we still ad alpha,

643
00:35:15,000 --> 00:35:18,040
Speaker 3: no question about that. But I think you know the

644
00:35:19,160 --> 00:35:21,399
Speaker 3: return outcome is higher, right, Just.

645
00:35:21,320 --> 00:35:24,280
Speaker 2: To push a little bit more on the returns question,

646
00:35:25,280 --> 00:35:29,200
Speaker 2: there is a differential there, as you stated, what sorts

647
00:35:29,200 --> 00:35:32,279
Speaker 2: of differential are we talking about? I know there's the

648
00:35:32,360 --> 00:35:36,440
Speaker 2: effects to consider also, but is it two or three points?

649
00:35:36,520 --> 00:35:39,200
Speaker 2: Is it less than that in terms of percentage returns

650
00:35:39,600 --> 00:35:43,359
Speaker 2: US versus Europe? And then I have another question on

651
00:35:43,800 --> 00:35:46,040
Speaker 2: something that you mentioned to do with changing the use

652
00:35:46,080 --> 00:35:48,960
Speaker 2: of property and so on, which is quite interesting from

653
00:35:49,000 --> 00:35:49,960
Speaker 2: our perspective too.

654
00:35:50,440 --> 00:35:52,799
Speaker 3: Yep, So you have to look at the things. Obviously,

655
00:35:53,080 --> 00:35:55,400
Speaker 3: the returns in real city you look at in two ways.

656
00:35:55,400 --> 00:35:58,560
Speaker 3: One is on we're on an unlevered basis and other

657
00:35:58,600 --> 00:36:01,520
Speaker 3: ones on a lever basis. Right before you use debt

658
00:36:01,640 --> 00:36:04,640
Speaker 3: in order to enhance your returns or including the capital structure,

659
00:36:04,640 --> 00:36:07,040
Speaker 3: it's just what the real estate produces. And then if

660
00:36:07,080 --> 00:36:10,320
Speaker 3: you use leverage or debt, then obviously you can. If

661
00:36:10,360 --> 00:36:12,319
Speaker 3: the cost of debt is lower than what they the

662
00:36:12,360 --> 00:36:15,879
Speaker 3: asset produces you is obviously a creative to your returns.

663
00:36:16,800 --> 00:36:20,080
Speaker 3: I think on an unlevered basis, returns tend to be

664
00:36:20,120 --> 00:36:22,960
Speaker 3: a little bit similar at the end in the US.

665
00:36:22,960 --> 00:36:27,040
Speaker 3: In Europe where it changes is on a leveled basis

666
00:36:27,040 --> 00:36:29,640
Speaker 3: because interest rates are lower in the Europe that they're

667
00:36:29,680 --> 00:36:32,719
Speaker 3: in the US, and therefore I think we're able to,

668
00:36:33,040 --> 00:36:36,319
Speaker 3: you know, add a bit of more return enhancement in

669
00:36:36,360 --> 00:36:38,440
Speaker 3: some of the investments we make in Europe. Hard to

670
00:36:38,560 --> 00:36:42,160
Speaker 3: quantify in a blank statement, it's one hundred basis points

671
00:36:42,160 --> 00:36:43,799
Speaker 3: one hundred and fifty. It depends on the type of

672
00:36:43,800 --> 00:36:46,720
Speaker 3: asset and the market. But I would say generally speaking,

673
00:36:46,800 --> 00:36:50,120
Speaker 3: you probably have you know, a few hundred basis points

674
00:36:50,440 --> 00:36:52,719
Speaker 3: at the end of the day better in Europe. But

675
00:36:52,800 --> 00:36:55,680
Speaker 3: that changes, right if Europe enters in a recession or

676
00:36:55,760 --> 00:36:57,680
Speaker 3: something happens with some of the economies, the US might

677
00:36:57,680 --> 00:37:00,719
Speaker 3: become more attractive or interested particularly and interest rates go

678
00:37:00,800 --> 00:37:03,719
Speaker 3: down in the US. If they go down, I think

679
00:37:03,760 --> 00:37:06,600
Speaker 3: the US becomes more and more attractive from a return perspective.

680
00:37:07,080 --> 00:37:09,160
Speaker 3: Right now, the introt you just look at the interest

681
00:37:09,200 --> 00:37:12,560
Speaker 3: are differentials between Europe and the US, and that's kind

682
00:37:12,600 --> 00:37:14,759
Speaker 3: of what gives you the difference in return that you

683
00:37:14,760 --> 00:37:16,040
Speaker 3: will get one with versus the other.

684
00:37:16,120 --> 00:37:20,560
Speaker 1: Right on the distress side, Alfonso, last year, one year ago,

685
00:37:20,600 --> 00:37:23,440
Speaker 1: probably cre was kind of a dirty word, you know,

686
00:37:23,719 --> 00:37:27,120
Speaker 1: was scared of commercial real estate blowing up and there

687
00:37:27,160 --> 00:37:29,879
Speaker 1: were scenarios in which, you know, thousands of regional banks

688
00:37:29,880 --> 00:37:32,080
Speaker 1: in the US would disappear under the weight of all

689
00:37:32,120 --> 00:37:35,000
Speaker 1: this debt. Obviously that was exaggerated and it didn't happen.

690
00:37:35,120 --> 00:37:37,520
Speaker 1: But to what extent do you think we will see

691
00:37:37,600 --> 00:37:43,120
Speaker 1: more distress coming from commercial real estate or large scale

692
00:37:43,760 --> 00:37:46,760
Speaker 1: non performing loan sales by regional banks, or even failures

693
00:37:46,760 --> 00:37:47,360
Speaker 1: by the banks.

694
00:37:47,840 --> 00:37:52,520
Speaker 3: If if I knew this, I would be I would

695
00:37:52,520 --> 00:37:56,000
Speaker 3: be doing something else. But I do think there's two

696
00:37:56,080 --> 00:38:00,360
Speaker 3: types of distress right. One is operating distress assets that

697
00:38:00,360 --> 00:38:02,880
Speaker 3: are having a tough time operating. You can't lease it,

698
00:38:03,239 --> 00:38:06,040
Speaker 3: you know you can't, you know the acid is obsolete,

699
00:38:06,840 --> 00:38:08,520
Speaker 3: you know it's not working out. And then you have

700
00:38:08,560 --> 00:38:12,640
Speaker 3: the pricing distress driven by the overall market. We have seen,

701
00:38:13,440 --> 00:38:14,960
Speaker 3: well you look at the US or for that matter,

702
00:38:15,840 --> 00:38:19,360
Speaker 3: the US has been more acute. We see significant value erosion,

703
00:38:19,440 --> 00:38:21,200
Speaker 3: as you said, over the last two years the moment

704
00:38:21,200 --> 00:38:24,320
Speaker 3: interest rates started going up in the summer of twenty

705
00:38:24,320 --> 00:38:27,759
Speaker 3: twenty two, up until last year the end of twenty

706
00:38:27,840 --> 00:38:30,839
Speaker 3: twenty four, we saw values go down and go down,

707
00:38:30,920 --> 00:38:33,879
Speaker 3: and that's really what creates the stress, right because then

708
00:38:33,920 --> 00:38:38,080
Speaker 3: you have people who can't cover their debt service who

709
00:38:38,400 --> 00:38:41,520
Speaker 3: values are the assets are below the value of the loans.

710
00:38:43,080 --> 00:38:46,720
Speaker 3: So we saw the overall US real estate stock probably

711
00:38:46,760 --> 00:38:51,600
Speaker 3: went down by twenty twenty percent on average. Some asset

712
00:38:51,640 --> 00:38:54,600
Speaker 3: classes like office over the last two years have seen

713
00:38:54,760 --> 00:38:57,880
Speaker 3: a much bigger erosion in value on average forty to

714
00:38:57,960 --> 00:39:03,719
Speaker 3: fifty percent, some cases seven percent. And then assets like apartments.

715
00:39:04,120 --> 00:39:06,920
Speaker 3: Good apartments probably haven't gone as much down, but you

716
00:39:07,080 --> 00:39:10,839
Speaker 3: still saw ten to twove percent going down, So that

717
00:39:10,920 --> 00:39:16,279
Speaker 3: value erotion starts the opportunity. The second one is the

718
00:39:17,000 --> 00:39:20,000
Speaker 3: financing and the maturities of these assets. Because when you

719
00:39:20,080 --> 00:39:23,640
Speaker 3: go to refinancing ascid because the loan is due, right,

720
00:39:23,719 --> 00:39:26,080
Speaker 3: it's a maturity, and the acid is worth a lot less.

721
00:39:26,520 --> 00:39:29,000
Speaker 3: There's a problem. Somebody has to make up for the shortfall,

722
00:39:29,080 --> 00:39:31,400
Speaker 3: whether is the owner putting more money in order to

723
00:39:31,440 --> 00:39:33,359
Speaker 3: refinance it or the bank taking it back and selling

724
00:39:33,400 --> 00:39:36,319
Speaker 3: it a loss. I think we just see in the

725
00:39:36,360 --> 00:39:39,520
Speaker 3: beginning of this trend because what happens in real set

726
00:39:39,520 --> 00:39:42,719
Speaker 3: I suppose to other financial asset classes. These processes take

727
00:39:42,760 --> 00:39:45,080
Speaker 3: a very long time. You see it on the news,

728
00:39:45,080 --> 00:39:48,440
Speaker 3: you see it in Bloomberg. Sometimes they say, well, this

729
00:39:49,760 --> 00:39:51,960
Speaker 3: owner gave back the asseid to the bank or the

730
00:39:52,000 --> 00:39:54,279
Speaker 3: bank took it over there fore closed and solved it right,

731
00:39:54,600 --> 00:39:58,560
Speaker 3: And you look at when that loan defaulted and it's

732
00:39:58,600 --> 00:40:02,040
Speaker 3: two years ago, so they've been working for two years

733
00:40:02,080 --> 00:40:04,600
Speaker 3: between the bank and the owner. They've been working or

734
00:40:04,640 --> 00:40:07,600
Speaker 3: dealing for two years with this situation. And then finally

735
00:40:07,600 --> 00:40:11,400
Speaker 3: when things that are no longer viable, they basically go

736
00:40:11,520 --> 00:40:14,120
Speaker 3: into the stress. So we haven't seen a lot of

737
00:40:14,120 --> 00:40:15,800
Speaker 3: that yet, and we're going to see a lot more.

738
00:40:16,800 --> 00:40:20,319
Speaker 3: I think these workouts, these things that are been going on,

739
00:40:20,560 --> 00:40:23,200
Speaker 3: extending and pretending banks saying I don't have the capacity

740
00:40:23,239 --> 00:40:24,839
Speaker 3: to take all along this real estale. Let's just give

741
00:40:24,880 --> 00:40:27,560
Speaker 3: them some extension. But that comes to a limit. It's

742
00:40:27,560 --> 00:40:29,640
Speaker 3: going to come to an end, right, whether it is

743
00:40:29,760 --> 00:40:32,440
Speaker 3: apartments that were required, you know post COVID are very

744
00:40:32,480 --> 00:40:35,839
Speaker 3: high values when prices run up, and then we've been refinenced,

745
00:40:36,280 --> 00:40:39,080
Speaker 3: whether it's industrial assets that are not leasing. You know,

746
00:40:39,080 --> 00:40:41,040
Speaker 3: industrial has been the darling, but a lot of the

747
00:40:41,160 --> 00:40:44,040
Speaker 3: vacant industrial space is not leasing in the US right now,

748
00:40:44,600 --> 00:40:47,320
Speaker 3: or obviously office buildings that have lost half of its value,

749
00:40:48,000 --> 00:40:50,399
Speaker 3: and the banks are saying okay enough, and then we're

750
00:40:50,400 --> 00:40:53,560
Speaker 3: going to so I mean, there's no nobody comes to

751
00:40:53,600 --> 00:40:57,200
Speaker 3: Bloomberg and says, hey, the party is on the stresses.

752
00:40:57,239 --> 00:41:00,560
Speaker 3: They're ready go buy cheap assets, you know, because always

753
00:41:00,600 --> 00:41:02,759
Speaker 3: the markets wouldn't be efficient. You really have to look

754
00:41:02,800 --> 00:41:06,040
Speaker 3: through that and work and I think what we're seeing

755
00:41:06,520 --> 00:41:07,680
Speaker 3: and we're going to see a lot more of that

756
00:41:07,840 --> 00:41:12,080
Speaker 3: coming that repricing those maturities and then the pricing distress.

757
00:41:12,360 --> 00:41:14,440
Speaker 3: What I'm worried about is the operating the stress. If

758
00:41:14,480 --> 00:41:17,880
Speaker 3: we get into an economic headwind, if we if we

759
00:41:17,880 --> 00:41:20,839
Speaker 3: see the economy sort of slow down, what is that

760
00:41:20,880 --> 00:41:23,880
Speaker 3: going to mean for corporate renting in you know, logistic

761
00:41:23,960 --> 00:41:26,920
Speaker 3: assets or office buildings, or people being able to you know,

762
00:41:26,920 --> 00:41:29,080
Speaker 3: if they lose their jobs. Employment is holding off, but

763
00:41:29,120 --> 00:41:32,160
Speaker 3: if if unemployment goes up, then that's a big indicator

764
00:41:32,239 --> 00:41:34,640
Speaker 3: for the living sector. How do people are going to

765
00:41:34,640 --> 00:41:37,280
Speaker 3: have for apartments? And that's where I'm really worried about,

766
00:41:37,400 --> 00:41:40,400
Speaker 3: you know, looking at the fundamentals, making sure they hold it,

767
00:41:40,520 --> 00:41:42,480
Speaker 3: they don't hold which sectors are going to be impacted

768
00:41:42,520 --> 00:41:46,080
Speaker 3: first and then which ones come later. That's that's the

769
00:41:46,080 --> 00:41:48,200
Speaker 3: way I think. But we'll see we're going to see

770
00:41:48,200 --> 00:41:50,080
Speaker 3: a good opportunity going forward to question about.

771
00:41:49,840 --> 00:41:51,880
Speaker 1: That, but just to be clear, rate stay high in

772
00:41:51,880 --> 00:41:53,759
Speaker 1: the economy starts to slow down, we're going to see

773
00:41:53,760 --> 00:41:56,319
Speaker 1: a major distress cycle in real estate.

774
00:41:56,400 --> 00:42:00,000
Speaker 3: You think if rates stay high and the economy is

775
00:42:00,000 --> 00:42:03,400
Speaker 3: slows down, which according to currents, I think that's tacklation

776
00:42:03,600 --> 00:42:08,960
Speaker 3: then or inflation stays up, and I think do applies

777
00:42:09,040 --> 00:42:12,320
Speaker 3: see a bigger wave of you know, assets in distress,

778
00:42:12,520 --> 00:42:13,319
Speaker 3: no question about that.

779
00:42:13,719 --> 00:42:15,200
Speaker 1: Globally or just in the US.

780
00:42:15,600 --> 00:42:18,040
Speaker 3: I think things to tend tend to be more global,

781
00:42:18,080 --> 00:42:20,800
Speaker 3: but I mean with the the globalization that we're seeing

782
00:42:20,800 --> 00:42:24,879
Speaker 3: as a result of countries and different sectors and administrations

783
00:42:25,080 --> 00:42:27,319
Speaker 3: in different roles, I think it's going to be more

784
00:42:27,320 --> 00:42:32,000
Speaker 3: acute in the US and then followed by certain countries

785
00:42:32,040 --> 00:42:35,560
Speaker 3: potentially in Europe. We saw in Germany for the Germany

786
00:42:35,560 --> 00:42:37,440
Speaker 3: has been on another level of distress for a few

787
00:42:37,480 --> 00:42:42,360
Speaker 3: years already. And then Asia probably not because Asia is

788
00:42:42,400 --> 00:42:45,120
Speaker 3: still a growing market. And when I say Asia is

789
00:42:45,200 --> 00:42:48,080
Speaker 3: ex China, I mean China is a world within its own,

790
00:42:48,120 --> 00:42:49,359
Speaker 3: So I don't know what's going to happen there.

791
00:42:49,280 --> 00:42:54,359
Speaker 2: Right, That's fair enough. It is definitely of its own

792
00:42:54,400 --> 00:42:57,560
Speaker 2: and even within our coverage we have those that just

793
00:42:57,600 --> 00:43:01,120
Speaker 2: solely focus on the Chinese real estate because it's so

794
00:43:02,719 --> 00:43:05,799
Speaker 2: huge and has its own drivers and so on. But

795
00:43:05,960 --> 00:43:10,080
Speaker 2: just back to something that you mentioned about the interaction

796
00:43:10,200 --> 00:43:12,960
Speaker 2: with banks and so on. You also talked about how

797
00:43:13,000 --> 00:43:16,479
Speaker 2: you knock on doors to try and get deals given

798
00:43:16,560 --> 00:43:20,239
Speaker 2: how competitive the market can be. Can you maybe talk

799
00:43:20,280 --> 00:43:22,920
Speaker 2: about how you're working with banks, if at all, in

800
00:43:23,000 --> 00:43:27,360
Speaker 2: terms of getting as close as possible to these distressed

801
00:43:27,360 --> 00:43:30,520
Speaker 2: opportunities that you think make sense. And then when you're

802
00:43:30,520 --> 00:43:33,160
Speaker 2: talking about the distressed opportunities, obviously you talked about the

803
00:43:33,160 --> 00:43:37,839
Speaker 2: different types of distress and so on. Have you been

804
00:43:38,120 --> 00:43:42,800
Speaker 2: in can you talk about situations maybe where what looked

805
00:43:42,960 --> 00:43:47,880
Speaker 2: like just price distress ended up being more the operational

806
00:43:48,000 --> 00:43:51,400
Speaker 2: or economic distress over the last couple of years or

807
00:43:51,440 --> 00:43:55,080
Speaker 2: more that you have been looking at those sorts of opportunities.

808
00:43:55,840 --> 00:43:59,600
Speaker 3: Yeah, I mean, first to your first question, the financial institutions,

809
00:43:59,600 --> 00:44:03,120
Speaker 3: whereas bank, insurance company and an alternative lender, they don't like

810
00:44:03,239 --> 00:44:06,560
Speaker 3: to I mean, nobody likes to say, you know, I

811
00:44:06,640 --> 00:44:09,960
Speaker 3: have a distress problem inside my book of assets, right,

812
00:44:10,400 --> 00:44:12,799
Speaker 3: so they're not going to publicize it. You're not going

813
00:44:12,840 --> 00:44:15,640
Speaker 3: to see that openly on the market. If you go

814
00:44:15,680 --> 00:44:18,719
Speaker 3: and talk to them and say, hey, you know you

815
00:44:18,760 --> 00:44:20,480
Speaker 3: want to talk about all your distress. How can I

816
00:44:20,480 --> 00:44:22,360
Speaker 3: help you, They're not going to help. They're gonna say, yes,

817
00:44:22,520 --> 00:44:25,120
Speaker 3: quite frankly, banks are you know, these financial positions are

818
00:44:25,160 --> 00:44:28,000
Speaker 3: well capitalized. They're having problems in some other assets. So

819
00:44:28,040 --> 00:44:32,200
Speaker 3: the approach we take is a collaborative approach. We we

820
00:44:32,360 --> 00:44:34,640
Speaker 3: go in because we have such a big infrastructure. We

821
00:44:34,719 --> 00:44:38,440
Speaker 3: go in and say, you know, how can we help? Right,

822
00:44:38,600 --> 00:44:42,240
Speaker 3: you have assets that are underperforming, you might be taking

823
00:44:42,239 --> 00:44:45,640
Speaker 3: some assets back, you have some loans that are potentially

824
00:44:45,760 --> 00:44:50,840
Speaker 3: on default. Could we help you with some of your issues?

825
00:44:51,400 --> 00:44:53,560
Speaker 3: Can we help you manage as opposed to say can

826
00:44:53,560 --> 00:44:56,479
Speaker 3: I buy an asset for twenty cents on the dollar?

827
00:44:56,640 --> 00:44:59,680
Speaker 3: Now that they obviously don't like that, right, So we

828
00:44:59,760 --> 00:45:03,359
Speaker 3: start by trying to help our lending counterparts because that's

829
00:45:03,400 --> 00:45:05,680
Speaker 3: where they probably need more help. And then, quite frankly,

830
00:45:06,520 --> 00:45:08,920
Speaker 3: we're not vultures. So the way we do do we

831
00:45:08,960 --> 00:45:11,520
Speaker 3: have a credit fund that you know, investing in high

832
00:45:11,600 --> 00:45:14,920
Speaker 3: quality office and the US and you know, we go

833
00:45:15,000 --> 00:45:17,040
Speaker 3: in and talk to financial institutions say, well, you know,

834
00:45:17,360 --> 00:45:19,120
Speaker 3: let us help you out wedge assets. You know where

835
00:45:19,120 --> 00:45:21,480
Speaker 3: can we pay you more? In fact, instead of where

836
00:45:21,480 --> 00:45:24,000
Speaker 3: can we pay you less, we'll say where can we

837
00:45:24,000 --> 00:45:27,799
Speaker 3: pay you more? Because that's how you help the financial institutions.

838
00:45:27,800 --> 00:45:29,680
Speaker 3: So you look at their book of assets or some

839
00:45:29,760 --> 00:45:31,880
Speaker 3: of the loans and said, but this particular is a

840
00:45:31,880 --> 00:45:34,319
Speaker 3: great asset. We could buy the loan from you. We

841
00:45:34,360 --> 00:45:36,560
Speaker 3: can partner with you and try to pay you as

842
00:45:36,640 --> 00:45:38,839
Speaker 3: much as we can. So then the market, you know,

843
00:45:38,880 --> 00:45:40,719
Speaker 3: will see that their balance sheets are in a better

844
00:45:40,760 --> 00:45:43,959
Speaker 3: position because you're paying them a higher value. We don't

845
00:45:44,040 --> 00:45:46,040
Speaker 3: like going and trying to take advantage and paying the

846
00:45:46,080 --> 00:45:49,000
Speaker 3: lowest amount of value those none performing cheap loans is

847
00:45:49,000 --> 00:45:51,160
Speaker 3: not where we go after. We go for high quality

848
00:45:51,400 --> 00:45:54,680
Speaker 3: where we can pay top dollar. The banks like it.

849
00:45:54,680 --> 00:45:56,359
Speaker 3: It shows that they have a good bond, and we've

850
00:45:56,360 --> 00:46:00,239
Speaker 3: been doing that. We gave with some financial institutions who

851
00:46:00,440 --> 00:46:02,960
Speaker 3: either have to sell the loans or have to come

852
00:46:02,960 --> 00:46:05,600
Speaker 3: in with additional capital. We come in and we try

853
00:46:05,640 --> 00:46:08,319
Speaker 3: to be as fair as possible because ultimately that's how

854
00:46:08,360 --> 00:46:11,760
Speaker 3: you on surface more or how you surface more opportunities.

855
00:46:12,760 --> 00:46:15,880
Speaker 3: So we've been inactive dialogue with a lot of these banks,

856
00:46:15,880 --> 00:46:18,360
Speaker 3: and we provide a service too. Sometimes we might not

857
00:46:18,440 --> 00:46:20,520
Speaker 3: end up investing, but we give them advice and that

858
00:46:20,600 --> 00:46:23,040
Speaker 3: advice is valuable. Is a very strong team on the ground,

859
00:46:23,120 --> 00:46:25,120
Speaker 3: So our approach is a little bit different than some

860
00:46:25,200 --> 00:46:27,759
Speaker 3: of these big financial hedge funds that all they want

861
00:46:27,760 --> 00:46:29,880
Speaker 3: to do is buy big porfolios have very heavily dis

862
00:46:30,000 --> 00:46:32,960
Speaker 3: kind of pricing. That's that's not the way we operate.

863
00:46:33,200 --> 00:46:34,719
Speaker 3: And then your second question was the type of the

864
00:46:34,719 --> 00:46:37,279
Speaker 3: stress and operationally, yeah, I mean that we've seen. You know,

865
00:46:37,840 --> 00:46:41,719
Speaker 3: typically office has been one that has been hit by

866
00:46:41,719 --> 00:46:45,080
Speaker 3: the double side, right, you know, they were pricing going

867
00:46:45,120 --> 00:46:48,239
Speaker 3: down and nobody wanting to lease space. So you end

868
00:46:48,320 --> 00:46:51,040
Speaker 3: up with an asset that has been hit both from

869
00:46:51,080 --> 00:46:55,080
Speaker 3: a lack of demand for its use and then a

870
00:46:57,000 --> 00:47:01,359
Speaker 3: significant price erosion. And I contrast that with our top call,

871
00:47:01,400 --> 00:47:04,880
Speaker 3: which is apartments, where you could have an evalue erosal

872
00:47:04,960 --> 00:47:07,759
Speaker 3: apartments because it was purchased a very high price using

873
00:47:07,880 --> 00:47:11,280
Speaker 3: very cheap financing, and therefore now they ask that value

874
00:47:11,600 --> 00:47:14,520
Speaker 3: or that asset has gone down in value. But apartments,

875
00:47:14,560 --> 00:47:18,120
Speaker 3: the interesting thing about apartments is that you always lease them.

876
00:47:18,520 --> 00:47:21,000
Speaker 3: An office building can be vacant for a while because

877
00:47:21,040 --> 00:47:23,319
Speaker 3: you can't find somebody to lease it. No company wants

878
00:47:23,320 --> 00:47:26,640
Speaker 3: to lease it. Apartments is not the case. Apartments in

879
00:47:26,640 --> 00:47:28,719
Speaker 3: the US are always leased. And I know these people

880
00:47:28,719 --> 00:47:31,680
Speaker 3: who might disagree with me, this always least you can

881
00:47:31,760 --> 00:47:34,120
Speaker 3: always get them leased because there's always demand. All you

882
00:47:34,200 --> 00:47:37,840
Speaker 3: have to do is move the pricing right, move the rents.

883
00:47:37,920 --> 00:47:40,279
Speaker 3: So if I have an apartment building and I lower

884
00:47:40,320 --> 00:47:43,319
Speaker 3: the rents, people will rent it, no matter what type

885
00:47:43,320 --> 00:47:45,200
Speaker 3: part of the economy, no matter where an intersession of

886
00:47:45,280 --> 00:47:47,600
Speaker 3: people rented. That's not the case with other assets like

887
00:47:47,640 --> 00:47:52,799
Speaker 3: industrial and obviously office buildings or even hotels. Hotels are

888
00:47:52,800 --> 00:47:56,799
Speaker 3: extremely sensitive to economic factors. Apartments, you know, you can

889
00:47:56,840 --> 00:47:58,960
Speaker 3: just lowder the rents and people will come and rent them,

890
00:47:59,480 --> 00:48:01,719
Speaker 3: and you keep it occupy and pay. Obviously you have

891
00:48:01,719 --> 00:48:05,080
Speaker 3: a long return. But even so I think those are

892
00:48:05,120 --> 00:48:08,040
Speaker 3: examples that you know, I think apartments we like it

893
00:48:08,080 --> 00:48:11,000
Speaker 3: because you get the pricing distressed, not the operational distress. Right.

894
00:48:11,560 --> 00:48:13,399
Speaker 1: So it sounds like you're not just surviving, but you're

895
00:48:13,400 --> 00:48:15,879
Speaker 1: thriving through twenty five. You'll probably make it through twenty six.

896
00:48:16,080 --> 00:48:18,279
Speaker 1: But what gives you the edge, Alfonso? How do you

897
00:48:18,560 --> 00:48:20,919
Speaker 1: differentiate yourself? How do you keep ahead of the pack?

898
00:48:21,320 --> 00:48:25,000
Speaker 3: Well, I think in difficult times, a big storm that

899
00:48:25,040 --> 00:48:30,080
Speaker 3: we can go through, or volatility and uncertainty, that's where

900
00:48:30,120 --> 00:48:34,680
Speaker 3: the best opportunities arise. That's where people who think, use data,

901
00:48:35,640 --> 00:48:39,719
Speaker 3: anticipate trends, make probably the best investments right because on

902
00:48:39,760 --> 00:48:42,479
Speaker 3: the rising tide is hard and you can get caught.

903
00:48:42,600 --> 00:48:48,600
Speaker 3: So I'm excited. I'm worried about the volatility. I'm worried

904
00:48:48,600 --> 00:48:51,799
Speaker 3: about some of the geopolitical events things, but those are

905
00:48:51,840 --> 00:48:56,800
Speaker 3: things typically we can control. I'm excited about surfacing great

906
00:48:56,840 --> 00:49:02,400
Speaker 3: investment opportunities and being able to access assets and investments

907
00:49:02,440 --> 00:49:04,560
Speaker 3: are well, you know, attractively priced and are going to

908
00:49:04,640 --> 00:49:07,920
Speaker 3: do well. I'm excited about the living sector. I'm excited

909
00:49:07,920 --> 00:49:10,800
Speaker 3: about technology. You're driven investing. You know, we're active in

910
00:49:10,880 --> 00:49:14,680
Speaker 3: data centers, and I think both in the US and Europe,

911
00:49:14,800 --> 00:49:18,280
Speaker 3: you always find opportunities. Just making sure you're disciplined, making

912
00:49:18,440 --> 00:49:22,600
Speaker 3: sure you underwrite assets and you create projections, you factor

913
00:49:22,640 --> 00:49:27,600
Speaker 3: in worse possible scenarios, don't get too aggressive, and then

914
00:49:27,920 --> 00:49:30,960
Speaker 3: take advantage. I mean, look, unfortunately it is not in

915
00:49:31,000 --> 00:49:34,120
Speaker 3: a bad way, but take advantage of this volatility and

916
00:49:34,280 --> 00:49:36,960
Speaker 3: need for liquidity of those that are dying to get

917
00:49:37,000 --> 00:49:42,080
Speaker 3: out because they're worried take advantage to access investments. Otherwise

918
00:49:42,080 --> 00:49:44,360
Speaker 3: we're not going to be able to access in a

919
00:49:44,400 --> 00:49:48,279
Speaker 3: discipline fashion. So for me, you know, yeah, you wake

920
00:49:48,360 --> 00:49:50,120
Speaker 3: up worried about what you read on the news. But

921
00:49:50,200 --> 00:49:51,319
Speaker 3: on the other hands, so how do we make this

922
00:49:51,360 --> 00:49:53,680
Speaker 3: an opportunity for our clients? And that's what we're doing

923
00:49:53,719 --> 00:49:54,080
Speaker 3: every day.

924
00:49:54,160 --> 00:49:56,480
Speaker 1: Right Where is the best relative value right now?

925
00:49:56,840 --> 00:50:00,960
Speaker 3: I would say, and again know what we do, but

926
00:50:01,000 --> 00:50:03,480
Speaker 3: that's ultimately what your place. The ships, I personally and

927
00:50:03,520 --> 00:50:05,200
Speaker 3: the firm invest in a lot of these things, so

928
00:50:06,120 --> 00:50:11,120
Speaker 3: you know, office credit, we do, like I'm personally invested

929
00:50:11,200 --> 00:50:14,799
Speaker 3: significantly through the firm because we feel there's an arbitruge there,

930
00:50:14,960 --> 00:50:18,719
Speaker 3: very attractive returns. I would say. Secondly, I would go

931
00:50:18,800 --> 00:50:21,880
Speaker 3: to living and retail assets that are being mispriced. You

932
00:50:21,880 --> 00:50:25,160
Speaker 3: can buy them at values that have been significantly decreased

933
00:50:25,680 --> 00:50:28,920
Speaker 3: and access those. Those those where I will focus most

934
00:50:28,920 --> 00:50:33,840
Speaker 3: of my attention right now and then obviously at some point,

935
00:50:34,080 --> 00:50:36,560
Speaker 3: but again it's all right at some point because there's

936
00:50:36,560 --> 00:50:39,640
Speaker 3: no development and there's a lack of supply, there's some

937
00:50:39,719 --> 00:50:41,400
Speaker 3: markets that are gonna be like, wait, we haven't built

938
00:50:41,440 --> 00:50:43,839
Speaker 3: an apartment building four years, so we haven't built something

939
00:50:43,880 --> 00:50:46,880
Speaker 3: in four five years. The new building is going to

940
00:50:46,960 --> 00:50:49,560
Speaker 3: generate very attractive returns, so but that's down the line,

941
00:50:49,560 --> 00:50:51,239
Speaker 3: probably two three years on the line, right.

942
00:50:51,200 --> 00:50:54,360
Speaker 1: Great stuff, Alfonso Monk, who oversees the debt business at Heines,

943
00:50:54,400 --> 00:50:56,560
Speaker 1: It's been a pleasure having you on the Credit Edge

944
00:50:56,600 --> 00:50:59,239
Speaker 1: any thanks, thank you very much, and of course you're

945
00:50:59,280 --> 00:51:02,279
Speaker 1: very grateful to tell Almutu from Bloomberg Intelligence. Thanks for

946
00:51:02,320 --> 00:51:02,919
Speaker 1: joining us today.

947
00:51:02,920 --> 00:51:04,120
Speaker 3: Tulu, great to be here.

948
00:51:04,120 --> 00:51:07,080
Speaker 1: As always, for even more credit analysis, read all of

949
00:51:07,160 --> 00:51:11,400
Speaker 1: Tolu Alamutu's great work on the Bloomberg Terminal. Bloomberg Intelligence

950
00:51:11,520 --> 00:51:14,160
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951
00:51:14,160 --> 00:51:17,759
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952
00:51:17,760 --> 00:51:20,600
Speaker 1: thousand equities and credits and outlooks on more than ninety

953
00:51:20,640 --> 00:51:25,280
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954
00:51:25,320 --> 00:51:28,319
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955
00:51:28,680 --> 00:51:31,720
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956
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957
00:51:35,640 --> 00:51:39,040
Speaker 1: tell your friends, or email me directly at Jcrombieight at

958
00:51:39,120 --> 00:51:42,600
Speaker 1: Bloomberg dot net. I'm James Crombie. It's been a pleasure

959
00:51:42,640 --> 00:52:05,600
Speaker 1: having you join us again next week on the Credit Edge.