Peter Ballon:

In today's market, the best [inaudible 00:00:02] aren't necessarily about pure fundamentals. Yes, data centers will have great fundamentals. But the [inaudible 00:00:09] that really might be best on cover are the ones that are just kind of orphaned, because there's just no capital for it.

Nancy Lashine:

Hello, and thanks for tuning into Real Estate Capital. I'm your host, Nancy Lashine of Park Madison Partners. Capital is the lifeblood of the real estate industry, but the decisions on where and how it's allocated are driven by people and personalities. Who are they? What motivates them? What can we learn from their experiences?

On this show, we introduce you to some of the real estate industry's most influential thought leaders and decision-makers, and we talk about what is important to them, how they make critical decisions, who has influenced them, and a lot more.

Our guest on this episode is Peter Ballon, the recently retired global head of real estate for CPPIB. Over the past 17 years, Peter Ballon has helped to build one of the largest global real estate portfolios in the world, starting at 6 billion Canadian dollars. The portfolio has grown to 55 billion with investments in Canada, the US, China, Japan, Europe, UK, India, Brazil, and Australia. My discussion with Peter occurred just a few days after he left his post at the helm of CPPIB. We talk about how CPPIB built the local teams on the ground in these countries, the strong investment partnerships with owners and operators, and we also covered understanding risk tolerances, finding alpha by property type, and how investing in real estate has evolved over the last few cycles.

Peter's humility and approachability masked his vast experience and stature in the industry. I could spend days talking with Peter about the real estate investment business. He has so much to share. I hope you enjoy this conversation as much as I did.

Peter, I'm so excited to have you on the podcast. Thank you so much for doing this. You've just last week left CPPIB after 17 years. I think we must must've met during your first month there somewhere in a restaurant in Toronto. It feels a little bit full circle. Meanwhile, you've built a global real estate portfolio for the largest pension plan in Canada, I think the 13th largest pension plan on the globe. So there's a lot to talk about. And oh, by the way, you also were heading the Urban Land Institute as global chair, which is the largest industry association. So really excited to have you. Thanks for joining us.

Peter Ballon:

Thank you, Nancy. Really thrilled to be part of this, and thank you for inviting me because as you do mentioned, I think I met you on week two of CPP as we were just trying to navigate expanding globally. Back then, we were primarily a Canadian investor, and I think we were chatting about some things in Brazil at the time in particular. So it's nice to have this kind of full circle, and you can assess how I did over that period.

Nancy Lashine:

Well, I'm definitely not the arbiter of how CPP's performance has been, but I think we'll certainly have fun talking about it and just reflecting on decisions you've made, because so much that's transpired. But let's start, let's talk, share a little bit about you with everybody. Tell us, where did you grow up?

Peter Ballon:

Sure. I grew up in Montreal, raised in Montreal, did my undergrad at McGill University in Montreal, and had my first full-time job in Montreal.

Nancy Lashine:

Always in real estate or how did you get into real estate?

Peter Ballon:

Well, all those summer jobs in advance were far from real estate. There's some pretty ugly stories I think I can share. But yes, I started in real estate. It wasn't exactly by some preordained view that I always knew I could be in real estate. I always knew I was going to be in business. That always was crystal clear to me where in business evolved during my undergrad.

Nancy Lashine:

So how did the CPPIB role come about and why did you join them?

Peter Ballon:

So that's much later in my career, of course, and that is a pure example of how careers are not really linear, nor in my case, necessarily curated. I would say the case of CPP was a bit of a reaction.

If we go back a few years, I'll give you some context, but I had been earlier in my career with both Brookfield and Trizec, Trizec being a big Canadian-based organization as was Brookfield. They shut their offices in Canada, they being Trizec on.

Nancy Lashine:

They were acquired by-

Peter Ballon:

Brookfield, which in itself is a story because I had an opportunity to work with both of them and I did. And I had consulted all the top real estate minds in Canada. This is back in '92, '93, and I was asking people who would survive longer, Brookfield or Trizec? And the crystal clear answer was 95-to-5 that Trizec would live and Brookfield would not survive. So some of the best minds in real estate were wrong.

Nancy Lashine:

That is so funny. Well, yeah, we all have our stories. I was at The O'Connor Group at the time and we bought an interest in Trizec. Yeah, we can go there, but let's move on.

Peter Ballon:

We can go there, partnered on some shopping centers together. Anyway, so I landed up at Trizec, which actually was just a terrific experience, but they shut their doors in Canada. I was out on the street. I actually decided I wanted to do something a little more entrepreneurial, so I did a little bit of personal investing, and to pay the bills I was doing a lot of consulting.

And one of my clients was a self-storage company that was sold, and the CEO of that self-storage company joined CPP. And he was the one who encouraged me to join CPP.

Nancy Lashine:

Was that Andrew?

Peter Ballon:

Andrew Blair, who you met actually.

Nancy Lashine:

Yeah, I remember. Yeah.

Peter Ballon:

At that first meeting actually. And so Andrew was the one who encouraged me, and I was really quite dismissive at the time. I really didn't aspire to work for a pension fund. My impression of pension funds wasn't overly favorable. I actually saw them as rather passive and not really attracting great talent, which I think was probably accurate until at least a few years before that. Certainly in Canada, the pension funds weren't attracting great talent. But things were changing, and CPP was evolving from a passive investor to an active investor. And so when I joined CPP, our real estate portfolio was about $6 billion, which was not small, but not sizeable.

A lot of that was actually passive, so it wasn't an exciting place. But at the time, the vision was to turn real estate, into the whole investment program, into a much more active investment program.

And to be honest, the timing was just perfect. Got lucky in terms of timing, I joined CPP just as it was growing. Still small team, only one office at the time. It was only in Toronto. Although when I joined, there were already plans to open offices in London and Hong Kong. So that was on the table, which kind of added some excitement.

I knew about that they weren't open. Whether it would happen for sure or not was quite exciting. So I did join, and it really was an incredible run, very rewarding personally, and just a great opportunity to work with a lot of smart people and do some things, great things around the world to really work that well.

Nancy Lashine:

How big is the CPPIB real estate portfolio today?

Peter Ballon:

It's approximately 55 billion Canadian dollars. There's a-

Nancy Lashine:

6 billion to 55 billion.

Peter Ballon:

And we turn over our assets, create a lot of value by selling and then repurchasing, etc. So in terms of transaction volumes, it's way more than the 50 billion. I've never really calculated. And to be honest, maybe at some point when you get into big numbers, you stop really calculating because it's not that meaningful. But the transaction volume was absolutely staggering. Not that we judged ourselves on volume. That's kind of easy when you have a lot of capital available. So that's not what we take pride in, but it was a lot of transactions, and it was a lot of hard work, but also very rewarding.

Nancy Lashine:

So share with us a little bit about strategy. You're back in, what year are we in? We in 2007, thereabouts? 2008?

Peter Ballon:

We're in 2007.

Nancy Lashine:

So the markets are really hot, values are high. Globalization is a big buzzword. Everybody wants to go global. Not international, but global, and obviously Canada more so than others, just because of being so big in a small country. How did you start thinking about strategy for building this portfolio? And I'm thinking in context of that, when people think about investing in funds, versus investing directly, versus buying platforms, versus buying a company, what was the thought process behind that?

Peter Ballon:

So first of all, a thought process was a we. It certainly wasn't only me. And in fact, the group was led by Graeme Eadie, who I think you may have met at some point in addition to Andrew Blair. So there were several of us.

And what's interesting about that, which is one of the things that attracted me to CPP, none of us came from the institutional world of investing and fund investing. It was all the intention, just given our backgrounds, was the belief that one could achieve higher returns through direct investing. And I don't want to say that's exclusively. The funds have delivered some great returns, many funds have done very well. And so it's not a either or necessarily. We did do some investing, but it was a small part of the business.

But I'd say going back to your original question, there were a few of us at the table trying to figure out, how does one best invest? Knowing that it's not just about returns, we always had, which one can see it as a strength, because having more capital clearly gives you some competitive advantages, but you also knew that you had to do things in scale.

So finding a great small transaction, as tempting as that could be on a personal level, especially some of us were newer to this large size of capital, was very tempting. But you also knew it didn't move the needle. So you had to be very disciplined and recognize that anything we're going to do had to be scalable.

So when we thought about, to your earlier question in terms of strategy, there are so many decisions to make. And one of the things which was again, blessing or a curse kind of thing, is we were empowered by the organization to build our own program. There were no constraints, which was really terrific. But what that meant was you had to decide, well, which countries do we go to? What asset classes, platforms, joint ventures, funds? We had risk tolerances. That was a constraint, a very reasonable constraint. We also knew how much capital more or less we'd have available to us, which was a lot. And so within that very few limitations, we had to make a lot of decisions.

And so for example, decisions like given that we wanted scale, as we looked at, for example, some of the emerging markets, we had to resist going into some of the smaller markets, even though they were potentially very attractive. A lot of our peers, for example, went into Colombia, and Chile, and Peru even, when those markets were particularly hot. We didn't like those markets for other reasons.

Nancy Lashine:

So many bullets dodged.

Peter Ballon:

I was going to say thankfully, scale was my conscience over my shoulder, as I did well on that, but we had reservations about those markets. Candidly, I didn't have to think too hard about it.

The other thing, you talked about the year. Yes, I joined while real estate was hot, but by the time we kind of got going, because you have to figure out strategy, the GFC had arrived. And again, while that wasn't good for any of the real estate we owned, it was a great time to be an active investor. And we were probably one of the most well-capitalized investor coming onto the market who had, in addition to more capital than a lot of our peers, had no problems in our existing portfolio because it was relatively small. So we had at the time, some Canadian office that was doing extremely well relative to other things.

So we didn't have all those fires burning that a lot of our peers did. So we knew we had a bit of a competitive advantage, because our peers, even if they had capital, they were distracted with the current situation. As one of the largest REITs, CEO said to me that we were the bell at the ball at the time, and we really had our pick of who to invest. And those turned out to be probably the most lucrative period for us to have invested. Which is also, we get to that later in our discussion, a reminder of which markets one makes money in. It's sometimes the darkest days, and if you're been around long enough, you kind of know these are the markets where you make a lot of money.

Nancy Lashine:

Oh, I'm going to jump right to that. Are we in one of the darkest days?

Peter Ballon:

I think in some sectors, there's darkness. Yes. Yeah, I don't think, it is pretty dark. It's not unlike... So what's different now than back then is that after the GFC and other real estate... I graduated. I didn't give you all my background, but after working a couple of years in Montreal, I did my MBA. I went into my MBA and you could make no mistakes in real estate. So that's the late '80s, no mistakes. Then I graduated and real estate was, they predicted was dead forever. That's it. Real estate asset class is done. So things that some people are saying now, and I would say went wrong. I think real estate has great opportunity ahead of it.

What is a little bit different is back then, it was more across the board. Some sectors hit harder than others for sure, but the variability between sectors was a little bit narrower.

Fast-forward to today, I would say there's considerable, which I think a lot of our listeners would be familiar with even in today's market, there are some that are clearly struggling more than others, and some that actually have some pretty good days ahead of the sector. So the variability.

Nancy Lashine:

Yeah. And as an investor you might say, "Therefore I have more ability to create alpha by choosing the right managers or the right opportunities than I did 30 years ago, and than I do in some other sectors."

Peter Ballon:

Absolutely. The decisions being made now will have a much bigger impact. That before, I would say when we invested post GFC, a big part of just the market recovery, and you could make money in almost every sector just bouncing back. Some of the sectors were hit harder. So if you believed everything reverted to the mean, which wasn't exactly the case, but there was a lot of reversion to mean you made a lot of money, and it was really making sure you got in. And the asterisk for us was we actually did get in, which with hindsight was obvious. But at the time, was less clear. But how long everything comes back supposedly, but does it come back in three years or 15 years? And that's a huge impact on your returns.

Nancy Lashine:

Well, are you a multiple investor or an IRR investor?

Peter Ballon:

Right, exactly. That's a big difference. Yeah.

Nancy Lashine:

Right.

Peter Ballon:

Exactly.

Nancy Lashine:

I jumped ahead, but I want to talk about something that seems to be really topical right now, and maybe take it back to the decisions that you made early on in your time at CPPIB. You decided to build a team and invest directly in all these different markets and open these offices. And many of your predecessors or some of the other, not predecessors, but CDPQ in Canada had bought Ivanhoe Cambridge and Cambridge shopping centers, and Ontario Teachers' that bought, Cadillac Fairview owners bought Oxford. So they had bought other companies to internalize the ability to go direct. Why did you make a different decision?

Peter Ballon:

Well, I can't speak for what their rationale was, so I can't probably give too crisp an answer. And by the way, I think it's worth noting certainly in the last 12 months, you could say that all three of those businesses while having independent, certainly branding, have really been incorporated into the mothership and have a model much similar, more similar to ours, and PSP's, and GIC's and others where the businesses are very integrated. So at least today, I think the prevailing view is that an integrated team is better for the fund, which I agree with.

Nancy Lashine:

It's nice to be maybe proven right even though I said it, not you. No, I know you're not. I said it. But obviously, there's a lot of conversation today about how do you go about building a large portfolio, and so I'm curious how you thought about it and then how it evolved.

Peter Ballon:

Right. And so I think a lot of, the prevailing common view is that Canadian pension funds very similar, and similar strategies, and all that, but our histories and our growth are completely different.

So CPP when I joined, and even to this day, is still very much in a growth mode, not as fast as when I joined 17 years ago, when there's a very rapid growth model. We knew we had certainty that we would grow to be massive and we still do. We know we're going to hit a trillion. And that's not just through appreciation of the assets.

So we knew we had to build a scalable business model. I would say that our peers nest, not all of them are the same size. They didn't have certainly the same certainty of capital. So while we looked similar from the outside, we all had different business objectives, different risk profiles. We do not have any net cash outflows. That's a huge difference. A lot of our peers had to match their liability.

So we had a very different opportunity set. We knew because of the scale that we could not be Canadian centric. Exclusive, well by definition, Canadian centric. We knew we had to be global, and maybe you could go for 10 years. But we knew that we had to be global.

And so most of the examples that you gave, which I don't want to comment on their business decision, I think they've all done very well too, was that we knew we had to be large outside of Canada. So we never took the approach. And that was something I must say I took a lot of pride in. We never tried to say we're a Canadian investor. Our stakeholders are Canadians. We have to keep that in mind. The currency that matters to them is Canadian dollars. But after that, our mandate was to deliver, maximize our returns without undue risk of loss. There was no prescribed mandate that said you have to have a certain percentage of Canada or anything like that.

And so when you take that global mindset, you said, well, why would I buy a Canadian company to start with? Could have bought a UK company, could have bought a Hong Kong company, could have bought a US company. There was no mindset. And by the way, that mindset has filters into our investment committee. I never think of an investment in Brazil or India as a foreign investment. That's as foreign as anything else, other than currency, which has a different connotation. But it's hard to tell your colleagues in Brazil and India who are born in Brazil and India, that that's a foreign investment. There as local, and that was our strength.

So we just started with a clean piece of paper, which was very fortunate and say, we want to be global. We know that we have to grow to 50 billion, 75 billion, etc., which is going to be way too large for the Canadian market. So why start with a Canadian based company? Try to have a broad global team that would be able to take advantage of market opportunities. There was no belief, and there still isn't, that Canada will deliver the highest risk adjusted returns. Each of the markets at different times will deliver those highest returns.

So our view was we needed to be where we expected the highest returns on a scale, in scale. So we could not go into a small market using Colombia as an example, even if it delivered the highest returns. So we had, you could call that some constraints that we knew we had to be sizable in a lot of markets to deploy our capital efficiently. And so that was the groundwork.

Nancy Lashine:

That makes so much sense, actually. That's totally logical. So when I think about the people I know who work for CPPIB and offices around the world, many fewer of course than you know, but how do you hire such a strong team in all those different markets?

Peter Ballon:

Well, I think the starting position, I'll tell you what we don't hire. We do not necessarily, and by the way, I'm speaking for the real estate team. Each of my colleagues or former colleagues may have different strategies, but we never tried to necessarily hire Canadians per se. There was no belief that hiring a Canadian, Hong Kong was somehow more valuable or anything like that, other than perhaps they might be a little stickier and a little bit more loyalty. But that was not really the expectation. We really want to be local in all of our markets. In fact, only at the beginning when we opened the first few markets, did we have a few Canadians there. Not because they would be the best investors necessarily, it was as much to bring the culture across.

But typically within two years of opening an office, we would be 100% local. And to this day, we're 100% local in our offices. Now, when I say 100% local, so here in London, local means we have people from Spain in our office and people from France in our office because we invest in Europe. So not everyone's British. And in fact, very few are British because we invest across Europe.

In Hong Kong, we have colleagues from Singapore, Korea, Japan, because we invest in those markets. So they're local to that region. Out of 65 people that aren't in our Toronto office, maybe there are a couple people with Canadian passports, but that would be almost by coincidence.

Nancy Lashine:

And really interestingly, you chose to pick up and move, I think first to someplace in Asia and now you're in London. Tell us, why did you decide to do that?

Peter Ballon:

Well, I think going back to my earlier comment about not trying to be a Canadian investor with a Canadian lens, I clearly come with North American, in fact, I say Canadian. I spent most of my career prior to CPP working in the US. So if anything, I call myself a US investor, even though born in Canada, was to try to take off my Canadian or North American bias, and try to get a lot closer to the markets so that as I chair these investment committees, I can kind of see it through the lens of the local markets, meet our partners, understand the teams better. Doing late night calls is not really ideal for our Hong Kong colleagues.

And so two things. One, I needed to suffer through that so I can empathize even more, which I did. It's an awful experience. But solving time zones is the one thing I've never been able to solve.

Nancy Lashine:

Well if you do solve it, I'm sure there are a lot of people who are going to want to figure it out behind you.

Peter Ballon:

That would be valuable, but we never figure that one out. So I've always felt you get senior in the organization, you have to know what your role is. And one of that is really kind of being manager of people, trying to make sure that they are empowered. And by spending more time with people, I can build a trust both ways. It goes both ways. They get to know me a lot better, I get to know them better. I get to know our partners better, vice versa, the markets. And so I always felt it was very important.

And while I moved through these offices, and sometimes they were... In fact most frequently, there were short visits like three months at the time. I wasn't the only one who did that exclusively, encouraged my colleagues to do that because they were on the investment committee. And it's very important in addition to having that knowledge base, a trust between the teams and the investment committee members.

Because once the investment committee starts, it's a pretty formal process, and it's a Q&A. It's collegial, but it's still serious. So you want to make sure that there's not these personal barriers which sometimes arise, which is human nature.

Nancy Lashine:

Can you give us an example of what you learned about choosing partners from your time in Hong Kong, and also particularly, because I know you guys have done a lot in China, what did you learn about how to choose a partner, and maybe whatever example you might want to share?

Peter Ballon:

Well, I would not distinguish between a Canadian partner and Hong Kong partner, China partner, Brazil partner. The criteria were very similar. So in terms of the decision-making process, good or bad, we had to start with a scalable partner. Someone that we felt either capital wise, but certainly scale wise could achieve our goals.

One of the benefits of being a large investor is you have access to some of the best investors. Operators, managers, etc. And so it doesn't take that long to figure out who's the best, best being track records returns.

What takes a lot longer is to figure out if you have a cultural alignment, that you share the same views, that you communicate well, etc. And then that you have similar business alignments.

So two great investors might even fit culturally, and get along, and be great communicators, but one has a shorter term perspective than the other. And so you have to figure that out sooner than later.

And that's no different, whether you're trying to do that in China or the US, etc. I never saw through my lens a higher risk between any partner. So I didn't take for granted just because a Canadian partner, I can trust them any more than a Chinese partner or vice versa, or a Brazilian partner. I tried never to go in with just the lens of some of the stereotypes, higher corruption in this country or not, etc. In fact, the couple examples where I think partners were a little bit on the edge with us, which were in the US of all places, right? We worry about some of the emerging markets.

Nancy Lashine:

It's good. It's good-

Peter Ballon:

Shocking. Sorry to take that shot, Nancy. But it's a reminder.

Nancy Lashine:

But let me ask you, was the investment committee comfortable in working with a local partner who didn't speak English and just working through your local team?

Peter Ballon:

I mean, that's what we have, and they're some of our best partners. I'll give a shout-out to Longfor in China, for example, who there's no one there who speaks any English, and I wouldn't expect them to speak English. I give that as example because they're a very large residential developer. And you know what happened to the residential developers in China, but most of them have failed. Longfor has done very well. They acted, which I expected, so they don't deserve credit in some ways, but they were always very ethical, great communicators with us. And I certainly could never speak to them. I've had lunch with them, deals with them. But one of my colleagues would essentially help us communicate.

But my colleagues, which is three of them, were born in China. So again, this is not a foreign investment. They know who's good and who's not. In every market, US, Canada, etc., there's people you have to stay away from. And that includes China, and that includes every country we operate in.

So I never go in with the view that there's no risks in some of the markets I am more familiar with. And I don't assume that it's any worse in those markets except I need colleagues who navigate. And in fact, quite often we have such good relationship with our partners, I often turn to them when I'm thinking of a new partner who I should speak to. I mean, we both, we met through Brazil, and one of our great partners in Brazil was Elie Horn at Cyrela. I've formed a very good friendship with Elie. And I could turn to him if I had any questions about partnerships, and he never steered me wrong. And in fact, he steered me away from a couple opportunities and I asked twice. That's all I needed, because he's such an ethical person. I knew he wasn't... I wouldn't put him in a situation would conflict with his business. And we do that in other markets, and our partners who we have come to trust, and that have given us good advice and guidance over the years.

Nancy Lashine:

Well, if there's one takeaway from this podcast that I hope people hear, just finding partners you can trust. And as you say, you listen, you never ask twice. That is the most valuable aspect of having been around for as long as you and I have been. It's incredible. You can't replace that.

Peter Ballon:

And I'm glad you like that because when you're investing in so many countries, etc., things can go wrong. Not everyone is great out there. And so it's so important to be with the right partners. And I feel a big part of my job at this stage is that assessing our partners, etc.

Now the other thing, which is also an equally interesting topic is the alignment. So even with the great partners, you can grow misaligned over the years, and that has happened in some of our adventures.

Nancy Lashine:

Give us an example, a theoretical example of that.

Peter Ballon:

So I would say in some cases, and I would think candidly it was us more than our partners, that our business model changed. When we started investing, we were very much at a mindset of a very long hold period for our assets. So we would build with the expectations we'd hold forever, buy hold forever. But we also felt over time that that was not going to maximize values. For some assets, you want to hold them forever. But a lot of assets we felt, and these are not just the assets we think are going to do poorly to be clear. These can be some of our best assets, but we think that they're fully valued in the market. Then we think that's the time to sell because you're going to get paid for that future growth, and you take that capital and redeploy it to a higher and better use.

Not all of our partners shared that view, because a lot of them are public REITs, they're valued differently, they have a different view on the business. And so I think there was an agreement to understand that we had a different view on the whole period. And I'd say as an example that when I talk to partners now, it's like we consider ourselves long-term partners, but not long-term holder of the assets per se. In other words, we want to have a long-term relationship with these partners, which is in our best interest in that it takes a lot of effort to find a great partner and maintain it.

Nancy Lashine:

Would you let your partners recap out of those situations so that they might stay in, maybe not suffer tax consequences or whatever, and find new capital?

Peter Ballon:

Of course. I mean, we're not trying to hurt our partners. Our partners often created tons of value for us. And so first, on a personal level, you don't want to... I'm trying to use polite words, not be kind to your partners. That's not the right thing to do business-wise. And even if you're not a nice person, it's bad for your reputation. You're not going to find great partners if you mistreat your partners. So the right thing is always to [inaudible 00:32:54], both morally and business-wise.

So our best approach has always been very transparent with our partners. I say, "Hey, our business model's changing. We'd like to sell. We know you don't want to sell. We got that. Help us sell and find the partner you like," etc. In fact-

Nancy Lashine:

And we love that, because that's great for our business.

Peter Ballon:

Absolutely. In fact, I guess until three days ago, I had a transaction going on where we talked to a partner and say, "Like to exit, but we're going to help you. And by the way, we're going to start a new venture with you." So it's in our best interest. We're not trying to... I mean CPP, even as an individual, I always think you never can think about this has always been your last deal and just squeezing everybody. It's so important to always do the right thing. And CPP, which has this indefinite investment horizon and timeline, has to be ethical all the time. Our future, our reputation requires that. And so we always treat our partners properly. And look, I did that pre-CPP and I'm going to do that post-CPP.

Nancy Lashine:

Right. Well, at the end of the day, all you have is your name, right? Let's double click for a second on China, because so many of the investment firms or your colleagues have sworn off China for the time being. You guys have invested a lot in China, or CPP invested a lot in China, made a lot of money I believe in China. So what's the attitude or how do you think about China and investment opportunities today?

Peter Ballon:

CPP in fact did extremely well in China and real estate. I think a big part of that was that greater than 80% of the portfolio is in logistics. So it was in the right space with a great partner in Goodman. And so it's a very successful business.

Having said that, going to my previous comment where the model to really work, you want to recycle your capital. And the fact that China doesn't have a lot of liquidity is not ideal. I won't pretend that that's an ideal situation even if you great assets. The good news is these assets are not diminishing in value per se, and that they're fully leased. There's some fair high quality, etc. But a business model requires liquidity. And I would say moving even away from China, just in general, it's a reminder that while you may have a view on a market, you have to make sure others have that view.

So if I can bring that outside of China, not that I'm trying to avoid China, you think about the office sector. The office sector is being hammered so hard in the US, that it has had an impact around the world, even in markets where the office sector is actually doing just fine, because so much of the capital is US capital that US investors say it's being destroyed in the US. That's a strong word, but a lot of it has been really negatively impacted. Therefore. It must be bad everywhere else around the world or it will become bad, which could be a right view or wrong view. But regardless, it's impaired liquidity around the world. So it really matters the capital flows, and that's something we haven't really touched on. We can have our own views, but you have to pay attention to what the other capital flows are doing, and that's where the real money's made.

In today's market, the best [inaudible 00:36:27] aren't necessarily about pure fundamentals. Yes, data centers will have great fundamentals. But the [inaudible 00:36:34] that really might be best on cover are the ones that are just kind of orphaned because there's just no capital for it, even though it's a great opportunity. And so it's a real important component to pay attention to capital flows, not just your own capital flows, but broader market ones of course.

Nancy Lashine:

So where do you think the most money is going to be made over the next two, three years? What countries and what property types?

Peter Ballon:

Right, so it's interesting you talked about countries. Traditionally in most markets, picking the right country was actually a more impactful decision than the right sector. The last 10 years has kind of reversed that completely, whereby clearly first with the shopping centers being hurt by e-commerce, that sector call was far more impactful than the country call. And of course, the flip side to that of course was logistics. Now we have this situation that office is suffering. There's no real reciprocal benefits as explicit as, call it the retail logistics trade, which has been such a dominant trade.

Nancy Lashine:

Well, maybe data centers.

Peter Ballon:

Well, data centers could be... Exactly, I guess. So it's a little, I don't know if data centers is as linear as to maybe AI, so there is that correlation.

But I do think that sectors, going back to your question, where the last few years that the geography, I was picking the right geography didn't matter. Logistics did great in every single market, and retail did poorly. We're generalizing. There's some great retail assets and some logistics have suffered.

I think that gap is narrowing. The secret is out on logistics. There's several markets that have oversupply, retail. And now I'm a little being a little bit US centric. I'd say retail has kind of bottomed out for the most part.

And so I think the gaps between the sectors are narrowing and there are some big differences. The view on office, some people are going to make a lot of money, some people are not. Data centers clearly is the favorite sector right now. Everyone's rushing into data centers. And the question is, does too much capital flow in and where are we in that cycle? So those are things without taking a strong view, you have to pay attention to. What the right supply demand, balance. The prevailing view is that data centers is really one of the best opportunities right now.

Nancy Lashine:

And I'm curious your view, because you've spent so much time and built these amazing teams in places like India and Brazil, obviously continental Europe, the UK. I was reading something about Mexico this weekend and someone said they think Mexico might be the best opportunity because of trade patterns and nearshoring, but of course there's all these political turmoil. So do you have a view country-wise, where you would look very closely for opportunities over the next couple of years?

Peter Ballon:

I don't think I could give a blank answer country, but I think it's always country and sector. So for example, what you were referring to is I guess the nearshoring that's happening with Mexicans. So that's just impacting logistics. I don't think it will expand, for example, to the retail or office sectors. There isn't that multiplier effect that will really roll towards that. So Mexican logistics could be an interesting opportunity.

Data centers is less country-specific. A lot of capital is flowing to Japan. Japanese logistics in particular with GLP has been by far our most successful theme and continues to be very attractive.

So really, it has to be the country and sector is how we view it. We don't kind of say, let's just lean into Japan. We'll say Japanese logistics or Japanese housing. Mexico. If it was Mexico, it would be logistics. In some cases, it could be retail.

CPP is doing extremely well with shopping centers in India. We have an investment in a Brazilian shopping center company called Aliansce, which has merged twice who is the fifth largest when we started investing. We've been part of two mergers and now it's the largest in Brazil, which gives a very strong platform, as you can imagine. Very powerful. So we don't have one size fits all. So we like retail in some markets.

Nancy Lashine:

Right. Peter, there are so few people on the planet who have your perspective on global investing in real estate. I mean, it's really extraordinary. And I think about other global plans. I'm thinking about Norges for example, who do have global real estate, but they've just taken a much simpler approach. And I just so admire, I mean the amount of mental, physical, and emotional energy that it's taken to build what you built over the last 17 years is just extraordinary. So I'm in awe.

I'm also curious if you can share with everybody what your experience was as global chair of Urban Land Institute as the biggest industry association. Certainly a fantastic organization because it combines not just investment people, but government, and the finance aspects and development, and every aspect of the built environment. What did you learn from sharing that organization for two years?

Peter Ballon:

Yes. I was a global chair of ULI for a couple of years. I'm still past chair, still very engaged in the organization. And I was on the board for a few years before becoming chair.

And one of the things that attracted me to ULI was it was a thought leader in some very key topics, and it was global. Again, maybe you talk about my global background. And by the way, I am a vessel of CPP sort of thing. It's CPP that has enabled this opportunity, that has given me that global perspective. And I work with so many great colleagues that work with them.

Similarly, ULI could tackle some of these topics, which I think are really global. So the thing that attracted to me, I mean, sustainability is such a key issue for the industry. And even if you have different views on climate change, there's no doubt that tenants have a view. And so you can say you don't believe in climate change, but if your key tenants believe in it, that matters. And similarly, if there's regulations, so you have to pay attention to this. What amazes me is that people sometimes don't appreciate the importance of you can have your one view, but what really matters is what drives the economic model.

In this case, the knowledge is also not regional. So something like climate change, I consider where here I'm in the UK right now, Europe is far more advanced on thought leadership in the sector. So if you're a US-based organization, you don't have all that thought leadership that is based here in Europe. When I think about housing affordability, which is a problem, another ULI key theme, almost every country has that issue, but everyone tackles it slightly differently.

Singapore has eliminated housing issues by building a lot of state-owned building, and that's been wildly successful. Japan actually has a very different outcome. They've taken an approach of a supply approach where if you're not familiar with it, you would think that Japanese housing would be unaffordable and they'd have housing problems. I wouldn't say it's without problems, but they've actually tackled it in a very different way through more of a market supply.

And so there's so much we can learn from other countries. And that's going back to your first question that first attracted me to ULI. We have 50,000 members, and the knowledge among our membership base is just spectacular. And these are all people who are willing to give their time, and thought leadership, and collectively just a great opportunity to harness that.

Nancy Lashine:

Are there any specific ways you think ULI can make a contribution to decarbonization?

Peter Ballon:

Completely, absolutely. I mean, I think there are so many organizations that are trying to figure it out. So ULI, trying to fill gaps. It's not a competition. There's no profit motive. So if this was being done better by somebody else, we wouldn't want to get involved in that. So for example, we're not trying to be the thought leader in capital markets and real estate. There's a lot of groups that do that very well. That's just not where we think we can add value.

So decarbonization is absolutely where we think. We have members who constitute trillions of dollars... Not trillions. Probably oversight of trillions of real estate. And this is not an area which most companies want to compete on just yet. There's this view of this is collectively all in our best interest and companies aren't competing. So there's a lot of shared information that's going on. And ULI can be that portal. Not trying to have exclusivity. We're happy to partner with other groups that have thought leaders. In fact, we do, so that we kind of get to spread the word out.

Housing affordability. I mean, I think most people know that we'd all be happier and better societies if there was less housing challenges. That's evident in some of the most acute ways, unfortunately.

Nancy Lashine:

Yeah. So it's education, it's communication, it's information.

Peter Ballon:

Exactly. Knowledge sharing, because sometimes it's not a matter of inventing a new will. Sometimes it's just sharing what's being done, and we're talking about some very major things. Sometimes they're just smaller things that a city has figured out, and it just doesn't get shared with another city that could be grappling with it. It could be a redevelopment of a down and out area. How do you do that? How do you fix that? Well, there's five other cities in the US that have already done that. We can just bring the people together as opposed to saying, "Hey, let's try to figure this out like the first time." Why don't we just copy what the other five cities did so successfully?

Nancy Lashine:

I've heard some great conversations on tackling homelessness in small groups, and we tried this, it worked, and you should try it. And hopefully, yes, that conversation continues to accelerate. What advice would you give someone taking on that role?

Peter Ballon:

Well, my successor Diane Hoskins, she's the co-chair of Gensler right now. So she's in the seat. And I think one of the things that I learned, and I haven't had to tell Diane because she's observed it too. I mean, she is terrific, isn't she? So don't have to picture too much, but she deserves a shout out.

The truth of the matter is we have so much knowledge collectively among our members, is that try to engage them more and somehow harness that. That was one of my aspirations. And I still think it's an unfinished business that we should try to leverage what we have in the room, the room being 50,000 members, I think there's a lot more that we can benefit from. We already benefit tremendously.

One of the things I learned as a chair is how passionate every single 50,000 member person is about ULI. So they have 50,000 different ideas, is also what I learned. But I loved it because people actually cared, weren't indifferent. And that was very rewarding. You really don't want to spend time on something that no one cares about. And yet, that's not the case at ULI because not everyone really cares about sustainability and not everyone cares... I mean, they might care about it, but it's not their passion.

But usually, our members have one of our mission priorities as one of their passionate things, or maybe it's something much more local, how to get transit improving in their community. So when I'm talking about some of the global priorities, we also pay attention to some of the more local needs. And what really matters to our members might be something much more individual to their situation.

Nancy Lashine:

That resonates with me. I've been very excited to be part of ULI, and my personal passion is supporting female entrepreneurs in whatever ways we can. And ULI has been very supportive of that mission as well.

Peter Ballon:

I'm glad to hear to you say that. And of course, we see each other frequently. I think WLI, which is the women's leadership at ULI, has been extremely successful. But I still think probably you agree there's a lot of work to be done. When I go to MIPIM here in Europe, I'm always shocked how few women are in attendance. It's just shocking. And then I'll get on a panel which is all male, which shocks me. There is still a long way to go.

Nancy Lashine:

Send the memo. Send the memo. So we're talking about Europe, and you're in London, and I believe you have recently become a British subject.

Peter Ballon:

That is correct.

Nancy Lashine:

Tell us about that.

Peter Ballon:

Well, it's a funny story. I won't take everyone into all the details, but I was actually trying to get an EU passport for my kids who were studying in Europe and be able to stay longer. And by the way, just kind of have a longer tenure, but I couldn't figure it out.

And then my mother's looking through her paperwork and she says, "Here, will this help you?" And she hands me her British passport. And I was saying, "You're a British citizen?" It's current, by the way. And she says, "You didn't know I'm a British citizen?" No, she says, "You didn't know I lived in London?" I said, "Of course I knew you lived in London." But I never knew she was a British citizen, because she was a refugee.

Nancy Lashine:

That's so funny.

Peter Ballon:

So I was able to get one in six months by just filling out a few forms and I became a British subject.

Nancy Lashine:

Amazing. Where's your mom a refugee from?

Peter Ballon:

Poland. So she's a Holocaust survivor.

Nancy Lashine:

Oh, wow.

Peter Ballon:

And so she came to UK. They welcomed her. She was here for only a few years, which is why they didn't appreciate that she received citizenship. But the UK was very welcoming to her at a very important time, obviously in her life. And so I'm a small beneficiary of that. She was the major beneficiary, but now I'm a beneficiary too.

Nancy Lashine:

You've traveled so much and you've spent a lot of time in a lot of places. What's your favorite city?

Peter Ballon:

Oh my. I think maybe it's recency bias or proximity bias, but I do love London. I like big cities, so I don't really tire of New York. I love Tokyo. I love Seoul. I love Mexico City. I love Seoul. Let me put in a plug for Seoul. It is really one of the most fabulous cities to go to. It's one of my favorites. It's a little harder than Tokyo to go to, but it's still fabulous. Great food, great culture, lots to see. I highly encourage it if it's not in people's buckets.

Nancy Lashine:

Oh, that's a great recommendation. And no, it wasn't on my bucket list, but there you go.

Peter Ballon:

There you go. That'll be the key takeaway everyone.

Nancy Lashine:

Go to Seoul.

Peter Ballon:

We don't remember what you said about real estate. Everyone's going to Seoul.

Nancy Lashine:

Send a travel itinerary. Who's had the greatest influence on you personally?

Peter Ballon:

Boy, for that, wasn't prepared for too much of this. But I've always looked at all my managers, my bosses, whatever. Who by the way, every single manager I've ever had since 1989, '87 I guess, I still in touch with regularly. So I've kind of kept links with absolutely every one of them, all very successful.

But what I've done with every single one of them, I've always looked at two things that they've done really well and two things that they do poorly. So even the most successful people, some who are wildly successful, there were some things I don't think they did very well. And there were some people, can't say I loved every manager I had candidly. But I also respected that they did some things really well.

And so if you ask me, which I won't do because then I'd be naming people, but I could recite 10 managers I've had and tell you two great things they did, and two things that I noticed that I know I would not want to do, because I know I wouldn't want to report to someone with that style.

And I think there's so much to be learned very easily just by observing people. And I spent a lot of time. And it's not just limited. If I'm in a board meeting, I'll pay attention. "I kind of like how that person's style." It's not personal styles, but how do they deal, how do they communicate a tough message sometimes to management and say they don't like something? But they appreciate, it's not always what you say, but it's how it's received. And I say, "Wow, that person's so effective. Well, I wonder if I can be more effective."

Or I'll see someone kind of blow it. And you can see they might have a good idea, but no one's listening because they're always saying no. They somehow haven't built up that trust. And I kind of say, "Wow, smart person, just not successful." So I try to learn. There's a same example. It could be at the same board meeting saying that's a good board member and that's not a good board member. Even if they both had great ideas, one's successful, one's not. So I try to pay attention to those things.

Nancy Lashine:

That's such fantastic advice. I remember the first time I ever heard someone articulate, "It's not what somebody says, it's how they make you feel." And I think about that a lot.

Peter Ballon:

I've worked with a lot of colleagues, because we're perpetually at investment committees. And sometimes some of the smartest colleagues are not effective. I try to explain to them it's how it's received, it's not what you say. And I even share that with my kids. Communication is so important. Just daily, just who you get along with. It's not always what you do, it's how people receive it. And they have to know your intentions or you have to build trust. And I think people do forget that.

Nancy Lashine:

Which is one of the reasons why, just to go back to my awe of what you created at CPPIB, my personal experience, having had somewhat of a global career is that it's so hard to understand those things culturally and understand how to communicate with people from vastly different cultures. And so that's just an extraordinary experience that you've built.

Peter Ballon:

It is. And you have to be very aware. You've asked me why do I work in some of those offices. Part of that is learning how to communicate with people. And what you always have to remember is you can't have one communication style, because people receive things differently. Some people like a very direct approach. You have to be black and white with them. Yes, no, or they're confused. Some people are more, that's too harsh. You have to know each individual person so that you know that whatever you're communicating is most effective.

Now, that's hard. How do you say, in one investment committee, you can't talk seven different things because you have a variety. But you have to make sure that somehow, you're getting to a broad range of people, and recognizing how again they receive things versus what you're saying.

Nancy Lashine:

Wow. Well, you've touched on so many important lessons about investing. For a second masterclass, we could dive into how you thought about risk. You said you had risk metrics. We didn't touch on that and we didn't really... There were so many things that we didn't talk about. But I know that I'm really excited to see what you do next, and where you go next, and how you take the lessons of the last 17 years plus to another challenge. I'm sure it's going to be fantastic, and I'm really excited to stay in touch and continue with you on your journey.

Peter Ballon:

Well, thanks Nancy. Really, I enjoyed doing this. Hopefully this is of some interest to the listeners. I think it's a great approach that you're doing because I know I enjoy listening to these, so hopefully others do too. So thanks very much.

Nancy Lashine:

Well, thanks Peter. I appreciate those comments. And hopefully if you're listening and you are enjoying it, please put some comments in the chats. But we've gotten a lot of great feedback, so I'm very, very excited that you agreed to do this. So thanks, Peter.

Peter Ballon:

Thank you. Thanks, Nancy.

Nancy Lashine:

I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask. We put a lot of thought and effort into this show and making sure we bring you insights from real estate leaders that you don't normally find in the mainstream media. So if you're enjoying the show, please remember to follow it on your favorite podcasting app so you never miss an episode. We'd also love for you to share it with others or give us a review on Apple Podcasts so others can find us. Thanks again for tuning in. For more information about our firm, please visit our website at parkmadisonpartners.com.