Where Do You Go: What sectors and markets still appeal to global capital?

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Spencer Levy 
We have our own ideas about what's hot and what's not in commercial real estate. But sometimes to learn about what's in front of you every day, it's smart to seek wisdom from afar. And that's exactly what we're going to do right now. On this episode, a wider perspective from a former investment banker who was a leader in international real estate. 

Michael Smith 
It's an interesting place to be because the more I travel and the more opportunities I see, the more I realize how small the real estate world is. 

Spencer Levy 
That's Michael Smith, the regional CEO for Europe and the U.S. at Mapletree, a real estate investor with assets across Asia, Australia, Europe and North America. Michael's based at Mapletree’s headquarters in Singapore. But we went up with him at the firm's Chicago office for a face to face conversation that covers the full range of the firm's multi sector holdings. Coming up, an investor from overseas shares international insights into the economy, the capital markets and what's looking good around the world. I'm Spencer Levy and that's right now on The Weekly Take. 

Spencer Levy 
Welcome to The Weekly Take. And this week, we are delighted to be joined by Michael Smith. Michael, welcome to the show. 

Michael Smith 
Thank you, Spence. Thank you for having me. 

Spencer Levy
And we're delighted to have you. In fact, Michael, we're here today in Chicago, but the first time we met was in Barcelona. Do you remember that? 

Michael Smith
Barely remember that. Yes, I remember it was late at night, but I do remember. 

Spencer Levy 
Yes, indeed. 

Michael Smith
Beach front. 

Spencer Levy
It certainly speaks to what today's topic is. We're going to be talking about capital flows internationally and having met you now here in New York, in Barcelona and hopefully to meet you in Singapore soon, we are going to certainly have a great conversation. So first, Michael, for our audience. Just tell them who you are and what you do. 

Michael Smith 
Sure. I'm Michael Smith, a regional CEO for our European and U.S. business. So maybe just some background. So Mapletree is 100% subsidiary of Temasek, and Temasek is the Singapore government investment arm. So we're not a sovereign wealth fund. We have a cousin GIC who is responsible for the foreign reserves of Singapore and has a lot of money coming in and out. We don't get any money from our parent. We have to rely on our own volitions to continue to recycle our capital. So we grew from a Singapore business to an Asian business and now to a global business. And when I joined back in 2017, I was asked to spearhead our growth in Europe, in the U.S. and it's been a lot of fun. 

Spencer Levy 
Terrific. And so just how big are you, in assets under management?

Michael Smith
I think in total, across the world, about 80 billion Singapore dollars now. We’ve sort of been doubling in size every five years since we were first put in place about 20 years ago. In Europe and the US, we went from sort of a blank sheet back in 2017 and I think we're about 25, 28 billion Singapore dollars now across principally logistics. So we've bought quite a lot of warehouses across Europe and the U.S. data centers, some strategic office and student housing. We know what we like and we know what we don't like. And those are the four things we like. 

Spencer Levy 
There you go. So just for the benefit of our audience, what's the approximate exchange rate between the Singapore dollar and US dollar? 

Michael Smith 
It's about 1.4 to 1, so it's about 60 billion U.S., I'd say, something like that. We've got bigger cousins in Singapore. GIC is a big cousin, Capital Lands a big cousin or sort of part of the government controlled real estate network of Singapore. But as I mentioned, I think one of the unique things about Mapletree is that we've had no capital injection. So our growth, a couple of billion dollars of land at the beginning of the century to where we are now, has all been self-funded and we're growing our equity at 10 to 15% return on equity over the last 20 years. So a parent likes us and gives us a lot of ability to set our own course in our interactions. And part of that was a decision back in 2017 to go into Europe in the US. And it's been, as I said, a lot of fun growing the business, opening a bunch of offices, employing a lot of people and spreading the Mapletree culture across the world. It's been fun. 

Spencer Levy 
Let's dig a little bit deeper into this capital, which you self-fund, to use your terms. Are you getting this from other institutions, high net worth individuals, funding from the senior management team. Just give us a more specific sense of where the money comes from. 



Michael Smith 
Okay, so basically we have three public vehicles, so we have three public rates in Singapore and they’re all quite large rates, ones a logistics rate, ones a data center industrial rate and one's a commercial rate. So we have public vehicles and we have a series of private vehicles. So basically we'll go out and we'll use our own balance sheet, our own capital to acquire assets like we did in Europe and the US. Once we've reached sufficient scale, we'll create funds, either public vehicles or private vehicles, and then through those syndications we’ll slow down our equity. So we'll own 100% at inception and then most of our funds and public vehicles we are 20 to 30% of the equity and effectively the GP of the fund. So that's what we've done with all of our assets that we've acquired in Europe and the US with the great majority. Last year we did three syndications: a European office, a US office and a US logistics. So it's sort of a case of buying assets, building up the human resources, opening offices and growing the team and then syndicating at the same time. So it's being a career banker. It's been pretty interesting to go into that experience buying, setting up a team and then syndicating at the same time. 

Spencer Levy 
Well what I think is really interesting about this, Michael, is like when you see some of these large owners of real estate, you think it's some unified entity. What it really is, it's a series of funds and or other vehicles, some of which are standalone, some of them which are co-mingled. And it requires quite a complex skill set to do any public offering. Private offerings are not much easier, but certainly different. So how is your background as a banker helping you grow the business? 

Michael Smith
It's interesting. I was an investment banker, so it's much more capital markets, whether it's debt or equity in M&A. So I think both skills raising equity, raising debt, mergers, acquisitions, making multi-billion dollar transactions, that’s all sort of a merger in many, you know, not a merger, but it's a takeover in that regard. So I think all of those skills were helpful. The syndication, you know, when we're raising public equity, I think we raised a couple of billion US dollars last year from third party investors. That's a real personal relationship that you develop, and through my career at Goldman’s and other places, there was a lot of opportunity for me: people capital, sovereign wealth funds, insurance companies, capital, who wants to go alongside us and enjoy the experience, hopefully. So, yeah, I think it's been really helpful and I think the leadership building teams, that's been probably the most interesting aspect of opening up all the offices. We're here at the moment in Chicago because it's our U.S. logistics team getting together. We've got 51 people in the U.S. across our five offices, just focused on logistics. None of those people knew who Mapletree were four years ago. So that's been really interesting. 

Spencer Levy 
Well, what's also interesting, and this is probably from a American perspective. I grew up in New York. I now live in Baltimore. And it was a big move. It was all of 150 miles away, maybe 200 miles away. But you're from Australia. You're now in Singapore. We've met in Barcelona, New York, Chicago. You're a global citizen in many ways. Tell us about that. 

Michael Smith 
Yeah, I think so. I've got a very understanding wife, that helps. But no, it's an interesting place to be because the more I travel and the more opportunities I see, the more I realize how small the real estate world is. Seeing you as many times as I have, seeing some of the counterparties, seeing either people we've acquired from or people that have invested alongside us. It's a pretty small global real estate world and you don't think it is. But of the size of the activities that we're involved in, it's a relatively small market, whether it's the broking community, the banking community, the investor community or the counterparties. There's only a small group and I guess if you're fortunate enough to be part of that circle, even when COVID came along and we were all locked down, because we had those relationships, you could do it by, you know, telephony, or you could do a video conference and have that preexisting relationship with somebody which enabled you still to do business. I think it probably would be a lot harder for a newer graduate or somebody coming into the business who doesn't have that connection and the pool of relationships to be able to dovetail into it. So, so yeah, I think I have sort of a global real estate person, but I'm alongside a lot of people like yourself and, I mean, you know so many people in this business and it's an interestingly small business when you think about... 

Spencer Levy 
It is remarkable. 

Michael Smith 
… the way things happen. 

Spencer Levy 
What's remarkable about it is when you speak to people who aren't in the business, so many of them are, oh, you're a residential broker. I'm like, no, I deal with office buildings and industrial buildings and data centers, are completely different thing. But I think it's a good lesson for some of the folks that are starting out in commercial real estate to hear your story of how you started as a banker and you work for this client and you set up entities because that's how it works. 

Michael Smith 
Absolutely. I think those relationships that you forged when you started your career, as long as you don't burn bridges and you stay, you know, being a committed person to the industry and to your friends and if you can grow with those people. So many of the people that I met when I graduated are now CEOs of companies or large investors in their own right or whatever it is. Through the many decades of being in this business, you grow with those people as well. 

Spencer Levy
Without a doubt. So let's dig now a little bit into where we are as a market. I think it's fair to say that last year was remarkably good, notwithstanding that we were still knee deep in the pandemic. We're not past the pandemic yet, by any measure, but this year is a horse of a different color. We are now seeing tremendous inflation. We see the Russia Ukraine situation. We see other factors that are making the capital markets much more difficult, choppy, expensive. How do you see it? 

Michael Smith 
I think one of the benefits of Mapletree and global real estate businesses is that we can see the different parts of the world and it is probably moving into some type of global recession. But different pockets are still offering opportunity. We're still seeing Singapore, for instance, as the real estate market there has been really, really good. In pockets of Vietnam, you know, we’re a large investor in developing Vietnam. It’s fantastic. The sectors that we're exposed to, particularly data centers and logistics, still have a lot of tailwinds. I think we've been fortunate of being able to not, if we were just a residential builder in a certain market where interest rates were rising and we were really exposed to margins and what was going on, that would be tough. But I think having a global purview and being in more resilient sectors has been really helpful for us. But look, without doubt, you're right. That was the positive spin, the negative spin. I was in London over the last week and I'm supposed to be in Warsaw in a couple of weeks. It's pretty tough in Europe. The headwinds of wars, inflation, of energy crisis and stuff is pretty tough. I think when I come and see the US, at least the US is not going through any of that. There is no energy crisis, there is no war on the borders. I think the Fed here is doing an amazing job of being in the front foot, of trying to ensure that whatever happens, that the US corrects itself first and moves on, which I don't think would be great for the rest of the world. I think given the fact that the U.S. has half of the world's capital markets, once the U.S. economy is back on track, I think that's going to be great for places like Germany and Italy and places that produce pretty good products that Americans like to buy. So I think there'll be that knock on effect as well. But as long as the U.S. can get out of what the world is in at the moment and gets out well, then I think that augurs well for the rest of the world. But definitely right now, from our perspective, we are pausing with being a little bit more circumspect. We've always been a pretty disciplined investor. Now I think we're probably even more disciplined. We're just making sure that whatever we're doing makes sense and questioning whether things that we're looking at now are going to be cheaper in six months time or the impacts of everything I just said is, is it the right time to buy? 

Spencer Levy
Very difficult to time the bottom. And one of the good things about our business, and I've talked to many of our clients about that, is very often we get blinded by the light of the spot market, where it is at the moment. And at the moment where we're talking today, Michael, we're in a moment of great volatility and that's certainly making you pause, to use your words, what's causing people to change their underwriting for the cost of debt and availability of debt, cap rate expectations? But at the same time, we are in a long term business. Most people in the commercial real estate business hold their assets ten plus years. There are some that do three, five, seven years in more opportunistic capital. Taking a longer term view, I think, creates the ability to see opportunities where others might not. Do you agree? 

Michael Smith 
Absolutely. I think this is in our annual report. But, you know, we always have about 10 billion Singapore dollars of cash flow, undrawn facilities all the time as we do now. I think we've got more than that now. So from a liquidity position for us and given our parent is a $400 billion triple-A rated entity, I think we are in a pretty good position to be able to definitely withstand any of the storm that's approaching, but also be opportunistic and be able to pick our marks and pick our spots. So I think just right now, the question is how do we manage our own real estate portfolio? How do we ensure operational excellence? How do we ensure that we get all of our assets revalued every year? There's a big question mark about what valuations are going to do this year and how we ensure that in the sectors that we're in, that the reversions, the rental reversions are strong enough to compensate for any cap rate expansion. So in that backdrop, we were focused on making sure our own assets perform incredibly well and that they preserved their value. Should we really be going in buying something else until we've bedded down our own business so that, and that environment, going to the investment committee and asking for a couple of billion dollars to buy something is not as easy as it was a couple of years ago. 

Spencer Levy 
Well, it's easy for me to say we're not in a spot market business. We're in a long term business, but you have to market your portfolios today. So the spot market has real weight, particularly when you're measuring yourself against various peers. So it's nice to think long term, but you need to take care of your existing portfolio first. 

Michael Smith 
We really look at the fundamentals of where we should be investing and why. And what's more important to us than currency discrepancies is the resilience of the income. Are we in a sector that we truly believe in and we think we've got real expertise that we can have tenant relationships in the US, that we can transfer to China or to Vietnam? And we think in the logistics space there's not that many global players who really can move a Chinese technology company from China to Warsaw to Warsaw to Chicago. We have that opportunity and we want to continue building that. Goldman has that. There's a couple of other global players who have that, but that's a skill set that we want to continue to develop, and we'll keep developing that skill set through cycles. 

Spencer Levy 
That's one of the beauties of industrial. I used to say that about retail, too, is that if you're a big retail operator, the retailers repeat themselves over and over again. But industrial now as a global business, much more global than retail, though retail does have certain global elements to it does give you a huge competitive advantage to have a logistics business that is global in nature because you're going to repeat your tenants. 

Michael Smith
And if we've got a particular relationship with the Vietnamese e-commerce company that wants to go to Malaysia or wants to go to the US and live in a trusted landlord or counterparty for them, they're more than likely going to come with us when they decide to expand overseas. We actually have that trusted relationship that you can do with companies that you know, if you think about the Chinese technology companies, the last ten years have been amazing with JD.com and others and as they've all expanded through the different fits and starts, but as they have they are more likely to hopefully travel with us or Prologis or somebody that they're familiar with in the home market. 

Spencer Levy 
So Michael, Industrial, boy, I don't think there's any asset class that has performed better in the last five plus years, maybe longer, than industrial. We see some markets here in the United States, in the Inland Empire, Southern California, elsewhere, 50% plus annual rent growth and an average rent growth of 20%. Tell us about industrial. Why do you like it and how do you see it going? 

Michael Smith 
Mapletree listed their first rate back in 2005 and I was the banker on the deal back then. I wasn't with Mapketree. But that was I think 12 or 13 warehouses in Singapore and it's Mapletree Logistics Trust. And I remember the roadshow we had to explain to investors what logistics was and what supply chain was, and it was just so little information or knowledge about what a warehouse was. I think it was hot enough for Prologis and some of the big guys in the more Western markets. But in Asia it was really, really difficult. That vehicle now, I think, is an $88 billion market cap, nearly 200 assets across 15 countries in Asia. And it's one of the biggest logistics warehouse businesses. So that business has been in our DNA. We actually, Mapletree came out of the Singapore port, so PSA is the Singapore Port Authority. It was going to go public. I was a banker on that deal as well. The decision was that the real estate should be separated from the port. By the time that happened, the IPO market went away and the port was never listed. But there was a pool of assets sitting there which is now Mapletree and some of those assets were the warehouses that found their way into this first public vehicle. So as a part of who Mapletree came from, we obviously do other things now, but logistics really is in the core DNA. So for us, we've just continued on that path from what we've inherited in Singapore to what we've gotten through Asia to what we now do, whether that's Australia, Malaysia and Vietnam, Korea. I think we've done 130 warehouses that we've built on our own volition in China. We're starting a development business now in the U.S. and in Europe on the back of the assets we've acquired. So that's a true core business of Mapletree. We're not one dimensional. That's not our only business, but it's great that it's the biggest business and I’m quite happy with that. 

Spencer Levy 
It's a, I don't think I'm telling our listeners something they don't know. It's a good time to be long industrial.

Michael Smith
It’s not a bad time.

Spencer Levy 
For sure. But you know, at the same time, a lot of people are long industrial. And so the question is, is it too good? And I say this not to disparage industrial. Do you see any storm clouds on the horizon? 

Michael Smith 
You know, we’ve thought about this. We came into the US market in 2018. We didn't own a warehouse. We've got 353 warehouses now. That's 70 million square feet, which I think we had somewhere near the back of the top ten. Anybody could have done that. They could have been any capital from anywhere in the world who acquired large portfolios and took a view about where US logistics would be five years ago. And we did and we're really very happy with that outcome and we're still getting fantastic reversions as you said, we're getting 20 to 30% type of versions of course portfolio. So we don't see any headwinds. We've thought a lot about what's the disruptive sort of game changer which is going to affect the business. But it doesn't feel to us right now this pullback in e-commerce, what happened through the pandemic and then e-commerce has pulled back a bit, but we're still seeing just multiple sources of demand, particularly close to the urban type logistics is just phenomenal. And there really, there's been a lot of supply and I think CBRE is one of the best researchers. I get your reports every week and love reading them. And there's a huge volume of supply. But yet vacancies are still down 2 or 3% across the U.S. So it just seems to be this insatiable appetite for demand, which is driving rents. And if you look at it from an occupier's perspective, you talked about retail before. Retail is maybe 20%, whatever the rule of thumb is that they can afford to pay rent as a percentage of turnover. But as you know, these warehouse operators or tenants, maybe 2, 3 or 4% of their revenues goes to rent. So there's still a huge opportunity, we think, for them to increase paying rent because they have to be in these locations. It's strategically imperative that they're in these locations and operating their businesses. 

Spencer Levy 
I think there's two two basic elements to location decisions. Probably twenty, but two basic ones. One is labor availability and cost. And we're certainly seeing that being stretched right now. And second, if you were a distribution facility, how close are you to your other facilities, your retail facilities? We had on this show recently, Walgreens, and talked about their distribution centers. We had in the show recently a U.S. farmer's market called Sprouts. And they said we can't be more than 250 miles from any one of our sprouts retail locations. So how much does labor availability play into your real estate investing decision? 

Michael Smith 
That’s a great question. I flew over from London and I landed in New York yesterday and we went to look at one of our buildings, which is about to become vacant, and that sits in Pennsylvania. It was about an hour away from New York, but it's a big, big, big building. And we're going to have to spend a little bit more money on it to get it right up to speed. But one of the biggest issues when we were the broker is the availability of labor. It's a great location, infrastructure wise, but with unemployment as low as it is here and trying to find the number of people that you need to operate a warehouse of that size was an issue. So we see it firsthand. When we bought these portfolios of real estate. I think as we evolve our business and we get more into development, we'll be able to be a little bit more surgical about the locations. But when we buy a 2 billion, $3 billion portfolio of warehouses, you get what's in that portfolio. And some of them aren't always the best locations. But even though that happened, we've still been very, very happy with the outcome because the whole market has been so strong that even some of the more difficult or more challenged locations are still, you know, vacancies at 2% at some point. And if an occupier like Walgreens need the space where we're located, there may be two or three opportunities for them in a warehouse in our size. So they have to come and have a look at that property. And then it's a pricing issue. It's a discussion around different variables, and then they'll take it. Right now, we're very, very fortunate by where the market still is. And as I said, we just can't see anything that's going to change that unless you can. I'd love to get your view. Is there, do you have a suspicion that something's… 

Spencer Levy 
No, I do not have a suspicion. I mean, I guess I can give you the big picture. The big picture is, we see what you see, which is a disproportionate number of Americans are migrating to the southeast, southwest and Texas. But that does not mean for a moment that the large existing markets like Chicago, where we're sitting right now, like New York, like L.A., aren't going to be great markets for years to come, particularly in industrial multifamily. But I also like them in certain pockets in office. And I know, Michael, I was fortunate to work with you and your team on some of your office acquisitions here in the United States. And I would say that's the area that we see the greatest question marks, though, we do see opportunity. How do you see it? 

Michael Smith 
I don't disagree. We are being more circumspect about our offers acquisitions, just given the uncertainty that's happening with the occupier, whether it's working from home, post pandemic, all these different impacts that are now influencing the decision makers of some of these large office tenants as to whether we should extend, whether we should shrink, there's just a lot of uncertainty. So in that backdrop, we're also a little bit uncertain. But when we went through last year, we made a few acquisitions here. I think we bought your office that you occupy in Texas, in Gallatin. But we focused on technology, pharma companies, health care companies, companies, this was pre-pandemic when we made these acquisitions. But the focus was, what is the industry group where people need to collaborate, where people really need to be in an office. And you know, the technology companies are still big advocates of being back to the office and they've had resistance. And a lot of the research life science companies, by their nature, need to be collaborative and need to be in the same office contract. So we were fortunate that pre-pandemic that was our focus point and that's what we've continued to do. So the offices that we own across the US are still 95% occupied, long term leases to those type of tenants. Throwing off a really good yield because we locked in pretty cheap rates for the fund. So that's working. We have a fund in Australia which is not working so well. Some of those assets were a little bit more fringy. They were not so longer dated leases, more professional services, smaller businesses and the occupancy there has fallen. The fund that we put together in Europe has worked quite well because it was a little bit similar to the one in the U.S. So we've got TikTok, ByteDance, on a 15 year lease. We've got Microsoft on a lease. These guys want to be in their office. They're on long term leases. They spend a lot of money on their fit outs and they want their people to come back. So yeah, I think we're okay with that exposure, but we're not sure we want to go back into anything else right now, while the occupiers are still so uncertain. Is that a similar view that you have as well? 

Spencer Levy 
Yeah, I would say it's a similar view. But when there is a dislocation, I always say, well, where is the opportunity, right. So we're sitting here in Chicago right now. We're sitting here in the loop. We're actually right next to the Willis Tower, one of the most famous buildings in the world. But the loop right now in Chicago is a little soft. I think that a lot of the leasing activity right now is going to places like the Fulton Market, which is a few blocks away from here, which a couple of years ago was getting about 5% of the market's leasing activity. Now it's over 25%. But we're seeing that same story all over the United States in places like Hudson Yards in New York City, where we're seeing them pull a lot of the tenants out of the east side of Manhattan. We're seeing it in markets like L.A., where people are going from Bunker Hill to Santa Monica. In Miami, they're going from downtown in Brickell, maybe to Wynwood. And I go right through the story. All of these markets have the same characteristics. One of them is the thing that you mentioned, Michael, it’s the type of tenant that needs to collaborate, often tech, but not always tech. But they also have a live, work, play environment. Many people want to walk to work, and then they also have an education base, a capital base. All these things are the same. CBRE is coming out with a report in a couple of weeks called “The Tech 30”, which is going to name many of these submarkets that we like. But that's how I see opportunity in office today, where if you go to one of these great submarkets, you've got great tenancy, there may be a buying opportunity, notwithstanding the headwinds. You agree with that? 

Michael Smith 
Yeah, and I do. And one of our other verticals is student housing. We're a very large owner of student housing across the UK and Canada and the U.S. and we love smart cities. We love smart parts of the world. In Philadelphia, we have a new building that we built just right next door to Wharton, and we've got another one there. So in the University of Penn, I think we're probably one of the largest student housing owners there and developers. So that concept of people wanting to stay in those smart jurisdictions, instead of coming into New York, stay in Philly, and then the industry starts going to Philly, and then if there's a business park opportunity or an office life science type opportunity, that's how we would then evolve into. So in the US we bought in Raleigh-Durham, in Dallas, we bought in Gallatin. We didn't buy San Francisco. We bought in Oakland. We're block or square have a long dated lease so we will have that mindset as well. The downtowns, the sort of loop type, we don't have any exposure to that type of market. 

Spencer Levy 
Well, Michael, we were getting along just fine till you brought up University of Pennsylvania. I'm a Cornell guy. You know, I just had to show my big red colors here. But when you're looking at student housing, I remember doing an analysis with our student housing team and they said that if you're in a big time football school, which sounds like a irrelevant metric, but it is a metric, your cap rates are 50 basis points lower, your tenancy is much better. How do you underwrite student housing? 

Michael Smith 
It's not easy, I must say. And we also, similar to what we did with our logistics and data centers here, was we bought big portfolios. Now that we're developing student housing, we can be a lot more surgical. Once you go into that sort of single asset development phase then you can do a lot more. But we wanted to build the base that we have here now across the sectors that we know so that we understand the market in real time, not just through broker research, which is great, but also by actually owning and operating the assets. But there's a lot of variables. The student housing business is an incredibly operating, intense business. You're looking after students who sign one year leases. It's tough, it's not easy, but it's very recession resilient. So whatever we're moving into in the world, recession wise, people tend to study it a bit longer or they'll tend to go and improve themselves and go to an MBA or do something else. So we've found it to be a great asset class for that. It's just operationally very intense. 

Spencer Levy
So before we get on to the other topics, I do have to ask you a question because I don't want to forget. So we had as a guest on this show about a year ago, Carmel Hourigan, who you may know. 

Michael Smith
Oh, yes.

Spencer Levy
She's the office head for Charter Hall. 

Michael Smith
Yeah. 

Spencer Levy
And I asked her what I thought was the most important question we've ever asked. I said, well, as an Australian, what is the best band that ever came out of Australia? And she gave a surprising answer, but I want your answer. 

Michael Smith 
This is going to show that we're probably of a similar age group and I'm probably older than her. Oh gosh, I don't know, what's the best band? INXS, I guess, has probably been the most favorite. 

Spencer Levy 
Wow! You gave the same answer. From an American perspective, I thought AC/DC would win in a landslide. 

Michael Smith 
Actually that’s true. But they were Scottish, weren’t they? No, they were Australian. 

Spencer Levy 
I think they're Australian. 

Michael Smith
Yeah. Okay, I'll give it to them. We’ll take AC/DC. 

Spencer Levy 
Take AC/DC. 

Michael Smith 
I probably should have taken AC/DC. Either one. 

Spencer Levy
Well there you go. 

Michael Smith
Four letter acronyms. 

Spencer Levy
There you go. So now that we're past the most important question, Michael, let's go to data centers. Data centers are proliferating everywhere and they use a lot of power. And when I say power, I mean a lot of power. And they also use a lot of water, which is one of the downsides to the business, is that because E in the ESG lexicon is now becoming more and more important. How do you underwrite acquisitions of data centers, the development of them, taking into consideration some of these limitations? 

Michael Smith
It's a great question. The whole ESG topic is just so much more important now than it's ever been before and will only keep getting more important. As per the Paris Agreement, we've got a net zero 2050 target, which our parent has as well. So we're very focused on ensuring that we've got to manage to measure the data. There's no point managing any of this without being able to measure it. And the trouble with some of the asset classes that we’re in is that the tenant has a lot of the responsibility of how much energy and power they use. So these triple net leases, which are great from a landlords perspective, whether that's warehouses or data centers, the actual user of the power is a technology company. So it's really making sure that there's a shareholder engagement, stakeholder engagement with the tenant where we can work together. In many cases, what we're seeing is that many of our large tenants also have pretty strong ESG requirements thrust upon them as well. So they are a lot more amenable to sharing data and information to us. So where we are right now is, how much power and how much energy is actually being used in our properties, because we just don't know. So we're doing things like green leases and making sure that we have access to that data and that we can really understand it, and we're collaborating with the tenant to then try and think about ways of how we can start mitigating and changing that. Whether it's renewable energy, putting solar power on top of our warehouses across the world, there's probably a lot of opportunity for us to help. How do we then do that? How do we, you know, I think where we are right now is we know we're on the path. We know what we need to know, but we don't know it yet. And we really just need to investigate in collaboration with our tenants and do a better job. 



Spencer Levy 
You used the term green leases, which is being able to monitor the tenant and their energy use in particular at the site. But one of the shows that we had here about a year ago, we had the two authors of the book called Healthy Buildings, two Harvard professors. And what they said was that from the wellness perspective, that notwithstanding the fact that they have objective evidence that makes you, more or less sick days, more cognitively aware, that landlords were still reluctant to make the changes because the landlord paid all the cost, the tenant had all the benefits. And what you just said was a green lease, which I think is the future, which is you can't just make it us and them, landlord and tenant. It has to be more of a shared relationship. Is that what the green lease is? 

Michael Smith 
In simple forms, yes. It is that right for us to be told what is being used in our property. We have certain rights that if they want to leave or they want to do some type of significant enhancement, that the way that the waste in that, you know, so if we're going to rip out an office we want to make sure that that's ripped out in an environmentally friendly way. And as best we can, we can recycle and all these type of things we try to embody in the lease. So there's a contractual understanding upfront that we're going to cooperate together as best we can to ensure the E in ESG is maintained. But yeah, a lot of it is the data. We really want to have access because our office portfolio is different. We know the janitorial costs, we know the energy costs. They come to us and we pay for them. But it's the warehouse and data centers is a lot more tricky, when it's a triple net lease and they’re basically responsible for everything. So we have to contract with them so that they enable us to understand ourselves a bit better and understand, and as I said, the bigger tenants have got their own ESG requirements. Now there's a lot more onus on them. So there are a lot more willing. Some of the smaller tenants are a little bit more reluctant. I imagine as we do this with data center tenants, they might be a little bit more reluctant, as well. So we've just got to navigate, but we've got to make sure that they understand that this is all in our best interest because they've got the same pressures as we have to be a better business as it relates to ESG. 

Spencer Levy 
So, Michael, I would love to get your final thoughts on what your outlook is for Mapletree in the next couple of years, where you see the opportunities and the challenges, and any words of wisdom you want to give to our listeners. 

Michael Smith 
Well, that's a big ask. I'm an optimistic person. The glass is always half full. I think the world is a great place. Maybe I'm sounding too cliche, but I do think that whatever we're going through economically right now will get solved. There's enough people focused on the problems at hand, central banks and others, that we’ll get through. I think the US will get through first, as I said, and hopefully that will be a precursor for others to follow. I think Europe will have its problems. I think Asia's, as you said, China's got some issues, but they're spending a lot of money to get out of some of their issues. So I think all in all, real estate's correlation to GDP and global growth is pretty strong. So the better that the world is, the better the real estate market is going to be. Mapletree, we've had a lot of success in being able to pick the right markets and the right sort of more resilient sectors. And I think we'll continue to do that. I think some of the things we talked about more broadly around people growing in the real estate industry, it's a real people game. The relationships are absolutely important. So if you're new in the real estate industry, start with your eyes open and make lots of friends and foster lots of good long term relationships because they really count. This is really a people business and it's a great business to grow a career in. 

Spencer Levy 
Great. Well, I think that's a great way to end it. And now one last question. Will you change your vote from INXS to AC/DC, or are you sticking with INXS?

Michael Smith
Can I have two?

Spencer Levy
You can have two. Well, on behalf of The Weekly Take, it was a privilege to have Michael Smith, regional CEO, Europe and USA Mapletree. Michael, we've now met in Chicago, in New York and in Barcelona, maybe next time in Singapore, Vietnam. 

Michael Smith 
Vietnam, absolutely. Looking forward to it.

Spencer Levy 
Thank you very much, Michael. 

Michael Smith 
Thank you. Thanks, Spence. 

Spencer Levy 
For more on Mapletree and the global investing scene, not to mention more on our show, please visit our website, CBRE.com/TheWeeklyTake. We hope you'll join us again next week as we continue to explore the world of commercial real estate. And if you like what we're doing, please help us build our international audience. You can share the show as well as subscribe, rate and review us wherever you listen. Thanks for that, and thanks for joining us. I'm Spencer Levy. Be smart. Be safe. Be well.