Mid-Year Outlook

Jack Koch (0:00 - 0:24)

I had an investor tell me years ago that his whole philosophy was only invest where you can't build more of it, right? And I think that's, an interesting way to look at whether it's industrial, whether it's back to our conversation on data centers, back to our conversation on no new affordable, for example, multifamily, things like that, that are all really jump out as to how and why do you invest in real estate? And how can you really excel with your investment returns?

Nancy Lashine (0:24 - 3:40)

Hello, and thanks for tuning in to 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. Today, we have another special episode featuring all six members of Park Madison's Executive Committee. In January, you may recall, we released an episode discussing Park Madison's 2026 outlook for the year ahead.

After an eventful first half, we decided it would be worthwhile to revisit these predictions and discuss the trends and data points that we believe are most relevant to real estate investors for the remainder of this year. We discuss several macro factors such as interest rates, transaction volumes, capital formation, and the impact of the Iran War. We also dive into some sector-specific views on data centers, housing, and industrial, and we even venture a bit into U.S. politics and how the midterm elections might impact the real estate industry. Think of it as a look under the hood of the individual views that ultimately come together to shape our house view. And if you enjoy the conversation, we encourage you to read the full mid-year outlook, which you can access and download for free on our website, parkmadisonpartners.com. Good morning, everybody.

Fantastic to have you here at the end of June, just before the July 4th break. For those of you who haven't read the Park Madison outlook before, typically what we do is we make 10 predictions at the beginning of the year. Like last year, an awful lot of unexpected things have happened in the first six months of this year, and a few things that we thought might happen have actually happened.

So it's an interesting time to revisit our predictions and talk about where we see trends for the rest of this year. And here on the podcast are senior partners of Park Madison Partners, Jack Koch, Brian DiSalvo, Rob Kahn, Carrie Coulson, John Sweeney, who is also our editor of the outlook, and myself, Nancy Lashine. So we're just going to freeform it.

Our first prediction is about interest rates. And given the expected and unexpected trends, we do have a new Fed chair. It's Kevin Warsh.

We've had some inflation prints that have surprised everybody to the upside. Of course, we've had the Gulf War, the spike in oil prices, and then just in the last few days, drop in oil prices. We've had the incredible Boyett tech market, but volatile.

What do we think about our prediction for interest rates and where do we think we're going?

Rob Kohn (3:42 - 5:11)

So I think our prediction was that we'd be going down, which was the right prediction before we went into Iran. And now I believe the prediction is there is a chance that the Fed might raise interest rates, which seems to be the right prediction, though the immediate response from the market on the Iran incursion, for lack of a better term, seeming to not be settled, but seeming to be tamped down a bit, was pretty incredible. I mean, oil prices dropped significantly in a very short period of time.

So I think it's probably swirly to tell, but a few data points. I remember in February, the 10-year dropped below four for the first time in a really long time, right? And I thought, this is awesome.

It's going to be a great year. And then we went into Iran, and then you were floating between four and four and a half, and you thought that four and a half threshold was a very significant mental threshold. But then we blew through the four and a half, right?

But now it's kind of settled back to below four and a half, a little bit over four and a half. So I feel like if you traded in that band, right, a little below four and a half, a little above four and a half for the 10-year, that's not terrible for real estate. It's not sub-four, but I'd feel pretty good there.

Anyway, that's one person's view. But I think it's too early to tell because I was shocked how quickly the price of oil came down just in the past two weeks, when we seem to put a pause on what's going on in Iran.

Nancy Lashine (5:12 - 5:40)

But aren't we seeing decoupling in the expectations for short rates and long rates? I mean, short rates are what happens, are the Fed's response to controlling inflation?. But long rates are determined by the market.

And I think we've pretty consistently seen the market say long rates belong in this environment somewhere between 4% and 5%, which is obviously, the price will fit off the 10-year.

Jack Koch (5:41 - 5:48)

Right. And the 30-year treasury, what, is around five right now, to your point, right? I mean, there's certainly a little bit of a decoupling there.

John Sweeney (5:49 - 6:12)

Yeah, I think our position at the beginning of the year is pretty much unchanged, which is that the Fed may lower rates, but longer term rates are going to be more market driven, and the markets are driving rates higher for longer. So we don't really expect that, regardless of what the Fed does, that longer rates are going to be coming down from this 4% to 5% range.

Nancy Lashine (6:13 - 6:16)

So what are we seeing on transaction volumes?

Rob Kohn (6:17 - 6:48)

I mean, the data, right, points to healthy first quarter, not so healthy second quarter off of, just the year over year. Which I guess makes sense, because folks were spooked by the uncertainty. But, and I'd kick this over to Brian a little bit, but I feel that there's still a lot of activity, there's a lot of interest in transacting, and maybe people just took a little bit of a pause during the shock of entering Iran.

Brian DiSalvo (6:49 - 7:34)

Yeah, I mean, I would say we see an increase in interest to just get things done and deploy capital, but they're still, investors are very careful, right? And they're being very selective with a bias towards quality and repricing the assets in the higher rate environment, right? I think everybody agrees that we're going to be in this sustained, I wouldn't even call it higher rates anymore, it's just a normalized rate environment.

It's not 2%, 3% anymore. And that's just been a slow transition, right? I mean, I think real estate fund distributions are at a 10 year low in terms of DPI, and traditional exits have been tough.

So that's why we see a lot of the continued bespoke capital in different types of transactions outside of just your regular way outright sale at the moment.

Rob Kohn (7:35 - 8:04)

Well, so the DPI, yes, it's been, bouncing around the bottom for a while. But I think we actually have seen a little bit of an uptick recently, which is encouraging on the fundraising side. Because folks, I mean, the drumbeat is loud and consistent from LPs wanting capital back.

And I think their managers are starting to hear them. And they are getting capital back into their investors' hands, which is encouraging. But an uptick very recently.

So hopefully that trend continues.

Jack Koch (8:05 - 8:54)

And I think, Rob, to your point, I think early 2026 was the first time where distributions and commitments actually neutralized one another, right? So you're now back to that neutral state that the amount that you're committing is the amount that you're actually getting back. So that's a very positive sign.

And I think the other side is that where your transaction volume may have paused a little bit, but from the research that we've seen, valuations have actually helped. And I think that's also transpositive as well for whether that's being driven by supply-demand fundamentals or just simple, continued interest in inflationary environment as real estate gain traction and other fundamentals that ultimately drive valuations of real estate. Folks are not getting scooped away from where values are.

And that certainly is positive for all of us in this industry.

Nancy Lashine (8:56 - 9:58)

Yeah. You also have real estate allocations from the big institutional investors. Some of them have picked up and have resumed, whereas they were on pause for 2024 and 25, in part because of lack of dispositions, but largely because private credit was more attractive than real estate.

And even private real estate credit was more attractive than private equity for real estate. That has shifted as we've seen this private credit, all the issues around private credit. And so I'm mindful of the, of just the fact that as investors are finding equity more attractive now than credit, because they understand that if you buy the right asset, it could have inflation protection and inflation is certainly much more on folks' minds.

And equity is better priced than it was a couple of years ago because revaluations that just on a broad asset allocation, real estate is founded footing in portfolios.

Carrie Coulson (9:58 - 10:28)

I think that's right. I also think that, as investors have, as you indicated, Nancy, investors have been sitting out a few vintages of real estate. And at some point you've got to get back in or you miss the best cycles.

And given investors and the heavy drumbeat of DPI is the new IRR, I think managers are saying, I need to take money off the table now, either sell or recapitalize my assets, return capital to my investors. Otherwise I'm not going to raise my next fund.

Jack Koch (10:29 - 11:13)

I think the other, the Carrie's point on that, if you look back, the 2009 to 2012 vintages really produced some of the best private equity real estate returns over 30 years. And if you look at today's environment, there are a lot of similarities between what was going on in that environment, rising rates, distressed borrowers, frozen transaction markets, et cetera, that all point to this being a time that it's very important to continue that deployment. That was one of the most important things that we learned from a consulting perspective back at that timeframe was to really talk to our clients to say, it's important to maintain this vintage diversification so that you can capitalize on particularly environments like this.

Nancy Lashine (11:15 - 11:22)

Do we think 2026 will be as good or better a fundraising year as 2025, which was the best year since 2022?

Jack Koch (11:25 - 11:26)

It depends on the product.

Carrie Coulson (11:29 - 12:02)

The data is also always skewed by virtue of whether or not the mega funds are in the market. And so I think it's hard to tell, right? You've got to parse through the data.

It does feel as though we have green shoots in terms of capital raising, but it takes time for the institutional engine to rev up. So while there are green shoots and people are actually taking meetings and moving forward through diligence, when can they actually commit? I don't know.

Will that be back half of 26 or early half of 27? time will tell.

John Sweeney (12:03 - 12:29)

I think also, if you look at transaction volumes as a leading indicator on fundraising, which tends to be, you did see a continued acceleration of transaction volumes coming into 2026. There was the pause during the war, but all signs kind of point to it being a temporary pause and that activity will just resume now that the war is over. So that would point to it essentially being a better fundraising year, or at least a good one.

Nancy Lashine (12:30 - 12:37)

Do we still have a huge amount of capital that's been committed to funds, but not yet invested in transactions?

Carrie Coulson (12:37 - 13:03)

I think the fundraising period is so long these days. I mean, it's average 24 plus months that most of the funds that are closing are highly seeded. And so I think there's capital put to work fairly quickly.

And I think to John's point and Brian's point about transactions clearing and recapitalizations, those deals are getting done. And that's obviously a leading indicator to regular way, fund assets being sold.

Brian DiSalvo (13:05 - 13:51)

I think it's interesting because if you're a sponsor, a GP, and you have a portfolio that you assembled over the past five years or seven years, you may be holding these assets way longer than you anticipated because you have higher rates and, the business plan, maybe you even completed the business plan, but you're not getting the valuation you thought, or there's another leg of value. So whether that's a sale or a recap, there's real upside there that I think the market is understanding that that's underwritable upside in the sectors that make sense, of course, but you can actually underwrite and know that you have a stabilized environment here in terms of the debt markets, right, which continues to be strong and super liquid that support transaction volumes. I do think we'll continue to see growth into next year overall.

Nancy Lashine (13:53 - 13:55)

So what are investors looking to buy?

Brian DiSalvo (13:56 - 14:53)

I mean, from our perspective, what we see is the continued interest in the niche strategies, right? And I think there is a tie in there between the assets and the operating platforms, right? So if you think about industrial, if it's specialized industrial, if it's small bay or it's iOS or it's storage and on the residential side, maybe it's student or seniors or BTR manufactured housing, obviously digital, right?

So these are all sectors where I think the operations are very important, right? Where we're not in this 3% rate environment where you can just ride the growth of the market and everything's fine. You really need an experienced operator that has scale and more we see LPs underwriting that platform and assigning a value to it along with the assets, right?

So those are the sectors we continue to see growth and where you're seeing underlying rent growth, right? Where you can actually be comfortable underwriting rent growth.

Carrie Coulson (14:53 - 15:21)

And I think there's a lot more scrutiny on how managers are actually creating value. So investors are really looking into the execution on the operational side, understanding, yes, you're raising rents, executing your business plan, but how are you managing expenses? How repeatable are your processes?

So I think there's a lot more scrutiny on that side of it, not just here's my track record, here are my returns.

Nancy Lashine (15:23 - 15:44)

So we made a prediction at the end of the year about data centers, that they would continue to be strong despite the perception or the noise of an AI bubble. And we've made a halftime update relating to public listings that are providing additional clarity on data center exit and liquidity. Anyone want to talk about that?

Rob Kohn (15:47 - 17:16)

Well, I mean, it is interesting because there's lots of information that we all see every day on data centers. And I would say in the past six months, the public backlash on data centers has been pretty significant. But then when we talked to investors, there's still a lot of interest in data centers.

And, we never named names here, but I was talking to one investor, professional investor, and they said, we're currently 15% data centers, I want to be 25%. And I don't think I can get better returns anywhere else in the real estate business than I can get data centers. And obviously, I mean, developing and mainly developing hyperscale.

So I was looking at and I was actually preparing for a meeting the other day. And I was looking at the different things that are on ballots with regards to data centers and potential moratoriums and data centers throughout the US. And it was over 100 that were going to be on ballots this fall that were in certain ways going to, and those are some municipalities, some were state level.

So I think data centers as an investable asset class is still super interesting. I think they have a PR problem that they are scrambling to fix. But we all want to do more on our phones, we all want to do more with Claude or open AI.

And the knock on effect of that is we need more data centers, right? So we will have more data centers, but then there'll be winners and losers. And I was just with a very large operator data centers.

And he said, Listen, we're just not touching states where we think there'll be a moratorium. So much of that is accruing to states like Indiana and Texas and places where we absolutely know that there's not gonna be a moratorium on data centers.

Jack Koch (17:17 - 18:09)

With regards to all data centers not being equal, it does create opportunity for existing data centers, such as the co-location or carrier hotel groups that are actively investing in those property types, because you're not faced with entitlement risk or new development or the not in my backyard type of ballot issues that Rob had mentioned.

Carrie Coulson (18:10 - 18:39)

So Rob, you mentioned a PR problem that the data center has, and obviously there's a lot of nimbyism, but I was recently at a conference and a question rose about use of water and how much water data centers are soaking up. And an interesting stat was that the California almond industry uses 90 times more water than all the data centers in the entire United States. So, I mean, there is a real PR problem.

There is good news. You've just got to find it.

Jack Koch (18:39 - 18:44)

Carrie always comes out with these stats that blow the rest of it out of the water, clearly.

Carrie Coulson (18:45 - 18:59)

Well, somebody else mentioned that Loudoun County in Virginia, data centers in that county take up 4% of the land, but they're responsible for 40% of the property tax. There's some good, you've just got to dig for it, but there is a PR problem.

Rob Kohn (18:59 - 19:34)

Yeah. And there's value in having data centers, obviously. And I agree with Jack, right?

And it also makes what is existing a lot more valuable when it becomes harder and harder to build. And as you move from the large language models to the implementation of what those large language models are producing, the need for those co-location sites, which are not as energy hungry, will become greater and greater. And I wonder if municipalities will embrace them because you're not going to have the same energy issues and they're extremely necessary and critical infrastructure.

So we'll see, time will tell.

Jack Koch (19:36 - 20:21)

Rob, really quickly, when you talk about these large language models and the impact of AI on real estate, there is a belief out there that I think that real estate is the AI immunity trade, given that people are always going to need a place to live and to work and to play. And yes, it'll impact office or it'll impact where multifamily is ultimate. If everybody works remote, it'll impact where multifamily is built and things along those lines.

But I do think just generally, as an asset class, there is some protection, given that we're humans and we'll always physically need those three things, as I think about the future. And granted, this is very just high level thought process. But I do think that there's just an innate security to this asset class vis-a-vis some of the others that are out there.

Nancy Lashine (20:23 - 21:30)

we talk about that with investors all the time. Investors come at that with very different perspectives. I was talking with someone who runs a large family office and they just said, given what's going on in tech and they are West Coast based, all of our discretionary dollars are going towards tech oriented, AI oriented opportunities.

And then I was talking to someone who runs a very large state pension plan and there it was really all about how much money they've made on one side of the house and the importance of diversification, because that plan has learned that when you're not diversified, you can end up at the bottom of the roster. So I think obviously every investor comes to things with its own perspective, which is part of the value that we can bring to the table and investors. No two are alike, but I do think that real estate as a diversification play to what's going on with the AI trade is a really interesting idea and it's important for so many of the people we talk to.

Carrie Coulson (21:31 - 22:08)

I also think, Nancy, it's a bit of back to the basics as to why people are investing in real estate. I mean, for some time, people were kind of swinging for the fences and trying to get the 2x and 20% net as they were saying, well, it has to compete with private equity. Investors are saying, well, it shouldn't compete with private equity.

There's a different reason we invest in real estate. And it's, as I say, back to the basics, people are saying, okay, I want strategies that have durable cashflow that are driven, as we mentioned earlier, by actually operations and not just the days of making money on the buyer over. So I think it's back to the basics.

Nancy Lashine (22:10 - 22:59)

Yeah. So it's inflation protection, it's diversification and it's an income play. And it's interesting because we used to think that private equity was 2x, but now nobody's satisfied with 2x unless you're competing with venture capital and the tech-enabled private equity and you're going for 3x or more, it's a little harder to raise money in that space, which is somewhat ironic.

But that's not to say that technology isn't fundamentally shaping the strategies, the real estate strategies that we are looking at and representing. One of our mid-year updates is about industrial and that there's an increasingly important bifurcation between ready and the older vintage stock. I wonder if anyone wants to address that.

Rob Kohn (23:00 - 24:23)

I mean, it's funny how much we talk about power these days and how power is something that lots of folks, and it's not just data centers, right? It's the industrial, it's the automation of some of these warehouses, it's the potential for self-driving cars that'll need to be charged at some of these warehouses. But the amount of time that we spend talking about power compared to a couple of years ago, we never ever spoke about power is pretty interesting.

And I do think, and obviously we have some experience in the industrial side, having done a fair amount of it over the past five to seven years. But a lot of the managers that we work with, I mean, there is going to be a price differentiation between those assets that have power or access to power and those assets that don't, because it makes a hell of a lot of sense for these different logistics companies and the Amazons of the world to automate those warehouses. And if you're going to be able to provide the power so they can automate those warehouses, there's a cost savings that flows right to the bottom line for those guys.

So of course, they're going to try to automate as many warehouses as they can and they need the power to do so. So it is interesting though, that now you're seeing the warehouse folks compete with the data center guys on where they're placing things because of that unbelievable need for power in both property types.

Jack Koch (24:24 - 25:43)

But just to reiterate as well, I mean, I agree certainly wholeheartedly, Rob, with everything you just said, but in general and industrial, I think from the statistics that we've all been exposed to over the course of the last quarter, I think rents are now moving in the correct direction. We're no longer seeing them fall. And obviously market by market, sub-market by sub-market, I think the Boston market is an interesting one to look at.

There's no new supply, you've got 60%, last mile industrial, for example, I think the stat that I have is 60% below, new construction is 60% below peak. So it's not only about power, it's also about supply. I had an investor tell me years ago that his whole philosophy was only invest where you can't build more of it.

And I think that's an interesting way to look at whether it's industrial, whether it's back to our conversation on data centers, back to our conversation on no new affordable, for example, multifamily, things like that, that are all really jump out as to how and why do you invest in real estate and how can you really excel with your investment returns. And the simple supply demand fundamentals are key to that equation. And given where construction costs are now and whether it's NIMBYism and et cetera, through different property types, this continues to be a time where that supply question is certainly, or supply discussion is certainly on the table.

Nancy Lashine (25:45 - 26:43)

Well, when you think about supply, what happened in the paper today with New York City rent control, rent stabilization and freezing rents for a couple of years is just another indication of how affordable housing is absolutely front and center on people's minds. Having said that, the vacancy rates in New York City and San Francisco are de minimis. You really can't find a place to live.

Rents have just skyrocketed, market rents have just skyrocketed. What Mamdani just did is going to only exacerbate that because there'll be even less supply on the market. And so what do we see as important trends for multifamily?

And I guess we're also talking about the surprise legislation that came into the House and Senate this year, and we'll see whether it gets confirmed into law, but what does that mean for SFR and BTR?

Brian DiSalvo (26:47 - 27:50)

I mean, just to touch on the BTR point, obviously it was a tough couple months for the industry and a lot of head scratching stuff going on. And what we're starting to see now is through the whole shakedown that happened and the seven-year disposition requirement that was freaking out the market. I mean, that has since kind of gone away and I know it's not fully signed and finished at this point, but I think we're starting to see investors be more confident about the space.

From a BTR perspective, I'm talking purpose-built-for-rent communities that don't compete with single-family homes that are detached in neighborhoods. I mean, that clearly is something that's helping the housing shortage. It's not a problem for the housing shortage, and I think that's been recognized by the market, which is a good thing for BTR.

So I think that will work itself out. And the single-family home cap on institutional ownership is also something that has different caveats and context behind it. So I think it's a whole lot of noise that's not going to be that impactful from institutional investor perspective, personally.

Nancy Lashine (27:51 - 28:09)

Anything on the multifamily market and the dispersion between vacancy rates between markets like New York, which was supposedly dead forever during COVID, and San Antonio, which was growing to the sky. It's amazing how quickly things change.

Rob Kohn (28:10 - 28:59)

I would love our political resident expert, John Sweeney, to chime in on his thoughts on how certain... It makes sense, right? I mean, things are expensive, right?

And people are upset, right? And politicians get voted in by the number of people who vote for them, and the majority of people are pretty upset about how much things cost. So it makes sense that they want to change things.

They want to put people in office that are going to change things and hopefully make their lives more affordable. How they go about doing it, that's a different conversation. But I mean, it makes sense just on a 30,000-foot level that folks want to put people in office that they feel are going to make things more affordable.

But John, I mean, there's so many knock-on effects to these different types of changes, and I'd be very interested to hear your thoughts on the rent situation in New York right now.

John Sweeney (29:00 - 30:42)

Yes. So one of my favorite charts in our mid-year update is the one showing the dispersion in rent growth between the sunbelt and non-sunbelt states. You look at the headline rent growth figures nationally, which we tend to do, and things look more or less flat since the pandemic.

But that average masks what's going on under the hood, which is in the sunbelt, you had this massive wave of new supply and rents are falling. Investors have favored the sunbelt markets for quite a while, in part because they tend to be more business-friendly. And that has paid off for a long time, but that comes with the caveat that in many of those business-friendly markets, it's a lot easier to build, which is what we've experienced recently.

So you compare Dallas to New York, for example. Dallas is considered a very business-friendly city, and that's been good for Dallas' growth. But Dallas has also seen a lot of new supply recently, and vacancies are over 12%, and rents are falling.

New York is not so business-friendly, and it's very hard to build there, but people still want to live there. So there's plenty of demand, and without much new supply, you're seeing vacancies still less than 3%. It's a very tight market.

Rents are rising 3% to 5% per year in Brooklyn and Queens, maybe 8% to 9% per year in Manhattan. I don't know if any public policymakers are listening, but if they are, there might be a lesson buried in there somewhere. And I think for investors, it's also an instructive reminder that the downstream effects of public policy are very hard to predict, and that's why geographic diversification is important.

And to Jack's point, sometimes you want to buy where it's hard to build.

Rob Kohn (30:43 - 31:25)

I mean, it's funny, right? Because all politicians and everything always are trying to control the demand side, but it's the supply side, right? The supply side is what needs to change for there to be affordable housing.

And that bill that we've been talking about, there was certain ways that they were trying to change the supply side in there with different zoning laws and whatnot, but that's so local and municipal level that they'll never be able to do it. But I mean, that's the big issue. It's the supply side, right?

And to get truly affordable housing, you really need to figure out that supply side, but it's much easier to deal with the demand side, which just has knock-on effects that at times probably make things less affordable, not more affordable.

Nancy Lashine (31:26 - 32:30)

one of the things that we haven't talked about much in our outlook in the last year, but we've certainly spent a lot of time on internally is investors' interest in investing domestically being in the U.S. versus internationally. I think we've started to see a lot more willingness and view that to truly diversify a portfolio to the point of diversification, which we've been talking about, you really need to think about being outside the U.S. And I think one of the things that's obvious there is what's going on in the data center world, because the data center, the need for data centers is global. The ability to build them in places like Asia is much, much easier and way cheaper than building them here in the U.S. right now. And we're seeing, potential IPOs and sort of interesting, not just the supply, but also, the capitalization of these assets. What are we hearing from institutional investors about their interest in investing outside the U.S.?

Rob Kohn (32:31 - 34:00)

So, I mean, I'm going to borrow from a consultant that I was talking to recently with regards to renewed interest investing outside the U.S. And his take was, from 20, from after the GFC through 21, 22, 23, there's no real reason to go outside the U.S. because we had zero interest rates and we had this amazing growth. And here again, year of year growth in the Sun Belt and multi of like 15 percent. Right.

And he just said it was crazy. Right. Why would you ever go outside the U.S.? Take that, take the risk of the geopolitical risk, the currency risk. And now that things have settled down and interest rates went up 500 basis points in a year, that growth in real estate in the U.S. just has subsided. Right. And as Carrie said before, real estate does, satisfy a need for something in between equity or fixed income equities.

Right. And that's kind of where it should play in investors' portfolios. But if you're looking to, get some juice out of your real estate, I mean, it makes a heck of a lot of sense to go to the fastest growing parts of the world, which ain't the U.S. anymore. Right. We are immigration policy. I mean, we have a real demographic issue in the U.S. that, we're not talking about that much, but it's become more serious. And outside the U.S., there's a ton of population growth. Right. And places like APAC, not obviously Europe, they also have a demographic issue.

But you have growing populations in Asia-Pacific and there's a need for lots of the real estate that we take for granted in the U.S. that they don't really have in Asia-Pacific. And it's a great time to invest in that trend.

Jack Koch (34:03 - 34:51)

Yeah, I couldn't agree with you more. I think Asia is almost too big to ignore to some degree, right, given the concentration of global GDP that's there, the population of global, the global population that's there, and particularly in some of the developed markets of Asia, whether that be in Australia, for example. I mean, the positive population growth there because of their immigration policies.

And so there are certainly, and then the institutional stock of real estate is there is a need, there is a real need for quality real estate in those markets. And so you can justify, the additional risk to some degree, because there is currency risk, certainly, and there is geopolitical risk, but targeting a 25% net and a two and a half times multiple, which we're seeing in some of the strategies that we're looking at, makes all the sense in the world to at least evaluate it and see how it could ultimately complement your existing portfolios.

Nancy Lashine (34:52 - 35:02)

Great. Any other thoughts? One of my favorite parts of the outlook is our political predictions.

John, do you want to share with us what our prediction was and how you've updated it for the year?

John Sweeney (35:04 - 36:19)

Sure. So the original prediction for the for the 2026 outlook was that economic populism would begin to reshape US politics, creating policy uncertainty for real estate. I think that prediction has held pretty well so far this year.

We've seen a lot of people that I would classify as economic populists on both the right and left, winning primaries, and sometimes unseating incumbents. We just saw a big sweep of several economic populists in the New York primaries, specifically around the New York City area and some of the congressional races, some folks that were endorsed by Mamdani. But then you also see folks like Ken Paxton, kicking off, a very long term incumbent in Texas.

And, he is a populist. John Cornyn was more a kind of mainstream politician. So you're going to see a lot more of that, I think, just given people's dissatisfaction with the state of affairs.

And as we've seen this year, whether it's the housing bill in Congress, or the popular backlash against data centers, politics is inextricably linked to real estate. And so it's something we have to pay attention to.

Nancy Lashine (36:21 - 36:38)

Some years, we're all waiting for November and, holding our breath. I mean, clearly in the year of a presidential election, like the last one, where it was so material. What do you think the impact will be on people's investment appetite, transaction volumes, and the real estate markets of the November elections this year?

John Sweeney (36:40 - 37:18)

I don't really think people are going to shift their investment posture based on what happens in November. It's typically not what we see. There will be some policy implications.

There could be some interest rate implications, depending on how it affects the fiscal impulse. But, real estate's a long term asset class. People tend to have five to 10 year investment horizons.

These events come and go, just like we've seen with the Iran War this year, with Liberation Day last year. Sometimes they affect sentiment in the short term, but long term, people are looking at their leases, they're looking at their assets, and they're underwriting through these events. That's part of our jobs.

Jack Koch (37:19 - 37:46)

I think that's absolutely right, John. I think most institutional investors, and granted, look, that's a broad statement because it's not always true, but make five to 10 year strategic plans and revisit. Yes, they will certainly revisit their deployment, their annual deployment when things such as geopolitical events happen or wild swings in inflation or things along those lines.

But generally speaking, most institutional investors write policy strategic plan for five to 10 years.

Nancy Lashine (37:48 - 37:51)

Well, guys, are we excited about the next six months?

Jack Koch (37:51 - 38:00)

Let's go. Yes. Fired.

Every day, it's a surprise. You wake up and see what happened on Pennsylvania Avenue and what the paper then says after that.

Nancy Lashine (38:01 - 38:23)

And what happened on Wall Street, which has certainly been volatile. So stay tuned. Whatever we said today, we reserve the right to revise next week.

So thanks so much, guys.

Really appreciate it. Thanks to everybody listening for your time.

And we look forward to hearing from you. Please reach out, reach out to all of us, log into our website and tell us what you're thinking.

Brian DiSalvo (38:23 - 38:24)

Thanks, everyone.

Nancy Lashine (38:25 - 38:58)

Thank you. I hope you enjoyed this episode of Real Estate Capital. Before you go, I have a quick favor to ask.

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