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Spencer Levy
As some investors tell it these days, they're looking at the real estate capital markets in a new light. For the first time in a while, those capital markets may be starting to pick up speed, and my guests are about to tell you where to look and why. On this episode, momentum in the capital markets.
Jessica Harrison
We have capital to deploy, which we're excited about in this environment, and we're out there looking for the right opportunities.
Spencer Levy
That's Jessica Harrison, Head of Transactions and Capital Markets, Real Estate Equity, for Manulife Investment Management. Jessica oversees deals and opportunities across the U.S. for a business that has been transformed from primarily a balance sheet investor into a third-party private equity real estate investor. Manulife 2.0 she calls it, with assets worth tens of billions of dollars under management.
Kevin Auseff
What you're seeing is the market resetting and money has to find its way, capital has to find its way, to real estate assets.
Spencer Levy
And that's Kevin Auseff, America's President of CBRE's Investment Properties business in the U.S., a capital markets business line that covers all sectors: multi-family, retail, office, industrial, and alternatives. Coming up, the word of the day is momentum. The capital market's on the move. I'm Spencer Levy, and that's right now on The Weekly Take.
Spencer Levy
Welcome to The Weekly Take, and this may be my favorite week of the year. We're here at the Investor Symposium in Scottsdale, and we're going to talk about the capital markets with two leaders of the industry. Starting with my old friend, Kevin Auseff, America's President of Investment Properties, CBRE. Welcome back to the show. Last year, I think we taped it in this room, too.
Kevin Auseff
We sure did. Good morning.
Spencer Levy
Welcome back, Kevin. And our new guest, Jessica Harrison, Head of Transactions and Capital Markets, Real Estate Equity, Manulife Investment Management. Jessica, thanks for coming out today.
Jessica Harrison
Thanks for having me.
Spencer Levy
Jessica, let's just go back for just a moment on Manulife, because I have known Manulife for many, many years. Insurance company based in, is it Montreal or Toronto?
Jessica Harrison
Toronto.
Spencer Levy
Toronto. And you've now shifted from being a balance sheet based equity investor to a private equity based, meaning third party investors.
Jessica Harrison
Correct.
Spencer Levy
So just give us a sense of the size of your assets under management, size of your funds.
Jessica Harrison
Right now, the platform has about 40 billion AUM, with goals to be 100 billion AUM platform. And so with that, we've launched a couple of new strategies, really globally, but primarily focused on the U.S. We did launch a new credit business at the end of last year. It's called Real Estate Credit Strategies. That is not something that I ever see, but that is a big part of the business and we're excited about the growth and capitalizing that in today's environment. On the equity side of business, where I sit, primarily we're leaning into our core plus or open and core plus vehicle. And this has been a pretty interesting turnaround story for us. This is a vehicle that was really formed in 2017 by the prior team and made the right calls primarily for residential and industrial, very little office exposure. With that, over the last 18 months, we've really sold off some of the assets that we viewed had reached its max potential, and took the opportunity to bring assets to market, which a lot of our peers maybe haven't done fully yet. And so we are really positioned to grow that vehicle and we're getting some exciting momentum in that.
Spencer Levy
Jessica just used the word momentum. That's the title of this year's symposium. Do we have momentum now in the capital markets, sales, finance? It’s been a little bit choppy the last couple years.
Kevin Auseff
Yeah, that would be an understatement. It has been. I would say there is momentum. We're in a much better world than we were last year this time. You and I talk about sentiment all the time. Hard to measure, but certainly this year feels a lot better. The sense that we get from this event, from talking to clients, everyone just feels better about the market. And I think it's not unusual to have a 10, 12 year run and then have a 2 year correction. And when you look at it in perspective, it's not gonna be a 5 year, 7 year correction. Most of these cycles last 2 to 3 years. And I think what you're seeing is the market resetting and money has to find its way, capital has to find its way, to real estate assets. I think right now you're seeing momentum build in the market, both in terms of attitudes as well as the repricing that's already happened. It's making the market much more attractive.
Spencer Levy
And Jessica, going back to that word momentum, since you opened the door with the word. You’ve gotta be careful with the words you use on the show, because you never know, it could be the word of the day, and that's the word today: momentum. Tell us a little bit about some of the transactions you're doing today, not specifically, but generally, where are you seeing some of the most activity in the markets today?
Jessica Harrison
Yeah, I mean, honestly, it's hard to create momentum in today's environment. And it is challenging because one, there is a lack of good deal flow on the market, right? This entire disconnect between buyers and sellers has been going on now for the last several years. I won't dare use the coin phrase, but it has been a really challenging environment to dig up great opportunities. And honestly, I think that's what myself and my team have been able to do in this environment, and create our own market. And so, that's what's been exciting for us. And so, yes, the strategies here are largely residential and industrial, but it's really a story about alternatives. It's all of the adjacent sectors. It's student housing, affordable housing, which I mean, big A affordable and attainable housing. It's about cold storage, industrial outdoor storage, self storage. It's all these adjacent sectors that I think what we're seeing from our research and our strategy discussions is really having meaningful growth. And so we really spent a lot of time to reposition our open-ended and core plus and create that liquidity and that momentum and that vehicle because we think it's an incredible buying opportunity over the next couple of years to really deploy capital at core plus risk and seek mid-teens returns. That's a once in a lifetime type of opportunity, maybe a once in a cycle opportunity. We're very excited about where that's going. Some of the deals that we've done in end of 2023, we did a large industrial recap with Scannell Properties that really kind of kicked off this new platform. We recapitalized them on 35 brand new assets across 17 markets. And we did that entirely preferred equity. So that was an exciting transaction for us. And then beyond that in the last year or so, we did a large industrial outdoor storage portfolio across the Southeast. We chose to enter that sector largely by development, which is an interesting way to think about it. I mean, it’s essentially parking lots, but really, really a strategy that is centered around infill, port markets, last mile, kind of that last strip of land in this very built-out industrial sector. We put together a portfolio of assets and we are completing construction and leasing those up. We are under contract on a cold storage facility in Jacksonville right now that we're super excited about. It's supposed to close in a couple of weeks – brand new facility, 50-foot clear at the ports, 15-year lease, three percent bump. So we're excited to be able to secure some of these opportunities.
Spencer Levy
Kevin, you heard Jessica's strategy, largely residential and its adjacencies, industrial and its adjacencies. I would say that those are the two areas that have probably been the drivers of our business the last couple of years. Would you agree? And are we beginning to see more momentum, again, back to the word, in retail, and dare I say it, value-add office?
Kevin Auseff
Yes, yes and yes. Our intention survey that we just did in the last year, investors are looking at multifamily, at industrial. That has led the market, and has created the kind of momentum that we're talking about. Retail, we're seeing institutions show up for retail again. So capital flows are going into retail, particularly market, grocery-anchored centers, open air. So retail’s better. And as it relates to office, we're telling buyers that pricing is not getting any better, and we're saying the same thing to sellers. So demand is increasing for office. I think people realize that office is a huge asset class and there's gonna be opportunities in the market. We've talked about it over the last couple of years, that it's a generational opportunity to invest in office. And I think when you look at the leasing activity and the fundamentals for office, that's another leading indicator that is worth pondering about, because one would think that with return to office that fundamentals would suffer, but the leasing activity for office has maintained the occupancies at a level to where the numbers are starting to make sense.
Spencer Levy
Where is the depth of the buyers, and how would you classify them today?
Kevin Auseff
It's been more of an opportunistic mindset for investors. Everything's blended together because the market has reset. And by the way, we haven't seen a lot of inventory on the market. I don't know, Jessica, if you're getting a lot of looks, but last cycles, maybe ‘08, ‘09, there was so much inventory on the market that wasn't moving. I think when you look at the overall supply-demand in terms of what's available for sale, versus the depth of the bid lists that we have, there isn't that much to look at, to speak of. So what's coming on the market, it's more probable, priced well, properties and portfolios. Whereas I think in the sort of first half of ‘23, we saw a lot of properties that were mispriced and overpriced for the most part. So our bid pools are as healthy as they've been in the last 3 years. And we're seeing institutions show up in a big way. They're looking for big chunks, not small chunks. I think you mentioned strategies around affordable housing, strategies around cold storage. Most investors are looking at deploying capital in a big way, and that's showing up in the bid lists. And as it relates to office, private capital was really active the last couple of years. And when you can buy properties at price per pound, 150, 170, 180 bucks a foot, private capital was really the only probable buyer at the table, but now we're seeing institutions return to office, as well.
Jessica Harrison
I'll pick up on something you said Kevin. The expectation, and when we think about defining core or core plus, value-add, and opportunistic, it's just kind of this blended return has all come together that really, in today's environment, in order to deploy capital and put out capital, the bar is higher, right? And so even in our core plus strategy, we are seeking gross levered returns 14 to 16. That traditionally would be a return profile in the value-add or even teetering on the opportunistic side. That's, I think, the most interesting part of this cycle and this environment from my perspective, and kind of what I was saying earlier is like, this is a moment in time where we can actually obtain core plus risk profile. So relatively lower risk profile deals and obtain mid-teens returns. And that's a really exciting moment, especially for us and where we are in our platform from a growth perspective of really reinventing, calling this Manulife 2.0, and really changing and transforming the landscape of our existing fund vehicles, and then launching new fund vehicles.
Kevin Auseff
And the returns are indicative of, I think, repricing in the market. There was so much money going into credit because the returns were so much better, and there wasn't as much capital going into equity. Now, with the repricing of the market and the returns in the mid-teens, that you've seen capital come back to the equity side as it's competing with credit now again.
Jessica Harrison
100%. And to your point, there really isn't a lot on the market. And if it's good, it is getting looks. People are bidding on it and pricing is reflective of that. And so it is hard and it's diligent to make a mark in today's environment. But we are incredibly disciplined. We have capital to deploy, which we're excited about in this environment. And we're out there looking for the right opportunities.
Spencer Levy
So you mentioned a 15% levered return, which I would agree was on that cuspy value-add, opportunistic end of the scale until recently. But I think also what we had until recently was an environment, probably until 2022, where cap rates were compressing. Now we're in an environment where cap rates may compress but not by much. And so the whole mix of return from your exit versus your income I think is changing. How do you see this mix between income and capital return?
Jessica Harrison
The way that we usually categorize core and core plus risk is majority of your return is coming from income, right? And so that is where that occupancy or that lease up and we're getting to occupancy relatively quickly becomes a very important part of that strategy. Call it, you know, 75% income, 25% appreciation. In the prior cycle, I think that all got blended together because when debt is 2% and we've got a cap rate compression and we are buying things at a 3.5 and a 4 cap, that's what happens, right? You're banking on that appreciation. And so this market, I think, has shifted the mindset in the landscape to really be disciplined, right? To go back. And that's why there has been a limited amount of product, and maybe good product, on the market, because maybe sellers haven't realized their marks. They haven't reset valuations. And so there was just too big of a disconnect and gap to really create a market. And so that's really where the change has come. I think from my perspective, particularly going into 2025, is there's just more sellers to your point, Kevin, that are willing to transact and transact at levels that institutions require.
Kevin Auseff
In my 30-year career, I've never seen cap rates move in tandem with the 10-year with such great speed. Typically, cap rates have an income fundamental component to them, but for the most part over the last couple of years, 10-year goes up, there's immediate repricing, even in the bid stage. So people adjust very, very quickly. In years past, that hasn't been the case. And I think that says a lot about the fact that the appreciation game is being looked at differently and people are not counting on rent growth immediately in year 1 or 2. It's maybe year 3 through 5. So that adjustment in the cap rate is almost immediate as the 10-year moves up and down.
Jessica Harrison
100%. So I'll give you a great example of the deal we bought in the middle of last year: Off market transaction, Austin, multi-family, brand new construction, ton of supply, right? Just kind of near stabilization. And the way that we underwrote that and looked at it is we had 2 years of no rent growth in the first 2 years. Now, we had some appreciation on the back end, because we believe in the market and the micro location and the sub market. That's how we looked at that's how he priced it. And fortunately, we were able to tie it up there. But we feel incredibly good about our basis. Our basis is, I mean, everyone talks about less than replacement costs. I think that's a given. But our basis on that asset was $100,000 a door less than phase one sold the year prior. So we feel incredibly good about the disciplined approach that we're taking and how we're thinking about the underwriting and growth in these markets, especially in supply heavy markets like the Sunbelt. But I think we're all looking at the same data, as well. And it's very hard to make development pencil in today's environment, especially when we're buying core and core plus assets at a mid-teens return. Development necessarily pencil much higher than that. And so we're looking at this supply pipeline falling off a cliff.
Kevin Auseff
Which is not a bad thing.
Jessica Harrison
I think it's great. Yeah, so I think that's what's leading to… we are bullish on the residential sector for that reason. I think my peers are, as well.
Spencer Levy
So, here comes one of my pet peeves: construction. And the reason why it's a pet peeve is because… that's probably the wrong way to put it, but I'll reframe it as this. When I speak to institutional clients, they have a clear point of view. We can't hit our, whatever the number is you need to hit. But a lot of family office, high-net-worths, are building where the institutions are not. And the reasons why I believe that high-net-worths have a lower cost of capital is because they have a longer time horizon. They also have more flexibility because they can do lots of things. But also, when you take a look at the development cycles, the time to build is now. The time to build is when there is no supply, to Kevin's point. And I wonder…. So to your point earlier, I think you're building some infill industrial, Jessica. What will it take for you to build today, given that shortage of supply?
Jessica Harrison
Well, I mean, so, candidly, me personally, I would put a shovel on the ground in a lot of these markets, right? If it was my own capital, my own money, right? Again, we're all looking at the same data and seeing this massive supply shortage. But again, to my earlier point, it is really, really hard to do that in the same breath when you're buying existing assets and cash flow at the same returns. And so I'm not sure there's necessarily like, whatever, 6.5, 6.75, 7 return on cost. You pick the number. It's not really necessarily about that. It's about is there enough of a premium, right? And so the cold storage asset we're buying is north of a 6 cap and that has cash flow, right? So how can I build to a 6.5? Is 50 basis points enough premium? In my mind, no. And so in the industrial outdoor storage sector, where we are doing development, I mean, that's penciling to an 8 untrending return on costs. That seems like enough spread, to us, to take development risk in this market. And so it's really more about framing it and framing it against the rest of the landscape and opportunity set. And it is very micro location specific. You cannot paint a broad brush on this market. There is a story behind every single deal, every single asset, every location, and it all has to make sense.
Kevin Auseff
You have to be very strategic and very selective. And construction debt is expensive. So that's going to limit the ability to work out the math and put a shovel in the ground. So, if you're getting construction loans at 5, 6, 7 over SOFR, that's expensive debt. So until such time, there is equilibrium in the debt markets as it relates to construction. You're not going to see people take that kind of risk.
Spencer Levy
Since you've opened the door Kevin, got to be careful about opening the door on this show, Kevin….
Kevin Auseff
You’re going to walk right through it.
Spencer Levy
…Because I'm going to run right through that door. So many buyers until 2022, when the cost of debt was historically low, were highly levered, call it 65% plus or minus was probably a norm. And then the debt capital markets dried up. A lot of all cash buyers. Where are we today from buyers, not just by who they are, but how much they are leveraging at the buy or maybe buying all cash and waiting?
Kevin Auseff
I would say you're trying to solve to neutral leverage. So whether it's buying down rates, whether it is negotiating getting the spreads down, whether it's trading on your loan to value, 50% leverage, 60% leverage. So, you're trying to move all these different factors to get to neutral leveraging year 1, and then see growth year 2 or 3. So, it is property dependent, location dependent, leverage dependent. All those things come into play, but essentially people are solving to a yield and trying to get to neutral leverage.
Jessica Harrison
Yeah, that's right. On most, I would say, almost all the deals that we've done in the last, call it 18 months, we've been at a natural leverage, or if not, better. And so, I guess maybe in the 1 or 2 instances we weren't, we were there relatively quickly. And so it is incredibly important. And again, like I said, people are being disciplined. We are being incredibly disciplined and we are looking for outperformance, and we're looking for those opportunities that are gonna generate alpha.
Kevin Auseff
And sellers are more realistic, because they realize that when they put their buyer hat on, that you have to solve to neutral leverage. So, the notion of selling someone on rent growth and underwriting your way out of rent growth in the first couple of years is out of the window. So…
Jessica Harrison
Well, I just told you how we underwrite Austin multifamily. We had no rent growth for a couple of years, and, you know, that proved to be the right strategy.
Spencer Levy
I remember 10 years ago when I was looking at Nashville and, this happened to be in the office sector, and they had built 3 million square feet, which is not that much. Well it was a 30 million square foot market, so it was 10% of the market, and I go, they'll never absorb this. They absorbed it twice as fast as we thought. And a lot of people are saying the same thing right now about Austin multifamily. So, I love the buy of Austin today, specifically because rents aren't gonna go up in the next 2 years, but then they're going to go up. Is that where the opportunity is?
Jessica Harrison
Yeah. I mean, 100%. That's where, like I said, the example I gave, we capitalized on that opportunity and jumped on a basis buy and underwrote it correctly. And I think at the end of the day, throughout my career at multiple firms, I've been a huge proponent of Austin multifamily, and it's proven to be correct in every single instance. I mean there's still, call it 130 people a day that move to this city. I mean it attracts a tremendous amount of growth. And it's an incredibly business-friendly environment that attracts a lot of momentum from headquarter migration and movement. And so we are very bullish on Austin.
Kevin Auseff
And it's not just Austin. I think if you talk to Kelli Carhart, who runs multifamily for CBRE, she'll tell you that absorption has been keeping up with the supply that's in the pipeline. And I think one of the things that we need to think about is the sale of existing single-family homes. Last year, it was the lowest it's been in 30 years. Why? Because interest rates for single-family homes are hovering around 7%. So, those renters that we lost to the single-family home sector, they're staying in the A, A minus, B plus type of apartment buildings, because they're not going to go out and get a 7% mortgage. People are waiting for the interest rates to reset. And even though you can put 10%, 15%, 20%, 30% down, your payments are still significantly higher. And in America, people don't buy homes. They buy payments. So if your rent is $3,000, $4,000, $5,000, and you're looking at mortgage payment that's going to be greater than that, you're going to wait for the rates to eventually come down to reenter the market. But that also says that when rates come down, we need to keep an eye on those tenants that are going to now shift and become homebuyers like they did in 2020, ‘21 and ‘22, when interest rates were at 2.5%, 3% for a 30-year mortgage.
Spencer Levy
And I think there's spillover effects there, not just for rental housing, traditional rental housing. There's spillover effects there for senior housing, because a lot of seniors are locked into their homes today, as well, with a low mortgage and don't want to move in.
Kevin Auseff
I saw a stat that really surprised me. Maybe you know about this Spencer. The median age of a single family home seller is 63 years old. That's pretty unbelievable. So seniors are downsizing. They're selling their homes, going into senior housing facilities, and that is indicative of the demographics
Spencer Levy
Let's go back to housing. People can't buy a house today. And I love going down the continuum of housing, down to capital A, and then SFR, BTR. But let's just go into capital A affordable for just a moment, which is an area we've had on the show before, which I'm a huge fan of. So tell us, why did you get into capital-A Affordable, given that I would say historically a lot of institutions shied away from it?
Jessica Harrison
When we think about the landscape today and the residential sector and the different price points, what's really lacking is truly affordability. That is the biggest hole in the supply market. We continue to build and build and build in the last cycle and increase the scope more and more and our construction costs have risen and that commands higher rents. And so there's just this big gap in what residents can actually afford. And so getting back to the basics a little bit there, what I wanna highlight and share about our platform and the way we're thinking about it is really being creative, right? And being creative in structures, and looking for ways to generate those mid-teens returns for lower risk segments. And so the portfolio that we're working through right now in due diligence and hopefully gonna close here shortly. I mean, it's a 59 asset portfolio, primarily across California and Texas. It's 97% lease. Some of these assets have a 5-year waiting list at them to get in. It's average vintage 2012 construction. And we're generating mid-teens returns. So it's structured in a creative way. We're buying the GP interest, and that is an interesting segment and sector and way to structure an investment opportunity to capitalize on something that is incredibly low risk that is always going to be occupied, right, with a long waiting list of people to get in because there's just this inherent need and lack of affordability, right? But also, be able to structure it in a creative way that really does hit the return profile that we're trying to seek for our investors in today's environment. So we're thrilled to create and structure opportunities like this. With another sponsor, we’ll be launching an affordable housing platform with this investment opportunity, which we couldn't be happier about. It's not for the faint of heart. It is incredibly complicated. This is hands down the most complicated deal I have ever worked on in my entire career. But it is so rewarding. It's this giant jigsaw puzzle of figuring out the pieces. And again, that's why we're in these roles, right? It's to figure out these opportunities and create these opportunities for our investors that are not readily available in the market, that don't exist.
Kevin Auseff
Affordable housing is quintessential stabilized real estate. You could argue that it's recession-proof. So if you're looking for stabilized cash flow, given the supply constraint market that the affordable sector sits in, you're looking at predictable returns.
Jessica Harrison
Well, I guess even to take it a step further and talk about the economy for a second, you know, majority of the rents, or almost all the rents, are entirely backwards looking. They're all based on AMI, and that AMI is always in the rear-view as that gets published every single year.
Spencer Levy
And AMI is the average median income.
Jessica Harrison
Thank you. Sorry. Too many acronyms. But anyways, so the data is entirely backwards looking for the most part. So coming off a high inflationary environment like we are today, I mean, I think the growth potential is really there. And so, and again, nobody is banking on raising rents and affordable housing by any means. I think it's naturally reset there as incomes have grown over time. And so, we think it is really just durable semi-bond-like cash flow.
Spencer Levy
Given where we are today, given that interest rates, while they may come down, they're not going to come down a lot and not going to come down quickly, we're back to the future. We're back to old school real estate investing ideas. Things that are slow and steady will win the race again. Again, when I say slow and steady, I'm not diminishing your mid-teens returns. What I am saying is that these stabilized assets look a lot more attractive today than I think they would have looked 5 years ago. What do you think about that?
Jessica Harrison
100%.
Kevin Auseff
Yep. I agree.
Jessica Harrison
Couldn’t agree more.
Kevin Auseff
You're in a market where people are more risk off than they are risk on. So in that sense, you're going to place your bets on more count-on-able, predictable investments. And that's what we're seeing.
Spencer Levy
So when you're looking at a deal, you're not quite sure… You don't look at a transaction and say, I'm going to buy this deal. You look at this deal like, well, let's look at this deal and we could be the sole owner. We could be in the GP. We could in the LP. And now you have a debt fund and you could be in that piece of the stack. Is that how you analyze transactions? Not just by the deal and its returns, but the optimal piece of capital stack.
Jessica Harrison
100%. We are analyzing risk for every single investment and what part of the stack we want to be in, whether we want to be common equity, preferred equity, mezzanine, debt, senior financing. And so having that flexibility and creativity to really latch onto, well, this is a good deal. This is a good property. This is a good micro location. This is good fundamentals. We like this. And then here's how we want to structure it. So that's really the change in the platform and how we're thinking about Manulife in today's environment, and this new leadership team is really tactical.
Kevin Auseff
The PE mindset.
Jessica Harrison
Exactly.
Spencer Levy
So when you go to looking behind the curtain a little bit here. So when you're going… we bring a deal to Manulife and say, oh, we want to buy this deal. Do you have the same investment committee for each vehicle? Do you have separate vehicles? How does it work when you try to say who's going to put the capital in?
Jessica Harrison
Sure. So like most institutions, we do run an allocation process. And so new opportunities are presented in front of the entire platform. It's a very collaborative environment here. We've got a pipeline meeting that happens every single week. We talk about new opportunities. Portfolio managers listen in. We get feedback from those portfolio managers. We run an allocation process like most institutional investment shops do across all of our vehicles. Portfolio managers raise their hand based upon what point in the queue they're in. And then we kind of run from there to try to structure and tie up an opportunity. So to answer your question about investment committees, we have an equity investment committee for the US. We've got an investment committee for our Canada business. We've got an investment committee for our Asia business. And we also have an investment committee for our credit business.
Spencer Levy
We only have a few minutes left, so I want to give you both the opportunity to give final thoughts. But I want to just touch on a couple of side issues to make sure you have the opportunity to air them. Kevin, did you want to talk a little bit about how AI is changing our business, how it's changing our underwriting? We hear a lot about it. Are we using it here at CBRE to put together materials? What's your point of view?
Kevin Auseff
To frame our position as an industry in the AI landscape, I would say we're not even in the first inning. It's a national anthem stage, maybe. The real estate industry is generally behind the curve as it relates to technology. But the way I see it unfolding is really 2 phases. 1, AI is providing operational efficiencies underwriting, with our ability to do market overviews, property descriptions, that sort of stuff. And the second phase and more significant and exciting part is AI's ability to provide predictives and predictions within a data set that you give it. And I think that's the most powerful tool. At CBRE, we have a wealth of data. On an annual basis, we probably log in about 30 to 40 thousand bids. And if we unleash AI on that, it can tell us with precision, market-to-market dynamics, capital flows, green shoot analysis. It can be pretty exciting to take the structured data that we have and come up with that sort of predictions and predictives. And that's what we're working on. We're really excited about that. We have a really talented team of professionals in our D&T working on coming up with use cases that we see would be really valuable to our clients to take that kind of data set and talk about where the puck is actually going, as opposed to be anecdotal about it.
Spencer Levy
I'm sort of where you are Kevin, but it's also going to help us predict what to buy. Any thoughts on that?
Jessica Harrison
Yeah. I mean, look, I think we are all looking for ways to be better and faster, right? And so technology is going to be and has always been a huge part of that. I think people are intimidated by AI, myself included, right? It's intimidating, right? It's changing the mindset. It's changing the way that we underwrite deals. It's changing the way that we rely on research. I find myself personally, professionally, my team uses it a tremendous amount. We are relying on it and integrating it more and more in investment committee materials and trying to generate quick understandings of certain tenants in certain buildings, right? And so I think the potential is really untapped right now.
Kevin Auseff
Turning menial into meaningful is an opportunity in today's market. Traditionally, real estate has been an appreciation game: location appreciation. But now you have the opportunity to operationalize your management and your customer experience in a different way. If you think about it, setting aside maybe self-storage or data centers, the majority of real estate has tenants in it, has people in it. So to the extent that you can improve that experience and unlock value there, that's something that traditionally has not been looked at in a very focused way. And it's an opportunity in the market where appreciation is missing, to say how do we get the most out of our operations? And I think that ultimately is gonna improve value for investors.
Spencer Levy
Well, there's so many additional side notes I can go here, but we're almost out of time. So I want to ask a wrap-up question to both of you. Here we are, 2025, at the CBRE Capital Market Symposium. The market has momentum, to go back to that word. If we were to do this taping again in a year, how would you say, looking back, 2025, 2026 is going to shape up from a commercial real estate perspective?
Jessica Harrison
From my perspective, as I've hopefully articulated here, we intend on being active this year. We intend on taking advantage of the market opportunity. There's a lot of folks that are still on the sidelines. I think when we look back a year from now, I think we're gonna be happy with the decisions we made and the discipline and the way that we structured our investment opportunities. So I'm feeling optimistic.
Spencer Levy
Feeling the “mo.” Alright.
Jessica Harrison
Yeah. The “mo” in momentum.
Spencer Levy
Kevin, your perspective? What are we going to say?
Kevin Auseff
I think we're going to be better. It reminds me of a Yogi Berra, you know, hit it where they ain't. I think capital's going where capital ain't. So affordable housing, outdoor storage. It's going to an opportunistic market. And I think, we're gonna look back and say we are glad we transacted in a liquid market. And it's not just next year. Real estate's a long term game. But we are at the beginning stages of a recovery. And I think we're going to look back by end of this decade and see that it was a momentous decade for real estate.
Spencer Levy
There you go. On behalf of The Weekly Take, 2 of the leaders of the commercial real estate business. Jessica Harrison, Head of Transactions and Capital Markets, Real Estate Equity, Manulife Investment Management. Great job, Jessica. I hope you'll come back again.
Jessica Harrison
Thanks for having me.
Spencer Levy
And my good friend Kevin Auseff, America's President of Investment Property, CBRE. Welcome back to the show. We hope we'll have you back again, as well, and we hope that all of our “mo” dreams come true.
Kevin Auseff
Great to be with you and Jessica. Thank you.
Spencer Levy
And thank you for joining us. We'll keep up the momentum in the weeks to come, including an episode featuring my sit-down with best-selling author Adam Grant, who I also met out in Arizona at the CBRE Institute. For additional content and information, visit our website, CBRE.com/TheWeeklyTake. Share this episode, subscribe to the show, and please drop us a line with a comment, a question, or any suggestion you might have in mind. And by the way, if any of you baseball fans out there want to take issue with the quote Kevin attributed to Yogi Berra, we know. Hit ‘em where they ain't was the motto of two-time batting champion and baseball hall of famer Wee Willie Keeler. You can look it up. Thanks again for listening. I'm Spencer Levy. Be smart. Be safe. Be well.
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