00:00Private equity is becoming more selective, especially in real estate.
00:03Rock Point is putting money to work across a diversified portfolio,
00:07spanning residential, industrial, office, and hospitality assets.
00:12And joining us now is the co-CEO of Rock Point, Tom Gilbane.
00:15He also serves on the board of Gilbane,
00:18an historic, really, family-owned construction giant here in America.
00:22So, Tom, great to have you on the program,
00:25especially on a day when we get a headline like this,
00:27Mayor Mamdani scrapping a planned New York City property tax hike.
00:31This isn't the sort of Ken Griffin pied-a-terre tax,
00:34but it's still a move that he's not able to put through.
00:38Are you still confident in the future of New York, even with Mamdani as mayor?
00:42I think New York has continued to get better day by day since COVID.
00:48And one of the stats that we have come up with that we think really shows
00:53what is driving New York and why New York is thriving
00:56is if you look at the matriculation of the top 100 universities in America,
01:0015% of those students are coming to New York City.
01:03That's the biggest gain pre-COVID of any city in America.
01:07And it's 25% from the Ivy League.
01:09So it's the young people that want to be here that are really driving New York.
01:15And that's driving the employers to come to New York, whether it's Amazon, Google.
01:18You've seen OpenAI and Anthropic recently pop up here.
01:21So New York is firing on all cylinders.
01:23And I know there's a lot of bad headlines about people leaving,
01:26but we're seeing more than enough people coming.
01:29And it's that young talent that the great companies need to be successful in this world and in the future.
01:37I was going to ask about the sustainability of it,
01:39because you also note that, yes, young talent comes, but then wealth leaves.
01:44Once people have made their fortune, they tend to leave New York City.
01:47What does that sort of cycle do to the city?
01:49If, yes, you have people coming in, contributing to businesses, but then the money flees eventually?
01:55You know, it's a great question.
01:56I think as long as the city stays safe, and they've done a great job under Jesse Tisch,
02:02and we had John Waldron at our annual meeting two weeks ago,
02:05and he's a great, obviously, employer and acquisitor of talent, they have to be here.
02:11And they will obviously have people move out, move to different places, tax reasons, lifestyle reasons.
02:16But these young kids want the experience of New York City.
02:20They're willing to pay the price of higher taxes, higher rents to get this once-in-a-lifetime experience.
02:25And you've got world-class suburbs around here that you really can't, you know,
02:30it's hard to compete with the schools and the sports and the lifestyle here.
02:34So as long as it stays safe and within reason, New York City's got a very, very bright future.
02:39And the professional life as well.
02:40I mean, there's something to be said for coming to the office,
02:42and kids are going back to the office four or five days a week.
02:45You have recently invested in a building with SL Green just south of Grand Central Station,
02:50which has to be prime real estate, right?
02:51Because, well, at least for a commuter like me, that would be perfect.
02:55Talk to us about office, because for a long time it was in doubt whether people would even return.
03:00Yeah, it's a great question.
03:02Obviously, the pandemic hit office hard.
03:05There's 3.2 billion square feet of office space in America.
03:09And we've gone building by building.
03:11And we think there's about 450 million square feet that you'd want to own.
03:15And what that means is assets that you have supply, demand, and pricing power in your favor today.
03:21100 Park Avenue, which we were lucky enough to buy a 49% interest in with SL Green,
03:25is currently 100% occupied.
03:27And rents are up 10%, 15% year over year.
03:31That segment of the market is as strong as it's ever been.
03:34So you're in that 450 million feet where you have strong, durable cash flows.
03:38Cash flows are growing.
03:39The other thing you've got to really think about office, and the market's really telling us you've got to think
03:43about this in office, is AI.
03:45And what effect is AI going to have on your office building?
03:48And I think our belief is the prime New York office will be buoyed by AI.
03:54It will be not affected by AI.
03:56But there's a lot of office buildings in America that are doing well today that have a lot of people
04:01that work there,
04:01that their job may be disrupted by AI.
04:04So you've got to put that into the mix as you decide what you want to buy.
04:07By the way, it makes complete sense to me that somewhere like Grand Central would be attractive office real estate.
04:12But I was reading this story in the Wall Street Journal basically saying the area that Kathy Hochul once called
04:17the Hell Hole,
04:18Hell's Kitchen, and around Penn Station, all of a sudden is starting to look really attractive.
04:23Major League Soccer is there, Dick's Sporting Goods.
04:26I mean, what's happening with this neighborhood?
04:27Apparently it's something that's all of a sudden attractive.
04:30Well, everyone knows about flight to quality and flight to trophy and New York Trophy, Hudson Yards,
04:36and what the related companies have built or the Prime Park Avenue is through the roof, right?
04:40One Vanderbilt, SL Green built.
04:42But there's also flight to location.
04:44People left during COVID.
04:45People moved to different locations.
04:47Now you have to come back to the office.
04:49And so you want to be on top of public transportation.
04:52And Penn Station is a great spot to be on top of public transportation.
04:56So Grand Central has been the big winner in the first derivative.
04:59The second derivative would be Penn Station.
05:02In Boston, interesting enough, it's South Station.
05:05You know, it was, you know, downtown Boston was always a laggard.
05:08And you're seeing tenants from Cambridge, the innovation capital of the world,
05:13moving to downtown Boston because they want to be close to South Station.
05:17So there's both flight to quality and flight to location is what's making this kind of 450 million,
05:23top 15% of office in America viable on a going forward basis.
05:27So you're running Rock Point, but you also sit on the board at Gilbane,
05:31which is a construction company that has, you know, built the World's Fair and the Smithsonian
05:37and the stadiums that we all go watch our favorite teams in.
05:42How are you experiencing the kind of re-industrialization of America, you know, that we're witnessing?
05:48Because, like, CapEx from hyperscalers has doubled from last year and tripled from two years ago.
05:53So it's like a massive amount of money poured into construction.
05:57Yeah, it's incredible what you're seeing in the construction industry today, particularly on the large scale.
06:03You've got advanced manufacturing, whether you're creating compute, autos, airplanes, GLP-1s, right?
06:11So you've got a tremendous amount of manufacturing coming back to the U.S., and that creates a lot of
06:15downstream demand.
06:16And there's obviously a lot of equity invested in private real estate in the data center space.
06:22We don't have the technological background to understand data centers.
06:26So how we'll play it at Rock Point.
06:28So how we'll play it is we will buy industrial in those neighborhoods.
06:33That's going to service those data centers that get stronger, right?
06:36So we're kind of playing the second derivative.
06:38But on the construction side, if you're a large scale builder and you have the ability to build these advanced
06:44manufacturing facilities, chip plants,
06:46it's absolutely incredible what's happening in America today, the re-industrialization.
06:51And it will create a lot of downstream real estate investment as well, particularly where you can find locations that
06:58have advanced manufacturing plus a quality of life where people are moving there.
07:03You're seeing domestic net migration.
07:05But, Tom, how sustainable is that?
07:06And what are going to be the second and third and fourth derivatives of that?
07:10I mean, when you build it, then you have all of a sudden a huge ecosystem sprout up around it,
07:16right?
07:16I mean, I've witnessed it with the Intel factory in central Ohio.
07:19Yeah, no, absolutely.
07:20I mean, Micron is going to build a $100 billion chip plant in Syracuse, New York, right?
07:25And the excitement in Syracuse around that is palpable.
07:30We've invested in Richmond, Virginia.
07:31Why Richmond, Virginia?
07:33Because if you look, you're an hour and a half from Washington, D.C., and everything between Richmond, Virginia and
07:39Washington, D.C., that used to be industrial, is now a data center, right?
07:42And Richmond, Virginia itself is becoming a data center.
07:45So if you invest down there in industrial, not only is the supply going down, demand's going up because they
07:50have to service these facilities that are going there.
07:53And then also you see Eli Lilly building.
07:56You see Lego building.
07:57You see a lot of these companies coming to America and deciding to create products here.
08:02And it makes a lot of sense.
08:04And it's creating a lot of growth.
08:05I know that area very well.
08:07I'm from northern Virginia.
08:08I went to UVA.
08:09So understand that part of Virginia.
08:10But the other thing you've seen in that area specifically, more northern Virginia, but is pushback.
08:15This nimbyism of people saying, we don't want construction of data centers here.
08:19We don't want our energy bills to go up.
08:21We don't want the eyesore of these huge data centers.
08:24How big of a roadblock is that to some of this construction and to some of the projects that you're
08:29undergoing, you're thinking, to get this sort of reindustrialization done?
08:33Well, there's plenty of parts of the country that are open for business, right?
08:37You saw Related just announced a huge data center in Michigan, right?
08:41And so the beauty of northern Virginia was the winner in the beginning because they had May East, which was
08:47the eastern internet portal entrance.
08:49And so latency was very important.
08:52But now, as you see power, water are more and more important.
08:57You see people going to Cheyenne, Wyoming.
08:59You see people going to Michigan.
09:01You see people going to Abilene, Texas.
09:03You see people going to New Mexico, right?
09:05So it can be spread out.
09:07And there's a lot of different places that can be winners from this trend.
09:12And if you're helping build these data centers, it's a great business.
09:17You know, Blackstone talks about their picks and shovels.
09:20Our picks and shovels, how we've really been playing is buying an adjacent industrial that's a winner.
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