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00:00You created the W, you got acquired the Sheridan, you did a lot more, but you made a little bit
00:04of the Westin, we can go on and on.
00:07You were like the hotel guy for a long time, and I guess you still are.
00:10I was a real estate guy before I was a hotel guy.
00:11Okay, all right.
00:12Now I'm back to being a real estate guy and a hotel guy.
00:14All right.
00:14You know, we have started hotels again.
00:15You're going to start hotels again.
00:17But you've broadened out.
00:18I mean, I'm looking at some of your investments lately.
00:21You're doing a lot right now in the sort of AI, data center, infrastructure business.
00:26That's become a huge component of your business, isn't it?
00:28It has recently.
00:29I mean, for the last five years, we've been doing data centers.
00:31Yeah.
00:31And then we started really in the Dulles market, the largest data center market in the world, eight and a
00:36half gigawatts in place.
00:37And Dulles was the home of the internet, and so there's great connectivity, and it sort of grounds you.
00:44It's like Park Avenue and 57th Street.
00:46Yeah.
00:46And then we've broadened out to other markets.
00:48We did a deal with a Bitcoin miner.
00:52Yeah.
00:52With Merrill Holdings, right?
00:53With Merrill Holdings.
00:54And we're looking at others, and then we're expanding to other states.
00:57And with two platforms, we've launched into Europe and into Asia, both directly and indirectly.
01:04In Europe, we have the largest data center operator.
01:06We own the majority interest in the largest data center operator in Ireland, which has expanded in a joint venture
01:11with the Spanish utility, Ibradola.
01:13And then we've also got sites in Milan.
01:16And then in Asia, we bought, together with Warburg, a controlling interest in ESR, which is Asia's largest real estate
01:22asset manager.
01:23We took it private last year.
01:25And they have a big data center business.
01:27And then on our own, we've partnered with them, with ESR, but also have moved into Australia.
01:33And we're looking in Japan and Korea also.
01:35And we've been in and out of Malaysia.
01:37We haven't bitten the dust yet.
01:38But I don't know if by the dust, I don't think that's the right word, bitten the bone?
01:43Bitten the bone.
01:44Well, talk about ESR, because ESR is pretty expansive.
01:46I mean, that includes South Korea, Japan, India.
01:49I'm probably forgetting a couple of nations in there.
01:51That gives you a pretty broad footprint there.
01:53Why did you lead that deal?
01:54Oh, we like their footprint in the new world.
01:59They're leaders in logistics, the largest or second largest neck and neck on logistics with a huge footprint in Australia,
02:05which is a super healthy market.
02:06We did a large investment into Sydney and Melbourne industrial a year and a half ago.
02:12And also, we like Japan.
02:14You know, it's done great with their abandonment at the end and the fact that they've become so competitive while
02:21letting the currency go.
02:23So ESR has had a really good footprint in really the fast-growing countries.
02:29And we think Korea was distressed, but coming out of that.
02:35And they're great developers.
02:37They've done some great development deals all across Asia, including India.
02:42And they were $150 billion, which shrinked them down to about $120 billion of AUM assets under management.
02:48We're about $130.
02:50Wow.
02:50And we're along, as a firm, more Europe and the U.S.
02:53And they're along Asia.
02:54So it was complementary to what we were doing.
02:56Yeah.
02:56And, you know, we're working with a group of investors.
02:59We took it private.
03:00It was, I think, the largest privatization in Asia last year.
03:04It was, yeah.
03:04It was.
03:06Would you have done that?
03:07I mean, you mentioned Japan and obviously the big changes that we've seen and the yen and fiscal policy over
03:11there.
03:12Would you have done a deal with such close ties to Japan, I don't know, five years ago, 10 years
03:17ago like this?
03:18I think those two asset classes have caught the favor with investors.
03:24And a lot of their clients are sovereign wealth who invest with us.
03:28So we could do diligence to how they felt about ESR as a manager.
03:32And ESR was a sort of a funny company.
03:34It was listed on the Hong Kong Stock Exchange but didn't really pay a dividend.
03:37Most asset managers pay dividends.
03:38And they grew at hyper speed.
03:41And so the markets were – then they had a lot of exposure to China.
03:44We think we valued that market appropriately.
03:47But they were a big logistics player in China.
03:51It's one of probably the weakest logistics market in the world that I'm aware of.
03:55And what I think we valued at Will Below Book and we bought the company, I think, attractively.
04:01We put together a consortium that includes some of the original shareholders just rolled over into our privatization.
04:06And then we put a really good group, including some of the sovereign wealth funds, joined us in the take
04:12private.
04:12So it's going really well.
04:14Actually, I've rarely done a consortium deal.
04:16Usually we're doing deals by ourselves, maybe one partner.
04:19But there are five of us invested.
04:21But we've all agreed on the business plan up front and we're executing.
04:23And the team's good and focused.
04:25And I hope we can grow it dramatically and then re-IPO it.
04:28What about the Telstra deal in Australia?
04:30I mean, how important is that market for you right now?
04:33Australia is a good market.
04:35There's trunk lines from the U.S.
04:38And there's no data sovereignty issues.
04:40I think both in Europe and Australia and to some extent all of Asia, we've seen the hyperscalers who are
04:46really focused on the U.S.
04:48In the last six months, they seem to be really focused on moving out and not abandoning the U.S.
04:53But they're much more active in Europe.
04:54They're much more active in Asia.
04:56And we're working right now on our first real data center deal on our own in Australia.
05:03Are the economics and the valuations a little more attractive there relative to, say, what we're seeing here in the
05:08U.S.?
05:08No.
05:09No?
05:09Really?
05:09Oh, wow.
05:10Pretty much the same.
05:11Yeah.
05:12Is there more upside, maybe?
05:13I mean, why chase that?
05:15Why not just continue roaming around the U.S.?
05:17You can get power anywhere in the world.
05:19You have something you can talk to a hyperscaler about.
05:21So we're just agnostic.
05:23Yeah.
05:24You know, the interest rates are about the same in Australia as they are here.
05:27Yeah.
05:27And the yields on costs for us developing are about the same.
05:32And the equipment costs the same thing.
05:34And we have equipment problems everywhere.
05:35It's not just the U.S.
05:36You've got to order your turbines and your chillers and your other equipment.
05:40And labor seems to be okay.
05:42It's not.
05:43It's really Melbourne and Sydney, pretty much.
05:45It's not across the country.
05:49And our partnership with Celestia is a great help.
05:53And they've got sites.
05:54And we're working on one of them.
05:55Hopefully, we'll get it done very shortly.
05:57What about your footprint in Europe?
05:59Because that's been expanding, too.
06:00In fact, it seems like you're putting a little bit more emphasis on that than some of the other
06:03real estate guys like us.
06:04We like to invest with positive leverage when the yields on property are higher than the
06:09cost of debt.
06:10And that turned true in Europe a lot faster than the United States.
06:13So we just took private.
06:15Well, we bought a Swedish home builder.
06:18We thought that market was interesting.
06:20It's undersupplied.
06:21We have a huge owner of industrial in northern Italy, which is like that's a good part of
06:26Italy from an investment standpoint.
06:28And the South is not so hot.
06:30But that enjoys like a 2% vacancy rate.
06:32We're seeing growing rents.
06:33And we're getting inbound interest to buy this stuff.
06:35We've been very constructive on take privates of small public companies in Europe.
06:39There are a lot of small REITs in Europe that can't get to scale.
06:43And they were quicker to actually, let's say, clean the books or shareholders got stuck and
06:48wanted to sell a company.
06:49So we continue to comb through the public markets looking for things to take private.
06:53There's a couple of companies working out right now.
06:57And I think we're really more on the continent than the UK because rates in the economy, rates
07:03are higher and the economy stays stubbornly weak.
07:06Like, I'm not really worried about the European economy going into a deep recession.
07:10It's essentially we have a footprint in Germany with a very large developer.
07:14And everything they touch, everything they open for lease, immediately pre-leases.
07:19Yeah.
07:19So we just achieved the highest rents, I think, ever in Berlin on an office deal we're building.
07:25So it's a, you know, I think those are, those markets are inherently better than the markets
07:29in the United States in the sense that the vacancy rates are much lower.
07:33Have you given up on the United States?
07:34Not at all.
07:35No.
07:35Not at all.
07:36We're just waiting for Kevin Walsh to bring rates down for us.
07:39You think Kevin Walsh is going to do that?
07:40Well, let me rephrase that.
07:41You think he's going to have a reason to lower rates?
07:44Well, I'd argue if oil spikes, he should lower rates.
07:47Why?
07:47That seems counterintuitive.
07:49Because interest rates aren't going to affect oil prices, right?
07:51But on the other hand, oil prices are taxed on the U.S. and the global economy, weakening
07:55the economy.
07:56So he should lower rates and help the interest rate sensitive parts of the economy, like housing,
08:02to balance the economy and keep it going.
08:04How much room does he even have to do that?
08:06I mean, a quarter point isn't going to do anything for anybody.
08:08I think the short end could be three.
08:10Really?
08:11Oh, yeah.
08:11It was three before the war.
08:13I mean, the forward curve was.
08:15It was one at one point.
08:16It was one.
08:17No, I mean, like six months ago, in the fall, it was three, the forward curve.
08:22And I think the U.S. economy is sort of a weird economy.
08:25We talk about this GDP growth and the exceptionalism that's true from the AI's perspective, from
08:29the consumer's perspective.
08:31He's not doing so great.
08:32Half of this country is sort of not doing so great.
08:35And they're facing higher everything prices, particularly gas now.
08:40So if the U.S. is a consumption economy, you would expect consumption to get weaker.
08:44Yeah.
08:44And we'll see if it happens.
08:45You're already seeing changes in travel patterns.
08:47Americans aren't going to Europe this summer.
08:49Yeah.
08:49Their travel to Europe is down like 10% from the United States.
08:51Does that worry you, though?
08:52I mean, that some of these changes aren't just temporary, that they could be long-term
08:56structural shifts?
08:57No, I don't.
08:58What worries me is, yes, the disparity of wealth in the United States and the fact that
09:02half the country isn't doing so great, that worries me.
09:05Because it will impact politics.
09:06And if it impacts politics, it'll impact real estate.
09:09It'll impact taxes.
09:10It'll impact a lot of things.
09:12Yeah.
09:12So I think as investors, you know, we've shied away from blue states lately because of their
09:18propensity to tax businesses and individuals.
09:21And that's showing up in higher growth rates in the Sunbelt states, which are oversupplied
09:26in the United States.
09:27Yeah.
09:27But that's where the job growth is.
09:29And eventually, they will grow into their supply.
09:31There's not a lot of new supply.
09:33Where some of the blue states, you know, are losing jobs.
09:36And they don't have a lot of supply, but they won't, five years to 10 years from now, they
09:40won't be outperforming the Nashvilles, the Dallases, the Atlantas, the Raleigh, pretty much
09:46the entire state of Florida.
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