Transcript: Cathy Marcus, PGIM Real Estate – The Big Picture

The transcript from this week’s, MiB: Cathy Marcus, co-CEO, global COO of PGIM Real Estate, is below.

You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.

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This is Masters in business with Barry Ritholtz on Bloomberg Radio.

00:00:09 [Barry Ritholtz] This week on the podcast I have an extra special guest. Cathy Marcus is co CEOand global COO of p GM Real Estate, a $208 billion investor in real estate, part of the giant real estateinvestment firm, PIM. She has had a number of different positions within PIM, including managing theirflagship core real estate fund. Before she moved into management, she has been on all of the big lists.Barron’s 100 most influential women in US finance, lots and lots of others. There are few people in theworld better situated to discuss commercial real estate investing from every perspective. They do debt,they do equity, they invest in public real estate, they invest in private. She has lived and investedthrough not just the great financial crisis, but the SNL crisis and a number of other fascinatingexperiences in real estate. If you’re at all interested in learning how a large investor in global real estateoperates, then you’re gonna really enjoy this conversation. With no further ado my discussion with PGMs.

Cathy Marcus: 00:01:29 [Cathy Marcus] Thank you. It’s good to be here

Barry Ritholtz: 00:01:31 Good to have you here. So, so let’s dive into your background. Starting withyour undergraduate work. You, you study real estate, finance and entrepreneurial management atWharton. As an undergraduate, you go to NYU to get a master’s in real estate investment anddevelopment. So you knew from when you were essentially a teenager, you wanted to be working inreal estate.

Cathy Marcus: 00:01:56 [Cathy Marcus] And I’m very fortunate that it worked out because there’s no plan B there.You can see I did not study anything else. So people often ask me how at the age, literally of 17, I knewthat I wanted to be in real estate. And I, I think that I kind of triangulated on it. I have no family history. Ihave no, I, you know, knew a real estate developer I thought was really great. I knew I wanted to dosomething in business. I was always good at math, but I really, I just didn’t relate to things that weremore esoteric bonds options. It just wasn’t doing it for me. And I always really loved the builtenvironment. I like architecture. I like as a real estate person, you walk through your assets, you cantouch and feel things. I love to see things, things developed. I like the idea of kind of urban planning. Ialways say if I hadn’t been a real estate investor, I would’ve loved to have studied more about urbanplanning. I like placemaking. So really, if you combine wanting to be an investor with liking architecture,design, placemaking, it really leads you to real estate.

Barry Ritholtz: 00:03:01 [Speaker Changed] You, you anticipated one of my questions, which was, was anyone in thefamily in real estate? My mom was a real estate agent, like home. Everything from home designs andrenovation to pricing and financing was dinner table conversation in my house. Nothing like that fromyou. This just wholly sprung up out of nowhere

Cathy Marcus: 00:03:23 [Speaker Changed] Pretty much. I mean, my dad was a, a small entrepreneur and did invest insome commercial real estate, but really not in a primary way. And my mom’s a speech pathologist, soour dinner table conversation definitely had a business orientation, especially a small business owner.And so I definitely learned a lot there. And I think it also, my dad’s business was global and so it peakedan interest in me in working internationally, but the real estate thing was kind of out of the blue.

Barry Ritholtz: 00:03:54 [Speaker Changed] So, so you graduate both undergrad and graduate with just real estaterelated training. What were your first few jobs after school like?

Cathy Marcus: 00:04:04 [Speaker Changed] I had a very traditional start. I started off as an analyst and I worked,initially, my first two jobs were with syndicators, essentially in a, in a business that doesn’t existanymore. As it did, I worked for a very large syndicator right out of school, which was right around thetime the tax laws changed. And so that whole business was upended.

Barry Ritholtz:: 00:04:25 [Speaker Changed] Before you go further, define what a syndicator is for people who may notremember that.

Cathy Marcus: 00:04:30 [Speaker Changed] Sure. Essentially you buy assets. It could be all kinds of assets. The companythat I worked for was called Integrated Resources and we did a lot of real estate, but also things likeairplane leasing and movies. In fact, dirty Dancing was one of the big movies that we financed while Iwas there. And so they needed people to help acquire the real estate. And then also one of my primaryjobs was to help capitalize it and find financing for it. Because the idea of syndication is that you make agiant purchase and then you sell it off in smaller units to really more of a retail investor. And in thosedays, it could be as small as like a 25 to $50,000 unit that would be sold through a broker dealer, aShearon Lehman, lots of people who are no longer in the game. And, and it was a way for individualinvestors to a own assets in a small slice, they could never access themselves. But in those days, therewere very tax driven investment.

Barry Ritholtz: 00:05:26 [Speaker Changed] Very favorable treatment of, of those purchases. Yes. Not like regularstocks and bonds. Exactly. And all that went away with a couple of tax changes first Reagan. Yes. Andthen I think it was Clinton did some changes as well. Exactly.

Cathy Marcus: 00:05:38 [Speaker Changed] As did integrated resources.

Barry Ritholtz: 00:05:40 [Speaker Changed] So went away

Cathy Marcus: 00:05:40 [Speaker Changed] Away. Yeah, exactly. Oh, that’s very funny

Barry Ritholtz:  00:05:42 [Speaker Changed] Very funny. So, so you end up at, at PGM eventually, and you start out at,did you start out at the flagship core equity real estate fund? Or did you work your way towards that?’cause eventually you were running that for a few

Cathy Marcus: 00:05:56 [Speaker Changed] Years. I did, I worked my way toward that. I had two stops before then. Iworked in sort of a quasi portfolio management role for like a single client account type business. Andthen I went to be the chief underwriter for the US investments and really got to underwrite all newinvestments in the US all across the country, all asset classes. It was a tremendous experience for me.Something that we often have had as a rotational position. So I did it for three years and it was a, areally great growth

00:06:25 [Speaker Changed] Experience. Now when you say all asset classes,

00:06:27 [Speaker Changed] Sorry, all sectors of real estate. Oh,

00:06:29 [Speaker Changed] Okay. So not, ’cause at one point in time you were doing something withequity, is that right? Head of US equity,

00:06:36 [Speaker Changed] Head of US equity at p real estate meeting equity versus debt. Not equities.Versus

00:06:40 [Speaker Changed] Equities. Got it, got it. All right. I want to make, so it’s been real estate allthe way down. That’s, that’s all.

00:06:45 [Speaker Changed] It’s real estate through and through equity debt, private, public, but alwaysreal estate.

00:06:50 [Speaker Changed] So tell us a little bit about the experience of running the core flagship realestate fund. What was that like? You, you did that for like eight years, is that right?

00:06:59 [Speaker Changed] I did it for longer. It was over 10. Wow. And it was a tremendousexperience. And actually you had asked, you know, whether that was my first stop at PGM real Estate,formerly Prudential real estate investors. And it wasn’t, but it was the job that I wanted When I, when Itook the job, my first job at PGM, essentially the person who was running the core fund at the time wassomeone who I sought out as a mentor because I knew that that was the job that I wanted. And I, Iworked toward that. So I was on that fund team for over 10 years spanning kind of the run up to theGFC. So lots of good times for only about two to three years of my first couple years there. And then Iworked on it throughout the GFC and then became the senior portfolio manager during the recoveryperiod.

00:07:47 It was quite a time to be running that kind of a fund or even just working on that kind of afund. It was a, you know, I had seen other crises. I mean, the SNL crisis in the real estate business wassomething that was a, a very pivotal learning experience for me. And I came into the GFC with some ofthose skills from working through the SNL crisis. But every crisis is different. And you know, when I wasworking through the SNL crisis, I was much more junior. So someone else, you know, was worried aboutwhat would happen. They just told me what to do, and now this time I had to worry about what wouldhappen. And it was, it was a great experience.

00:08:27 [Speaker Changed] So when I hear GFC and SNL crisis, I think workouts, reorgs and distressedinvesting, did you do all of that? What, what did you actually do in the oh 8, 0 9 era, maybe even a littlebefore when things had rolled over? Well,

00:08:43 [Speaker Changed] In the SS NL crisis, I was doing primarily workouts, both debt and equityworkouts. And I learned so much doing that and was also in a big dispositions role in terms of real estateowned that have been foreclosed upon, but also performing and unperforming loans, commercialmortgage securitization, and even residential mortgage securitization. So I was very, very distressedoriented during the SNL crisis. And I would recommend to anyone who wants to learn about a businesswork through a major crisis, and you’re gonna get 15 years of experience in three years. That, that wasmy experience

00:09:22 [Speaker Changed] To, to be fair, the SNL crisis, I, I don’t want to downplay it too much, but italmost seems quaint Yes. Compared to the GFC. It, it, was, it, you didn’t get that sense of free fall. No, itwas clearly a mess. But it was like, all right, we’ll figure this out. The GFC in real time was like, holy cow,this thing is, we’re off the rails here. Exactly. Very different, right? Yeah.

00:09:46 [Speaker Changed] And in particular in real estate, because the SNL crisis, you could certainlymake an argument that we shot ourselves in the foot in, in the s and l crisis.

00:09:53 [Speaker Changed] Yeah. But that was really all the banks that were doing it,

00:09:56 [Speaker Changed] Not it was the banks, but there were a lot of empty buildings. I mean, wewere building and building and building

00:10:00 [Speaker Changed] Texas notorious for See-through buildings Yep. see-through

00:10:03 [Speaker Changed] Buildings. Exactly. So, so that was very different. And, and you’re right, itfelt like real estate wasn’t free fall. And clearly the banking system wasn’t free fall, but the governmentwas there with, you know, the big RTC bailout and it didn’t feel like the world was falling apart. Right.The GFC felt like the world was falling apart. Right. And it was very difficult to understand. I think thatthe SNL crisis, you could understand that the banks were just lending, lending, lending and buildingbuilding, and we had empty buildings. Any, even if you’re not in real estate, you understood what thatwas about. The GFC was really a lot of esoteric financial products that, you know, the average persondidn’t understand. It actually ended up that a lot of financial professionals didn’t understand themeither. We didn’t know that at the time, but it really felt so much more systemic, and it felt like this, youknow, giant thing that was almost not understandable to many people had gone awry

00:10:55 [Speaker Changed] Good, good times. You know, those of us who were working in the world offinance, then, if you were not on the wrong side of what was going on, it was endlessly fascinating andjust, you know, a graduate degree. Right. And if you were in charge of assets that were collapsing, it hadto be just nightmarish every, every day. It was relentless and just never seemed to to end. So that was,you know, all the people I know who started working in the industry after that, it’s like, oh, you guysmissed the big party. Right. It was amazing.

00:11:27 [Speaker Changed] Exactly. Well, you, you see that now you can tell who missed the partybecause it took a lot of people who had, you know, 10 or 12 exper years of experience in our business. Ittook them way too long to figure out that, that the world had changed because they hadn’t experiencedthe world changing. And you know, those of you, those of us who’ve been through it a few times, youstart to get that spidey sense that things are not as they should be. And you kind of go right into thatmode of like, okay, stop spending money, shut down all the deals. And and that’s much more difficult forsomeone who hasn’t experienced it before.

00:12:01 [Speaker Changed] Immediate survival instincts. Exactly. Kick in. And, and you know, the ironicthing is there’s a generation who only last year discovered, Hey, you know, the rates can go up also.Right? That was like an a, a a, you know, an epiphany for a subgroup of people who it’s like, oh, I didn’tknow they could raise rates. I thought they can only cut ’em. So, so now you’re really in a managementposition. What was that transition like from being a real estate investor to managing a very large realestate group of professionals?

00:12:35 [Speaker Changed] It was a much more complicated transition than I had expected it to be. Youknow, it’s an interesting story that I tell, which is that our CEO at the time came to me, this is when I wasrunning our largest fund. I had only been an investor in my entire career, and he said, I’d really like foryou to be my chief operating officer. And I actually said, which is, you know, embarrassing. But it isunfortunately something that women especially of my age do. I said, oh, actually I’m not qualified forthat job. I only took, you know, three accounting classes and I’m, you know, I, I don’t think I’m yourperson. And he said, if I wanted an accountant, I wouldn’t have come to you. I’m looking for a partner.I’m looking for someone who wants to learn how to run a global business.

00:13:17 And I said, well, you know, I feel like I kind of know how to run a business. I’m running thelargest fund. You know, there’s lots of people working on this fund, huge revenues. I I I, I know what I’mdoing. And he said, you know what? I try it for three years and I I bet you’re gonna learn a lot. And hewas a hundred percent right. You know, learning how to keep the trains on the tracks when you’re aninvestment professional. And I was the worst. I was a massive prima donna. I had no appreciation forwent on behind the scenes. If there was an error in a report or a number, I went ballistic. I had nounderstanding of what it takes to deliver operationally. And I learned quite a bit about that, and it’sreally been terrific. And I, I recommend it to all investors who want to ultimately run a business, take onan operational role, because you will be shocked by how much you learn.

00:14:11 [Speaker Changed] So, so there’s so much stuff to unpack there. I have to work my way back toyour initial response when offered the operating position. It’s kind of funny because you’re pointing outlike this inherent difference between men and women. Men are just clueless as to our own lack of skills,but oh, sure. What the hell, how hard can it be? Let’s rush in. Whereas, and I don’t wanna mansplainsexism to you, but it seems that women are more thoughtful in saying, Hey, I don’t know if I’m qualifiedfor this. Whereas a dude is just like, sure, well, I’ll give that a wait, fight a bear with my bear. Okay,where do I go? Men, men are just the sort of self-confidence unjustified. I wonder how much thatexplains what we’ve seen, especially in finance, in, in the gender gap at, at senior levels, which iscertainly getting better. It is point, point at at present, but I’m just curious if that philosophicaldifference I is why men rush in and women sort of think about it and say, well, let’s really weigh the prosand cons

00:15:24 [Speaker Changed] A hundred percent. And, and you know, interestingly, you would certainlynot be the first man to mansplain sexism to me. Right? It happens all the time, which just kind of goesback to the self-awareness. Right? It’s hilarious. It happens constantly. But I will say things have gotten alot better, but you know, somewhere in the middle is probably, you know, a much better place to be.Because I will say that, you know, women have a tendency, if there are a hundred things that you needto have for a job, if they have 99, they think they’re not qualified. Right. Myself included. Right. I thinkI’ve gotten better, but, you know, if there are a hundred things and a man might say, you know what? Icould do 60 or 70% of that, that’s probably good enough. Right? I think

00:16:02 [Speaker Changed] You’re being generous. I think like a, you know, a I know a dude who’s inthat space. I, I could do what he does. I think it’s like that sort of, you know, not to overstate malearrogance and recklessness, but there is certainly a degree of, Hey, worst comes to worst. I land on myface. And, and I think to some degree that’s positive, but often leads to the Peter principle. So

00:16:26 [Speaker Changed] Exactly. And I do hope that, you know, younger women in business broadlyand in finance, you know, can, can learn from those lessons. That’s why I as embarrassing of a story as itis, I always tell it, especially to, to younger women, because I don’t want them to make that samemistake. I was very fortunate that, you know, I had a boss who really pushed me because that I, Iwouldn’t have taken it necessarily of my own volition.

00:16:51 [Speaker Changed] Huh. Really, really interesting. So, so let’s talk a little bit about that giantportfolio of investments. What type of real estate does PG IMM invest in? Do you have specificgeography, size types? What, what do you think of?

00:17:07 [Speaker Changed] We have a very, very broad investing mandate. We invest in, in the US inLatin America, which is really primarily Mexico at this point across Europe, the uk, and across Asia. So wereally hit all the major markets and all the major geographies. And also we invest in pretty much all themajor food groups and even some of the alternative food groups in real estate. So everything from verytraditional office, which I’m sure we’ll talk more about. All kinds of residential, retail data centers,industrial manufactured housing, seniors, housing, you name it. And we probably have a bucket ofcapital for it.00:17:46 [Speaker Changed] So. So let’s dive into those sectors. I didn’t hear you mention laboratory ormedical, which I know is an up and coming area. Yep. Is that a space you guys are in as well?Warehouses is another definitely fast growing space. Definitely. So let’s, let’s break those down. Sure.Let’s start with office. What, what’s going on in the world of office investing? Are there certain thingsyou guys like to invest office wide? Are there areas you stay away from? What’s happening in thatspace?

00:18:14 [Speaker Changed] So right now I’m gonna talk about traditional office, not about medicaloffice or or lab science, but in the traditional office space, we’re not investing in a tremendous amountof office right now. Like everyone else. We’re in a little bit of a wait and see. We have an existing officeportfolio that we’re dealing with. And you know, I’m sitting here in your Bloomberg office and it’s abuzzing hive of lots of people, right? There are many office buildings you could walk into in any cityaround the world where that would not be the case.

00:18:43 [Speaker Changed] So this is clearly a class A building. And when we look at other class Abuildings on Park Avenue, they seem to be fairly, you know, 75, 80% buzzing. I don’t even wanna sayoccupied. Right. But once you drop to the class B buildings, it’s a whole different story. How do you thinkabout the different quality of real estate investing and is that reflected in their prices yet?

00:19:08 [Speaker Changed] So in particular, in office, you know, there are gonna be winners and losersand the winners are gonna be, I wouldn’t even say just a, not all the, A inventory is really gonna be awinner. You have to be, oh really? Kind of a high a high A, you have to be an A that isn’t just an Abecause of its location, it’s an A because it also has ESG attributes, it has wellness attributes, it hasthings that draw employees back to the office and make them want to be there. And it, you have to, inthese days when when I was young, the office was shelter and a place where people could make sureyou worked all day. Now the office is, it has to be better than your home or people are not gonna come.So here in your office, there’s lots of free food and free snacks and it’s nice and bright and there’s lots ofvibrant and smart people walking around. That’s a draw. But if you are in an old office building withoutgreat light, you have low ceilings, you have no amenities, you don’t have a lot of wellness attributes toyour building, you’re not in your public transportation. You’re gonna have a hard time attracting peopleto come to your office, particularly younger people. And if you don’t have the ESG qualifications, it’seven worse.

00:20:18 [Speaker Changed] So we’ll talk more about ESG later. Tell us about wellness. How does abuilding contribute to overall wellness?

00:20:26 [Speaker Changed] Many ways, but I would say that the primary way that really has beenunderscored even more so since COD is in air quality. And air quality is huge. And, and there is a lot ofdata around employees feeling better, not getting sick as often, having more energy, not beingexhausted. That’s around air quality. And fresh air in particular is very, very important.

00:20:51 [Speaker Changed] And, and that’s not a expensive or difficult retrofit, is it? That’s somethingthat can be done fairly easily if I, I think it was 60 minutes or somebody talked about that not too longago.

00:21:00 [Speaker Changed] That assumes you have modern systems. So that, that’s a big assumption.Not all buildings have the systems that would make that an easy conversion, but there’s lots of otherthings you could do. You could have a gym, you could, you know, encourage your employees to getoutside, you know, not in the city as much, but other places. And increasingly in Manhattan, peoplehave outdoor spaces for their employees so they can get out and get some fresh air, get some sunshine,you know, instead of drinking coffee in a cold, dark room, you could sit on a patio. It’s those types ofthings that are good for your physical health and your mental health.

00:21:35 [Speaker Changed] Huh. Really interesting. Let, let’s talk about some other sectors. Youmentioned medical office and lab space. Yes. What’s going on in there? Is that still a growth area?

00:21:45 [Speaker Changed] It’s still a growth area. I would say that some of the hype, particularly of thelab space, has been taken out. And I think that’s a good thing. For a while, people were buying, what Iwould say would be subpar office buildings and turning them into lab buildings. And lab buildings arebest purpose built, right? There’s a lot of extra bells and whistles that you need for a lab building. If youthink of like the absolute perfect lab building, it’s gonna have, you know, a lot more load bearing. ’causeyou’re gonna have really heavy machinery. It’s gonna have higher ceilings, it’s gonna have a lot ofnatural light, it’s gonna have extra water, it’s gonna have redundant electricity. There are experimentsbeing run in these spaces that if, you know you have a power outage, you could lose 15 years worth ofwork and data.

00:22:30 Wow. So you really have to have a lot of redundancies in your systems. It’s very expensive tobuild, but the good thing is that it’s very reusable. If you have one tenant and, and they leave, you canpretty much have a plug and play with the next tenant. So I think it’s great that there’s less of this kind ofconversion into lab space than there had been. But the reality is that a lot of things that are reallydemographic trends, an aging population, people living longer, you know, advances in healthcare,needing to have green energy sources, needing to be able to create, you know, clean water. A lot of thisexperimentation and a lot of the venture capital funding is all occurring in these lab buildings.00:23:15 [Speaker Changed] Hmm. Really interesting. You mentioned converting offices to lab buildings.There’s been a lot of chatter about converting all of the excess office space to residential. Some peoplesay that’s much harder than it appears, especially with some of the bigger citywide block buildings thatare from the sixties and seventies. They don’t have the light, right? They don’t have the access towindows. What, what’s the prospect for those sort of conversions? And, and let me just throw in, Iremember post nine 11, the whole lower Manhattan or a ton of those offices got converted toresidential very, very successfully. Yes. What are the odds of that happening in other city centers?00:23:56 [Speaker Changed] So we did some of those projects in lower Manhattan and lowerManhattan. The floor plates tend to be smaller. The buildings are small, they’re, they’re thinner andthey’re, they’re taller, right?00:24:06 [Speaker Changed] So you’re never too far from a window.00:24:08 [Speaker Changed] Never too far from a window. So it, it is a little bit easier, especially some ofthe historic buildings downtown. One of the ones that we converted into high-end condos, you know,had been an old JP Morgan building. It was where his office was. So those buildings were just smaller bydefinition, smaller floor plates, more windows. There’s a lot of capital being raised to convert office toresidential. And it’s a really kind of a romantic notion that we have too much office and we have astructural shortage of housing. Wouldn’t it be like the nicest thing in the world, if you could take all ofthis, you know, in bad office if you will, and convert it into affordable housing, wouldn’t that befantastic? First of all, the numbers don’t work, right? The, the physical structures don’t lend themselvesthat well, there’s probably, you know, under 5% of the office stock. Wow. That would lend itself to that.And it’s very expensive in a way. You would have to be able to get the land for free and, and someonewould have to pay to demolish the existing office building. So it’s, it’s really very, very00:25:16 [Speaker Changed] Difficult. So I’m talking about converting, you’re talking about knockingdown a functional, but unattractive building and putting up a brand new high rise.00:25:23 [Speaker Changed] In many ways that would be actually the cheaper route to go. Wow.Because you might say a functional building, it’s not functional for residential. It doesn’t have thewindows, it doesn’t have the plumbing. It, you know, you have to break things into units. You don’t wantunits that look like bowling alleys. You need more elevators. I mean, there’s just lots of stuff that youneed. So there will be some of that done. And some of it’s happening, some of it’s happening right nowin lower Manhattan and other cities and in DC in particular. But it’s not, it’s not gonna be a wholesalesolution.00:25:53 [Speaker Changed] So, so you mentioned ESG earlier. How, how do you, how does PGIMintegrate ESG factors into their investment process? What does that mean for real estate investing?00:26:05 [Speaker Changed] We integrate ESG into everything that we do from the very beginning ofidentifying a potential investment through acquisition, through operations and through disposition. And,you know, there is a lot of, you know, political consternation, a lot of a divide, particularly in the UnitedStates around ESG, where there are, there’s a politicization of ESG in real estate. We’re actually veryfortunate because there’s really no conflict with, you know, ESG, especially the e in, in real estateinvesting. If you have a more sustainable building, you’re using less energy, you’re using less water, youhave more efficient systems, you are near public transportation, you have an ESG certification, you’regonna have higher income, therefore a higher value of your asset, you’re gonna be able to track the besttenants. The best tenants are not going into a building that does not have an ESG certification. And ifyou’re near public transportation, you know, every tenant is looking for that. So I really feel that ESG isjust, it’s just table stakes in real estate investing. So we’re fortunate that we don’t have the controversy.00:27:14 [Speaker Changed] It it’s not just higher income, you’re describing much lower costs as well.Exactly. So the building is more profitable unit versus a comparable non ESG compliant type of building.Is that, that00:27:26 [Speaker Changed] Thinking? Exactly. And you know, it’s a way, if you reduce your operatingexpenses, you’re just increasing your bottom line. And if you take an older building that is just like, youknow, it’s, it’s leaking energy all over the place and you upgrade it to have the systems, you have justcompletely improved the value of your asset because we value real estate based on the net operatingincome. And, and that is the key to being able to increase value.00:27:53 [Speaker Changed] Kind of hard to politicize improving your bottom line, isn’t it? Exactly. So, solet’s talk about the target net zero emissions from real estate projects by 2050. What does net zeromean and how does one get there?00:28:10 [Speaker Changed] So there’s lots of ways to get there. And, and net zero, you know, can meanthere, there are various ways in real estate pathways to get to net zero. There are already severalbuildings, office buildings around the country that are net zero. And that was accomplished through avariety of things. One, using, you know, different building techniques, different building materials. Youcan use green concrete, you can have less embedded carbon for the institutional real estate industry.Embedded carbon is a huge issue because you buy an asset and there’s already this giant carbonfootprint that you had no control over and maybe it was created 50 years ago. So that, that’s a wholeother issue. But things like green concrete things, like different sensors that, that you can use that helpyou build more efficiently. And, and if you look at, you know, ESG in its entirety, which is also a lot aboutsafety and, and keeping people safe and healthy, that there are lots of new construction techniques thatit’s just safer construction where you might have robots doing things that were very unsafe. You mighthave drones, you know, photographing buildings instead of having people having to go up onscaffolding. So we, we have a lot of opportunity in the built environment to mitigate embedded carbon,but also to reduce our use of carbon. Huh.00:29:37 [Speaker Changed] Really, really interesting. So let’s talk a little bit about what’s been going onthe past couple of years and what, what it looks like over the next few years. You are not taking out amortgage to buy a single family home. You’re doing these big projects. How does the dislocation ofvolatility of the enormous rate increases we’ve seen in 21 and 22 affect the projects you look at?00:30:06 [Speaker Changed] It actually affects, you know, commercial real estate investors in much thesame way as it would a, a residential investor. Just00:30:12 [Speaker Changed] The cost of carry, the00:30:13 [Speaker Changed] Cost of carry and, you know, a, a lack of liquidity, which is much worse inthe commercial markets than it is in the residential markets.00:30:23 [Speaker Changed] You can’t just have an open house and sell a 50 story building over theweekend. That doesn’t happen.00:30:27 [Speaker Changed] Exactly. No. That, that doesn’t work. So, so the, the lack of liquidity is, youknow, is often at the heart of every real estate crisis that we have. And, and that’s really driving, youknow, a lot of what’s going on, which is of course all driven by the changes in the real, in the interestrates. And, you know, we’re coming upon six quarters, you know, into this new interest rateenvironment. And we had, you know, a nice long free money party that was really good for real estate.It was fantastic 20 years for real estate, right?00:31:00 [Speaker Changed] What could00:31:01 [Speaker Changed] Be that? It was great. And, and so of course, you know, as works in realestate that your interest rates come down and the yields on the investments come down and everyone’sexpectations are, you know, not too far off from where, you know, treasuries used to be. Right. And, andthat is, you know, the treasuries were so low that you could be, have a 4%, 5% yield, even 3% on a realestate investment and still have a nice cushion over treasuries. So it was a very, very accommodativeenvironment for real estate. And now that has all changed. And you know, in private markets therepricing always takes a lot longer than public markets. And you even see that within real estate.Looking at the real estate private markets and the real estate public markets, there’s a huge00:31:48 [Speaker Changed] Divide. Divide. You guys invest in both, right? We do, we do both privateand public investing.00:31:52 [Speaker Changed] Yes,00:31:52 [Speaker Changed] We do. So, so if, tell us a little bit about how, how they’ve responded. I’mgonna assume private markets react a little more slowly than public markets do. Tell us about thatprocess.00:32:05 [Speaker Changed] The, the private markets react much more slowly and in a much moremeasured way and without the same sort of, you know, level of very, very quick reaction and maybeeven overreaction. You hardly ever see that in the private markets. And, and the, the reason is you arein, in the real estate public markets, the market, meaning the stock market is determining value and,and there’s a lot more at play there than just the value of the real estate assets. Whereas in the privatemarkets, it’s appraisal based. And so it takes a long time for appraisals to really reflect market value. Andpart of that is the methodology which has been around forever, which really relies very heavily oncomparable transactions and comparable transactions in a period of, you know, little to no liquidity.They’re just not happening. And so appraisers need a data set and a set of facts to create a record inorder to substantiate lowering values and increasing yields.00:33:14 And they just haven’t really had that. Now that’s starting to happen and we are seeing arepricing, but it’s very, very slow. It will ultimately probably be a much slower repricing than we had inthe GFC. Huh? The GFC took eight quarters in private real estate to completely adjust, but the vastmajority was a shock in the first two quarters. And then it just kind of, you know, eed out over severalmore quarters. We have something totally different here where the first couple quarters after the, afterthe interest rate increases, it was almost like people were in denial and nobody really knew what to dobecause we had very little price adjustment. And now that, you know, some people have a gun to theirhead, there are some transactions that are happening. We’re starting to see, you know, a trail, if youwill, of evidence of where values should be. But you know, most of these assets are, are pricedquarterly, very different than the daily pricing in the stock market. And if it takes, you know, if it used totake, you know, call it 45 to 60 days to complete a transaction from beginning to end, it’s now double ortriple that. So it’s just taking much longer to get the evidence.00:34:26 [Speaker Changed] So, so the October data for single family homes, October, 2023 record, lownumber of transactions. Are you suggesting that in the private commercial real estate, you are alsoseeing much slower transactions and that’s what’s causing this lag for a repricing? Yes. How do you workaround that?00:34:49 [Speaker Changed] Yes, much, much, much lower transaction activity. And it’s interestingbecause, you know, for a, a large owner like us these days when we’re talking about transactions, we’remostly talking about dispositions. In a normal business cycle, we would, when we say transactions, we’remostly talking about acquisitions. So it’s very, very different. And that impacts both the debt and equitysides of the business. So on the equity side, we would like to sell some assets and improve our liquidity.And there’s not a lot of buyers there. The buyers that are there are generally buying without any debt.So if you think about the fact that we’re also a lender that really impacts our lending business. Ourlending business has much lower production values across all asset types than it’s had historically. Andagain, it’s because of the lack of transaction activity.00:35:40 [Speaker Changed] So I’m assuming you are both buying and selling within the same quarter,within the same month. What’s the thought process like about what properties you wanna sell and whatsimilarly, how do you think about what you wanna buy at the same time you’re really reconfiguring Yes.Your holdings.00:35:59 [Speaker Changed] Yes. I’d say there’s two categories of, of the types of assets we wanna sellright now. One is, you know, kind of just bottom line, those that will sell. So if we need to raise somecapital, if we have some debt that we wanna pay off, if you wanna redeploy some capital, you can sellmultifamily in the southeast, this is in the US and you can sell industrial. Those are the two things that,that sell right now. And even then, you are probably going to take a lot longer selling those assets. Andvery interestingly, you might not recognize one name on the list of bidders. Oh really? It’s not the biginstitutional names, it’s not the people like us, it’s people who are buying unlevered, people with friendsand family, family offices really more in, in your space than in mine. And very interestingly, we oftenhave never heard of the00:36:51 [Speaker Changed] People and they want a hard asset as opposed to a, a cash flow based on,alright, it’ll cost us this much to borrow and here’s what we’ll see in income and that’s what’ll be, beyour revenue. This is something totally different. They want to have a hard asset and actually own it.Right.00:37:06 [Speaker Changed] And they might wanna own it for a very, very long time. Huh. Especially,you know, those kind of owners. And right now it’s an advantage to be an all cash buyer and during thiscycle of very low interest rates, it was not an advantage to be Right. An all cash buyer00:37:21 [Speaker Changed] When when cash is free. Exactly.00:37:23 [Speaker Changed] There’s00:37:24 [Speaker Changed] There that, you know, who doesn’t make any difference, which kind of, youare sort of describing like the edges of a distressed market, but I don’t get the sense that the market isfully, the real estate market is fully distressed. How, how do you identify, hey, we can pick up stuff reallyinexpensively. Flip side of this is, hey, maybe we’re not gonna get what we want for, right. Our holdings.How, how do you balance that?00:37:51 [Speaker Changed] Well, it, it, it is a balance and you know, it is true to say that right now thedistress is in the capital markets. It’s in the ability to get debt and the ability to find equity. If you wannado a development, forget about construction loans, which are almost impossible to get right now. Butfrom, from a fundamentals perspective, with the exception of office and in particular traditional office,most property types are doing quite well in industrial warehouses. As you mentioned, rents are stillgoing up in, in most markets and are expected to continue in, in multi-family rentals. We’re seeing alittle bit of softness in some markets where there was a lot of supply. But long-term we’re notconcerned because we know we have a structural lack of housing. So there’s retail, believe it or not,retail who was, you know, not everyone’s favorite a couple years ago. Even retail assets are doing prettywell right now.00:38:44 [Speaker Changed] So the publicly traded real estate investment trust did pretty poorly in 22and 23. Was this a rate story or is this just a question of too much of, of one type of product? Notenough of, of another.00:38:59 [Speaker Changed] The, the interest rate story definitely played into it, but if you think about,you know, REITs and who invest in REITs, there are definitely pure play real estate investors who investin REITs like us and some of our competitors. But there’s also lots of individual investors who areinvesting in REITs. There’s lot of, lots of big index funds that are investing in REITs. So it’s not always a,you know, a real estate decision maker who is influencing the, the cost of some of these stocks. Butoverall, I would say that if you were to take something away from the difference between the publicmarkets and the private markets, the public markets react very quickly and often overreact. And, and wedo think that there has been an overreaction here, however, the themes are fairly similar. If you look atsome of the office REITs, they’ve been clobbered and that’s a reflection of course, of people’s concernsaround the office market.00:39:54 But what’s interesting in the public space is that the best office REITs, meaning the office REITsthat have the highest quality assets, the, the kind that I I mentioned before, ESG qualifications, modern,new, near public transportation, those have taken about the same hit as ones with class B assets. So, sothat doesn’t really make sense. There’s, there is some kind of a play there. Also, if you look atalternatives, right, some of the self storage data centers, some of the alternative sectors within realestate in the public markets have reacted quite differently than you might expect and from one another.So, you know, right now most REITs are still selling at a pretty significant discount to net asset value,which net asset value would be a good, which proxy for real estate value for the actual asset value. Sothat, that’s an opportunity, you know, for us we see that as an opportunity and, and our takeaway isthat the public markets have overreacted and overshot and the private markets have underacted andsomewhere in the middle is the right value.00:41:00 [Speaker Changed] Huh, that’s really, that’s really interesting. So with the caveat that WallStreet has been wrong about this for, you know, two or three years, wall Street is now anticipating atleast two rate cuts in 2024. Should real estate investors be thinking about this, if that happens, what,what would the impact be and do you think that’s a realistic outcome?00:41:26 [Speaker Changed] Well, first of all, I think we should all be praying for that because that wouldbe very, very good for real estate overall. You know, from a a realistic perspective, I don’t anticipate anyof that happening in the first half of the year. I anticipate, and I I say this extremely sadly, I think the firsthalf of the year is gonna be, you know, more of the same of what we’ve seen. And it’s gonna be a veryinteresting 2024 all around the world. You have, you know, lots of things going on around interest ratesand, you know, stock markets and business. But underlying all of that are a lot of very high profileelections around the world, not just the US and you have, you know, a geopolitical tinderbox in, in manyplaces. So it, it is gonna be very, very interesting if you look at, you know, what is happening withinflation, what is happening, you know, if you really interrogate some of the jobs numbers and you knowwhere the consumer seems to be going, it would lead you to believe, I think that, you know, we’re notgonna see any more hikes and that sometime next year we’re gonna start to see, you know, somedecreases whether we get to two I I certainly hope so.00:42:37 And you know, it, it really, I think, I don’t think anyone has the expectation that we’re gonna goback to zero interest rates, but if we could just get down to like two or three instead of four or five, thatwould be pretty amazing00:42:51 [Speaker Changed] At this point I would take, you know, low fours Yeah. Would be a huge,huge change. But you mentioned something that I have to ask about. We have all these elections bothhere and abroad. How do geopolitics and elections affect commercial real estate?00:43:09 [Speaker Changed] Well, I’m gonna come off as very cynical, but you know, we keep talkingabout this recession and when a recession is gonna come and I just have a hard time believing thatwe’re gonna be in a recessionary environment facing a presidential election in this country. I, I think thateveryone is gonna do everything in their power for that not to happen.00:43:28 [Speaker Changed] Meaning across, across, pulling all the levers from the federal governmentto the Federal Reserve. Everybody’s looking to avoid a recession, especially if real, if inflation keepsfalling the way it has been over the past year and a half. I mean, you could easily look at CPI and say, realestate peaked in June, 2022, it’s been straight down for the next 18 months. Right,00:43:51 [Speaker Changed] Right, right. Exactly. Huh.00:43:52 [Speaker Changed] Quite, quite fascinating. So your global COO let, let’s talk a little bit aboutthe global strategy. How does PGIM, which I really think of as a US New Jersey based real estateinvesting company, how do you think about the global investing opportunities that are out there?00:44:13 [Speaker Changed] Well, it’s very interesting that as much as PG IMM is a global brand, it, itdoes always come down to Prudential being in New Jersey and it, it gets discussed all the time. But weare within PGM real estate in particular a very, very global company. We operate in 14 differentcountries and we have been investing in Europe and Asia for, you know, 20 to 25 years. We’ve been atthis for a very long time now. Our US businesses are larger and more mature and it’s really just becausewe have a long headstart in the US over our international businesses. But, you know, today’s investor,especially the most sophisticated investors, they’re investing globally and they’re allocating globally. Andit used to be, especially from the perspective of an American investor in real estate, that in order toleave the home country in order to invest in Europe, in order to invest in Asia, there had to be a hugereturn premium that it was, it was the way of compensating for the country risk, maybe some currencyrisk and just the general, you know, lack of certainty around investing in a market that maybe you don’tknow that much about.00:45:23 And that has completely changed in that the driving factor behind people being globalinvestors is really around diversification. It’s far less around yield premium. Now you can certainly chaseyield premiums in developing markets, but if you’re investing in in, in non developing markets outside ofyour home country and their mature markets, you should not expect much of a risk premium. At theend of the day, it’s about diversification. Because if you think about it, think about the world right now,right now in the US as much as we may complain about what’s going on here, most global investorswould tell you that the greatest prospect for income growth and for economic growth is in the US. Andyou would want to be, if you’re an Asian investor, there’s certainly a lot of growth that can go on in Asia,but it’s a bit more volatile. You might wanna have some eggs in the US basket, you might wanna havesome eggs in the European basket. So global investing is just, you know, here to stay. In my view, it’smuch more of a trend. And if you wanna be a big global player in any particular asset class or asset type,you have to be a global provider.00:46:31 [Speaker Changed] So, so let’s look around the world and, and get an assessment of what’sgoing on. When I look at Europe, I see a, not only a very mature area, but I also see an economy thathasn’t really recovered fully from the pandemic or arguably from the great financial crisis. And is seemsto be rolling from one country’s recession to the next. Now Germany is looking really soft. What do yousee in terms of opportunities in Europe?00:47:00 [Speaker Changed] We definitely still see opportunity in Europe, but in terms of, you know, theeconomies and you mentioned Germany. Germany definitely is, you know, is a concern for us, right? Weinvest quite a bit in Germany. The uk Brexit has not been kind to real estate values in in the uk, butthere’s still opportunities. And it’s a lot of the same themes, which, you know, for us, we really think ofthem around demographics, around digitalization and around decarbonization. And if you really thinkabout demographics, there’s a lot of the same story, which, you know, als often leads you to the livingsectors. We think about for young people needing affordable first time apartments for families, maybewith interest rates where they are. And with housing costs where they are not being able to afford thatto buy a single family home. Maybe they wanna rent a single family home. Young professionals may beremaining renters for much longer than they used to because the barriers to home ownership are somuch higher. We have an aging population, we need seniors, housing. There’s so many different aspectsof housing that we just don’t have enough of, particularly at the affordable end of the spectrum.Affordable housing is a crisis almost everywhere in the world. And in particular, affordable seniors.Housing is really in crisis.00:48:23 [Speaker Changed] Huh. I’m really, really interesting. So, so let’s, let’s address Brexit, whichhasn’t come up recently. I was genuinely shocked it even happened ’cause it was so obvious, thenegative economic ramifications that would lead from it. How are things in the uk have they recoveredfrom that? Is this still a persistent drag on, on their economy and what does that mean to their realestate?00:48:48 [Speaker Changed] I think it, it is still a persistent drag. I think that you see evidence ofbusinesses that were from, from a regulatory perspective in London and now maybe they’re in Ireland.Maybe they’re in the Netherlands. You definitely have seen a bit of a drain from London. There arepockets of the London office market that are not doing that well. The good news is that London doeshave a little bit more of a modern stock than a lot of other cities from an office perspective. Butdefinitely, I mean, inflation has really taken a toll on the uk. And while it’s certainly getting better, if youthink about kind of just, you know, constant dominoes falling a Brexit and then the pandemic and thewar in Ukraine and inflation and the high energy costs and the high food costs. It’s, it’s really noticeable.I I can tell you I traveled to London quite a bit and even just as a visitor, I notice how much moreexpensive everything is. Huh.00:49:46 [Speaker Changed] And, and that traces back to Brexit, not just the recent bout of inflation00:49:51 [Speaker Changed] Law. I think it’s a combination of things, but I think Brexit was the firstdomino of all. Huh.00:49:54 [Speaker Changed] And, and you mentioned demographics. We know you’re an investor inAsia. Are you an investor in Japan? We are. And, and what, what’s going on there? Their demographicsare uniquely challenging.00:50:08 [Speaker Changed] Yes. Uniquely challenging. And you know, if you, the, the one very positivething is that interest rates are still relatively low in Japan, still not as low as they had been, but they’re,they’re still low and still00:50:20 [Speaker Changed] They’re not negative anymore. Right?00:50:22 [Speaker Changed] Right, exactly. They’re still very accommodative of real estate. But youknow, the demographic story in Japan is very difficult with just an, you know, really, really apreponderance of the population is aging. And that just keeps, you know, increasing, you know, not awhole lot of immigration into Japan. So definitely a problem. And I, you know, there was a lot of hypearound the Olympics and what that might mean for Japan. And I think a lot of that ultimately, you know,didn’t come to fruition from a tourism perspective. Now, you know, it’s sad to say for my Japanesecolleagues, but you know, the yen is quite weak. And so I think that there has been an increase intourism. I was recently in Japan and I saw a lot of American families traveling there. It used to be costprohibitive to bring a family to Tokyo. And, and now it’s not. So hopefully there’s some kind of ajumpstart there. But, but definitely the aging population in Japan is, is tough in the fact that there’s beenvery, very little real wage growth there.00:51:19 [Speaker Changed] Huh. Really, really interesting. Let me throw you a, a curve ball. Tell usabout real asset X. What, what’s going on there? This is almost like a Skunk Works project. You guyshave00:51:31 [Speaker Changed] Real Asset X is our innovation lab that we recently launched. And thepurpose of it is really to help to advance technology and innovation, particularly around ESG in the realestate industry, not just for our portfolio, but for the industry more broadly. And, you know, we’re reallylooking at kind of two different sides of our lab. One is a bit more operational, where we’re thinking ofways to more efficiently run our own business more efficiently, run our own properties to use our datain ways that help us to run the business, help us to serve our clients better. On the other side of the labis a bit more aspirational of what could we do with all that data? What better investment outcomescould we have by leveraging our data? You know, I mentioned that our US businesses are very mature.We launched our core open-end fund that I used to manage.00:52:28 We launched that in 1970. We have data going back that far and, and we have 50 years, lots ofdata. And, and in our, our lending business, we’ve been lending for way longer than that. So we havelots of data that we can leverage. And so we’re very excited about that. We have several universitypartnerships where we are working on certain problem statements and we have them all around theworld. So that’s very, very exciting. And you know, it’s a, it’s a journey, right? I’ll tell you that our, ourfirst problem statement that we worked on with one of our university partners here in the United Stateswas really around trying to predict multifamily rents and, you know, using artificial intelligence, usingsome machine learning, using our own data, but other data as well. And at the end of the day, youknow, we didn’t come up with a, a great answer, but now we have, you know, a lot of new informationthat we’re gonna ask the question differently as we continue to pursue this. So it is definitely a trial anderror. And I think that when people give the impression that they kind of plugged in the AI machine andall of a sudden they have, you know, really, really great answers that that’s not how it works. It, it, ittakes a lot of work and I think our launching of our lab and our outreach to our university partners is ourway of acknowledging that this is a process and it’s a learning process and it takes more than, than just areal estate investment manager to make progress there.00:53:56 [Speaker Changed] Sounds really exciting. All right. I only have you for a few more moments, solet me jump to our favorite questions that we ask all of our guests, starting with what have you beenstreaming lately to give us your favorite Netflix or Amazon or podcast, whatever, whatever’s keepingyou entertained.00:54:13 [Speaker Changed] Sure. I I recently finished Daisy Jones on the sixth, which was recommendedto me by another woman in the business. And I am, I’m gonna be 58 next week for someone of my age.It just brings you back to kind of your middle school and high school years with the music. It’s fantastic.It’s a little bit of the story of Fleetwood Mac, not loose00:54:36 [Speaker Changed] Based, loosely based on Right.00:54:37 [Speaker Changed] Fantastic. Yeah.00:54:38 [Speaker Changed] The woman who played Daisy Jones, I was, I don’t know, a third waythrough it when my wife says, you know, that’s Elvis Presley’s daughter. I was like, what? Had idea? Idea,right. There you go. She, she was fantastic.00:54:49 [Speaker Changed] Fantastic. So I, I really loved that. And in terms of a movie or a documentaryalso perfect for a woman of my age is called being Mary Tyler Moore. Really? And it’s about Mary TylerMoore and, you know, she was such a icon for young girls in the seventies of, she lived on her own, shehad this cool job. She was intentionally single. She had this social life she was dating. It was really veryformative. And they, and they speak to a lot of women, mostly famous women, who were so influencedby watching that show. And, and I definitely was. And she was really, you know, very much of atrailblazer and a remarkable woman. So I’d recommend that.00:55:35 [Speaker Changed] Huh. I’m gonna put that on my list. And when you were talking earlier, I wasthinking of two things. I don’t know if you spend much time on YouTube, but there are some amazingchannels. One is Architectural Digest does this, so there’s lots of house listings and just stupid, youknow, spec $20 million mansions in LA’s. But the thing they do that’s so interesting, you, you kind ofreference this, is they’ll sit down with an architect and he will describe a particular type of architecturethat’s endemic to a specific city, or they’ll describe a very specific, so one guy who does New York hearsthe history of New York residential apartment buildings and how they’ve progressed over the years. Andthe one I just, I didn’t see it yet, but it just dropped, was New York Museums and the architecture ofGuggenheim MoMA, the Met and Whitney. And just like, if you like, architecture, it’s kind of fascinating.00:56:41 The other thing you mentioned that really made me think of a different channel was about theESG and the location close to mass transit. There is this, he’s kind of crazy Canadian expat who relocatedto the Netherlands with his family. And his channel is called Not Just Bikes, and it’s all about how tobuild a city. Mm. That is not only net zero, but just built around mass transit, not cars. And it’s ab again,if you are interested in Yes. Urban, urban planning. Right. City design and architecture, endlesslyfascinating. That sounds great. That’s a rabbit hole you can fall around to. And so, so you mentioned oneof your mentors early. Yes. Tell us about who your mentors were and, and who helped shape yourcareer.00:57:32 [Speaker Changed] The person who was most influential in my career from a young age is awoman named Yvonne Capello, who I worked for when I was in my late twenties and early thirties. Andshe taught me everything I know about real estate, but also taught me a lot about being a woman in thisbusiness. She taught me how to be a very tough negotiator. She taught me how to kind of manageworking in a man’s world. And she always expected a lot of me, but also always supported me. And I’vetried to emulate some of the way that she managed me and the way she managed and led others. Itreally was very influential. Huh,00:58:14 [Speaker Changed] Very interesting. Let’s talk about books. What are some of your favorites?What are you reading right now?00:58:19 [Speaker Changed] Right now I’m reading a book called Eligible by Curtis Sittenfeld, who, shewrites a lot of, you know, more pop culture, I guess, type books. But this happens to be a modern takeon Pride and Prejudice. So Pride and Prejudice obviously was very tongue in cheek itself. And this is a, amodern tongue in cheek version of that, of, you know, an overbearing mother trying to marry off herdaughters, et cetera. But I’m really enjoying that. I tend to read to Escape. And I also just finished a bookby Daniel Silva, who has written like 32 books, and I think I’ve read every single one of them really. Andyou know, it’s a, a series of spy novels. And instead of the CIA, it’s the Mossad and the protagonist is, inaddition to being an amazing Mossad agent, he’s an art historian and art an artist and art restorer. So itkind of combines things I’m very interested in. When I was young, I wanted to be a spy and I love art. Sofor me, those are great books.00:59:18 [Speaker Changed] Huh. Really? What’s the name of the Silva book?00:59:21 [Speaker Changed] This one I think is called The Collector.00:59:24 [Speaker Changed] Huh, really interesting. And we’re down to our final two questions. Whatsort of advice would you give a recent college grad interested in a career in real estate investing?00:59:36 [Speaker Changed] My greatest advice that I give to everyone is try to do a little bit ofeverything. If you ultimately wanna specialize, if you ultimately wanna only do equity acquisitions, that’sgreat. Don’t make that decision when you’re 22 or 23 years old. Do a little bit of debt, do a little bit ofequity, do acquisitions, do asset management, do dispositions, do portfolio management. I think that,especially when you hit a crisis, the most, well-rounded real estate people are the ones who’ve done alot and they’re the most successful in a down environment. If you think about it, when you, you mightnot, you might be an asset manager, but if you’ve never worked in debt, how are you gonna know howto do a workout of your loan that now is in default? So it, I just think do a little bit of everything. And theone regret that I have is that so far I’ve only worked in the US in terms of living and and working. And Iwish I had had an excellent adventure, you know, three years in London, three years in Paris, somethinglike that. And I would recommend that to all young people.01:00:37 [Speaker Changed] Huh. Very interesting. And our final question, what do you know about theworld of real estate investing today? You wish you knew 25 or so years ago when you were first gettingstarted?01:00:49 [Speaker Changed] I wish I knew that it would evolve in the way that it has. I think that when Igot into the business, which is 35 years ago, it was far more opaque and less institutional. And I guessthat for some people that made it feel like, you know, it was, there were higher barriers to entry tobeing in the business, but I actually really appreciate how much more transparent the business is andhow much more institutional it is, and the fact that it’s more accessible to more people. It used to justbe only the wealthiest people in the world could invest in institutional real estate. I know anybody can,and I think that’s terrific, huh.01:01:31 [Speaker Changed] Very, very interesting. Thank you, Kathy, for being so generous with yourtime. We have been speaking with Kathy Marcus. She’s Co CEO, and Global Chief Operating Officer atPGM Real Estate. If you enjoyed this conversation, check out any of the previous 500 or so we’ve doneover the past nine years. You can find those at Apple Podcasts, Spotify, YouTube, wherever you find yourfavorite podcasts. Sign up for my daily reading list@ritholtz.com. Follow me for however much longer itcontinues to circle the drain at ritholtz on Twitter. Follow all of the Bloomberg family of podcasts onTwitter at podcast. I would be remiss if I did not thank the correct team that helps put theseconversations together each week. My audio engineer is Rich Samani Atika. Val Brown is my projectmanager. Sean Russo is my researcher. Anna Luck is my producer. I’m Barry Ritholtz. You’ve beenlistening to Masters of Business on Bloomberg Radio.

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