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00:00Brookfield real estate co-president Ben Brown says that the office market comeback is driving record rents across his company's
00:06trophy towers including Manhattan West.
00:08I'm so pleased to say that Ben joins us now. Ben, thank you so much for being here.
00:13And look, there had been this really big narrative and it's not just us.
00:16I mean, I think of the related CEO done in Miami was speaking to Matt and was like, Mom, Donnie
00:20and Hochul are the best real estate agents for Florida.
00:24But are we still seeing strength in New York, especially office real estate?
00:27Has there been any clear signs of politics denting appetite?
00:31Yeah, look, thanks for having me, guys.
00:33So I would step back and say, first of all, it's hard to count out New York.
00:38It is the most dynamic city in the world.
00:41Like Tom said, young people want to be here.
00:43We always have challenges through cycles, whether those be politically driven or market driven, that question the validity of the
00:51demand in New York.
00:52I'm here to tell you, like, it's real.
00:55People want to be here.
00:55And as it relates to office, the headlines grab a lot of noise.
00:59But what we've been seeing across our business, I want to give you a context for our business.
01:04We're looking at real estate markets really through the lens of two different strategies.
01:09We have within our asset management business, our private funds, where we're investing capital alongside of our clients through cycles.
01:18And with the ability to play different dislocations in markets and to invest behind long-term trends, right?
01:25And that is the sort of things where we're investing in things with long-term demand tailwinds, logistics, storage, rental
01:34housing broadly, things all digital, data centers, et cetera.
01:38On the other side of our business, which is what we're talking about in office, is really where we're invested
01:43and continue to be and will be for decades in some of the best trophy assets around the world.
01:49Those being office buildings, retail centers, and mixed-use complexes like Manhattan West that you just described.
01:56The last couple of years in that business, we have seen a tremendous amount of performance because we continue to
02:02see on the ground corporations, companies, and demand continue to want to be in the best assets in the world.
02:10And that is what really drives demand and activity, not so much who's in office and what are policies driving.
02:17And the return to office discussion, is that one of the past?
02:20I mean, no one comes to New York to work from home, right?
02:23If you get a good job out of college in New York City, you want to go to the office,
02:29meet your coworkers, be part of the professional and social culture.
02:34Is that, you know, no longer the case that people want to stay home all the time?
02:39I think RTO as an acronym is dead.
02:40Like, I don't think we're talking about that.
02:42We're not talking about that with the largest companies around the world who are our office tenants.
02:46What we're now talking about is how do we supply you with the best assets in the best location, whether
02:52that's connectivity to transport, modern infrastructure, modern buildings, amenitized places.
02:58And that's what people want.
03:00They're not talking about how do we get our people back.
03:02By the way, before we get to the data centers and logistics and rental homes, in terms of office, we
03:10had seen at one point prices come down to, like, 60 cents on the dollar here in New York.
03:14Now, obviously, there's a difference between the trophy properties that you own and, like, the Third Avenue Corridor.
03:20But how do you see those prices now?
03:23Yeah, so, look, I think what we continue to see, whether it's unfortunate or fortunate, depending on which side of
03:30that equation you're on, is an intensification.
03:32At the top end and the lower end, really the haves or the have-nots.
03:35And so, just to give you some context, again, going back to our Manhattan West project, that's a project that
03:41we kicked off 10 years ago.
03:42Okay, the first rents at that project 10 years ago, and we kicked off the first new construction tower would
03:48have been in the mid-70s.
03:50Today, those rents are 3x what they are.
03:53Alternatively, if you look at some of the inferior product, let's say more of the commoditized stock, where really that
03:59is where you do have a supply overhang, those rents over the same 10 years, you know, have probably seen
04:05a 30% to 40%, and in some cases, even more acute decline in value.
04:11And so, what that means is what we've been seeing in New York, which I think in the immediate term
04:16is a challenge, in the long term is a real opportunity, is values are dropping to a point where there's
04:21a higher and better use.
04:21So, we have, you know, circa 20 million square feet that will be converted from office to residential.
04:27That's great.
04:28We need more rental housing for all the young people that want to live here.
04:31But what it also does is it just takes stock out of the market that is challenged and obsolete.
04:37I do wonder, because one of your long-term theses as well, and, you know, again, headlines have kind of
04:42been countered to this, that AI is actually creating more demand, it's creating more jobs, there's infrastructure around it, too.
04:47But can you have long-term conviction, going back to this great idea that maybe white-collar jobs start to
04:53disappear because of AI?
04:54Can you think long-term at that moment?
04:56Can you have conviction in where the direction is going?
04:58Or is this just more of a short to medium-term thing that at least the here and the now
05:02it looks strong?
05:03Yeah, look, we always think long-term.
05:05So, I think we're always thinking about that in our calculus.
05:08The sorts of assets that we own, again, especially in office, in our balance sheet, where we will own these
05:13for through cycles.
05:15So, we do have to think about those dynamics, not just about the immediate term.
05:19It's our view that AI, whether it creates less aggregate demand for office overall, which is kind of an easy
05:26thesis to get behind, it continues to intensify the demand going into a really small set of assets.
05:33And we tend to be the owners of those assets around the world.
05:36So, I would say we're very bullish on owning the best assets around the world.
05:39That sounds like common sense.
05:41We've done it for 30 years.
05:42I think we're going to keep doing it for 30 years.
05:44I think the days of buying things cheap as it relates to office, that can be a fool's errand because
05:50maybe sometimes cheap isn't cheap enough.
05:53Let's get to the data center boom and, you know, the re-industrialization of America.
05:58I'm from central Ohio, thank God.
06:00And, you know, the Intel story there has been amazing to watch.
06:04There's no pushback.
06:05Everybody wants them to come and build a factory.
06:07And you've seen huge growth around the spot they've chosen, which is like in New Albany.
06:13On the other hand, in Virginia, there's real pushback, right, where Danny's from because it's driving prices higher to build
06:21data centers around that area.
06:24So, how do you see it playing out?
06:25Yeah, so, it's interesting.
06:27What you're really describing is the power dynamic.
06:30And, obviously, we know that as well as anyone in the world across our power business.
06:34And it has everything to do with power constraints and power being, you know, the barrier to entry.
06:40The fact is we need more compute.
06:41There's a tremendous amount of demand for this compute.
06:44That will be sustaining.
06:45So, we will see over time a shifting in the markets where they are more welcome to that commercial development.
06:53And power is available because it's not just like many other real estate asset classes where if you have land
06:58and entitlements, you can build.
07:01This, of course, you could build a box.
07:03But you can't really build a large-scale data center without power.
07:06It just doesn't get capitalized.
07:08It won't happen.
07:08And so, you will continue to see a shifting of where the supply will need to be delivered somewhat based
07:14on where municipalities are open to it, where power is available, where power is available at the right cost.
07:21But there's no doubt that at some point it will have to be sort of an all-hand solution on
07:27delivering this compute.
07:29By the way, separately, you're also very active in London.
07:31You're in some iconic buildings, iconic neighborhoods.
07:33It's a market that you know very well.
07:36At the moment, the story there is one of political discontent, of bond yields moving higher, and especially for housing,
07:41it's very sensitive to higher yields.
07:43What do you do in periods where you have this sort of political disruption?
07:46Does it push you to the sidelines, or can you still be, you know, a net buyer active in the
07:50London property market?
07:51Yeah, no, it's a good point.
07:52And, like, I think we're living in a world where volatility, whether it's geopolitical or local politics or markets generally,
08:00maybe it's just a new norm, right?
08:02What I would say to that is, flipping back to our funds business, that's exactly the environment that we'd love
08:09to be investing in, right?
08:11Where there is volatility, there is uncertainty, and we can be local.
08:15We're invested in those markets.
08:16We understand maybe some of the information a little bit better because of our boots on the ground, but also
08:21the scale of our business, where we can pick the spots where maybe sentiment is driving capital away.
08:27We can find really attractive entry points, and that's really what we've been focused on.
08:32So we've been extremely busy deploying capital the last 12 months.
08:35My expectation is we will be over the next 12 months as well, and it will be behind not only
08:41some of these larger thematic long-term trends,
08:43but more of taking advantage of these micro-issues where there is, whether it's politically driven or it's capital flows
08:50driven, we can buy great assets, not because they're broken,
08:54but because there's some other outside thing happening that's not related to the real estate.
08:57Is there some advantage then?
08:58I don't know whether we've seen a real pullback because of fear of politics, I mean, both actually in the
09:03U.K. and here, but around a brown housing and sort of anything that Congress might pass.
09:08I know there was a single family housing thing for Trump. Has that made a difference? Is that a barrier,
09:12an opportunity for you?
09:13I think in the end it will be an opportunity. I think through the period where there is a lot
09:19of uncertainty, it just freezes markets.
09:21And so when you think about what's going on in single family rental right now, long-term, and I think
09:27we've got pretty good lens into where that regulation will go.
09:31But until we know what that looks like, I think most investors' capital are on pause.
09:36But we think those sorts of things create really interesting entry points, and that's kind of what we've been looking
09:42for the past handful of years.