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Speaker 1: This is Master's in Business with Barry Ridholds on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: Kathy Marcus is co CEO and Global COO of Pigium

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Speaker 1: real Estate, a two hundred and eight billion dollar investor

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Speaker 1: in real estate, part of the giant real estate investment

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Speaker 1: firm Pigium. She has had a number of different positions

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Speaker 1: within Pigium, including managing their flagship Core real Estate fund

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Speaker 1: before she moved into management. She has been on all

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Speaker 1: of the big lists, Baron's one hundred most Influential Women

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Speaker 1: in US finance, lots and lots of others. There are

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Speaker 1: few people in the world better situated to discuss commercial

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Speaker 1: real estate investing from every perspective. They do debt, they

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Speaker 1: do equity, they invest in public real estate, invest in private.

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Speaker 1: She has lived and invested through not just a great

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Speaker 1: financial crisis, but the SNL crisis and a number of

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Speaker 1: other fascinating experiences in real estate. If you're at all

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Speaker 1: interested in learning how a large investor in global real

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Speaker 1: estate operates, then you're going to really enjoy this conversation.

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Speaker 1: With no further ado. My discussion with pgem's Kathy Marcus.

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Speaker 2: Thank you.

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Speaker 1: It's good to have you here. So let's dive into

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Speaker 1: your background, starting with your undergraduate work. You study real

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Speaker 1: estate finance and entrepreneurial management at Wharton. As an undergraduate,

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Speaker 1: you go to NYU to get a master's in real

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Speaker 1: estate investment and development. So you knew from when you

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Speaker 1: were essentially a teenager you wanted to be working in.

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Speaker 2: Real estate, and I'm very fortunate that it worked out

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Speaker 2: because there's no plan B there. You can see. I

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Speaker 2: did not study anything else. So people often ask me

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Speaker 2: how at the age literally of seventeen, I knew that

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Speaker 2: I wanted to be in real estate, and I think

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Speaker 2: that I kind of triangulated on it. I have no

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Speaker 2: family history, I have no I knew a real estate

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Speaker 2: developer I thought was really great. I knew I wanted

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Speaker 2: to do something in business. I was always good at math,

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Speaker 2: but I really I just didn't relate to things that

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Speaker 2: were more esoteric bonds options. It just wasn't doing it

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Speaker 2: for me. And I always really loved the built environment.

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Speaker 2: I like architecture. I like as a real estate person

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Speaker 2: you walk through your assets, you can touch and feel things.

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Speaker 2: I love to see things developed. I like the idea

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Speaker 2: of kind of urban planning. I always say, if I

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Speaker 2: hadn't been a real estate investor, I would have loved

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Speaker 2: to have studied more about urban planning. I like placemaking.

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Speaker 2: So really, if you combined wanting to be an investor

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Speaker 2: with liking architecture design placemaking, it really leads you to

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Speaker 2: real estate.

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Speaker 1: You anticipated one of my questions, which was was anyone

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Speaker 1: in the family in real estate? My mom was a

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Speaker 1: real estate agent, like home to everything from home designs

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Speaker 1: and renovation to pricing and financing. Was dinner table conversation

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Speaker 1: in my house. Nothing like that from you. This just

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Speaker 1: wholly sprung up out of Nowah pretty much.

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Speaker 2: I mean, my dad was a small entrepreneur and did

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Speaker 2: invest in some commercial real estate, but really not in

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Speaker 2: a primary way. And my mom is a speech pathologist,

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Speaker 2: So our dinner table conversation definitely had a business orientation,

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Speaker 2: especially a small business owner, and so I definitely learned

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Speaker 2: a lot there. And I think it also my dad's

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Speaker 2: business was global, and so it pequked an interest in

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Speaker 2: me in working internationally. But the real estate thing was

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Speaker 2: kind of out of the blue.

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Speaker 1: So you graduate both undergrad and graduate with just real

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Speaker 1: estate related training. What were your first few jobs after school?

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Speaker 2: Like I had a very traditional start, I started off

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Speaker 2: as an analyst and I worked initially. My first two

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Speaker 2: jobs were with syndicators, essentially in a business that doesn't

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Speaker 2: exist anymore as it did. I worked for a very

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Speaker 2: large syndicator right out of school, which was right around

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Speaker 2: the time the tax laws changed and so that whole

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Speaker 2: business was upended.

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Speaker 1: And before you go further define what a syndicator is

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Speaker 1: for people who may not remember sure.

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Speaker 2: Essentially you buy assets. It could be all kinds of assets.

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Speaker 2: The company that I worked for was called Integrated Resources,

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Speaker 2: and we did a lot of real estate, but also

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Speaker 2: things like airplane leasing and movies. In fact, Dirty Dancing

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Speaker 2: was one of the big movies that we financed while

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Speaker 2: I was there, and so they needed people to help

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Speaker 2: acquire the real estate and then also one of my

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Speaker 2: primary jobs was to help capitalize it and find financing

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Speaker 2: for it, because the idea of syndication is that you

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Speaker 2: make a giant purchase and then you sell it off

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Speaker 2: in smaller units to really more of a retail investor.

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Speaker 2: And in those days, it could be as small as

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Speaker 2: like a twenty five to fifty thousand dollars unit that

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Speaker 2: would be sold through a broker dealer, a Sharson Lehman.

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Speaker 2: Lots of people who are no longer in the game,

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Speaker 2: and it was a way for individual investors to a

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Speaker 2: own assets in a small slice they could never access themselves.

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Speaker 2: But in those days, they were very tax driven, very.

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Speaker 1: Favorable treatment of those purchases, not like regular stocks and

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Speaker 1: bonds exactly, And all that went away with a couple

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Speaker 1: of tax changes. First Reagan and then I think it

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Speaker 1: was Clinton did some changes as.

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Speaker 2: Well, exactly as did Integrated Resources. Yeah, exactly.

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Speaker 1: Oh that's very funny. So you end up at PGUM eventually,

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Speaker 1: and you start out, did you start out at the

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Speaker 1: flagship core equity real estate fund or did you work

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Speaker 1: your way towards that, because eventually you were running that

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Speaker 1: for a few years.

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Speaker 2: I did. I worked my way toward that. I had

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Speaker 2: two stops before that. I worked in sort of a

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Speaker 2: quasi portfolio management role for like a single client account

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Speaker 2: type business. And then I went to be the chief

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Speaker 2: under writer for the US investments and really got to

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Speaker 2: underwrite all new investments in the US, all across the country,

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Speaker 2: all asset classes. It was a tremendous experience for me,

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Speaker 2: something that we often have had as a rotational position.

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Speaker 2: So I did it for three years and it was

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Speaker 2: a really great growth exit.

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Speaker 1: Now when you say all asset classes.

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Speaker 2: Sorry, all sectors of real estate.

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Speaker 1: Oh okay, so not because at one point in time

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Speaker 1: you were doing something with equity.

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Speaker 2: Is that right, head of head of us equity at

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Speaker 2: Pigeon real Estate meeting equity versus debt, not equities versus

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Speaker 2: got it all right.

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Speaker 1: I want to think you. So it's been real estate

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Speaker 1: all the way down.

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Speaker 2: That's the real estate through and through equity, debt, private, public,

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Speaker 2: but always real estate.

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Speaker 1: So tell us a little bit about the experience of

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Speaker 1: running the Core Flagship real Estate Fund. What was that Like?

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Speaker 1: You did that for like eight years? Is that right?

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Speaker 2: I did it for longer. It was over ten, and

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Speaker 2: it was a tremendous experience. And actually you had asked,

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Speaker 2: you know, whether that was my first stop at pg

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Speaker 2: in real estate formally Prudential real Estate Investors, and it wasn't.

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Speaker 2: But it was the job that I wanted when I

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Speaker 2: took the job. My first job at PGM. Essentially the

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Speaker 2: person who was running the Core fund at the time

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Speaker 2: was someone who I sought out as a mentor because

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Speaker 2: I knew that that was the job that I wanted,

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Speaker 2: and I worked toward that. So I was on that

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Speaker 2: fun team for over ten years, spanning kind of the

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Speaker 2: run up to the GFC, so lots of good times

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Speaker 2: for only about two to three years of my first

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Speaker 2: couple of years there, and then I worked on it

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Speaker 2: throughout the GFC and then became the senior portfolio manager

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Speaker 2: during the recovery period. It was quite a time to

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Speaker 2: be running that kind of a fund, or even just

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Speaker 2: working on that kind of fund. It was a you know,

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Speaker 2: I had seen other crises. I mean, the SNL crisis

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Speaker 2: in the real estate business was something that was a

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Speaker 2: very pivotal learning experience for me, and I came into

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Speaker 2: the GFC with some of those skills from working through

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Speaker 2: the SNL crisis. But every crisis is different, and you know,

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Speaker 2: when I was working through the SNL crisis, I was

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Speaker 2: much more junior, so someone else, you know, was worried

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Speaker 2: about what would happen. They just told me what to do,

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Speaker 2: and now this time I had to worry about what

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Speaker 2: would happen, and it was it was a great experience.

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Speaker 1: So when I hear GFC and SNL crisis, I think workouts, reorgs,

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Speaker 1: and distressed investing. Did you do all of that? What

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Speaker 1: did you actually do in the eighth nine era, maybe

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Speaker 1: even a little before when Short said rolled over.

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Speaker 2: Well, in the SNL crisis, I was doing primarily workouts,

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Speaker 2: both debt and equity workouts, and I learned so much

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Speaker 2: doing that, and was also in a big dispositions role

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Speaker 2: in terms of real estate owned that have been foreclosed upon,

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Speaker 2: but also performing and unperforming loans, commercial mortgage securitization, and

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Speaker 2: even residential mortgage securitization. So I was very, very distressed

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Speaker 2: oriented during the SNL crisis, and I would recommend to

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Speaker 2: anyone who wants to learn about a business, work through

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Speaker 2: a major crisis, and you're going to get fifteen years

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Speaker 2: of experience in three years. That was my experience.

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Speaker 1: To be fair, the SNL crisis, I don't want to

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Speaker 1: downplay it too much, but it almost seems quaint, yes,

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Speaker 1: compared to the GFC. It was. You didn't get that

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Speaker 1: sense of free fall. It was clearly a mess, but

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Speaker 1: it was like, all right, we'll figure this out. The

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Speaker 1: GFC in real time was like holy cow, this thing

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Speaker 1: is we're off the rails here.

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Speaker 2: Very different, right, and in particular in real estate because

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Speaker 2: the SNL crisis. You could certainly make an argument that

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Speaker 2: we shot ourselves in the foot in the SNL crisis.

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Speaker 1: Yeah, but that was really all the banks that were

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Speaker 1: doing it.

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Speaker 2: It was the banks, But there were a lot of

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Speaker 2: empty buildings. I mean, we were building and building building.

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Speaker 1: Texas notorious for see through.

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Speaker 2: Building building things exactly, so, so that was very different.

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Speaker 2: And you're right, it felt like real estate was in

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Speaker 2: free fall, and clearly the banking system was in free fall,

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Speaker 2: but the government was there with you know, the big

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Speaker 2: RTC bailout, and it didn't feel like the world was

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Speaker 2: falling apart, right. The GFC felt like the world was

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Speaker 2: falling apart, and it was very difficult to understand. I

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Speaker 2: think that the S and L crisis, you could understand

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Speaker 2: that the banks were just lending, lending, lending and building building,

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Speaker 2: and we had empty buildings, and even if you're not

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Speaker 2: in real estate, you understood what that was about. The

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Speaker 2: GFC was really a lot of esoteric financial products that

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Speaker 2: you know, the average person didn't understand. It actually ended

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Speaker 2: up that a lot of financial professionals didn't understand them either.

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Speaker 2: We didn't know that at the time, but it really

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Speaker 2: felt so much more systemic, and it felt like this

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Speaker 2: you know, giant thing that was almost not understandable to

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Speaker 2: many people had gone awry, good good times.

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Speaker 1: You know, those of us who were working in the

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Speaker 1: world defying then if you were not on the wrong

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Speaker 1: side of what was going on, it was endlessly fascinating

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Speaker 1: and just you know, a graduates degree and if you

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Speaker 1: were in charge of assets that were collapsing, it had

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Speaker 1: to be just nightmarish every day. It was relentless and

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Speaker 1: just never seemed to end. So that was you know,

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Speaker 1: all the people I know who started working in the

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Speaker 1: industry after that, it's like, oh, you guys missed the

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Speaker 1: big party.

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Speaker 2: It's amazing exactly well, you see that now you can

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Speaker 2: tell who missed the party, because it took a lot

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Speaker 2: of people who had you know, ten or twelve experience

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Speaker 2: years of experience in our business. It took them way

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Speaker 2: too long to figure out that the world had changed

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Speaker 2: because they hadn't experienced the world changing. And you know,

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Speaker 2: those of you, those of us who've been through it

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Speaker 2: a few times, you start to get that spidey sense

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Speaker 2: that things are not as they should be, and you

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Speaker 2: kind of go right into that mode of like, okay,

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Speaker 2: stop spending money, shut down all the deals. And that's

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Speaker 2: much more difficult for some one who hasn't experienced.

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Speaker 1: Immediate sur violence things exactly. And you know, the ironic

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Speaker 1: thing is there's a generation who only last year discovered, hey,

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Speaker 1: you know the rates can go up also, right, That

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Speaker 1: was like an you know, an epiphany for a subgroup

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Speaker 1: of people who it's like, oh, I didn't know they

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Speaker 1: could raise rates. I thought they can only cut. So

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Speaker 1: now you're really in a management position. What was that

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Speaker 1: transition like from being a real estate investor to managing

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Speaker 1: a very large real estate group of professionals.

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Speaker 2: It was a much more complicated transition than I had

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Speaker 2: expected it to be. You know, it's an interesting story

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Speaker 2: that I tell, which is that our CEO at the

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Speaker 2: time came to me, this is when I was running

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Speaker 2: our largest fund. I had only been an investor in

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Speaker 2: my entire career, and he said, I'd really like for

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Speaker 2: you to be my chief operating officer. And I actually said,

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Speaker 2: which is, you know, embarrassing, but it is unfortunately some

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Speaker 2: that women, especially if my age, do I said, oh, actually,

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Speaker 2: I'm not qualified for that job. I only took, you know,

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Speaker 2: three accounting classes, and I'm you know, I don't think

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Speaker 2: i'm your person. And he said, if I wanted an accountant,

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Speaker 2: I wouldn't have come to you. I'm looking for a partner.

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Speaker 2: I'm looking for someone who wants to learn how to

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Speaker 2: run a global business. And I said, well, you know,

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Speaker 2: I feel like I kind of know how to run

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Speaker 2: a business. I'm running the largest fund. You know, there's

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Speaker 2: lots of people working on this fund, huge revenues. I

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Speaker 2: know what I'm doing. And he said, you know what,

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Speaker 2: I tried for three years, and I bet you're going

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Speaker 2: to learn a lot. And he was one hundred percent right,

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Speaker 2: you know, learning how to keep the trains on the

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Speaker 2: tracks when you're an investment professional. And I was the worst.

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Speaker 2: I was a massive prima donna. I had no appreciation

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Speaker 2: for went on behind the scenes. If there was an

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Speaker 2: error in a report or a number, I went ballistic.

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Speaker 2: I had no understanding of what it takes to deliver operationally.

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Speaker 2: And I learned quite a bit about that and it's

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Speaker 2: really been terrific, and I recommend it to all investors

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Speaker 2: who want to ultimately run a business. Take on an

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Speaker 2: operational role, because you will be shocked by how much

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Speaker 2: you learn.

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Speaker 1: So there's so much stuff to unpack there. I have

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Speaker 1: to work my way back to your initial response when

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Speaker 1: offered the operating position. It's kind of funny because you're

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Speaker 1: pointing out like this inherent difference between men and women.

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Speaker 1: Men are just clueless as to her own lack of skills,

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Speaker 1: but oh sure, what the hell, how hard can it be?

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Speaker 1: Let's rush in. Whereas and I don't want to man

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Speaker 1: explain sexism to you, but it seems that women are

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Speaker 1: more thoughtful and saying, hey, I don't know if I'm

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Speaker 1: qualified for this, whereas a dude is just like, sure,

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Speaker 1: well i'll give that a wait, fight a bear with

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Speaker 1: my bear. Okay, where do I go? Men? Men are

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Speaker 1: just the sort of self confidence, unjustified. I wonder how

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Speaker 1: much that explains what we've seen, especially in finance, in

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Speaker 1: the gender gap at senior levels, which is certainly getting better.

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Speaker 1: It is point at present. But I'm just curious if

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Speaker 1: that philosophical difference is why men rush in and women

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Speaker 1: sort of think about and say, well, that's really weigh the.

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Speaker 2: Pros and cons one hundred percent, and you know Interestingly,

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Speaker 2: you would certainly not be the first man to man

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Speaker 2: explain sexism to me. It happens all the time, which

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Speaker 2: just kind of goes back to the self awareness. It

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Speaker 2: happens constantly. But I will say things have gotten a

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Speaker 2: lot better, but you know, somewhere in the middle is

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Speaker 2: probably you know, a much better place to be, because

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Speaker 2: I will say that, you know, women have a tendency

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Speaker 2: if there are a hundred things that you need to

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Speaker 2: have for a job, if they have ninety nine, you

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Speaker 2: think they're not qualified, myself included. Right, I think I've

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Speaker 2: gotten better. But you know, if there are a hundred

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Speaker 2: things and a man might say, you know what I

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Speaker 2: could do sixty or seventy percent of that, that's probably

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Speaker 2: good enough.

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Speaker 1: Right, I think you're being generous. I think, like, you know,

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Speaker 1: I know a dude who's in that space. I could

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Speaker 1: do what he does. I think it's like that sort

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Speaker 1: of you know, not to overstate mail arrogance and recklessness,

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Speaker 1: but there is certainly a degree of Hey, worse comes

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Speaker 1: to worse, I land on my face, and I think

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Speaker 1: to some degree that's positive but often leads to the

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Speaker 1: Peter principle.

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Speaker 2: So exactly, and I do hope that you know, younger

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Speaker 2: women in business broadly and in finance, you know, can

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Speaker 2: can learn from those lessons. That's why I is embarrassing

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Speaker 2: of a story as it is. I always tell it,

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Speaker 2: especially to younger women, because I don't want them to

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Speaker 2: make that same mistake. I was very fortunate that, you know,

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Speaker 2: I had a boss who really pushed me, because that

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Speaker 2: I wouldn't have taken it necessarily my own volition.

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Speaker 1: Huh. Really really interesting. So let's talk a little bit

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Speaker 1: about that giant portfolio of investments. What type of real

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Speaker 1: estate does PGIUM invest in? Do you have specific geography

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Speaker 1: sized types, what.

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Speaker 2: Do you think of We have a very very broad

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Speaker 2: investing mandate. We invest in in the US, in Latin America,

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Speaker 2: which is really primarily Mexico at this point, across Europe,

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Speaker 2: the UK, and across Asia, so we really hit all

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Speaker 2: the major markets and all the major geographies. And also

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Speaker 2: we invest in pretty much all the major food groups

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Speaker 2: and even some of the alternative food groups. In real estate,

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Speaker 2: so everything from very traditional office which I'm sure we'll

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Speaker 2: talk more about, all kinds of residential retail, data centers,

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Speaker 2: industrial manufactured housing, seniors housing, you name it, and we

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Speaker 2: probably have a bucket of capital for it.

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Speaker 1: So let's dive into those sectors. I didn't hear you

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Speaker 1: mention laboratory or medical, which I know is an up

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Speaker 1: and coming area. Is that a space you guys are

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Speaker 1: in as well? Warehouses is another definitely fast growing space.

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Speaker 1: Let's break those down. Let's start with office. What's going

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Speaker 1: on in the world of office investing. Are there certain

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Speaker 1: things you guys like to invest office wide? Are there

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Speaker 1: areas you stay away from what's happening in that space?

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Speaker 2: So right now I'm going to talk about traditional office,

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Speaker 2: not about medical office or lap science, but in the

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Speaker 2: traditional office space. We're not investing in a tremendous amount

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Speaker 2: of office right now like everyone else. We're in a

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Speaker 2: little bit of a wait and see. We have an

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Speaker 2: existing office portfolio that we're dealing with, and you know,

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Speaker 2: I'm sitting here in your Bloomberg office and it's a

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Speaker 2: buzzing hive of lots of people. There are many office

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Speaker 2: buildings you could walk into in any city around the

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Speaker 2: world where that would not be the case.

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Speaker 1: So this is clearly a Class A building. And when

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Speaker 1: we look at other Class A buildings on Park Avenue,

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Speaker 1: they seem to be fairly you know, seventy five to

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Speaker 1: eighty percent buzzing. I don't even want to say occupied.

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Speaker 1: But once you drop to the class B buildings, it's

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Speaker 1: a whole different story. How do you think about the

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Speaker 1: different quality of real estate investing and is that reflected

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Speaker 1: in their prices?

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Speaker 2: Yet so in particular in office, you know there are

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Speaker 2: going to be winners and losers, and the winners are

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Speaker 2: going to be I wouldn't even say just A not

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Speaker 2: all the A inventory is really going to be a winner.

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Speaker 2: You have to be kind of a high A. You

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Speaker 2: have to be an A that isn't just an A

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Speaker 2: because of its location. It's an A because it also

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Speaker 2: has esg attributes. It has wellness attributes, It has things

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Speaker 2: that draw employees back to the office and make them

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Speaker 2: want to be there. And you have to in these days.

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Speaker 2: When I was young, the office was shelter and a

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Speaker 2: place where people could make sure you worked all day.

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Speaker 2: Now the office is it has to be better than

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Speaker 2: your home or people are not going to come. So

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Speaker 2: here in your office there's lots of free food and

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Speaker 2: free snacks, and it's nice and bright, and there's lots

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Speaker 2: of vibrant and smart people walking around, that's a draw.

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Speaker 2: But if you're in an old office building without light,

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Speaker 2: you have low ceilings, you have no amenities, you don't

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Speaker 2: have a lot of wellness attributes to your building. You're

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Speaker 2: not in your public transportation, You're going to have a

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Speaker 2: hard time attracting people to come to your office, particularly

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Speaker 2: younger people. And if you don't have the ESG qualifications,

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Speaker 2: it's even worse.

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Speaker 1: So we'll talk more about ESG later. Tell us about wellness.

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Speaker 1: How does a building contribute to overall wellness?

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Speaker 2: Many ways, but I would say that the primary way

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Speaker 2: that really has been underscored, even more so since COVID

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Speaker 2: is in air quality. And air quality is huge, and

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Speaker 2: there is a lot of data around employees feeling better,

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Speaker 2: not getting sick, as often having more energy, not being exhausted.

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Speaker 2: That's around air quality and fresh air in particular is

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Speaker 2: very very important.

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Speaker 1: And that's not an expensive or difficult retrofit, is it.

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Speaker 1: That's something that could be done fairly easily. If I

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Speaker 1: think it was sixty minutes or somebody talked about that

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Speaker 1: not too long long ago.

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Speaker 2: That assumes you have modern systems, So that's a big assumption.

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Speaker 2: Not all buildings have the systems that would make that

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Speaker 2: an easy conversion. But there's lots of other things you

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Speaker 2: could do. You could have a gym, you could you know,

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Speaker 2: encourage your employees to get outside, you know, not in

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Speaker 2: the city as much, but other places, and increasingly in Manhattan,

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Speaker 2: people have outdoor spaces for their employees so they can

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Speaker 2: get out and get some fresh air, get some sunshine.

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Speaker 2: You know, instead of drinking coffee in a cold dark room,

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Speaker 2: you could sit on a patio. It's those types of

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Speaker 2: things that are good for your physical health and your

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Speaker 2: mental health.

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Speaker 1: Huh, really interesting. Let's talk about some other sectors you

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Speaker 1: mentioned medical, office and lab space. Yes, what's going on

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Speaker 1: in there? Is that still a growth area?

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Speaker 2: It's still a growth area. I would say that some

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Speaker 2: of the hype, particularly of the lab space, has been

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Speaker 2: taken out, and I think that's a good thing. For

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Speaker 2: a while, people were buying what I would say would

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Speaker 2: be subpar office buildings turning them into lab buildings. And

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Speaker 2: lab buildings are best purpose built. There's a lot of

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Speaker 2: extra bills and whistles that you need for a lab building.

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Speaker 2: If you think of like the absolute perfect lab building,

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Speaker 2: it's going to have you know, a lot more load

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Speaker 2: bearing because you're gonna have really heavy machinery, it's going

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Speaker 2: to have higher ceilings, it's going to have a lot

417
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Speaker 2: of natural light, it's going to have extra water, it's

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Speaker 2: going to have redundant electricity. There are experiments being run

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Speaker 2: in these spaces that if you know, you have a

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Speaker 2: power outage, you could lose fifteen years worth of work

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Speaker 2: and data. So you really have to have you know,

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Speaker 2: a lot of redundancies in your systems. Is very expensive

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Speaker 2: to build, but the good thing is that it's very reusable.

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Speaker 2: If you have one tenant and they leave, you can

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Speaker 2: pretty much have a plug and play with the next tenant.

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Speaker 2: So I think it's great that there's less of this

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Speaker 2: kind of conversion into lab space than there had been.

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Speaker 2: But the reality is that a lot of things that

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Speaker 2: are really demographic trends, an aging population, people living longer,

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Speaker 2: you know, advances in healthcare, needing to have green energy sources,

431
00:23:05,640 --> 00:23:08,040
Speaker 2: needing to be able to create you know, clean water.

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Speaker 2: A lot of this experimentation and a lot of the

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Speaker 2: venture capital funding is all occurring in these lab buildings.

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Speaker 1: Really interesting you mentioned converting offices to lab buildings. There's

435
00:23:20,560 --> 00:23:23,040
Speaker 1: been a lot of chatter about converting all of the

436
00:23:23,119 --> 00:23:28,040
Speaker 1: excess office space to residential. Some people say that's much

437
00:23:28,040 --> 00:23:31,240
Speaker 1: harder than it appears, especially with some of the bigger

438
00:23:31,480 --> 00:23:35,040
Speaker 1: citywide block buildings that are from the sixties and seventies.

439
00:23:35,400 --> 00:23:37,520
Speaker 1: They don't have the light and don't have the access

440
00:23:37,520 --> 00:23:41,440
Speaker 1: to windows. What's the prospect for those sort of conversions.

441
00:23:42,080 --> 00:23:44,760
Speaker 1: And let me just throw in, I remember Post nine

442
00:23:44,760 --> 00:23:48,240
Speaker 1: to eleven, the whole Lower Manhattan or a ton of

443
00:23:48,280 --> 00:23:53,399
Speaker 1: those offices got converted to residential very very successfully. What

444
00:23:53,440 --> 00:23:56,520
Speaker 1: are the odds of that happening in other city centers.

445
00:23:57,040 --> 00:23:59,640
Speaker 2: So we did some of those projects in Lower Manhattan

446
00:23:59,680 --> 00:24:02,040
Speaker 2: and or Manhattan. The floor plates tend to be smaller,

447
00:24:02,080 --> 00:24:06,840
Speaker 2: the buildings are smaller, they're thinner, and they're they're taller, right.

448
00:24:06,800 --> 00:24:08,760
Speaker 1: So you're never too far from a window, never too.

449
00:24:08,720 --> 00:24:11,240
Speaker 2: Far from a window, So it is a little bit easier,

450
00:24:11,359 --> 00:24:14,840
Speaker 2: especially some of the historic buildings downtown. One of the

451
00:24:14,880 --> 00:24:17,879
Speaker 2: ones that we converted into high end condos, you know,

452
00:24:17,960 --> 00:24:20,640
Speaker 2: had been an old JP Morgan building. It was where

453
00:24:20,680 --> 00:24:24,879
Speaker 2: his office was. So those buildings were just smaller by definition,

454
00:24:25,280 --> 00:24:29,960
Speaker 2: smaller floor plates, more windows. There's a lot of capital

455
00:24:30,040 --> 00:24:34,080
Speaker 2: being raised to convert office to residential, And it's a

456
00:24:34,160 --> 00:24:37,359
Speaker 2: really kind of a romantic notion that we have too

457
00:24:37,440 --> 00:24:40,000
Speaker 2: much office and we have a structural shortage of housing.

458
00:24:40,440 --> 00:24:42,320
Speaker 2: Wouldn't it be like the nicest thing in the world

459
00:24:42,320 --> 00:24:46,280
Speaker 2: if you could take all of this you know, bad office,

460
00:24:46,359 --> 00:24:49,439
Speaker 2: if you will, and convert it into affordable housing. Wouldn't

461
00:24:49,440 --> 00:24:52,240
Speaker 2: that be fantastic. First of all, the numbers don't work.

462
00:24:53,200 --> 00:24:57,119
Speaker 2: The physical structures don't lend themselves that well. There's probably

463
00:24:57,240 --> 00:25:00,119
Speaker 2: you know, under five percent of the office stock that

464
00:25:00,160 --> 00:25:03,480
Speaker 2: would lend itself to that. And it's very expensive in

465
00:25:03,520 --> 00:25:06,000
Speaker 2: a way. You would have to be able to get

466
00:25:06,400 --> 00:25:11,520
Speaker 2: the land for free, and someone would have to pay

467
00:25:11,760 --> 00:25:15,600
Speaker 2: to demolish the existing office building. So it's it's really

468
00:25:16,000 --> 00:25:16,639
Speaker 2: very very.

469
00:25:16,520 --> 00:25:20,440
Speaker 1: Talking about converting. You're talking about knocking down a functional

470
00:25:20,520 --> 00:25:23,760
Speaker 1: but unattractive building and putting up a brand new high road.

471
00:25:23,840 --> 00:25:26,439
Speaker 2: In many ways, that would be actually the cheaper route

472
00:25:26,440 --> 00:25:29,520
Speaker 2: to go, because you might say a functional building, it's

473
00:25:29,520 --> 00:25:32,280
Speaker 2: not functional for residential. It doesn't have the windows, it

474
00:25:32,280 --> 00:25:35,119
Speaker 2: doesn't have the plumbing. You know, you have to break

475
00:25:35,160 --> 00:25:37,800
Speaker 2: things into units. You don't want units that look like

476
00:25:37,840 --> 00:25:40,480
Speaker 2: bowling alleys. You need more elevators. I mean, there's just

477
00:25:40,560 --> 00:25:43,639
Speaker 2: lots of stuff that you need. So there will be

478
00:25:43,720 --> 00:25:45,439
Speaker 2: some of that done, and some of it's happening, some

479
00:25:45,480 --> 00:25:48,120
Speaker 2: of it's happening right now in Lower Manhattan and other

480
00:25:48,200 --> 00:25:51,800
Speaker 2: cities in DC in particular, but it's not going to

481
00:25:51,800 --> 00:25:52,840
Speaker 2: be a whostsale solution.

482
00:25:53,560 --> 00:25:59,520
Speaker 1: So you mentioned ESG earlier. How does pgium integrate ESG

483
00:25:59,680 --> 00:26:03,919
Speaker 1: factor into their investment process? What does that mean for

484
00:26:04,080 --> 00:26:05,120
Speaker 1: real estate investment?

485
00:26:05,640 --> 00:26:09,439
Speaker 2: We integrate ESG into everything that we do, from the

486
00:26:09,560 --> 00:26:15,360
Speaker 2: very beginning of identifying a potential investment, through acquisition, through operations,

487
00:26:15,400 --> 00:26:19,600
Speaker 2: and through disposition. And you know, there is a lot

488
00:26:19,640 --> 00:26:23,360
Speaker 2: of you know, political consternation, a lot of a divide,

489
00:26:23,400 --> 00:26:27,920
Speaker 2: particularly in the United States around ESG, where there are

490
00:26:28,040 --> 00:26:32,040
Speaker 2: there's a politicization of ESG in real estate. We're actually

491
00:26:32,119 --> 00:26:36,600
Speaker 2: very fortunate because there's really no conflict with you know, ESG,

492
00:26:36,720 --> 00:26:40,240
Speaker 2: especially the E in real estate investing. If you have

493
00:26:40,320 --> 00:26:43,680
Speaker 2: a more sustainable building, you're using less energy, you're using

494
00:26:43,800 --> 00:26:48,000
Speaker 2: less water, you have more efficient systems, you are in

495
00:26:48,000 --> 00:26:52,000
Speaker 2: near public transportation, you have an ESG certification, you're going

496
00:26:52,040 --> 00:26:54,919
Speaker 2: to have higher income, therefore a higher value of your asset.

497
00:26:55,160 --> 00:26:57,000
Speaker 2: You're going to be able to track the best tenants,

498
00:26:57,280 --> 00:26:59,480
Speaker 2: the best tenants are not going into a building that

499
00:26:59,520 --> 00:27:02,639
Speaker 2: does not have ESG certification. And if you're in your

500
00:27:02,680 --> 00:27:06,080
Speaker 2: public transportation, you know every tenant is looking for that.

501
00:27:06,200 --> 00:27:09,720
Speaker 2: So I really feel that ESG is just it's just

502
00:27:09,800 --> 00:27:13,000
Speaker 2: table stakes in real estate and investing. So we're fortunate

503
00:27:13,000 --> 00:27:14,119
Speaker 2: that we don't have the controversy.

504
00:27:14,359 --> 00:27:18,560
Speaker 1: It's not just higher income. You're describing much lower costs

505
00:27:18,560 --> 00:27:21,119
Speaker 1: as well. Exactly, So the building is a more profitable

506
00:27:21,200 --> 00:27:26,200
Speaker 1: unit versus a comparable non ESG compliant type of building.

507
00:27:26,320 --> 00:27:27,200
Speaker 1: Is that exactly?

508
00:27:27,320 --> 00:27:29,639
Speaker 2: And you know it's a way if you reduce your

509
00:27:29,640 --> 00:27:33,320
Speaker 2: operating expenses, you're just increasing your bottom line. And if

510
00:27:33,320 --> 00:27:36,719
Speaker 2: you take an older building that is just like you know,

511
00:27:37,040 --> 00:27:40,360
Speaker 2: it's leaking energy all over the place, and you upgrade

512
00:27:40,400 --> 00:27:43,960
Speaker 2: it to have the systems, you have just completely improved

513
00:27:43,960 --> 00:27:46,960
Speaker 2: the value of your asset. Because we value real estate

514
00:27:47,200 --> 00:27:51,040
Speaker 2: based on the net operating income, and that is the

515
00:27:51,160 --> 00:27:53,440
Speaker 2: key to being able to increase value.

516
00:27:53,920 --> 00:27:58,640
Speaker 1: Kind of hard to politicize, improving your bottom line is exactly.

517
00:27:58,720 --> 00:28:03,359
Speaker 1: So let's talk about the target net zero emissions from

518
00:28:03,560 --> 00:28:07,520
Speaker 1: real estate projects by twenty fifty. What does net zero

519
00:28:07,760 --> 00:28:09,920
Speaker 1: mean and how does one get there?

520
00:28:11,160 --> 00:28:13,680
Speaker 2: So there's lots of ways to get there, and net

521
00:28:13,800 --> 00:28:18,320
Speaker 2: zero can mean there are various ways in real estate

522
00:28:18,320 --> 00:28:22,680
Speaker 2: pathways to get to net zero. There are already several

523
00:28:22,720 --> 00:28:25,600
Speaker 2: buildings office buildings around the country that are net zero

524
00:28:26,200 --> 00:28:29,240
Speaker 2: and that was accomplished through a variety of things. One

525
00:28:29,760 --> 00:28:34,600
Speaker 2: using different building techniques, different building materials. You can use

526
00:28:34,640 --> 00:28:38,400
Speaker 2: green concrete, you can have less embedded carbon. For the

527
00:28:38,560 --> 00:28:43,680
Speaker 2: institutional real estate industry, embedded carbon is a huge issue

528
00:28:43,720 --> 00:28:47,360
Speaker 2: because you buy an asset and there's already this giant

529
00:28:47,400 --> 00:28:50,120
Speaker 2: carbon footprint that you had no control over and maybe

530
00:28:50,120 --> 00:28:53,200
Speaker 2: it was created fifty years ago. So that's a whole

531
00:28:53,280 --> 00:28:58,640
Speaker 2: other issue. But things like green concrete, things like different

532
00:28:58,760 --> 00:29:03,200
Speaker 2: sensors that you can use that help you build more efficiently.

533
00:29:03,600 --> 00:29:06,400
Speaker 2: And if you look at you know ESG and its entirety,

534
00:29:06,960 --> 00:29:10,959
Speaker 2: which is also a lot about safety and keeping people

535
00:29:11,000 --> 00:29:13,960
Speaker 2: safe and healthy. That there are lots of new construction

536
00:29:14,080 --> 00:29:18,560
Speaker 2: techniques that it's just safer construction where you might have

537
00:29:18,720 --> 00:29:22,520
Speaker 2: robots doing things that were very unsafe. You might have drones,

538
00:29:22,960 --> 00:29:26,240
Speaker 2: you know, photographing buildings instead of having people having to

539
00:29:26,280 --> 00:29:29,160
Speaker 2: go up on scaffoldings. So we have a lot of

540
00:29:29,200 --> 00:29:34,120
Speaker 2: opportunity in the built environment to mitigate and embedded carbon,

541
00:29:34,440 --> 00:29:37,400
Speaker 2: but also to reduce our use of carbon.

542
00:29:37,600 --> 00:29:40,680
Speaker 1: Huh. Really really interesting. So let's talk a little bit

543
00:29:40,760 --> 00:29:43,080
Speaker 1: about what's been going on the past couple of years

544
00:29:43,120 --> 00:29:46,520
Speaker 1: and what it looks like over the next few years.

545
00:29:47,800 --> 00:29:50,600
Speaker 1: You're not taking out a mortgage to buy a single

546
00:29:50,640 --> 00:29:55,800
Speaker 1: family home, You're doing these big projects. How does the

547
00:29:55,880 --> 00:30:01,200
Speaker 1: dislocation and volatility of the enormous right increases we've seen

548
00:30:01,240 --> 00:30:05,840
Speaker 1: in twenty one and twenty two affect the projects.

549
00:30:05,400 --> 00:30:08,600
Speaker 2: You look at, It actually affects you know, commercial real

550
00:30:08,680 --> 00:30:11,200
Speaker 2: estate investors in much the same way as it would

551
00:30:11,360 --> 00:30:12,520
Speaker 2: a residential investor.

552
00:30:12,680 --> 00:30:14,440
Speaker 1: Just the cost of carry, the cost.

553
00:30:14,280 --> 00:30:18,320
Speaker 2: Of carry, and you know, a lack of liquidity, which

554
00:30:18,360 --> 00:30:21,440
Speaker 2: is much worse in the commercial markets than it is

555
00:30:21,920 --> 00:30:23,040
Speaker 2: in the residential market.

556
00:30:23,120 --> 00:30:25,360
Speaker 1: You can't just have an open house and sell a

557
00:30:25,400 --> 00:30:26,960
Speaker 1: fifty story building over the weekend.

558
00:30:27,040 --> 00:30:30,280
Speaker 2: That doesn't exactly know that, that doesn't work. So the

559
00:30:30,560 --> 00:30:34,080
Speaker 2: lack of liquidity is you know, is often at the

560
00:30:34,080 --> 00:30:37,480
Speaker 2: heart of every real estate crisis that we have, and

561
00:30:37,880 --> 00:30:40,440
Speaker 2: that's really driving you know, a lot of what's going on,

562
00:30:40,480 --> 00:30:43,160
Speaker 2: which is of course all driven by the changes in

563
00:30:43,160 --> 00:30:45,880
Speaker 2: the real in the interest rates and you know, we're

564
00:30:47,080 --> 00:30:50,680
Speaker 2: coming upon six quarters, you know, into this new interest

565
00:30:50,760 --> 00:30:54,640
Speaker 2: rate environment, and we had you know, a nice long

566
00:30:54,760 --> 00:30:58,160
Speaker 2: free money party that was really good for real estate.

567
00:30:58,240 --> 00:31:02,200
Speaker 2: It was fantastic real estate. It was it was great.

568
00:31:02,680 --> 00:31:06,160
Speaker 2: And and so of course, you know, as works in

569
00:31:06,200 --> 00:31:09,080
Speaker 2: real estate, that your interest rates come down and the

570
00:31:09,160 --> 00:31:13,240
Speaker 2: yields on the investments come down, and everyone's expectations are

571
00:31:13,680 --> 00:31:16,400
Speaker 2: you know, not too far off from where you know,

572
00:31:16,640 --> 00:31:19,880
Speaker 2: treasuries used to be, right, and and that is, you know,

573
00:31:20,200 --> 00:31:22,920
Speaker 2: the treasuries were so low that you could be have

574
00:31:23,000 --> 00:31:26,560
Speaker 2: a four percent, five percent yield, even three percent on

575
00:31:26,680 --> 00:31:29,040
Speaker 2: a real estate investment and still have a nice cushion

576
00:31:29,400 --> 00:31:33,160
Speaker 2: over treasury. So it was a very very accommodative environment

577
00:31:33,520 --> 00:31:36,760
Speaker 2: for real estate. And now that has all changed. And

578
00:31:37,160 --> 00:31:41,760
Speaker 2: you know, in private markets the repricing always takes a

579
00:31:41,800 --> 00:31:44,200
Speaker 2: lot longer than public markets. And you even see that

580
00:31:44,280 --> 00:31:46,800
Speaker 2: within real estate looking at the real estate private markets

581
00:31:47,080 --> 00:31:48,440
Speaker 2: and the real estate public markets.

582
00:31:48,880 --> 00:31:52,760
Speaker 1: You guys in both right and public, yes, we do.

583
00:31:52,960 --> 00:31:58,400
Speaker 1: So if tell us a little bit about how they've responded.

584
00:31:58,800 --> 00:32:02,760
Speaker 1: I'm going to assume private markets react a little more

585
00:32:02,800 --> 00:32:05,680
Speaker 1: slowly than public markets do. Tell us about that process.

586
00:32:06,120 --> 00:32:08,800
Speaker 2: The private markets react much more slowly and in a

587
00:32:08,880 --> 00:32:12,920
Speaker 2: much more measured way, and without the same sort of

588
00:32:14,400 --> 00:32:19,640
Speaker 2: level of very very quick reaction and maybe even overreaction.

589
00:32:20,040 --> 00:32:22,680
Speaker 2: You hardly ever see that in the private markets. And

590
00:32:23,280 --> 00:32:27,440
Speaker 2: the reason is you are in the real estate public markets.

591
00:32:28,000 --> 00:32:32,760
Speaker 2: The market, meaning the stock market, is determining value, and

592
00:32:33,240 --> 00:32:36,360
Speaker 2: there's a lot more at play there than just the

593
00:32:36,440 --> 00:32:39,680
Speaker 2: value of the real estate assets, whereas in the private

594
00:32:39,720 --> 00:32:43,840
Speaker 2: markets it's appraisal based, and so it takes a long

595
00:32:43,960 --> 00:32:49,560
Speaker 2: time for appraisals to really reflect market value. And part

596
00:32:49,640 --> 00:32:52,640
Speaker 2: of that is the methodology which has been around forever,

597
00:32:52,800 --> 00:32:58,200
Speaker 2: which really relies very heavily on comparable transactions, and comparable

598
00:32:58,240 --> 00:33:02,120
Speaker 2: transactions in a period of you know, little to no liquidity,

599
00:33:02,440 --> 00:33:06,120
Speaker 2: they're just not happening, and so appraisers need a data

600
00:33:06,160 --> 00:33:09,400
Speaker 2: set and a set of facts to create a record

601
00:33:09,560 --> 00:33:15,160
Speaker 2: in order to substantiate lowering values and increasing yields, and

602
00:33:15,200 --> 00:33:18,479
Speaker 2: they just haven't really had that. Now that's starting to happen,

603
00:33:18,600 --> 00:33:22,080
Speaker 2: and we are seeing a repricing, but it's very very slow.

604
00:33:22,400 --> 00:33:26,600
Speaker 2: It will ultimately probably be a much slower repricing than

605
00:33:26,600 --> 00:33:30,080
Speaker 2: we had in the GFC. The GFC took eight quarters

606
00:33:30,120 --> 00:33:33,920
Speaker 2: in private real estate to completely adjust, but the vast

607
00:33:33,920 --> 00:33:37,160
Speaker 2: majority was a shock in the first two quarters, and

608
00:33:37,200 --> 00:33:39,600
Speaker 2: then it just kind of, you know, eked out over

609
00:33:39,880 --> 00:33:42,960
Speaker 2: several more quarters. We have something totally different here. Where

610
00:33:43,200 --> 00:33:46,440
Speaker 2: the first couple quarters, after the interest rate increases, it

611
00:33:46,480 --> 00:33:48,560
Speaker 2: was almost like people were in denial and nobody really

612
00:33:48,600 --> 00:33:52,120
Speaker 2: knew what to do because we had very little price adjustment.

613
00:33:52,520 --> 00:33:54,480
Speaker 2: And now that you know, some people have a gun

614
00:33:54,520 --> 00:33:57,560
Speaker 2: to their head, there are some transactions that are happening

615
00:33:58,000 --> 00:34:01,960
Speaker 2: or starting to see, you know, a trail if you will,

616
00:34:01,960 --> 00:34:05,560
Speaker 2: of evidence of where values should be. But you know,

617
00:34:05,680 --> 00:34:09,640
Speaker 2: most of these assets are priced quarterly, very different than

618
00:34:09,640 --> 00:34:13,560
Speaker 2: the daily pricing in the stock market. And if it

619
00:34:13,600 --> 00:34:16,319
Speaker 2: takes you know, if it used to take you know,

620
00:34:16,400 --> 00:34:19,640
Speaker 2: call it forty five to sixty days to complete a

621
00:34:19,680 --> 00:34:23,560
Speaker 2: transaction from beginning to end, it's now double or triple that.

622
00:34:23,880 --> 00:34:26,320
Speaker 2: So it's just taking much longer to get the evidence.

623
00:34:27,000 --> 00:34:31,640
Speaker 1: So the October data for single family homes October twenty

624
00:34:31,680 --> 00:34:36,480
Speaker 1: twenty three record low number of transactions. Are you suggesting

625
00:34:36,560 --> 00:34:41,200
Speaker 1: that in the private commercial real estate you're also seeing

626
00:34:41,520 --> 00:34:47,200
Speaker 1: much slower transactions and that's what's causing this lag for

627
00:34:47,280 --> 00:34:49,520
Speaker 1: a repricing. How do you work around that?

628
00:34:49,680 --> 00:34:54,040
Speaker 2: Yes, much, much, much lower transaction activity. And it's interesting

629
00:34:54,080 --> 00:34:58,120
Speaker 2: because you know, for a large owner like us, these days,

630
00:34:58,160 --> 00:35:02,480
Speaker 2: when we're talking about transactions or most talking about dispositions,

631
00:35:02,520 --> 00:35:05,879
Speaker 2: in a normal business cycle, we would, when we say transactions,

632
00:35:05,880 --> 00:35:09,200
Speaker 2: were mostly talking about acquisitions. So it's very, very different,

633
00:35:09,360 --> 00:35:11,680
Speaker 2: and that impacts both the debt and equity sides of

634
00:35:11,719 --> 00:35:15,040
Speaker 2: the business. So on the equity side, we would like

635
00:35:15,080 --> 00:35:18,480
Speaker 2: to sell some assets and improve our liquidity, and there's

636
00:35:18,520 --> 00:35:20,799
Speaker 2: not a lot of buyers there. The buyers that are

637
00:35:20,840 --> 00:35:25,279
Speaker 2: there are generally buying without any debt. So if you

638
00:35:25,320 --> 00:35:27,880
Speaker 2: think about the fact that we're also a lender, that

639
00:35:28,000 --> 00:35:31,399
Speaker 2: really impacts our lending business. Our lending business has much

640
00:35:31,440 --> 00:35:36,360
Speaker 2: lower production values across all asset types than it's had historically,

641
00:35:36,760 --> 00:35:39,719
Speaker 2: and again it's because of the lack of transaction activity.

642
00:35:40,120 --> 00:35:43,799
Speaker 1: So I'm assuming you are both buying and selling within

643
00:35:43,840 --> 00:35:46,880
Speaker 1: the same quarter, within the same month. What's the thought

644
00:35:46,920 --> 00:35:50,759
Speaker 1: process like about what properties you want to sell and

645
00:35:51,120 --> 00:35:54,399
Speaker 1: what Similarly, how do you think about what you want

646
00:35:54,440 --> 00:35:59,080
Speaker 1: to buy at the same time you're really reconfiguring your holdings.

647
00:35:59,280 --> 00:36:02,279
Speaker 2: Yes, i'd say there there's two categories of the types

648
00:36:02,320 --> 00:36:04,839
Speaker 2: of assets we want to sell right now, one is

649
00:36:05,520 --> 00:36:08,440
Speaker 2: you know, kind of just bottom line those that will sell.

650
00:36:08,880 --> 00:36:11,560
Speaker 2: So if we need to raise some capital, if we

651
00:36:11,920 --> 00:36:13,920
Speaker 2: have some debt that we want to pay off, if

652
00:36:13,920 --> 00:36:16,880
Speaker 2: we want to redeploy some capital, you can sell multi

653
00:36:16,880 --> 00:36:19,680
Speaker 2: family in the southeast this is in the US, and

654
00:36:19,719 --> 00:36:21,920
Speaker 2: you can sell industrial. Those are the two things that

655
00:36:22,880 --> 00:36:27,040
Speaker 2: sell right now. And even then you're probably going to

656
00:36:27,400 --> 00:36:30,960
Speaker 2: take a lot longer selling those assets. And very interestingly,

657
00:36:31,000 --> 00:36:33,760
Speaker 2: you might not recognize one name on the list of bidders.

658
00:36:33,960 --> 00:36:36,680
Speaker 2: Oh really, it's not the big institutional names. It's not

659
00:36:36,719 --> 00:36:40,920
Speaker 2: the people like us. It's people who are buying unlevered,

660
00:36:41,280 --> 00:36:45,600
Speaker 2: people with friends and family, family offices. Really more in

661
00:36:46,360 --> 00:36:50,200
Speaker 2: your space than in mind. And very interestingly, we often

662
00:36:50,280 --> 00:36:51,400
Speaker 2: have never heard of the people.

663
00:36:51,680 --> 00:36:55,239
Speaker 1: And they want a hard asset as opposed to a

664
00:36:55,440 --> 00:36:58,160
Speaker 1: cash flow based on all, right, it'll cost us this

665
00:36:58,280 --> 00:37:01,240
Speaker 1: much to borrow, and here's what we'll see income, and

666
00:37:01,640 --> 00:37:04,320
Speaker 1: that's what we a revenue. This is something totally different.

667
00:37:04,520 --> 00:37:07,280
Speaker 1: They want to have a hard asset and actually own it, right.

668
00:37:07,120 --> 00:37:09,239
Speaker 2: And they might want to own it for a very

669
00:37:09,360 --> 00:37:12,080
Speaker 2: very long time, especially you know those kind of owners

670
00:37:12,080 --> 00:37:15,560
Speaker 2: and right now it's an advantage to be an all

671
00:37:15,600 --> 00:37:19,479
Speaker 2: cash buyer, and during this cycle of very low interest rates,

672
00:37:19,480 --> 00:37:21,840
Speaker 2: it was not an advantage to be an all cash.

673
00:37:21,560 --> 00:37:26,040
Speaker 1: Buyer when cash is free. Exactly that, you know who

674
00:37:26,400 --> 00:37:29,360
Speaker 1: doesn't make any difference. Which kind of you're sort of

675
00:37:29,400 --> 00:37:35,440
Speaker 1: describing like the edges of a distressed market. But I

676
00:37:35,440 --> 00:37:37,799
Speaker 1: don't get the sense that the market is fully the

677
00:37:37,840 --> 00:37:42,600
Speaker 1: real estate market is fully distressed. How do you identify, Hey,

678
00:37:42,600 --> 00:37:46,359
Speaker 1: we can pick up stuff really inexpensively. Flip side of

679
00:37:46,360 --> 00:37:47,880
Speaker 1: this is, hey, maybe we're not going to get what

680
00:37:47,920 --> 00:37:50,680
Speaker 1: we want for our holdings. How do you balance that?

681
00:37:51,160 --> 00:37:53,920
Speaker 2: Well, it is a balance, and you know, it is

682
00:37:54,040 --> 00:37:57,000
Speaker 2: true to say that right now, the distress is in

683
00:37:57,040 --> 00:37:59,920
Speaker 2: the capital markets. It's in the ability to get to

684
00:38:00,160 --> 00:38:02,719
Speaker 2: and the ability to find equity if you want to

685
00:38:02,719 --> 00:38:05,600
Speaker 2: do a development. Forget about construction loans, which are almost

686
00:38:05,640 --> 00:38:10,480
Speaker 2: impossible to get right now. But from a fundamentals perspective,

687
00:38:10,800 --> 00:38:14,680
Speaker 2: with the exception of office and in particular traditional office,

688
00:38:15,239 --> 00:38:19,440
Speaker 2: most property types are doing quite well. In industrial warehouses,

689
00:38:19,440 --> 00:38:22,279
Speaker 2: as you mentioned, rents are still going up in most

690
00:38:22,360 --> 00:38:27,000
Speaker 2: markets and are expected to continue. In multifamily rentals, we're

691
00:38:27,040 --> 00:38:29,759
Speaker 2: seeing a little bit of softness in some markets where

692
00:38:29,800 --> 00:38:32,239
Speaker 2: there was a lot of supply, but long term, we're

693
00:38:32,280 --> 00:38:34,359
Speaker 2: not concerned because we know we have a structural lack

694
00:38:34,400 --> 00:38:37,600
Speaker 2: of housing. So there's retail, believe it or not, retail

695
00:38:37,640 --> 00:38:41,120
Speaker 2: who was not everyone's favorite a couple of years ago.

696
00:38:41,600 --> 00:38:44,120
Speaker 2: Even retail assets are doing pretty well right now.

697
00:38:44,280 --> 00:38:48,320
Speaker 1: So the publicly traded real estate investment trusted pretty poorly

698
00:38:48,760 --> 00:38:52,239
Speaker 1: in twenty two and twenty three. Was this a rate

699
00:38:52,360 --> 00:38:55,680
Speaker 1: story or is this just a question of too much

700
00:38:56,000 --> 00:38:59,200
Speaker 1: of one type of product not enough of another.

701
00:39:00,080 --> 00:39:03,399
Speaker 2: The interest rates story definitely played into it. But if

702
00:39:03,400 --> 00:39:07,440
Speaker 2: you think about you know reads and who invest in reads,

703
00:39:07,760 --> 00:39:10,680
Speaker 2: there are definitely pure play real estate investors who invest

704
00:39:10,719 --> 00:39:13,080
Speaker 2: in ates, like us and some of our competitors, but

705
00:39:13,120 --> 00:39:16,560
Speaker 2: there's also lots of individual investors who are investing in reads.

706
00:39:16,600 --> 00:39:19,959
Speaker 2: There's lots of big index funds that are investing in reads,

707
00:39:20,040 --> 00:39:22,479
Speaker 2: so it's not always a you know, a real estate

708
00:39:22,520 --> 00:39:27,480
Speaker 2: decision maker who is influencing the cost of some of

709
00:39:27,520 --> 00:39:31,279
Speaker 2: these stocks. But overall, I would say that if you

710
00:39:31,320 --> 00:39:34,239
Speaker 2: were to take something away from the difference between the

711
00:39:34,280 --> 00:39:37,239
Speaker 2: public markets and the private markets, the public markets react

712
00:39:37,360 --> 00:39:41,080
Speaker 2: very quickly and often overreact and we do think that

713
00:39:41,080 --> 00:39:44,399
Speaker 2: there has been an overreaction here. However, the themes are

714
00:39:44,440 --> 00:39:47,840
Speaker 2: fairly similar. If you look at some of the office rates,

715
00:39:48,640 --> 00:39:52,160
Speaker 2: they've been clobbered, and that's a reflection, of course, of

716
00:39:52,400 --> 00:39:55,400
Speaker 2: people's concerns around the office market. But what's interesting in

717
00:39:55,400 --> 00:39:59,759
Speaker 2: the public space is that the best office rates, meaning

718
00:39:59,760 --> 00:40:02,680
Speaker 2: the office rates that have the highest quality assets the

719
00:40:03,040 --> 00:40:08,200
Speaker 2: kind that I mentioned before, ESG qualifications, modern new near

720
00:40:08,239 --> 00:40:12,480
Speaker 2: public transportation, those have taken about the same hit as

721
00:40:12,560 --> 00:40:16,319
Speaker 2: once with Class B assets, So that doesn't really make sense.

722
00:40:16,360 --> 00:40:19,799
Speaker 2: There is some kind of a play there. Also, if

723
00:40:19,840 --> 00:40:24,120
Speaker 2: you look at alternatives, right some of the self storage,

724
00:40:24,440 --> 00:40:27,920
Speaker 2: data centers, some of the alternative sectors within real estate

725
00:40:28,239 --> 00:40:31,759
Speaker 2: in the public markets have reacted quite differently than you

726
00:40:31,840 --> 00:40:34,719
Speaker 2: might expect and from one another. So you know, right

727
00:40:34,760 --> 00:40:38,239
Speaker 2: now most rates are still selling at a pretty significant

728
00:40:38,280 --> 00:40:41,479
Speaker 2: discount to net asset value, which net asset value would

729
00:40:41,480 --> 00:40:44,360
Speaker 2: be a good proxy for real estate value for the

730
00:40:44,400 --> 00:40:48,439
Speaker 2: actual asset value. So that's an opportunity, you know, for us,

731
00:40:48,480 --> 00:40:52,120
Speaker 2: we see that as an opportunity. And our takeaway is

732
00:40:52,160 --> 00:40:56,279
Speaker 2: that the public markets have overreacted and overshot, and the

733
00:40:56,320 --> 00:40:59,400
Speaker 2: private markets have underreacted and somewhere in the middle is

734
00:40:59,400 --> 00:41:01,239
Speaker 2: the right value. Huh.

735
00:41:01,239 --> 00:41:06,040
Speaker 1: That's really interesting. So with the caveat that Wall Street

736
00:41:06,080 --> 00:41:09,520
Speaker 1: has been wrong about this for two or three years.

737
00:41:10,160 --> 00:41:14,160
Speaker 1: Wall Street is now anticipating at least two rate cuts

738
00:41:14,200 --> 00:41:18,160
Speaker 1: in twenty twenty four. Should real estate investors be thinking

739
00:41:18,200 --> 00:41:22,120
Speaker 1: about this? If that happens, what would the impact be

740
00:41:22,160 --> 00:41:25,600
Speaker 1: and do you think that's a realistic outcome?

741
00:41:26,200 --> 00:41:27,600
Speaker 2: Well, first of all, I think we should all be

742
00:41:27,640 --> 00:41:30,319
Speaker 2: praying for that, because that would be very, very good

743
00:41:30,400 --> 00:41:34,640
Speaker 2: for real estate overall. You know, from a realistic perspective,

744
00:41:35,160 --> 00:41:37,600
Speaker 2: I don't anticipate any of that happening in the first

745
00:41:37,640 --> 00:41:40,839
Speaker 2: half of the year. I anticipate, and I say this

746
00:41:41,080 --> 00:41:43,560
Speaker 2: extremely sadly, I think the first half of the year

747
00:41:43,640 --> 00:41:45,439
Speaker 2: is going to be, you know, more of the same

748
00:41:45,920 --> 00:41:48,600
Speaker 2: of what we've seen, and it's going to be a

749
00:41:48,719 --> 00:41:52,480
Speaker 2: very interesting twenty twenty four. All around the world, you have,

750
00:41:52,719 --> 00:41:55,200
Speaker 2: you know, lots of things going on around interest rates

751
00:41:55,600 --> 00:41:59,480
Speaker 2: and you know, stock markets and business. But underlying all

752
00:41:59,520 --> 00:42:02,480
Speaker 2: of that are a lot of very high profile elections

753
00:42:02,480 --> 00:42:05,080
Speaker 2: around the world, not just the US, and you have

754
00:42:05,239 --> 00:42:08,600
Speaker 2: you know, a geopolitical tinder box in many places. So

755
00:42:09,239 --> 00:42:11,680
Speaker 2: it is going to be very very interesting. If you

756
00:42:11,719 --> 00:42:15,160
Speaker 2: look at you know, what is happening with inflation, what

757
00:42:15,360 --> 00:42:18,600
Speaker 2: is happening you know, if you really interrogate some of

758
00:42:18,600 --> 00:42:22,200
Speaker 2: the jobs numbers and you know where the consumer seems

759
00:42:22,239 --> 00:42:25,799
Speaker 2: to be going, it would lead you to believe. I

760
00:42:25,840 --> 00:42:28,359
Speaker 2: think that you know, we're not going to see any

761
00:42:28,360 --> 00:42:31,400
Speaker 2: more hikes, and that sometime next year we're going to

762
00:42:31,440 --> 00:42:34,960
Speaker 2: start to see, you know, some decreases. Whether we get

763
00:42:34,960 --> 00:42:38,440
Speaker 2: to two, I certainly hope so, And you know it,

764
00:42:38,880 --> 00:42:42,680
Speaker 2: really I think I don't think anyone has the expectation

765
00:42:42,760 --> 00:42:44,720
Speaker 2: that we're going to go back to zero interest rates.

766
00:42:45,000 --> 00:42:47,440
Speaker 2: But if we could just get down to like two

767
00:42:47,600 --> 00:42:50,360
Speaker 2: or three instead of four or five, that would be

768
00:42:50,360 --> 00:42:51,080
Speaker 2: pretty amazing.

769
00:42:51,680 --> 00:42:54,040
Speaker 1: At this point, I would take you know, low fourth,

770
00:42:54,160 --> 00:42:57,640
Speaker 1: that'd be a huge, huge change. But you mentioned something

771
00:42:57,640 --> 00:42:59,640
Speaker 1: that I have to ask about. We have all these

772
00:42:59,680 --> 00:43:06,040
Speaker 1: elects both here and abroad. How do geopolitics and elections

773
00:43:06,600 --> 00:43:09,000
Speaker 1: affect commercial real estate.

774
00:43:09,440 --> 00:43:11,319
Speaker 2: Well, I'm going to come off as very cynical, but

775
00:43:12,280 --> 00:43:15,400
Speaker 2: we keep talking about this recession and when a recession

776
00:43:15,440 --> 00:43:18,120
Speaker 2: is going to come, and I just have a hard

777
00:43:18,160 --> 00:43:20,239
Speaker 2: time believing that we're going to be in a recessionary

778
00:43:20,320 --> 00:43:24,799
Speaker 2: environment facing a presidential election in this country. I think

779
00:43:24,840 --> 00:43:27,240
Speaker 2: that everyone is going to do everything in their power

780
00:43:27,239 --> 00:43:28,360
Speaker 2: for that not to happen.

781
00:43:28,400 --> 00:43:32,920
Speaker 1: Meaning across pulling all the levers from the federal government

782
00:43:32,960 --> 00:43:36,920
Speaker 1: to the federal Reserve. Everybody's looking to avoid a recession,

783
00:43:37,080 --> 00:43:40,799
Speaker 1: especially if inflation keeps falling the way it has been

784
00:43:40,840 --> 00:43:42,960
Speaker 1: over the past year and a half. I mean, you

785
00:43:43,000 --> 00:43:46,920
Speaker 1: could easily look at CPI and say, real estate peaked

786
00:43:46,960 --> 00:43:49,840
Speaker 1: in June twenty twenty two, it's been straight down for

787
00:43:49,880 --> 00:43:50,920
Speaker 1: the next eighteen.

788
00:43:50,640 --> 00:43:52,280
Speaker 2: Months, right, right exactly?

789
00:43:52,360 --> 00:43:57,560
Speaker 1: Huh. Quite fascinating. So your global COO, let's talk a

790
00:43:57,600 --> 00:44:02,399
Speaker 1: little bit about the global stratgy. How does PGEUM, which

791
00:44:02,440 --> 00:44:06,280
Speaker 1: I really think of as a US New Jersey based

792
00:44:06,360 --> 00:44:09,640
Speaker 1: real estate investment company, how do you think about the

793
00:44:09,760 --> 00:44:12,680
Speaker 1: global investing opportunities that are out there.

794
00:44:13,400 --> 00:44:17,120
Speaker 2: Well, it's very interesting that as much as PGEUM is

795
00:44:17,120 --> 00:44:21,240
Speaker 2: a global brand, it does always come down to prudential

796
00:44:21,320 --> 00:44:23,720
Speaker 2: being in New Jersey. It gets discussed all the time,

797
00:44:23,920 --> 00:44:27,200
Speaker 2: But we are, within PGEUM real Estate in particular, a

798
00:44:27,320 --> 00:44:31,280
Speaker 2: very very global company. We operate in fourteen different countries

799
00:44:31,719 --> 00:44:35,120
Speaker 2: and we have been investing in Europe and Asia for

800
00:44:36,120 --> 00:44:38,759
Speaker 2: twenty to twenty five years. We've been at this for

801
00:44:38,800 --> 00:44:42,480
Speaker 2: a very long time. Now, our US businesses are larger

802
00:44:42,520 --> 00:44:45,319
Speaker 2: and more mature, and it's really just because we have

803
00:44:45,360 --> 00:44:50,560
Speaker 2: a long head start in the US over our international businesses.

804
00:44:50,640 --> 00:44:55,239
Speaker 2: But you know, today's investor, especially the most sophisticated investors,

805
00:44:55,520 --> 00:45:00,439
Speaker 2: they're investing globally and they're allocating globally. And it used

806
00:45:00,440 --> 00:45:03,600
Speaker 2: to be, especially from the perspective of an American investor

807
00:45:03,880 --> 00:45:06,239
Speaker 2: in real estate, that in order to leave the home

808
00:45:06,280 --> 00:45:08,680
Speaker 2: country in order to invest in Europe, in order to

809
00:45:08,680 --> 00:45:11,640
Speaker 2: invest in Asia, there have to be a huge return premium.

810
00:45:12,080 --> 00:45:15,399
Speaker 2: It was the way of compensating for the country risk,

811
00:45:15,480 --> 00:45:20,000
Speaker 2: maybe some currency risk, and just the general lack of

812
00:45:20,040 --> 00:45:22,719
Speaker 2: certainty around investing in a market that maybe you don't

813
00:45:22,760 --> 00:45:26,239
Speaker 2: know that much about. And that has completely changed in

814
00:45:26,280 --> 00:45:31,160
Speaker 2: that the driving factor behind people being global investors is

815
00:45:31,200 --> 00:45:34,879
Speaker 2: really around diversification. It's far less around yield premium. Now

816
00:45:34,880 --> 00:45:39,000
Speaker 2: you can certainly chase yield premiums in developing markets, but

817
00:45:39,160 --> 00:45:44,839
Speaker 2: if you're investing in non developing markets outside of your

818
00:45:44,880 --> 00:45:48,600
Speaker 2: home country and their mature markets, you should not expect

819
00:45:48,680 --> 00:45:50,439
Speaker 2: much of a risk premium. At the end of the day,

820
00:45:50,680 --> 00:45:53,520
Speaker 2: it's about diversification, because if you think about it, think

821
00:45:53,560 --> 00:45:56,120
Speaker 2: about the world right now, right now, in the US.

822
00:45:56,160 --> 00:45:58,279
Speaker 2: As much as we may complain about what's going on here,

823
00:45:58,760 --> 00:46:01,879
Speaker 2: most global investors would tell you that the greatest prospect

824
00:46:02,160 --> 00:46:05,960
Speaker 2: for income growth and for economic growth is in the US,

825
00:46:06,160 --> 00:46:09,120
Speaker 2: and you would want to be if you're an Asian investor.

826
00:46:09,400 --> 00:46:11,239
Speaker 2: There's certainly a lot of growth that can go on

827
00:46:11,280 --> 00:46:13,399
Speaker 2: in Asia, but it's a bit more volatile. You might

828
00:46:13,440 --> 00:46:15,719
Speaker 2: want to have some eggs in the US basket, you

829
00:46:15,800 --> 00:46:17,880
Speaker 2: might want to have some eggs in the European basket.

830
00:46:18,160 --> 00:46:22,160
Speaker 2: So global investing is just here to stay. In my view,

831
00:46:22,360 --> 00:46:24,439
Speaker 2: it's much more of a trend. And if you want

832
00:46:24,440 --> 00:46:27,960
Speaker 2: to be a big global player in any particular asset

833
00:46:27,960 --> 00:46:31,120
Speaker 2: class or asset type, you have to be a global provider.

834
00:46:31,640 --> 00:46:34,960
Speaker 1: So let's look around the world and get an assessment

835
00:46:35,040 --> 00:46:37,960
Speaker 1: of what's going on. When I look at Europe, I

836
00:46:38,000 --> 00:46:41,600
Speaker 1: see it not only a very mature area, but I

837
00:46:41,600 --> 00:46:45,760
Speaker 1: also see an economy that hasn't really recovered fully from

838
00:46:45,800 --> 00:46:49,800
Speaker 1: the pandemic or arguably from the Great Financial Crisis.

839
00:46:49,840 --> 00:46:50,000
Speaker 2: And.

840
00:46:51,520 --> 00:46:55,280
Speaker 1: Seems to be rolling from one country's recession to the next.

841
00:46:55,320 --> 00:46:58,160
Speaker 1: Now Germany is looking really soft, what do you see

842
00:46:58,160 --> 00:46:59,960
Speaker 1: in terms of opportunities in Europe.

843
00:47:00,719 --> 00:47:03,440
Speaker 2: We definitely still see opportunity in Europe, but in terms

844
00:47:03,520 --> 00:47:06,720
Speaker 2: of you know, the economies, and you mentioned Germany. Germany

845
00:47:06,760 --> 00:47:09,520
Speaker 2: definitely is you know, is a concern for us, right

846
00:47:09,560 --> 00:47:13,200
Speaker 2: we invest quite a bit in Germany. The UK Rexit

847
00:47:13,360 --> 00:47:16,520
Speaker 2: has not been kind to real estate values in the UK,

848
00:47:17,080 --> 00:47:19,160
Speaker 2: but there are still opportunities and it's a lot of

849
00:47:19,160 --> 00:47:21,719
Speaker 2: the same themes which you know, for us, we really

850
00:47:21,800 --> 00:47:28,440
Speaker 2: think of them around demographics, around digitalization, and around decarbonization,

851
00:47:29,040 --> 00:47:32,600
Speaker 2: and if you really think about demographics, there's a lot

852
00:47:32,600 --> 00:47:36,760
Speaker 2: of the same story, which you know also often leads

853
00:47:36,800 --> 00:47:41,200
Speaker 2: you to the living sectors. We think about for young

854
00:47:41,239 --> 00:47:46,640
Speaker 2: people needing affordable first time apartments. For families, maybe with

855
00:47:46,719 --> 00:47:49,359
Speaker 2: interest rates where they are and with housing costs where

856
00:47:49,400 --> 00:47:52,040
Speaker 2: they are not being able to afford that to buy

857
00:47:52,080 --> 00:47:54,319
Speaker 2: a single family home, maybe they want to rent a

858
00:47:54,360 --> 00:47:58,879
Speaker 2: single family home. Young professionals maybe remaining renters for much

859
00:47:58,920 --> 00:48:01,640
Speaker 2: longer than they used to because the barriers to home

860
00:48:01,680 --> 00:48:04,880
Speaker 2: ownership are so much higher. We have an aging population,

861
00:48:05,040 --> 00:48:09,160
Speaker 2: we need seniors housing. There's so many different aspects of

862
00:48:09,200 --> 00:48:12,719
Speaker 2: housing that we just don't have enough of, particularly at

863
00:48:12,760 --> 00:48:15,560
Speaker 2: the affordable end of the spectrum. Affordable housing is a

864
00:48:15,600 --> 00:48:20,120
Speaker 2: crisis almost everywhere in the world, and in particular, affordable

865
00:48:20,200 --> 00:48:23,160
Speaker 2: seniors housing is really in crisis.

866
00:48:23,400 --> 00:48:28,799
Speaker 1: Huh. Really interesting. So let's address Brexit, which hasn't come

867
00:48:28,880 --> 00:48:33,440
Speaker 1: up recently. I was genuinely shocked it even happened because

868
00:48:33,480 --> 00:48:38,160
Speaker 1: it was so obvious the negative economic ramifications that would

869
00:48:38,239 --> 00:48:41,520
Speaker 1: lead from it. How are things in the UK Have

870
00:48:41,600 --> 00:48:45,160
Speaker 1: they recovered from that? Is this still a persistent drag

871
00:48:45,239 --> 00:48:47,680
Speaker 1: on their economy and what does that mean to their

872
00:48:47,719 --> 00:48:48,280
Speaker 1: real estate?

873
00:48:48,680 --> 00:48:51,640
Speaker 2: I think it is still a persistent drag. I think

874
00:48:51,680 --> 00:48:59,719
Speaker 2: that you see evidence of businesses that were from regulatory perspective,

875
00:49:00,360 --> 00:49:03,600
Speaker 2: in London and now maybe they're in Ireland, maybe they're

876
00:49:03,600 --> 00:49:06,560
Speaker 2: in the Netherlands. You definitely have seen a bit of

877
00:49:06,560 --> 00:49:09,360
Speaker 2: a drain from London. There are pockets of the London

878
00:49:09,400 --> 00:49:12,279
Speaker 2: office market that are not doing that well. The good

879
00:49:12,280 --> 00:49:14,560
Speaker 2: news is that London does have a little bit more

880
00:49:14,560 --> 00:49:17,120
Speaker 2: of a modern stock than a lot of other cities

881
00:49:17,160 --> 00:49:20,640
Speaker 2: from an office perspective. But definitely, I mean, inflation has

882
00:49:20,840 --> 00:49:23,600
Speaker 2: really taken a toll on the UK and while it's

883
00:49:23,719 --> 00:49:27,680
Speaker 2: certainly getting better, if you think about kind of just

884
00:49:27,960 --> 00:49:31,160
Speaker 2: you know, constant dominoes falling up Brexit and then the

885
00:49:31,200 --> 00:49:35,239
Speaker 2: pandemic and the war in Ukraine, and inflation and high

886
00:49:35,360 --> 00:49:38,640
Speaker 2: energy costs and the high food costs. It's really noticeable.

887
00:49:38,800 --> 00:49:40,839
Speaker 2: I can tell you. I travel to London quite a bit,

888
00:49:41,280 --> 00:49:44,399
Speaker 2: and even just as a visitor, I notice how much

889
00:49:44,440 --> 00:49:45,680
Speaker 2: more expensive everything is.

890
00:49:46,719 --> 00:49:50,440
Speaker 1: And that traces back to Brexit, not just the reason

891
00:49:50,520 --> 00:49:50,920
Speaker 1: bout them.

892
00:49:51,000 --> 00:49:52,719
Speaker 2: I think it's a combination of things, but I think

893
00:49:52,760 --> 00:49:54,319
Speaker 2: Brexit was the first domino to fall.

894
00:49:55,080 --> 00:49:59,960
Speaker 1: And you mentioned demographics. We know you're investor in Asia.

895
00:50:01,000 --> 00:50:03,960
Speaker 1: Are you an investor in Japan? We are, And what's

896
00:50:04,040 --> 00:50:08,360
Speaker 1: going on there? Their demographics are uniquely.

897
00:50:07,920 --> 00:50:12,960
Speaker 2: Challenging, Yes, uniquely challenging. And you know, if you the

898
00:50:13,280 --> 00:50:16,040
Speaker 2: one very positive thing is that interest rates are still

899
00:50:16,080 --> 00:50:18,960
Speaker 2: relatively low in Japan, still not as low as they

900
00:50:19,000 --> 00:50:20,840
Speaker 2: had been, but they're they're still.

901
00:50:20,640 --> 00:50:22,880
Speaker 1: Low, and they're not negative anymore, right exactly.

902
00:50:23,040 --> 00:50:26,799
Speaker 2: There's still very accommodative of real estate. But you know,

903
00:50:26,920 --> 00:50:29,520
Speaker 2: the demographic story in Japan is very difficult, with just

904
00:50:29,560 --> 00:50:32,960
Speaker 2: a you know, really really a preponderance of the population

905
00:50:33,120 --> 00:50:36,920
Speaker 2: is aging and that just keeps, you know, increasing, you know,

906
00:50:37,040 --> 00:50:41,160
Speaker 2: not a whole lot of immigration into Japan, so definitely

907
00:50:41,160 --> 00:50:42,960
Speaker 2: a problem. And you know, there was a lot of

908
00:50:43,040 --> 00:50:46,000
Speaker 2: hype around the Olympics and what that might mean for Japan,

909
00:50:46,040 --> 00:50:48,120
Speaker 2: and I think a lot of that ultimately, you know,

910
00:50:48,200 --> 00:50:51,680
Speaker 2: didn't come to fruition from a tourism perspective. Now, you know,

911
00:50:52,160 --> 00:50:55,759
Speaker 2: it's sad to say for my Japanese colleagues, but you know,

912
00:50:55,840 --> 00:50:58,360
Speaker 2: the yen is quite weak, and so I think that

913
00:50:58,440 --> 00:51:00,880
Speaker 2: there has been an increase in tours. I was recently

914
00:51:00,880 --> 00:51:04,120
Speaker 2: in Japan and I saw a lot of American families

915
00:51:04,440 --> 00:51:06,919
Speaker 2: traveling there. It used to be cost prohibitive to bring

916
00:51:06,960 --> 00:51:10,040
Speaker 2: a family to Tokyo and now it's not. So hopefully

917
00:51:10,080 --> 00:51:13,080
Speaker 2: there's some kind of a jump start there, but definitely

918
00:51:13,480 --> 00:51:17,120
Speaker 2: the aging population in Japan is tough in the fact

919
00:51:17,120 --> 00:51:19,680
Speaker 2: that there's been very very little real wage growth there.

920
00:51:19,960 --> 00:51:23,520
Speaker 1: Huh, really really interesting. Let me throw you a curveball.

921
00:51:24,680 --> 00:51:27,880
Speaker 1: Tell us about Real Asset X. What's going on there?

922
00:51:28,160 --> 00:51:30,759
Speaker 1: This is almost like a skunk Works project, you guys have.

923
00:51:31,719 --> 00:51:36,120
Speaker 2: Real Asset X is our innovation lab that we recently launched,

924
00:51:36,640 --> 00:51:40,000
Speaker 2: and the purpose of it is really to help to

925
00:51:40,160 --> 00:51:45,040
Speaker 2: advance technology and innovation, particularly around ESG in the real

926
00:51:45,160 --> 00:51:48,080
Speaker 2: estate industry. Not just for our portfolio, but for the

927
00:51:48,120 --> 00:51:51,839
Speaker 2: industry more broadly. And you know, we're really looking at

928
00:51:51,880 --> 00:51:55,560
Speaker 2: kind of two different sides of our lab. One is

929
00:51:55,840 --> 00:51:59,080
Speaker 2: a bit more operational, where we're thinking of ways to

930
00:51:59,320 --> 00:52:02,480
Speaker 2: more efficiently run our own business, more efficiently run our

931
00:52:02,480 --> 00:52:07,200
Speaker 2: own properties, to use our data in ways that help

932
00:52:07,280 --> 00:52:09,160
Speaker 2: us to run the business, help us to serve our

933
00:52:09,160 --> 00:52:12,640
Speaker 2: clients better. On the other side of the lab is

934
00:52:12,880 --> 00:52:15,640
Speaker 2: a bit more aspirational of what could we do with

935
00:52:15,680 --> 00:52:19,440
Speaker 2: all that data, What better investment outcomes could we have

936
00:52:19,560 --> 00:52:22,239
Speaker 2: by leveraging our data. You know, I mentioned that our

937
00:52:22,360 --> 00:52:26,759
Speaker 2: US businesses are very mature. We launched our core open

938
00:52:26,840 --> 00:52:29,120
Speaker 2: end fund that I used to manage. We launched that

939
00:52:29,160 --> 00:52:32,359
Speaker 2: in nineteen seventy. We have data going back that far

940
00:52:32,840 --> 00:52:36,680
Speaker 2: and we have lots of data. And in our lending business,

941
00:52:36,680 --> 00:52:38,920
Speaker 2: we've been lending for way longer than that, so we

942
00:52:38,960 --> 00:52:41,480
Speaker 2: have lots of data that we can leverage and so

943
00:52:41,520 --> 00:52:45,600
Speaker 2: we're very excited about that. We have several university partnerships

944
00:52:45,920 --> 00:52:50,200
Speaker 2: where we are working on certain problem statements, and we

945
00:52:50,280 --> 00:52:54,200
Speaker 2: have them all around the world. So that's very very exciting.

946
00:52:54,320 --> 00:52:57,040
Speaker 2: And you know, it's a journey, right I'll tell you

947
00:52:57,120 --> 00:53:01,759
Speaker 2: that our first problem statement we worked on with one

948
00:53:01,800 --> 00:53:04,680
Speaker 2: of our university partners here in the United States, was

949
00:53:04,719 --> 00:53:08,400
Speaker 2: really around trying to predict multi family rents, and you know,

950
00:53:08,640 --> 00:53:14,080
Speaker 2: using artificial intelligence, using some machine learning, using our own data,

951
00:53:14,120 --> 00:53:16,840
Speaker 2: but other data as well. And at the end of

952
00:53:16,880 --> 00:53:19,319
Speaker 2: the day, you know, we didn't come up with a

953
00:53:19,360 --> 00:53:22,000
Speaker 2: great answer, but now we have you know, a lot

954
00:53:22,040 --> 00:53:24,359
Speaker 2: of new information that we're going to ask the question

955
00:53:24,440 --> 00:53:28,279
Speaker 2: differently as we continue to pursue this. So it is

956
00:53:28,760 --> 00:53:31,560
Speaker 2: definitely a trial and error and I think that when

957
00:53:31,600 --> 00:53:34,239
Speaker 2: people give the impression that they kind of plugged in

958
00:53:34,280 --> 00:53:36,200
Speaker 2: the AI machine and all of a sudden they have,

959
00:53:36,600 --> 00:53:39,760
Speaker 2: you know, really really great answers, that's not how it works.

960
00:53:39,800 --> 00:53:42,040
Speaker 2: It takes a lot of work. And I think our

961
00:53:42,200 --> 00:53:46,120
Speaker 2: launching of our lab and our outreach to our university

962
00:53:46,120 --> 00:53:50,120
Speaker 2: partners is our way of acknowledging that this is a process,

963
00:53:50,160 --> 00:53:52,799
Speaker 2: and it's a learning process, and it takes more than

964
00:53:53,360 --> 00:53:56,359
Speaker 2: just a real estate investment manager to make progress. There.

965
00:53:57,040 --> 00:53:59,759
Speaker 1: Sounds really exciting, all right, I only have you for

966
00:53:59,800 --> 00:54:02,040
Speaker 1: a few more moments, so let me jump to our

967
00:54:02,080 --> 00:54:05,719
Speaker 1: favorite questions that we ask all of our guests, starting

968
00:54:05,760 --> 00:54:08,520
Speaker 1: with what have you been streaming lately. Give us your

969
00:54:08,520 --> 00:54:13,360
Speaker 1: favorite Netflix or Amazon or podcast, whatever's keeping you entertained.

970
00:54:13,680 --> 00:54:18,440
Speaker 2: Sure. I recently finished Daisy Jones on the sixth, which

971
00:54:18,920 --> 00:54:21,440
Speaker 2: was recommended to me by another woman in the business,

972
00:54:22,000 --> 00:54:26,840
Speaker 2: and I'm going to be fifty eight next week. There

973
00:54:26,840 --> 00:54:29,080
Speaker 2: for someone of my age, it just brings you back

974
00:54:29,120 --> 00:54:31,080
Speaker 2: to kind of your middle school and high school years.

975
00:54:31,080 --> 00:54:33,880
Speaker 2: With the music, it's fantastic. It's a little bit of

976
00:54:33,880 --> 00:54:38,480
Speaker 2: the story of Fleetwood Mac not loosely basically fantastic.

977
00:54:38,719 --> 00:54:41,680
Speaker 1: Yeah, the woman who played Daisy Jones, I was I

978
00:54:41,719 --> 00:54:44,040
Speaker 1: don't know a third way through it. When my wife says,

979
00:54:44,360 --> 00:54:46,759
Speaker 1: you know, that's Elvis Presley's daughter, I was like, oh what,

980
00:54:47,080 --> 00:54:50,440
Speaker 1: I had no idea, Right, she was fantastic.

981
00:54:50,000 --> 00:54:53,799
Speaker 2: Fantastic, So I really loved that. And in terms of

982
00:54:54,640 --> 00:54:59,520
Speaker 2: a movie or documentary, also perfect for a woman of

983
00:54:59,520 --> 00:55:03,359
Speaker 2: my age is called Being Mary Tyler Moore, and it's

984
00:55:03,400 --> 00:55:07,120
Speaker 2: about Mary Tyler Moore, and you know, she was such

985
00:55:07,160 --> 00:55:11,000
Speaker 2: an icon for young girls in the seventies of She

986
00:55:11,320 --> 00:55:13,400
Speaker 2: lived on her own, she had this cool job, she

987
00:55:13,520 --> 00:55:17,120
Speaker 2: was intentionally single, she had this social life, she was dating.

988
00:55:17,560 --> 00:55:21,360
Speaker 2: It was really very formative and they speak to a

989
00:55:21,360 --> 00:55:26,799
Speaker 2: lot of women, mostly famous women who were so influenced

990
00:55:26,840 --> 00:55:30,080
Speaker 2: by watching that show. And I definitely was, and she

991
00:55:30,200 --> 00:55:33,879
Speaker 2: was really, you know, very much of a trailblazer and

992
00:55:34,040 --> 00:55:35,839
Speaker 2: a remarkable woman. So I'd recommend that.

993
00:55:36,080 --> 00:55:38,600
Speaker 1: Huh, I'm going to put that on my list. And

994
00:55:38,640 --> 00:55:41,520
Speaker 1: when you were talking earlier, I was thinking of two things.

995
00:55:42,920 --> 00:55:45,080
Speaker 1: I don't know if you spend much time on YouTube,

996
00:55:45,680 --> 00:55:51,320
Speaker 1: but there are some amazing channels. One is Architectural Digest

997
00:55:51,480 --> 00:55:55,520
Speaker 1: does this, so there's lots of house listenings and just stupid,

998
00:55:56,160 --> 00:55:59,360
Speaker 1: you know, spec twenty million dollar mansions in LA's. But

999
00:55:59,480 --> 00:56:02,239
Speaker 1: the thing they do that's so interesting you kind of

1000
00:56:02,680 --> 00:56:06,560
Speaker 1: reference this is they'll sit down with an architect and

1001
00:56:06,680 --> 00:56:13,440
Speaker 1: he will describe a particular type of architecture that's endemic

1002
00:56:13,520 --> 00:56:18,319
Speaker 1: to a specific city, or they'll describe a very specific

1003
00:56:18,719 --> 00:56:22,000
Speaker 1: So one guy who does New York, here's the history

1004
00:56:22,040 --> 00:56:25,600
Speaker 1: of New York residential apartment buildings and how they've progressed

1005
00:56:26,000 --> 00:56:28,080
Speaker 1: over the years. And the one I just I didn't

1006
00:56:28,080 --> 00:56:32,920
Speaker 1: see it yet but it just dropped was New York

1007
00:56:33,040 --> 00:56:37,319
Speaker 1: Museums and the architecture of Guggenheim, MoMA, the Met and

1008
00:56:37,360 --> 00:56:40,399
Speaker 1: Whitney And just like, if you like architecture. It's kind

1009
00:56:40,400 --> 00:56:44,560
Speaker 1: of fascinating. The other thing you mentioned that really made

1010
00:56:44,640 --> 00:56:47,760
Speaker 1: me think of a different channel was about the ESG

1011
00:56:48,239 --> 00:56:53,319
Speaker 1: and the location close to mass transit. There is this

1012
00:56:54,000 --> 00:56:58,520
Speaker 1: he's kind of crazy Canadian expat who relocated to the

1013
00:56:58,520 --> 00:57:02,000
Speaker 1: Netherlands with his family, and his channel is called Not

1014
00:57:02,280 --> 00:57:05,879
Speaker 1: Just Bikes and it's all about how to build a

1015
00:57:05,960 --> 00:57:11,080
Speaker 1: city that is not only net zero but just built

1016
00:57:11,200 --> 00:57:14,960
Speaker 1: around mass transit, not cars. And it's a again, if

1017
00:57:15,000 --> 00:57:20,480
Speaker 1: you're interested in urban planning, the city design and architecture,

1018
00:57:20,720 --> 00:57:23,720
Speaker 1: endlessly fascinated. That's great, that's a rabbit hole you can

1019
00:57:23,760 --> 00:57:27,280
Speaker 1: talk too. So you mentioned one of your mentors early.

1020
00:57:27,640 --> 00:57:31,120
Speaker 1: Tell us about who your mentors were and who helped

1021
00:57:31,160 --> 00:57:32,080
Speaker 1: shape your career.

1022
00:57:32,760 --> 00:57:35,680
Speaker 2: The person who is most influential in my career from

1023
00:57:35,720 --> 00:57:39,280
Speaker 2: a young age is a woman named Yvon Competello, who

1024
00:57:39,760 --> 00:57:42,280
Speaker 2: I worked for when I was in my late twenties

1025
00:57:42,320 --> 00:57:46,520
Speaker 2: and early thirties, and she taught me everything I know

1026
00:57:46,560 --> 00:57:49,200
Speaker 2: about real estate, but also taught me a lot about

1027
00:57:49,200 --> 00:57:52,240
Speaker 2: being a woman in this business. She taught me how

1028
00:57:52,280 --> 00:57:55,040
Speaker 2: to be a very tough negotiator. She taught me how

1029
00:57:55,120 --> 00:57:59,480
Speaker 2: to kind of manage working in a man's world, and

1030
00:57:59,560 --> 00:58:03,520
Speaker 2: she always expected a lot of me but also always

1031
00:58:03,520 --> 00:58:07,640
Speaker 2: supported me. And I've tried to emulate some of the

1032
00:58:07,680 --> 00:58:10,480
Speaker 2: way that she managed me and the way she managed

1033
00:58:10,480 --> 00:58:13,280
Speaker 2: and led others. It really was very influential.

1034
00:58:13,640 --> 00:58:16,920
Speaker 1: Huh. Very interesting. Let's talk about books. What are some

1035
00:58:17,000 --> 00:58:18,880
Speaker 1: of your favorites? What are you reading right now?

1036
00:58:19,560 --> 00:58:23,240
Speaker 2: Right now, I'm reading a book called Eligible by Curtis Sittenefeld,

1037
00:58:23,320 --> 00:58:27,200
Speaker 2: who she writes a lot of you know, more pop culture,

1038
00:58:27,280 --> 00:58:29,800
Speaker 2: I guess type books, but this happens to be a

1039
00:58:29,840 --> 00:58:33,960
Speaker 2: modern take on Pride and Prejudice. So Pride and Prejudice

1040
00:58:34,000 --> 00:58:36,840
Speaker 2: obviously was very tongue in cheek itself, and this is

1041
00:58:37,160 --> 00:58:39,800
Speaker 2: a modern tongue in cheek version of that of, you know,

1042
00:58:39,840 --> 00:58:42,560
Speaker 2: an overbearing mother trying to marry off her daughters, et cetera.

1043
00:58:42,880 --> 00:58:45,240
Speaker 2: But I'm really enjoying that. I tend to read to escape.

1044
00:58:45,760 --> 00:58:50,760
Speaker 2: And I am also just finished a book by Daniel Silva,

1045
00:58:51,240 --> 00:58:53,160
Speaker 2: who has written like thirty two books, and I think

1046
00:58:53,160 --> 00:58:56,200
Speaker 2: I've read every single one of them. And you know,

1047
00:58:56,360 --> 00:59:01,240
Speaker 2: it's a series of spy novels and instead of the Cia,

1048
00:59:01,320 --> 00:59:05,560
Speaker 2: it's the Mosad, and the protagonist is, in addition to

1049
00:59:05,600 --> 00:59:08,880
Speaker 2: being an amazing masad agent. He's an art historian in

1050
00:59:09,080 --> 00:59:12,000
Speaker 2: art and artist and art restorer, so it kind of

1051
00:59:12,040 --> 00:59:14,720
Speaker 2: combines things. I'm very interested. When I was young, I

1052
00:59:14,760 --> 00:59:17,320
Speaker 2: wanted to be a spy and I love art, So

1053
00:59:17,400 --> 00:59:18,560
Speaker 2: for me, those are great books.

1054
00:59:18,720 --> 00:59:21,200
Speaker 1: Huh really, what's the name of the silver Book?

1055
00:59:22,000 --> 00:59:23,560
Speaker 2: This one I think is called The Collector?

1056
00:59:24,120 --> 00:59:27,640
Speaker 1: Huh. Really interesting, And we're down to our final two questions.

1057
00:59:27,800 --> 00:59:30,840
Speaker 1: What sort of advice would you give a recent college

1058
00:59:30,880 --> 00:59:34,640
Speaker 1: grad interested in a career in real estate investing?

1059
00:59:36,240 --> 00:59:38,840
Speaker 2: My greatest advice that I give to everyone is try

1060
00:59:38,880 --> 00:59:41,880
Speaker 2: to do a little bit of everything. If you ultimately

1061
00:59:41,920 --> 00:59:44,600
Speaker 2: want to specialize, if you ultimately want to only do

1062
00:59:45,480 --> 00:59:49,080
Speaker 2: equity acquisitions, that's great. Don't make that decision when you're

1063
00:59:49,080 --> 00:59:51,160
Speaker 2: twenty two or twenty three years old. Do a little

1064
00:59:51,200 --> 00:59:53,760
Speaker 2: bit of debt, do a little bit of equity, do acquisitions,

1065
00:59:53,800 --> 00:59:57,720
Speaker 2: do asset management, do dispositions, do portfolio management. I think

1066
00:59:57,760 --> 01:00:01,200
Speaker 2: that especially when you hit a crisis, the most well

1067
01:00:01,280 --> 01:00:05,000
Speaker 2: rounded real estate people are the ones who've done a lot,

1068
01:00:05,040 --> 01:00:07,960
Speaker 2: and they're the most successful in a down environment. If

1069
01:00:08,000 --> 01:00:11,200
Speaker 2: you think about it, when you might not you might

1070
01:00:11,200 --> 01:00:14,520
Speaker 2: be an asset manager. But if you've never worked in debt.

1071
01:00:14,800 --> 01:00:16,520
Speaker 2: How are you going to know how to do a

1072
01:00:16,560 --> 01:00:19,880
Speaker 2: workout of your loan that now is in default. So

1073
01:00:20,240 --> 01:00:23,120
Speaker 2: I just think do a little bit of everything. And

1074
01:00:23,160 --> 01:00:26,400
Speaker 2: the one regret that I have is that so far

1075
01:00:26,560 --> 01:00:28,800
Speaker 2: I've only worked in the US in terms of living

1076
01:00:29,200 --> 01:00:32,800
Speaker 2: and working, and I wish I had had an excellent adventure,

1077
01:00:33,080 --> 01:00:35,040
Speaker 2: you know, three years in London, three years in Powers,

1078
01:00:35,080 --> 01:00:37,200
Speaker 2: something like that, and I would recommend that to all

1079
01:00:37,240 --> 01:00:37,720
Speaker 2: young people.

1080
01:00:38,120 --> 01:00:41,040
Speaker 1: Very interesting and our final question, what do you know

1081
01:00:41,120 --> 01:00:44,040
Speaker 1: about the world of real estate investing today? You wish

1082
01:00:44,040 --> 01:00:46,760
Speaker 1: you knew twenty five or so years ago when you

1083
01:00:46,800 --> 01:00:47,880
Speaker 1: were first getting started.

1084
01:00:49,240 --> 01:00:53,360
Speaker 2: I wish I knew that it would evolve in the

1085
01:00:53,400 --> 01:00:56,000
Speaker 2: way that it has. I think that when I got

1086
01:00:56,040 --> 01:00:58,840
Speaker 2: into the business, which is thirty five years ago, it

1087
01:00:58,960 --> 01:01:05,960
Speaker 2: was far more opaque and less institutional, and I guess

1088
01:01:06,000 --> 01:01:10,920
Speaker 2: that for some people that made it feel like, you know,

1089
01:01:11,160 --> 01:01:14,320
Speaker 2: it was there were higher barriers to entry to being

1090
01:01:14,320 --> 01:01:17,280
Speaker 2: in the business. But I actually really appreciate how much

1091
01:01:17,360 --> 01:01:20,720
Speaker 2: more transparent the businesses and how much more institutional it is,

1092
01:01:21,160 --> 01:01:24,360
Speaker 2: and the fact that it's more accessible to more people.

1093
01:01:24,480 --> 01:01:26,320
Speaker 2: Used to just be only the wealthiest people in the

1094
01:01:26,360 --> 01:01:29,680
Speaker 2: world could invest in institutional real estate. I know anybody can,

1095
01:01:29,720 --> 01:01:30,760
Speaker 2: and I think that's terrific.

1096
01:01:31,000 --> 01:01:34,320
Speaker 1: Huh, very very interesting. Thank you Kathy for being so

1097
01:01:34,440 --> 01:01:38,000
Speaker 1: generous with your time. We have been speaking with Kathy Marcus.

1098
01:01:38,280 --> 01:01:42,400
Speaker 1: She's co CEO and global Chief Operating Officer at Pgium

1099
01:01:42,480 --> 01:01:46,800
Speaker 1: real Estate. If you enjoyed this conversation, check out any

1100
01:01:46,840 --> 01:01:49,760
Speaker 1: of the previous five hundred or so we've done over

1101
01:01:49,800 --> 01:01:54,840
Speaker 1: the past nine years. You can find those at Apple Podcasts, Spotify, YouTube,

1102
01:01:55,160 --> 01:01:58,800
Speaker 1: wherever you find your favorite podcasts. Sign up from my

1103
01:01:58,920 --> 01:02:03,040
Speaker 1: daily reading list Ridolts dot com. Follow me for however

1104
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Speaker 1: much longer it continues to circle the drain at rid

1105
01:02:06,280 --> 01:02:09,720
Speaker 1: Holts on Twitter. Follow all of the Bloomberg Family of

1106
01:02:09,800 --> 01:02:14,160
Speaker 1: podcasts on Twitter at podcast I would be remiss if

1107
01:02:14,200 --> 01:02:16,760
Speaker 1: I do not thank the crack team that helps put

1108
01:02:16,760 --> 01:02:21,320
Speaker 1: these conversations together each week. My audio engineer is Rich

1109
01:02:21,360 --> 01:02:27,200
Speaker 1: summani Attikavlbron is my project manager. Sean Russo is my researcher.

1110
01:02:27,560 --> 01:02:32,000
Speaker 1: Analock is my producer. I'm Barry Riddholts. You've been listening

1111
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Speaker 1: to Masters of Business on Bloomberg Radio.