179: Unlocking Global Real Estate Opportunities: Perspectives on Risks & Returns (With Brian Kingston, CEO of Brookfield Real Estate)

24:15And so that's why this distress has not manifest the way that a lot of people thought, which was that you were going to see debt going up for sale at 50 cents on the dollar. Well, the banks are looking at it saying, well, actually, I may be better to just provide a bit more time and my recovery may be better and my balance sheet will allow me to do that. And so I think that's why it's been different. so before we continue this conversation we're going to take a short break to have a note from our sponsors ifm investors is a global asset manager founded and owned by pension funds with capabilities in infrastructure equity and debt private equity private credit and listed equities they believe healthy returns depend on healthy economic environmental and social systems and these are evolving on a scale never experienced before.

25:03To find opportunity, build value and meet the needs of future generations, you need scale, skill and expertise. That's what IFM Investors has built up over 30 years. Schroder's is a$950 billion public-private global asset management business. Built to deliver long-term client value, Schroder's focuses their business on growing into areas where there is greater demand, private markets, bespoke solutions, and wealth management, and where they can better serve clients. Schroeders take a long-term perspective and a leadership position in sustainability. With a 220-year history of successful adaptation and innovation, Schroeders have always focused on serving clients.

25:46Remember, capital is at risk when investing. Staying with sectors, which are the sectors that you would say have the biggest runway for growth ahead. We've touched on housing. And a lot of times when I say that, people automatically think of multifamily high-rise apartments, which obviously is true, but there's really a wide swath of forms of rental housing that are benefiting from this undersupply, including single-family rentals, particularly in the US, but also starting to develop in a lot of places. And it's really the same demand drivers as multifamily, other than as houses purchasing a home becomes more and more unaffordable.

26:23And with where interest rates are and the cost of new construction, et cetera, the difference between rental cost and home ownership has actually never been wider. In the last 30 or so years that we've looked back at this, this is the widest spread between the two. People still want to live in a home and have a yard and have their pets and children running around in the backyard. And so single family rental provides an excellent alternative to home ownership and has become increasingly popular. Student housing, senior housing, manufactured housing. So really anything that is shelter related, We think the demand drivers for that are very good, particularly in places like the UK and the US where supply is constrained.

27:01And we think the opportunity set right now is ripe because there were a lot of transactions, as I mentioned, when interest rates were at virtually 0%, where people acquired assets. This was a very in-favor asset class during that period of time with very low interest rates. And so now with the increase that we've seen in rates, there are a number of owners who have capital structures that are no longer well suited to owning those assets. And so they're being forced to bring assets to market at a time when there's less capital available. So the entry point today is much more attractive. So we, for example, in 2021 and 2022, we sold a little over$10 billion of multifamily assets at an average initial yield of about 3.7%.

27:42This year in 2025, we've acquired about$5 billion of multifamily average yield of 5.7%. So almost 200 basis points higher starting yield. And so it's a much better environment to be investing in today. So we like housing a lot. Logistics, again, we touched on some of the drivers for that. Obviously, the change in the manufacturing supply chain is going to change demand for logistics. But we also have e-commerce. and this has sort of been well established in the last decade or so here in the US, but in many other markets, that supply chain is still getting built out and is underdeveloped. And so European logistics in particular, we think is quite an attractive place from a demand perspective, largely driven by e-commerce and increasing activity that's happening there.

28:28And I had a research call with your colleague, Richard Powers, who's been doing real estate obviously for a long time, and he mentioned the hospitality in Spain. And I thought, I must ask you, what's driving that? I think a number of things. I think the exchange rate has been a large driver of that over the last couple of years. So where the euro has been relative to the US dollar has driven a tremendous amount of tourism activity from the US into Europe. I think the unlocking after the COVID pandemic where a lot of people shifted their spending patterns, frankly, from wanting to acquire goods to wanting to acquire experiences, beautiful places like Spanish beaches really have benefited from that demand where people are spending more on travel and on experiences.

29:10They're less price sensitive to it. And I think Europe is obviously quite a popular travel destination. We've seen it across a number of other markets as well that are attractive from a tourism perspective. But Europe has been particularly a standout. So let me stay with Europe. Europe's been characterized by much lower growth than anybody would have imagined and wished for and all the sort of the eurosclerosis discussion. And now we have this potential pivot where the recognition that Europe needs to go and protect itself and needs to do some things that it hasn't been doing is galvanizing action.

29:45high level maybe it's a bit difficult but high level what might that mean for the portfolio of opportunities i think you've sort of characterized it right which is that over the past little while if you looked at relative growth rates or expectations around relative growth rates you know what we would have said was the u.s there's there's a strong underpinning for economic growth and for europe it's probably a little slower growth and therefore values need to reflect that so it doesn't mean that you don't invest in europe it just means the underwriting the forecasting that you're doing looks different.

30:16And so you may have less growth, which means you just need a higher initial yield going in. The advantage it had obviously was lower interest rates. So it was still quite an investable market, but you're right. It is now, you know, with some of the changes, certain markets are becoming a little more dynamic than they may have been in the past where you could see some growth. I think we're always careful not to, just like we don't paint every city in the United States with the same brush. I mean, Europe is a series of different markets and different economies. And so some of them are going to benefit differentially.

30:44But we do think overall, there is a shift happening in how we're looking at growth in Europe as a result of all this. And I note, in India, you have very significant investments in telecom towers in Brazil, in gas pipelines. As it relates to real estate, you sit there, big jigsaw of opportunities and different dynamics. How do you go through the prioritization? It's some art and some science. Obviously, it's simplest. We are just trying to look for the best risk-adjusted returns around the world. And as I mentioned earlier, having the ability to shift our investment focus out of markets where we see either risks become too high or returns have become too compressed or both into markets where we see better returns or less risk has really been a hallmark of it.

31:36So I think when we think about a place like Brazil or like India, we think they are attractive places to invest. But the risk profile is very different than, say, investing in a core market in the United States where there is excellent transparency and lots of depth of liquidity. If you're investing in a place like Brazil and like India, the liquidity picture is different. The transparency around other transactions and the information that you're able to gather is oftentimes more challenging. And so that just means you need higher returns. And so when we're investing in markets like that for the same asset or for the same risk, the returns would be significantly higher.

32:10And that provides some outsized returns for our investors. And I do want to come back to the UK because there's a danger that any of us suffer from sort of a myopia. And the UK has been swamped by bad news where some of that is justified for all sorts of reasons. But maybe the economic picture isn't quite so bleak. And some of us on our travels and some of our guests and people that we interact with, there's reasons for quite a lot of optimism. But you have the virtue, not because you sit in the US today, but you do have the virtue of having that lens on the world. How would you characterize the UK's investment and opportunity landscape?

32:46We try to, and this is true for all markets and not just the UK, but oftentimes headlines and short-termism in forecasting creates really exciting or interesting opportunities if you understand a market well and understand its sort of long-term capacity. And so if you take a market like the UK, there is always the capacity in the short term for certain policy decisions or other short term economic impacts to have a short term impact on the market. But it is a market that is, you know, it's a very large population base. It is the financial epicenter for Europe and in some cases for the world. And so a place like London in particular is not going anywhere.

33:25And so we often see these periods of volatility or doubts around the future, et cetera, as creating really interesting opportunities or entry points for assets. So we've been in the UK for my whole career, 25 years. We're a significant investor there. We know that market very well. And yes, there are short-term challenges and things that need to be worked through. But ultimately, just like I described the United States, this is a very deep, very liquid, very transparent real estate market. Okay, deep. I've written that deep, liquid and transparent dam because those are key variables. Let's talk about sustainability.

34:01You've committed billions to climate focused investments. Any sense of pause or review? It's important to highlight why, why we thought that was an investment. And because ultimately our view is that it is not necessary to sacrifice investment returns for these types of investments. And in fact, if you look at where the world is going and whether it's government policy or just general desirability of how people want to live in the future, resiliency and sustainability is critical to maintaining the value of your assets. And in fact, it's an investment positive. So which means our approach or our reason for doing this is not we're not on a mission to save the world.

34:42We're investing in our assets and making them more sustainable because we believe that is what's actually going to help them hold their value in the future. So if I think about an office building as an example, there will come a time in the future where you will not be able to attract tenants to a building that doesn't meet a certain environmental standard. And so investing in that and making sure that our buildings are best in class and that we are known as being far out front on that is important. Similarly, our transition investing, energy transition investing, we do think that over time, government policy and just general direction is moving toward less carbon being created.

35:16And so if you can be investing in either the technologies or the companies that are developing the technologies that help with that transition, it's just going to be excellent investment returns going forward. So your question is, have we changed our approach or pulled back from it? No, because yes, there are, again, like we said with the UK, sometimes there's policy two steps forwards, one step back on policy. But the general direction, and we're investing for the next 25, 50, 100 years, is still marching toward the same thing, which is less carbon being created. And so I think we think they're still excellent.

35:51In fact, this volatility may create even better opportunities, frankly. And would that be behind? And I note, because I'm a personal shareholder in Cameco and been quite sort of constructive on the uranium sector for a while, I see that you partnered with Cameco on the purchase of Westinghouse's nuclear assets. And would that fall into that category? Or was that motivated by something else? Absolutely. Absolutely. That Westinghouse acquisition is within our energy transition business. We have been very large investors in wind and hydro and solar over the last 25 years. But really, we think nuclear is going to be a significant part of any carbon-free future around energy.

36:25And Westinghouse is the foremost developer of that technology. I'm going to ask you quite a high-level question. Well, hopefully, you can answer it. But if you look out 10 years, are there some important changes in the world of real estate development that you think are already underway? If we were having this conversation in 10 years, we would have gone, wow, that definitely was different from the way things were done in 2000 period. I think like everything, technology is having an impact on the way we're doing some of these things. And so whether it's new construction technology or design or the types of buildings and amenities or service delivery that is coming out of these buildings, that is really changing.

37:11So I'll give you one example. Here in New York City, we developed a seven and a half million square foot complex called Manhattan West, which is near Hudson Yards. We built the first two million square foot tower in 2017. And on there, we had really no tenant amenity fit outs behind the wall. and sort of behind the gates. We had for a couple of our tenants, they built out their own cafeterias and things like that. Three years later, we built the second tower. We have an entire floor that is dedicated to tenant amenities inside of that building. And so I think the way these buildings are getting used and what makes it an attractive building is continuing to evolve.

37:49And I think being on development, I think you're gonna see a lot of those changes. I think on the housing front, we talked a little bit about the issue being affordability. I think finding ways to use modular technology, et cetera, is sort of high on the list of priorities in terms of finding ways that you can deliver more housing at a more reasonable cost. There's a lot of, not just with us, but just generally in the industry, a lot of time and effort being put into that. And I think if we look out 10 years from now, the way an apartment building or a home is built is going to be quite different than it is today.

38:19And although in aggregate, it's clearly been very successful, this real estate division, you will have made mistakes. Just, you know, talk us through where you've gone wrong and what maybe very important lessons it's armed you with. Well, you know, I keep coming back to the sort of the three things we talked about. The reason that I know those three things are important is because we've gotten all of them wrong at different points in time. And so, you know, I think having a healthy respect for the cyclicality of markets and remembering that interest rates go down and also go up, you know, is an important lesson.

38:50I think interest rates going from 0 % to 5 % in 18 months was not something that anyone was underwriting two or three years ago, including ourselves. And so I think having a healthy respect for what the downside can look like has always been an important part of our ethos. I think what has gotten us through all of those times is the first tenant I mentioned, which is owning really high-quality assets. And so if we look at our – we're obviously a very large office landlord, which has been one of the more challenged sectors over the last couple of years. But if I look at our portfolio here in New York City, we're full.

39:22Record rents for a space that is leasing up and we have zero vacancy in our portfolio. So notwithstanding the overall market has a significant amount of vacancy in it for the high quality office buildings in the city, they have stayed very full, which is exactly how it should behave. As I mentioned that those assets hold their value, hold their occupancy, hold their rents better than the overall market. Let's talk a little bit about your clients and the fund structures. You mentioned early on in In a case like Canary Wharf, you've partnered with one of the sovereign wealth funds. I mean, these are vast amounts of capital that you're raising and deploying.

39:53Who works best sort of, you know, in terms of your partnering? That's question A. And B, typically, what's the fund vehicle that works well for both investor and for Brookfield? If I look at our LP base today across all of our funds, and whether this is real estate, infrastructure, et cetera, we have a relatively small number of very large LP relationships. relationships and we do a lot of different. So we have most of those large relationships do more than just one thing with us. So they might be an investor in our global opportunistic real estate fund, but the odds are that they're also invested with us in infrastructure and in private equity and across, you know, maybe credit with, with Oak tree.

40:33And so we find that certainly for us, we much prefer those deeper relationships and for our clients, they do as well, right? Because they go through a lot of time and effort to underwrite a GP, to understand how our investment thinking works, et cetera. And so they don't, rather than having to do that four different times, they can just invest in four different vehicles with Brookfield once they've sort of done that hard work. So we're finding over time what those investors want increasingly is to do more with a smaller number of managers. And so we've been adapting our business to help address that.

41:04So within real estate, 15 years ago, we really just had our global opportunistic fund strategy. But if you fast forward to today, we have fund vehicles that are open-ended, that are targeting more core plus type returns in a particular geography here in the United States. And so those investors are investing with us there. We're widening our credit offerings. And so we have a number of different real estate credit strategies, infrastructure credit strategies. I mentioned some of the other things around sustainability, et cetera. And so having a – and I think if you – again, if you ask me what will the business look like 10 years from now, it will be wider.

41:37We will have a wider offering of products. And so there really isn't one type of product or one fund structure that works for all investors or even for any individual investor. They actually have a variety of investment needs. Sometimes they want high-returning, short-term, closed-end funds that will get all of their capital back to them in five to seven years. And in other times, they want long-term, compounding, core plus, even within the same client. So I think having that grocery store list of items or products available to our clients is just going to make us more and more relevant to them in the future.

42:11If that business continues to grow, we've already talked about the number of employees in the organization as a whole. You have, you know, a large chunk of them, you know, managing the culture gets tougher in large firms. How do you think about that challenge? It is a challenge, but I, you know, I think we have built the business to be scalable for exactly that reason. And so, you know, there's a number of practices, I suppose, that we have that really helps with that culture. It is a very strong and distinct culture. And so if you go to our office in Mumbai, for example, you could be walking through our New York office.

42:43If you look and speak to anyone there in terms of how they're thinking or if they were to describe Brookfield's strategy, it's very consistent. And the way we do that is we move senior executives around the world. So I mentioned that I started out with a company in Toronto. I spent some time. We made a large acquisition, our first one in Australia about 20 years ago. I moved down as part of that and spent some time in Australia. And 50 % of my job was my job. And 50 % of my job was culture. And in terms of telling the stories, in terms of building culture. And the same is true if you go to our office in India.

43:18if you go to our office in Dubai, if you go to our office in London, they are primarily staffed with local professionals, but there is always a few people that are sprinkled into to help carry that culture. And I think the other way that we do that is I spend, I and my other partners spend a lot of time on airplanes, visiting all of these offices and making sure that the people in those places understand culture, expectations, strategy, and why we're doing things. So you're right, it's not easy and the bigger it gets, the more frequent flyer miles you end up with. But it is a really important part of how I and the other leaders of Brookfield view our role is it's not just reviewing spreadsheets, but it's also carrying that flag.

43:59Brian, now I put you under the spotlight with some non-real estate related questions, which is, first of all, tell me, how do you unwind? Well, I don't find that I'm wound, so I'm not sure I need to unwind. And but look, you know, I think I'm like most people. I spend time with my family on the weekends and like to play a bit of golf. But otherwise, it's work is my fun. Have you had a particular mentor who has been really important in your life? And if so, what did he or she give you? As I mentioned earlier, our culture, we very deliberately refer to ourselves as partners and managing partners.

44:33And I think I've been fortunate over the years to have a number of mentors that are partners of mine, including Bruce Flatt, who's the CEO, and Sam Pollack, who runs our infrastructure business, and Cyrus Madden, who ran our private equity business. And I think it's a very collaborative, as I mentioned earlier, as opposed to being different siloed businesses. We all work very closely together and have learned a lot from one another over the years. And so I really think a lot of that mentorship, and hopefully this is true for the rest of the organization as well, a lot of that mentorship comes internally from working around great people.

45:07What advice would you offer to some of the young listeners that we have who might be thinking about real estate as a career? Well, look, it's a very rewarding career. I think not the least of which your friends and family have a pretty good understanding of what you do. So oftentimes, you know, in more esoteric industries, it's hard to describe what you do. It's very easy to point out an office building and say, we own that. It also is the opportunity to work with different industries to understand And how these various companies, and obviously as tenants, we spend a lot of time thinking about a lot of different industries and what's happening in them.

45:41And so while real estate is sort of one dimension of it, I really think to be good at it and to be successful in it, you really have to take an interest in the broader economy. And therefore, it's a fantastic window into finance generally. To close us, what sporting event above all, if you could attend, would you want to attend? The Stanley Cup final, no question, with the Toronto Maple Leafs playing in it. Okay, well, you've revealed your colours, of course, there. And you've brought up in Canada, you live in America, you've worked in Australia. If you could only take one holiday, drink one of those countries' wine and eat one of their food, how would you rank them?

46:23I would say wine Australia, no question. holiday America because there is such a wide variety of holidays that you could take, whether it's beaches or mountains or desert, frankly. So I think that the options are probably the broadest here. That leaves the Canadians with the food. Well, I'm not sure how many people will be rushing for that. Well, poutine. We'll put poutine on the list. You know, we've been saying for a while we need to cover real estate. And, you know, so it's been super to have this conversation. We had a conversation just after COVID with, the CEO of Savills back, and that was now four and a half years ago, that was Mark Ridley.

46:56So it's long overdue. And I think what you've done is point out a number of key tenets in the investment proposition, which sometimes get forgotten is cyclicality, is just sort of, with us and beware. If you've got the wrong capital structure, like Olympia and York had, don't be prepared to be surprised, is that owning good property is never wrong as long as you can have that long-term timeframe. And I think that just-in-time manufacturing that's moving to just in case is nicely said, and that's presenting opportunities. And finally, because you say it so unequivocally, and I think that maybe we again look at our own domestic markets and don't realise that when you say housing is chronically undersupplied in a lot of those geographies, and you mentioned everything from Australia to Korea, I think that that maybe needs to be absorbed and processed for the investment community who maybe have shunned some of the real estate universe, even have listed equities here in the UK.

47:51We've got a lot of big property companies trading at big discounts through NAV, et cetera. So I have no more questions for you, Brian. This has been great. And so thank you very much. Okay. Well, thank you, Simon. It's great to talk to you.

48:18of advice, recommendation, representation, endorsement, or arrangement, and is not intended to be relied upon by users in making, or refraining from making, any specific investment or other decisions. We try to provide content that is true and accurate as of the date of publishing, however we give no assurance or warranty regarding the accuracy, timeliness, or applicability of any of the content. Guests, presenters, and other individuals involved in the production of this podcast may have positions in any of the investments discussed. Thank you.