The whole institutional core real estate

index is $280 billion. So like there's

3x all of the core real estate owned by

institutions is under construction or in

planning in data center. So when we look

at it I think the absorption of that

probably takes longer than people think

it will.

>> Today's episode is brought to you by the

Fundrise income fund. You'll hear more

about the income fund later in the show,

but for now let's get into today's

interview. Today we're going to be

talking all things real estate. I'm

joined by Josh Prristow, managing

director and president of Clarion

Partners, a real estate investment firm

managing over $70 billion. Josh, welcome

to Monetary Matters.

>> Thanks, Jack. Pleasure to be here.

>> So, Josh, you've got a huge portfolio in

industrial

apartments or multifamily, and I know

you're also investing in senior living.

So, I want to get into that, but first,

let's talk about a giant boom in the

real estate market, which is data

centers. Many of your competitors are

plowing billions and billions of dollars

into data centers. Are you involved and

why or why not?

>> We're not directly involved. So, we

haven't made any investments

specifically in the construction of data

centers. Where we are somewhat on the on

the periphery, but benefiting from that

boom, I would argue in a lower risk way

is in our industrial business. As you

mentioned, uh we're pretty significant

there. We've got about 42 billion

dollars of industrial logistics assets

in the United States. And so we are

benefiting from the supply chain. So a

lot of the the subcontractors, the

people that are storing and

manufacturing equipment that eventually

goes into data centers are our tenants.

And we're seeing pretty significant

demand in the markets we're in in

general uh driven by both e-commerce

sales but but also to a certain extent

the data center construction boom. But

to come back to like the specific idea.

So, I think it helps to take a step back

and articulate a little bit who is

Clarion and what do we do? Well, we're

overwhelmingly a manager of open-end

evergreen funds that are either core or

core plus in risk profile. And so, what

do people look for in that type of uh

vehicle? They look for income. They look

for sort of durability, diversification,

and low volatility. Um, and when we

think about how we deliver that, we

struggle a little bit with the data

center opportunity. So you know our uh

when you look at the core uh real estate

world uh the Odyssey index which is the

institutional sort of benchmark is about

280 billion total. Um we happen to have

the fourth largest fund with about $18

billion and then if you look at the

whole like non-treated REIT world that's

another $140 billion. So you add it all

up you got $400 billion. One of the

things we struggle with is that the

sheer size of some of these data center

investments don't fit particularly well

in these core open-end funds. So in our

$18 billion Odyssey fund, we don't have

any asset that's worth more than $500

million. Coming back to this idea about

diversification

and so fitting a 5102 billion asset in

one of these funds, we don't think makes

sense. The other thing I would say that

we struggle with is when we look at what

types of assets do we want to be in our

uh vehicle as well. We want

diversification. So there's a size

question. But fundamentally we're

looking for things where we have

conviction that in the future it will be

worth materially more than it is today.

Uh and when you look at data centers

there's undeniably there's demand from

the tenants. There's great tenants. But

you know what's the value of that

residual asset 10 or 15 years from now

when Microsoft Meta or Google chooses to

leave it? What will they how will the

technology change? We just struggle to

see how it fits in a very long-term

open-end evergreen vehicle. And but most

of the capital that's been raised and is

being deployed that you articulated is

on the development side. It's it's

people that are looking for, you know, a

20 plus internal rate of return that's

all predicated on somebody like a

Clarion in a core open-end fund buying

that for more of a a lower stable

return. And we find there's some

challenges in fitting it in in our

vehicles today.

>> Several of your investments are are

indirect beneficiaries from the data

center boom because they're logistical,

but you currently don't have any direct

investments in data centers. And Josh, I

think what you're saying is that even

though you're you're one of the largest

real estate investors, that the check

size is just too high and for you to

remain diversified. So that that is

really striking to me. It just shows

just how large the capital demands are

and kind of just how how how kind of

crazy it is.

>> Yeah. to to build on that

the if you look at according to Jones

Lang Lasowl the the total sort of North

American data center construction phase

right now that's underway is about a

trillion dollars um that largely

excludes what the the tenants are going

to the hyperscalers invest in that space

so it's a pretty significant investment

as I mentioned the whole institutional

core real estate index is

$280 billion so like there's 3x all of

the core real estate owned by

institutions is under construction or in

planning in data centers. So when we

look at it, I think the absorption of

that of all that development probably

takes longer than people think it will

and it's going to require public

markets, private infrastructure funds,

some real estate funds, although if you

look at the institutional core real

estate funds, they don't really have

much exposure to data centers for the

reasons I I described.

>> Tell us about you said it's going to

take longer than people expected. you

you we we are seeing headlines of data

centers are being delayed. Tell us just

how significant that is.

>> Yeah, so I was alluding to something

slightly different, but I think the but

what you're talking about is, you know,

I'll go back to the demand for the

computing power, the t the sort of the

tenant need and ultimately the consumer

need is self-evident, right? Like more

and more people are adopting these AI

tools. It's creating demand for more

data center space. But like building and

delivering these things is essentially

like you know that is that is not a

futuristic expert like exercise that

requires municipalities approving it. It

requires utilities building power lines

and water and sewer. And you're seeing

increasingly some local communities

object to the size and scale of these

facilities in their communities and and

slow down the construction of that. But

also you have basic supply chain needs.

you you have or challenges where there's

simply like more demand for labor in

certain places. There's more demand for

uh different components that go into

building these facilities that in it in

the supply chain is having a hard time

keeping up with the demand for it. Now

my comment was a slightly different one

which is the the ability for I would say

the institutional investment world to

absorb the finished product once it's

done I think will take longer than

people expect in their business plans.

So if you if you take a step back I I

described this sort of Jones Lang Lasal

study that talks about a trillion

dollars under construction. Blackstone

recently launched a successful uh

externally managed listed vehicle to

take advantage of this buying

opportunity. I think they raised $2

billion. So that's two and that's the

biggest one and the only one of its

kind. So the biggest and the most

successful you know global private

equity firm raised a couple billion

dollars which is very you know

impressive but that's 2% of what's under

construction today. So the ability for

vehicles to absorb and buy all this

stuff will take longer than everyone's

business plans because you know in order

to generate a 20% plus return most of

these business plans assume you buy the

land you lease it to a hyperscaler you

build it and then you sell it to someone

I think it will that that sale process

will take longer than people thought

>> because there's not enough

>> you're yeah you're you're talking about

just the pure finances that the the

buyers of the the data centers don't

have as much money as as the data

centers are kind of now worth and being

constructed and that someone's got to

buy that and if someone's taking a risk

maybe in like a closedended fund or an

institutional investor they have to sell

it to somebody and that somebody is you

or someone like you or a public type of

REIT but like I think the the data

center reats are pretty much legacy

REITs and then you know Blackstone

floated this one thing that's exciting

but you said it's it's $2 billion so

just the you're you're not seeing who's

going to be the end buyer there. Yeah,

the market will have to mature and grow

and I just think that will take longer

and so you'll have the expected returns

for some people. The re the actual

returns for some, but certainly not all

will sort of revert to more lower

long-term average returns as opposed to

20% in perpetuity because you just you

can't sustain that if you don't sell it

right away.

>> I I see what um so you said the largest

like check or property that you have is

is $500 million. that, you know, that is

a lot of money for one real estate

project, but it's it's not enough for

these cutting edge data centers. Would

you ever consider doing something like a

co-invest or, you know, is is $500

million going to get you anywhere in the

data center world? Could it get you into

the inference market if not into the the

training market?

>> Look, it's not a huge area we're

spending a ton of time trying to break

into. One of the other reasons I

mentioned too, it's not just the size.

It's if you have a, you know, a 10 or a

15-year lease with a hyperscaler, the

credit is amazing. Um, you're going to

get paid, but what is that worth seven

years into a 10-year lease? Who like

what is the will they renew? Is there

new technology that someone else will

come up with that makes what they'll pay

different? Will SpaceX put data centers

in space? So, it's not just the size.

There's a few things that that are

challenging. The other thing I would say

for us is that um one of the best

elements of the data center investment

opportunity is because of that the

nature of those credit tenants um the

ability to put material amounts of

leverage on it is attractive but the

core you know open-end universe of real

estate funds generally operates at

pretty low leverage. So most of the one

of the main drivers of benefits to drive

returns core real estate investors don't

really do because they're not going to

put 75% leverage on an asset. Um and so

it just when you add them all up we just

have found more compelling opportunities

given our size and scale in other

sectors like industrial uh logistics

really driven by e-commerce. You

mentioned senior housing and then we

quite like the prospect of of housing

going forward in general just given the

the demographic tailwinds of the

millennial generation entering peak

household formation age and the baby

boom generation sort of exiting

household formation age where they need

things like medical services and senior

living.

>> So you said housing are that you talking

about multif family so apartment

buildings? Yeah, multif family could be

built to rent individual town homes or

or single family homes, but yeah, market

rate rental housing.

>> Okay, tell me about what's going on in

the apartment market. I know in 2020

2021 rents were skyrocketing, interest

rates were close to zero, so real estate

returns were looking exceptional. Fair

to say that the past 5 years has been a

little bit more challenging. How do you

evaluate the market right now? We tend

to look at things that based on

demographics and long-term trends. And

one of the things I love about

demographics is they're inevitable. So,

you know, absent sort of a major health

crisis or a war, you can pretty much

predict how many people they're going to

be in this country at different stages

of their life over the next 10 or 15

years. Uh, and so you can make

predictions about what the demand is

going to be for certain types of real

estate services. So coming back to your

direct question, you know, you had a

couple things in the last few years

around multif family specifically um

which is you had in 2022 interest rates

spiked which caused a broad readjustment

in really all asset classes. Uh in

multif family uh you've seen you know

prices in in some markets drop you know

20 or more percent from peak to trough.

So the pricing has reset at the same

time following the the peak those low

interest rates you had a surge of new

supply which is really being absorbed

over the last couple years and this

year. So when we look forward we

basically see the demographics of people

that are aged the population 35 to 49 is

over the next 10 years is going to grow

by something like 6 and a half to 10

million people. And that's peak

household formation age 35 to 49. That's

people get married, they partner up,

they have more pets, they need more

space, and they they that's when they

tend to need more shelter. So, we think

that the gross amount of demand for

housing and rental housing is going to

accelerate in the next 10 to 15 years

and the market will get better going

forward. Right now, we're in the tail

end of absorbing this excess supply. It

was under construction, particularly in

some of the southeast and southwest

markets when interest rates were very,

very low. But looking forward, we think

it it looks quite strong. But one of the

things we we also watch is job growth.

So what we've done in our our our

research and our data science team is

we've mapped for every single asset

class in real estate, what is the the

factor or the the the the dynamic that

most drives rental growth. And some of

them are quite obvious. So for for

multif family, that's office using

employment. So what we really need, you

know, the combination of demographics

and office using employment where these

buildings are located drives the demand

for multif family and in general we're

pretty optimistic about housing over the

next 10 years.

>> So if if office using employment goes

down, obviously not great for office as

an asset class, but you're saying that

it's that that's also key for apartment

buildings because the reason people want

to live in an apartment is so they can

live close to an office. Yes, it's part

of that, but it's also uh it's a proxy

for when people have jobs,

they tend to get their own shelter,

right? When young people get a job, they

move out of their of their parents

house. When you find more job growth,

then people have fewer roommates. So

it's the factor that we've identified in

our data science something called a

recursive factor edition where we run

basically use AI to run thousands of

different models to uh and then back

tested against the actual data to

identify what combination of outcomes

and factors most were most likely to

drive the what what happened. And so for

multif family that was essentially job

growth. So yeah people moving out of

their parents house or no longer living

with roommates when they got a job. Tell

us about a very key factor which is the

supply of multif family which was very

high 2020 2021 the market's been

digesting that tell us about that phase

and how much supply has come on is going

to come on long and and you know is how

much investment has there been in new

projects recently.

>> Sure. Well, there's been a there was

really a a record amount of deliveries

over the last few years and that was

really a function of almost free cost of

capital during

coming out of COVID where interest rates

were were hovering around zero. That

combined with an acceleration of of

demand sparked a lot of construction.

What we're seeing in our own data and we

have about12 billion dollars of

apartments that we own is that the

market is stabilizing and the lease

trade out. So that's like you know a

lease trade out is when what was

somebody when you release it to somebody

new how does it compare to where the

last person who rented that unit what

they paid. And so we're seeing a a

stabilization and in some markets an

acceleration of in a positive way of the

lease tradeouts. And so we think the

market is is moving in the right

direction there, but it's there's a lot

of dispersion nationally. So you look in

some markets like San Francisco where in

our portfolio we're seeing really

significant rent growth and that's

really driven by there's no new supply

but also all the job growth around AI in

the Bay Area. And then there's other

markets where we're still seeing

negative rent growth because there's

incremental new supply that's still

being delivered and absorbed. So, it's

not a blanket statement where housing is

good everywhere. You have to sort of

pick the right locations, but our

long-term conviction in housing is you

still want to follow the U-Hauls and

follow the jobs. And so, we still think

that sort of the southeast and southwest

where you're going to have long-term job

growth is where the best places are to

think about investing in housing.

>> Just how much are rents going up in in

San Francisco? If you look at the

market, I think in the last year they've

gone up over uh when you count also the

burnoff of concessions. So in a lot of

places you had people giving two months

free rent, not necessarily San

Francisco, but where there's been a lot

of new supply to induce people and

incentivize them to move in. So you've

seen some places where peakto trough net

effective rents that's adjusted for

those concessions have improved by like

20%. Which is a huge number.

>> Wow. That is that is huge.

>> Now, now there are some markets that's

probably more in markets where you had a

pretty significant fall from the peak to

trough and it's now coming back up again

to get back closer to the peak. But na,

you know, if you look nationally on

multif family, new leases are pretty

much flat year-over-year. So adjusted

for inflation, they've gone down, but on

a nominal basis, they're basically flat.

>> What about New York?

>> New York has been going up. There's no

new supply. Um, so if you look at places

like New York, San Francisco, even the

Midwest, the story been has been where

places where there have been very few uh

units delivered,

>> you're seeing uh relatively positive and

strong rent growth by historical

standards. In the places where you've

seen a ton of new supply, you've seen

the other dynamic, but some of those

high supply markets are starting to

turn. One of the ones that's looking

pretty that has stabilized and is

looking quite positive is Austin.

>> So Austin was like a poster child for a

really poor performer in the last couple

years because there was so much new

construction but our data and our own

perform our own portfolio plus the

market dynamic the marketwide portfolio

research that you can get suggest that

it's stabilized and sort of moved from a

declining market to an improving market.

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This is a paid advertisement. Thanks for

listening. Let's get back to today's

interview. So, you said you like

demographics because it's in kind of

guaranteed what's going to happen.

>> Inevitable. Nowhere is that more more

apparent than in senior housing. Tell us

about that asset class, the trends you

see there. Yeah, I it's one of our

highest conviction investment themes

right now, Clarion, and it's all about

demographics. So, if you look at the the

data, it suggests that 10,000 people

turn 80 years old every day in this

country. That's relevant because when

people turn 80, uh it's increasingly

difficult for them to live safely by

themselves in their homes. So, what

happens? they move out, they sell those

homes and based on historical levels,

somewhere around 10% of them choose to

live in senior living. Now, uh if you

just hold that constant, um what that

means is that sort of demand for that

that population is going to of 80 year

olds going to double uh by 2040. And so

just to meet the demand for the the

larger cohort, that inevitable cohort of

people, we will need to build something

like 125,000

senior housing beds every year for the

next 15 years. Now, the peak that's ever

been built in this country in a single

year at one time was 56,000 units. Uh

the current pipeline is about 25,000. So

what we love about this business is you

have to quintuple the supply chain

capacity to deliver these units and

sustain that for something like 15

years. So the demand is inevitable. It's

coming. By the way, that assumes that

that penetration rate, the people, the

percentage of people that no longer live

at home that move into senior housing is

only 10%. I personally think that's

going to be higher because people are

wealthier and they have more capacity to

to to spend money to do it than previous

generations. But when you look at that

sort of 15-year demand for new product,

it looks a lot like us to what we saw 15

20 years ago in industrial when the

e-commerce boom was coming and the

demand was going to be for 10 or 15

years really difficult to keep up with.

And that's why you saw such sustained

rent growth, cash flow growth, and

appreciation, which gets us really

excited as a long-term investor in real

estate. Why hasn't the real estate

investment community stepped up, the

developers stepped up and built what is

necessary? Why is there such an under

supply?

>> Well, that I think they will. There's

been a few reasons. I think there was a

previous wave. There's an expression

like you know 80 is the new 70. So I

think people try to like and I lived

through this with my own parents. People

generally choose to stay in their home

as long as possible. And what a lot of

supply was built a decade ago in

anticipation of people in hitting 70 and

then moving into these facilities. But

people don't move when they're 70. They

move when they're 80. And so that was

absorbed number one. Number two, I think

people had some more difficult

experiences with the asset class during

COVID. And so people sort of backed away

from it. But you know, capital markets

and and capitalism work. So as the

demand comes, you will see people scale

up and invest in building more

facilities. We've we committed to our

first groundup development of

>> and we actually broke ground on it last

week in housing

>> and so we expect to do a lot more of

that. Clarion has a history of doing a

lot of groundup development. In the last

10 years, we've done something like 24

billion dollars of groundup development.

A lot of that was in industrial. And so

what when I mentioned before when we

we're preparing ourselves for like an

investment opportunity in the

development of senior housing that looks

like what we did, you know, 1015 years

ago, you know, through today in

industrial because we see the same kind

of long-term tailwinds. Now, we've also

bought something like a billion dollars

and about 2,000 units of senior housing

in the last six, seven months. So we're

both buying existing where we think the

fundamentals are going to be really good

but also looking at developing in you

know really good neighborhoods.

>> What what happened during COVID with the

asset class

>> people got COVID and and didn't survive.

So I it was a it was a challenging it's

an operational asset right. So while

we're not the manager you hire managers

to manage for you. um that is a

traumatic experience when you have a

pandemic that's sort of running through

your properties and there's a human toll

associated with that. Uh and I think

people the demand for really any sort of

cohabitation or public spaces dropped a

lot. So you know hotel nobody you know

people didn't want to go to hotels they

didn't go to concerts they didn't want

to live in a facility with a hundred

other people. They just lived at home

with their families. So demand dropped

off for that.

>> I got it. That makes sense. So you said,

okay, so you said that you you you built

a a tremendous amount of properties in

industrial and you prefer to to build

rather than buy, but you do both.

>> No, I would say we we we do both. Uh I

would say um if you can developing

things is generally more complicated

than buying them. Um now if you can make

a an attractive spread or a margin for

a higher return for taking that

development risk relative to buying

something existing, then we'll we'll

explore that. What we see right now is

that you can do both. And when we look

at the sheer need for more senior

housing facilities, it's going to create

a really attractive development

opportunity. And so we're mobilizing

capital, both financial capital and

human capital, because you need

expertise to be able to do that, to

oversee the construction to to make sure

you're you're building the right design,

the right product that people will

actually want to live in. And so you're

saying we're, you know, you're big in

industrial, but you're you're not big in

senior uh housing right now, but you

want to be big. You have you have plans

to become big in that asset class.

>> Depends on your definition. You know, uh

we're at about a billion dollars in 2000

units, but I think for relative for our

size, um we see the opportunity for

quite a lot of growth. It's it's one of

our I would say newest sectors. We've uh

hired a dedicated health care team

including specialists in senior housing

but also outpatient medical

more like doc medical medical office

buildings but it's our fastest growing

asset class and so we would expect that

to be pretty large uh really in the next

12 to 24 months so materially m

multiples bigger than what it is today

at a billion dollars. Is it that there's

a company, let's say I have a company,

you know, taking care of elderly people

and then you're my landlord, I rent the

property from you, or is it you're kind

of like running the business and then

you hire me as a management team?

>> It's more like the hotel business. So,

and I think the model has evolved over

time. It's a great question. Um, so what

you're what your first question was, is

it really like a a lease thing where we

lease the building to you as the

operator, you make fixed payments, and

then you take care of the residents?

That is not the way it works today.

works more like a hotel where we would

own the building and then we hire a

management company,

you know, like the senior housing

equivalent of a Marriott or a Hilton

brand and they manage it. They train the

employees. They're effectively they they

they uh they provide the services. They

charge a management fee for that like a

Marriott or a hotel management company

would do. And then we own essentially

the economic risk of of the rents and

the expenses like after that that

management company gets paid their for

their services.

>> Okay. So that kind of sounds like a

different from a lot of real estate

businesses in which you you know you

borrow money you raise money you build

or buy the property and then you collect

rent. This time you kind of are

running the business but you're paying

you're paying a management team but it's

it's it's different. It's a bit of a

hybrid between like, you know, if you

take industrial or office where you sign

perhaps a long-term lease with a

commercial tenant and that tenant pays

you monthly rent, you know, anywhere

from 5 to 10 to 15 years and then on a

day-to-day basis, you you know, you you

probably unless there's a decision about

capital or leasing the space or

financing, there's less dayto-day.

The senior housing business is closer

to,

you know, multif family here. So, people

are still signing, excuse me, like

one-year leases. Um, you just have more

provision of service and you have more

employees than you would have in a

multif family building. So, in a multif

family building, you might have um a

resident manager, you might have a

couple maintenance people, uh you might

have some on-site leasing people. And

so, maybe you had five people in the

property. Here, you're going to have

more people because you're providing,

you know, essentially more care and

service, and you're providing three

meals a day to the residents. So it

doesn't it's it's like somewhere between

a hotel and a multif family.

>> What does the supply

forecast or or picture look like over

the next few years for this asset class?

Like are there a lot of Josh Pristos who

say I want to be very involved in this?

>> Look, I think there's a growing number.

I think part of our job as investors is

and and a big part of our screening is

to look for the places where um there

isn't a lot of new supply. And so, uh,

where we're really leaning in as an

organization is we have 16 people on our

data science and our research team that

build essentially criteria and screening

tools for us to identify locations where

we think we're going to have the best

long-term performance. And so, some of

the things that go into that for senior

housing are availability of labor

because um, as we talked about, you

have, you know, a bunch of employees

that are providing services to those

residents and you actually, you know,

you you need the people. the business

doesn't work without it. So availability

of labor is is one part of it and then a

big part of it is how much incremental

supply is already in the planning stages

and how easy is it to to sort of scale

up supply. So um we look at what is our

expected demand based on the growth of

the 80-year-old population in that

region which again the demographics is

sort of inevitable. we can predict that

and then we basically are subtracting

how much so we know how many if we think

the 80-y old population is going to grow

by 10,000 people in an area and we think

10% of them are going to elect for

senior housing because that's what

they've historically done. We know

there's demand for a thousand units of

this space over the next 10 years. And

so we can then look at well what's the

total number of beds that are existing?

How many more are in the planning

stages? and we can have a view as to

whether or not there's going to be more

demand or more new supply. And we're

basically being very picky about the

locations where we are willing to buy

and even pickier where if we're going to

build uh new construction.

>> In terms of maintenance, how does it

differ from other asset class? like you

have to do a lot of improvements or

>> it's close to apartments where you've

got kind of across from apartments and

and uh and hotels because you've got a

bunch of bedroom, you know, rooms like

units that have bathrooms and and sort

of kitchenet type equipment and then you

have dining room facilities and fitness

centers and things like that. So you

definitely have

it's not as much FFN wear and tear as

hotels which are like daily stays where

people cycle in and really beat the

daylights out of them and you have to

like upgrade them quite frequently but

it's more than just apartments because

you have more common spaces uh and

you're providing uh more food and

beverage.

>> That makes sense. And

what are the valuations of these types

of properties compared to multif family

compared to industrial which are kind of

cheaper and I guess you can share what

you know how you're measuring that in

terms of a cap rate or something.

>> So these trade they have historically

traded wider than multif family or

industrial

um more capital is flowing into them. So

that that spread has compressed.

But what we think is attractive is when

we look at our internal forecast for

what the you know long-term rent and

cash flow growth is. It's really

attractive. So it's not simply just a

question of what's your going in cap

rate or your going in yield. What's your

expected growth and cash flow over time?

And across all of our sectors, senior

housing is the one that has the most the

highest projected forward cash flow

growth of any asset class. So, we're

getting both a better goingin yield

generally speaking and better cash flow

growth, but we think you should because

as you highlighted quite astutely, Jack,

it's a an operating business. So, like

there is, you know, we have more

employees, we have more services we're

providing. That's a business that has

more risk and so you should get

compensated better for it.

>> That makes sense. Tell us about your

your massive footprint in industrial.

How long have you been involved in that?

And talk about the tailwind of

e-commerce as as that and also is you

know what has the performance not you

know not of your funds but like just of

that asset class been and you know are

there people who are doubters who say

like it can't it can't go on.

>> Sure. Well, there's always doubters, but

uh I would say so we've been in the

business since the early 2000s and we

have and as I mentioned, we've got about

42 billion dollars of industrial assets

across funds and joint ventures and

separately managed accounts in the

United States. Uh I think we're the

third largest uh industrial owner in the

US. So we know the space really well. It

has performed great and I think it goes

back to this idea that it has a very

strong structural long-term demand

drivers and our our research that same

16 person you know global team that that

does this analysis that identifies what

the factors are that most impact rent

growth have done the same work for for

industrial and logistics and our

conclusion is that's all about

e-commerce sales. So the thing that's

the most impactful about driving the

demand for a square foot of industrial

space is a dollar sales of e-commerce.

And so when we look at it, our research

suggests that e-commerce growth, the

annual e-commerce growth over the next

10 years is going to grow by a trillion

dollars per year. So that is a huge

number, right? So, and what that means

is 10 years from now, the annual amount

of sales that are sort of pumping

through distribution centers and

warehouses that people that are the

result of people clicking on their their

phone to buy stuff will be a trillion

dollars a year more than it is today.

Uh, and that is going to provide really

sustained long-term demand for

warehouses. Now, is the growth are you

going to see rent growth of 10, 15, 20%

per year like you saw 5, 6, 10 years ago

when e-commerce sales were growing by

20% per year? No, we don't expect that.

We expect that, but we expect sort of a

consistent normal like marching growth

in rents and demand as a result of that

e-commerce sales tailwind. Tell me about

who the tenants are and to what degree

the e-commerce providers want to own

their own industrial facilities versus

be a tenant and rent it out from someone

such as yourself.

>> Yeah. Well, we generally see some some

do a bit of both, but but most people

like the flexibility of being a tenant

because their their demand, the amount

of sales they have in a given location,

how they choose to serve those clients.

Do they want, you know, four facilities

that are each 500,000 square feet spread

around a municipality or do they want

three that are a million square feet? Do

they want like last mile facilities

closer in? That changes based on the

composition of their their customers and

how they choose to manage their supply

chain. So what we see is um while they

sometime they own some things, there's

no problem being, you know, being a

tenant in our facilities. Um and what we

increasingly see going back to your

question about you know sort of

derivative of your question about data

centers is a question around power. Um

so when when we're talking to our

tenants which are large e-commerce

users, thirdparty logistics providers,

retailers managing their distribution,

they're increasingly looking at, you

know, what does their business look like

in the future? How much power will they

need in each warehouse when more and

more things become mechanized or or

powered by robots?

and how much machinery and data are they

pushing through there. And so while

they're not necessarily data centers,

the the the sort of inexitable march

towards the need for more power as more

things are connected to the internet of

things and more and more I guess robot

like mechanized workforce is something

we're we're increasingly focused on

because our clients the the tenants are

focused on

>> is the mechanization of the workforce

and of you know basically using robots

in warehouses is that something that's

increasing a lot right now?

>> I think so. Yeah. Well, we well we we

one of our uh two ways. One, um we're

seeing as companies are growing and

pushing more inventory through

ever bigger,

you know, warehouse spaces, they're

doing that. In some places, they're

working 24 hours a day, you know, and

leveraging both human labor and, you

know, mechanized labor through robotics.

Uh the other thing that we're seeing is

I think one of the hottest markets that

we're invested in in industrial right

now is in Northern California. Similar

to what we talked about with the um the

multif family, but the advanced

manufacturing uh that's going on in

Northern California that's around AI

around robotics is creating a a

tremendous amount of demand for

industrial warehouse advanced

manufacturing space that has high power

needs. Can you explain to to me like I'm

a total beginner which you know I am.

What an in a factory or a warehouse a

distribution center. What is the asset?

You know it's pretty obvious to everyone

listening. An office okay you go in

there it's it's got electricity. You

know people know what an office is and

it's got amenities. Same for apartment

buildings. It's got all these units

rooms beds. You know if it's a more

expensive building maybe it's got a gym.

like what what are people getting when

they sign a lease in an industrial

facility? What do they what do they want

and what are they saying like oh this is

this is what's important to me.

>> Sure. So not just like all buildings

have you know call it four walls and a

roof. So but how those are configured

and how people or goods and services go

in and out of them is totally different

right? So generally speaking, you know,

a a warehouse is going to be a single

story and it's going to have a very high

ceiling. So somewhere between 36, you

know, or 40 feet for new like sort of

higher quality stuff. It's going to have

a much more what we call durable slab.

So if you're if you're putting heavy

machinery on it and you're or and andor

you have all kinds of you know like

vehicles driving around on that floor

and moving very heavy things the the the

sort of durability of that slab that

foundation needs to be more than if just

people are walking in and out of it

because it's the lobby of their

apartment building. So, I would say the

the slab is one sort of a very very

important thing would be access because

for depending on what what you're

storing there, what you're doing, you're

going to have 18 wheel trucks coming in

and out of there. So, you need to have,

you know, the ability for a bunch of

trucks to get and out. You need the

ability for them to turn, right? Because

they have a big turning radius and you

need docks. So, that means these these

can back up, they can like open their

trailer and something gets loaded off,

like loaded on and they leave. Um, so

you need and you probably you may need,

you know, more considerably more power

if you're running, you know, machines

than you would if you have a bunch of

people live in an apartment building

that really only use it for, you know,

microwaves, ovens, light bulbs, and like

to recharge their their uh their iPad.

So for industrial, you're going to have,

you know, again, you're going to have

more docks that how people get in and

out, trucks get in and out is super

important. Um, you're going to have a

very sturdy floor or slab. Uh, and you

know, depending on what you're doing,

you may have a very a smaller portion.

You're gonna have higher ceiling because

you stack stuff very high. Um, but you

may not actually have air conditioning

in all of it. You may just have like a

small office that might be five or 10%

of the overall space that's air

conditioned and the rest of it is is

unairc

depending on what you got going on in

there.

>> That makes sense. So we can put this

chart up for for our viewers. Claring

partners had had a piece on the

completion and net absorption of this

asset class and you show how net absorpt

so people basically becoming tenants was

extremely robust from you know 2010 to

you know 2021 but supply grew up a lot.

So completion and there was a few years

2023 and 2024 where there were more

units completed than there was

absorption. So there's been a little bit

of digestion in this asset class. What

gives you the confidence that the trends

are going to reverse? Like has there has

has there been less investment and less

completions in this asset class because

of that?

>> Well, look, two things. Free markets

work. Uh that's why we all have jobs.

And so what you're seeing is as that

vacancy as the new deliveries exceeded

the net absorption, so vacancy was going

up, uh you've seen people start less

projects. We've already seen that revert

where now you have positive net

absorption. So the leasing is exceeding

the new deliveries. Part of that is

because interest rates went up. It's

more difficult for people to get

financing uh that works that pencils for

those projects. But I guess just maybe

the the most direct thing I would say is

you know we're we're seeing tremendous

demand and absorption in our existing

portfolio. So I think we'll break ground

on something like 10 million square feet

of new projects this year is our

expectation and that's all driven by

what we're what we're seeing. So we

signed in the first quarter of 2026

something like 8 million square feet of

new leases across our global portfolio

which I believe is the best total new

leasing quarter we've ever had in the

history of Clarion in 44 years uh in

industrial. So we're seeing the

businesses that that operate in the

space

need like in this sector need space uh

as their businesses are growing and they

have demand and as long as you're got

the right product in the right location

we're pretty optimistic about the future

and we're going to keep building into

that.

>> The strength in that demand certainly it

indicates a strength about the asset

class but do you is there any

macroeconomic signal that you see as

someone who's managing a lot of whoa

things are kind of heating up here?

Yeah, I mean we've definitely seen that

that that demand is driven by it's

actually it's like a pretty broad broad

base. So we've seen demand across um

that what you would expect as a result

of the e-commerce trend and growth in

e-commerce sales. We have seen growth in

I would say manufacturing adjacent needs

and some of that is is a and some of

that is the in addition is that that

data center adjacent demand. So it's

pretty broad brush where we're seeing

the demand across the board and a lot of

that was what we what we saw was after

liberation day a number of businesses

maybe paused a little bit and and we're

waiting to see where that shook out like

where were what were the tariffs going

to be

how long would they be for like you know

they they were moving around a little

bit and so people chose to just pause

and wait and see what happened but

eventually people go on with their

business they they they still have

demand

to to to basically distribute their

goods to their customers and they can't

just wait for perfection or absolute

certainty. At some point they just make

a decision based on the best of

information they have and that led that

has led to a pretty good 2026 for us so

far.

>> Earlier you you mentioned core and core

plus explain what that is and why that's

significant for the asset class.

>> Sure. Well, when we think about there's

like sort of four risk different

different risk spectrums that you tend

to see in real estate as institutions

define it. Core, core plus, value ad,

and opportunistic. And those describe

sort of ranges of returns and ranges of

risk. And so the most the lowest risk,

most stable

with the highest component of income is

core. Uh and that's probably you know

low sort of high single digits in

perpetuity

returns

across the industry is when people sort

of people think about it. You know you

probably add a couple hundred basis

points for core plus core and so core

properties are going to be extremely

well leased in great locations in

excellent condition relatively new

product. So core plus might be a

combination of some of that core plus

maybe sprinkling in some development to

add extra return and extra alpha. It

might be looking at projects that are

where that have some below market rents

or aren't quite stabilized but are still

very high quality. And then when you

look at value ad you're going further up

the risk spectrum. You're probably going

to put more leverage on it. So core

tends to be less than 30% loan to value.

Val core plus tends to be in that 40 to

50% range.

Value ad and opportunistic tend to be

sort of 65 or 70% loan to value. So

you're taking more risk. You'd expect

more return. And usually with value ad

or opportunistic, you're doing something

more fun a fundamental change to that

asset. You might be completely

redeveloping it. It might be vacant and

you have to, you know, just start from

zero. Or it might be just a piece of

land that you're going to develop ground

up or or something where you're going to

take it and change the use like take an

office building and convert it to an

apartment building. That's going to be

more value add and opportunistic. And

the more risk you take and the more

leverage you put on it obviously the

higher return you want.

>> And so you're operating mainly in the

core and core plus universe.

>> Yep.

>> Yeah. And so would that would that

correlate as well with the rating of an

you know a class A type business would a

property would more be a core or core

plus?

>> It tends to be. Yeah. So you what you'd

normally see is the sort of o owning

long-term class A assets tends to be

more of a core or a core plus. You might

see a value adder opportunistic business

trying to manufacture class A core or

core plus assets and then sell them.

What happens if a a a core or a core

plus strategy owns a class A property,

it's performed really well, but they've

owned it for 15 years and maybe it's

kind of on the margin. It's no longer

class A. Would they sell that to someone

else in the the chain, more of a value

ad person, or or do they just hold?

>> Look, I we we believe in active

portfolio management. So, so, so first

of all, I'd say sometimes you can have

assets that aren't class A that are

great assets to own. So, you might have,

you know, really well-located garden

apartments that are a little older, that

are at an affordable rent that always

see quite a lot of demand. There might

be really some older, very infill

industrial warehouses in locations. It's

hard to build new construction. And so

the tenants accept a little older

building with maybe not as modern specs,

but over overwhelmingly you want to own

class A class A buildings. Our job and

what I one of the things we're really

proud of is you don't want to wait until

the asset is functionally obsolete or no

longer class A to sell it because then

you're selling a problem that somebody

else has to fix. And so we're really a

huge proponent of active portfolio

management. So when we look back at our

history in most years, we're actually

selling as much as we're buying. We're

always pruning the portfolio and

identifying the assets that they're not

yet they've not yet made the transition

from maybe class A to class B or there's

something that we're but we want to do

it before it becomes obvious to the

market. And it's a little bit the

philosophy that that that sort of

populates our view on the data center we

were talking about, which is it's

probably fine for some period of time,

but if you have a 10-year lease, five

years from now, if you want to sell that

data center, there's not enough

transaction history for us that we've

seen yet of people buying the data

centers that only have five years left

of term on that lease. And what does the

market value that? How do they value

that? So, that's like there just needs

to be, I would say, more

pricing discovery on how that asset

class trades because our our our general

model would look to transition out of

assets well before it looks like they

may be a problem.

>> I know when the Fed raised rates in

2022, volumes and the transactions that

real estate participants did went down

because, you know, stated values and

market values diverge. So, it's very

hard to to get liquidity there. Has that

changed? Is is like are we fully past

that now? and people are transacting a

lot or is there still some some

transition that we need to get there?

>> Yeah, so I think there's been a broad

market recovery or at least the start of

one. So we we like to think about 26 as

the 2026 is the start of a new cycle. Um

so you've had a few things have have

have started that new cycle. So I think

you've had seven quarters in a row now

of private market positive returns. So

usually like that sort of signals like a

it's not just a dead cat bounce here

like you know asset values have dropped

to the point where there's price

discovery and enough volume that people

are comfortable. Um you've had you know

rates come in or at least stabilize and

then uh what we see is the fundamentals

look really strong. So, and you touched

on a few of these with previous

questions, but when you look across the

universe of things like new construction

starts, deliveries, positive net

absorption, you know, are we are we

absorbing more space than we're

delivering every year? Pretty much every

asset class with the exception of

non-class A office and life science is

looks better and more healthy than the

long-term averages. So, what we see and

what the market sees is fundamentals

look really good. There's not a lot of

new construction. what is being

delivered is more than being absorbed

and you have the prices have dropped 20

25% sometimes more in some asset

classes. So the pricing is attractive

and then when you look at it on a

historical basis compared to multiples

in the equity market high yield spreads

you know investment grade spreads real

estate is sort of quite fairly valued

and so we're seeing transaction volumes

grow. They're not what they were in 2021

uh and 2020, which were kind of record

all-time highs with zero interest rates

or very low interest rates, but they've

come back a lot and they're at a very

healthy level.

>> So, you you think we're in a new cycle

because the the rate maybe perhaps the

the rate hike cycle disencourage supply

and and that word now, you know, that's

been full fully digested and that the

demand is outstripping supply across the

vast majority of asset classes. Yes,

that plus prices adjusted in response to

that rate hike to a level that the

market has there's enough price

discovery in enough transactions that

people are comfortable and when you look

at those yields or multiples or cap

rates relative to historical standards

and

relative to other asset classes in the

that people could invest their money

today. It it's it's stimulating

confidence in more real estate

transactions because it it feels fair.

>> Would you say class A office is also

recovering?

>> I would say class A office is

recovering. Now there's definitely a

sort of a a sort of tale of halves and

halves. So the highly amenitized newer

product or newly renovated with

significant amenities in certain

locations, there's quite a lot of

demand. I think if you're in sort of

older, weaker subm markets or buildings

and more suburban office in certain

parts of the country, it's still a

pretty cold winter out there. And our

long-term view on that asset class is

not particularly positive. We think

you're going to still have like

depreciation and declining values in the

really nontrophy assets and and and the

trophy ones, it does present a similar

challenge to what we talked about in the

data centers. If you look, you know, I'm

calling in today from one Madison

Avenue, um, which is a brand new

building. It's a great building. It's

one you'd love to own, but it's

probably, I don't know, somewhere

between a billion and $2 billion for a

building like this. So, that going back

to how do these fit in a core uh

diversified fund? It's pretty

challenging. So, we're underweight

office. I suspect will stay there. But

will people make money

in their opportunistic funds buying

office buildings and trading in leasing

them up and trading out of them in a

moment play right now. I think they

will. That's not the core business of

Clarion right now. We're really focused

on, you know, long-term cash flow

growth, diversification, low volatility.

Office has a lot of volatility as

tenants come in and out because very

capital intensive to replace the

tenants. Why is it so capital to capital

intensive to replace the tenants?

>> So the the market standard for uh what a

tenant gets to lease a space in terms of

a tenant improvement allowance or free

rent is pretty significant. So you know

that could be hundreds of dollars of

square per square foot of they call it

landlord inducements either cash or free

rent for a period of time. So, if you

think about that, that impacts the if

someone invests in your fund and you're

you're you're trying to pay a consistent

dividend, uh that impacts your ability

to pay that dividend. Uh you contrast

that with industrial, which has super

low capex requirements. So, if somebody

leaves, you're not giving them hundreds

of dollars a square per square foot.

You're giving them, I don't know, a

couple bucks, five bucks. Um so, the

volatility of the cash flow is much

lower in that business. I I a

counterpoint to your bearish case on

class B class C office is who's building

class B class C office right now?

Doesn't everyone know that it's a bad

idea? And isn't that going to lead to a

>> Nobody ever builds people only build

class A anything. I think the issue is

there's not a lot of tenant demand for

it. All the tenants want to go up and to

the right into the higher better amen

the higher quality better amenitized

assets.

And so look, I think the story around

one of the interesting stories around

New York is it's probably been among the

most successful in stimulating a

conversion of older office buildings

into residential. So you're actually

seeing a reduction in supply in those

types of those buildings because they're

not because someone's leasing them. Some

people are, but not because there's this

overwhelming demand for office users,

but because you're just taking them out

of stock by converting them to

apartments. Yeah. So this no one ever

built a class B or class C building. So

class B and class C buildings are former

class A buildings that are now old.

>> Yeah. Or or someone made a mistake and

built something that nobody wants.

Right. They messed up the specs somehow.

Like uh they built a building that they

thought like looked good on paper, but

in practice it's not it's not it's

functionally obsolete or like people

it's not really what people want and so

they have to charge a low a discount to

to find demand for it. Josh, I I got a a

question. It's about private credit. So,

on a fundamental basis, not very related

to what you your asset class at all, but

I imagine that you are raising money

from similar types of investors, you

know, in the al alternatives bucket.

What have you observed as we've seen,

you know, net outflows from some of

these private credit funds, and that's,

you know, public information. Is is is

that affecting the broader fundraising

environment for alternatives broadly or

is it kind of just a hyperspecific thing

to direct lending in in private credit?

>> So far I think it's fairly specific to

direct lending. We clarion is not really

in that space. We have some real estate

debt but um we don't tend to raise

separate pools of capital for it. Um but

what I would say is I think real estate

is a bit of a beneficiary because it's

the ultimate halo trade. you know, heavy

asset, low obsolescence. So, it doesn't,

you know, a lot of the private credit

concerns seem to be around software and

disintermediation from AI, but it AI

isn't going to change the the the need

for someone to have shelter when they go

home at night. It's likely not going to

change the the fact that people's Amazon

packages get sent from some warehouse to

their doorstep, you know, every day. And

so we think real estate is a net

beneficiary of concern around some of

the corporate private credit just

because it is by definition a very low

obsolescence uh business.

>> Makes sense. Josh, we'll link in the

description several of the the pieces

from Clarend Partners. Thank you so much

for coming on Monetary Matters.

>> Appreciate it. Thanks for having me.

>> I hope you enjoyed today's interview.

Remember to check out the Fundrise

Income Fund. Click the link in the

description to learn more about its

assets and strategy. Until next time.

Thank you. Just close the door.