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