00:00And there's a new report out, Katie, by the global real estate investment manager, Heinz.
00:04And it actually has some promising takeaways on the recovery of the real estate sector,
00:07finding that after years of ongoing turbulence, the global commercial real estate sector appears
00:12to have found a stable altitude and is now primed to begin its next ascent. Joining us right now
00:18is David Steinbach. He's the global CIO over at Heinz and a managing partner there. All right,
00:22let's start off that. Begin the next ascent. Really? I thought real estate's been doing well
00:26so far, right? It's been a tough few years. People forget that really beginning in 2022
00:31when rates went up, that really caused a reset in the market and the private real estate.
00:38So without question, the footing feels much firmer going into this year. And we're looking forward
00:43to some good opportunities. What's creating that firmer footing? Is that an economic story,
00:47a rate story? What's going on? It's a blend of things. Look, rates have come down some,
00:51and that has helped. There has been a real ceasing of new supply that's now several years
00:57in the making. And I think most people forget or just fail to see how important that is to the
01:04market. Every growing economy needs some new product, new supply to be coming online. There's
01:09obsolescence. Economies grow. But the economics have not justified new development. So it's been
01:15completely cut off. And that problem will compound over time. And people forget how long it takes to
01:20build, deliver these projects. And so that will drive rent growth that we see as a good opportunity.
01:25So it sounds like we're talking about living here right now, that you think about sort of where
01:30you're seeing those opportunities, that living space definitely presents itself.
01:35Living is our number one conviction, for sure. The U.S. is about two and a half million houses short.
01:40There have been some pockets of oversupply. But it is interesting that the last few years before this
01:44downturn, there's been a tremendous amount of new supply did come through the system.
01:48And overall occupancy for living is in the low 90s for the whole country.
01:52And there's new supply that still needs to come. So that is our number one conviction.
01:57Well, I do want to go to this bullet point in your outlook. You write that office interest
02:02is growing. And we know that when it comes to commercial real estate office,
02:06it's been hard for it to sort of get its sea legs under it. And tell us what is starting to shift here
02:12when it comes to that dynamic.
02:13Well, first, when you look globally at office, it's not the same everywhere. And Europe, Asia,
02:19it's a very different dynamic than here in the United States. Here in the U.S., certainly New York
02:24has been leading on the recovery of fundamentals. But we've seen strong fundamentals in some of the
02:28best projects in cities all over the country. That will continue to play out. The real piece that has
02:34started to come more into focus has been the lending side and really private credit has been an answer
02:42the last couple of years. And that that space is getting deeper. And so the the ability to refinance
02:48some of the best projects or bring financing into deals that need capital to do leasing that has been
02:54improving steadily. And so that that really for us is a leading indicator into what will end up being an
03:00equity opportunity. Yeah. But that'll that'll be emerging. It's still early. It's more on the credit
03:04side right now is price discovery. And I'm talking specifically on offices. Is that a little bit more
03:09transparent than what it was a couple of years ago? We've had some great trades the last really at the
03:13end of end of last year. I think also people are starting to look at the spread between the cap rate,
03:19which is the rate of return for a building and the cost of borrowing. And as lending has come back,
03:25that spread is very wide right now. And so for the best projects that are well leased in some cases,
03:31the highest rent cities have seen in some cases for the best of the best, the dislocation of
03:35capital markets just doesn't make sense. We've had you on the show before and talk to you a lot about
03:39sort of shifting supply chains. I mean, I guess we can maybe peg that to the first Trump administration
03:45and obviously the pandemic. And of course, Trump coming back has sort of reinvigorated the ability or I
03:51guess the need for some companies to start to think about reshoring or nearshoring some things.
03:55Are we seeing a material uptick in shovels in the ground on those types of projects?
04:00Absolutely. This is a global phenomenon. And this has been a theme that we've been seeing for several
04:04years, which is de-globalization. We've been talking about it for years and everything that
04:08happens in the news cycle just seems to further reiterate that is a trend that we're going to see
04:14for some time to come. I think a lot of companies are looking at their supply chains. They're looking at
04:18redundancies. They're looking at where they get their goods. And it's going to require a lot of
04:23building in the next few years. And what makes that story interesting as well is that right now
04:29that the premium that you should get for development, it's hard to find. And so that is
04:35meaning that if you have a project today, you bought a project, you own a project, it is becoming
04:40increasingly scarce that we'll see rent growth come through. And so this reshoring is also going to
04:45cause increased demand. Increased demand. I do want to go back to something you were saying.
04:50As it pertains to office, you said eventually that will present itself as an equity opportunity.
04:55And when it comes to your style of investing, when you're looking to deploy capital, do you see
05:01more opportunities in credit or in equity right now? Or does it really depend on what sort of project
05:07we're talking about? Yeah, it really depends on the product and where. In the U.S. right now,
05:12for the most part, we've been most active on the credit side in office. Cities like New York,
05:17though, there's been some great equity opportunity and trades that have been occurring that have been
05:21very interesting. And those are starting to spread. These things are, they happen over time. And we're
05:26starting to see those green shoots. So we also have to talk about data centers, of course. That was
05:31the conversation over the past couple years. I have to imagine. Yeah, but apparently, you know,
05:36you can cool them theoretically, maybe with less intensive systems needed than maybe in the past.
05:42Anyway, so would expect that to be the conversation in 2026 as well. Refresh us on how exactly you invest
05:49in that theme, because my understanding is you're not investing necessarily in the data centers
05:53themselves, but more the land that they sit on top of. Historically, Heinz has been involved in data
05:59centers for a long time, for 30 years. And the customers were the banks. And the scarce resource
06:03was the building specifications that was difficult to achieve what the end users needed. The last few
06:10years, that's shifted. The customers are now the hyperscalers, and the scarce resource is now power.
06:14And we found ourselves obviously interested in the entire value chain, but we've been most focused
06:21on powered land, simply because that was where the choke point was. And being able to secure land,
06:27secure power, and be able to provide that has been where we've had seen some great opportunities.
06:32That's that is slowing down a tad, although we're still seeing opportunities. I think that
06:35is in large part just because of some of the growth that a lot of folks were expecting. They were
06:41looking to go on offense and trying to to establish because this choke point of power is very real.
06:46Yeah, nobody wanted to be boxed out. And so there was an aggressiveness to get ahead of that.
06:51And the fundamental core demand there, we still see is strong, although we could, you know,
06:55there has been a little bit of a pullback. Are you concerned at all about potential
06:59regulatory constraints? And if this gets to the power costs, there's been some great stories
07:03about just how much wholesale costs went up last year and the idea that they're going to continue
07:07to go up. A lot of this has become an election issue already. And there are going to be some
07:11politicians are going to look at these data centers and say, not in our backyard. Are you prepared
07:15for that? There is a dynamic that is occurring. What's interesting about the United States is the way
07:20our electric grids work. It is a rather decentralized collection of grids, really, that do give the
07:28different grids opportunity to compete in many ways for that. There will be some areas that supply will
07:33be cut off. Other areas are welcoming it. And so I think that you'll just see the supply follow.
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