The 'Great Tightening Cycle': Uncovering Opportunities in Property with Matt Sgrizzi

Praemium’s Damian Cilmi is joined by LaSalle Investment Management’s Managing Director Matt Sgrizzi for a discussion on  the 'Great Tightening Cycle.' In this episode Matt sheds light on how the legacy of financial stress in real estate has historically unfolded into rewarding opportunities, particularly within the robust world of real estate investment.

The conversations turns to the future of office leasing, the booming data centre sector, and the shift in retail real estate towards e-commerce. Matt's insights give a comprehensive picture of a sector undergoing fundamental change, where savvy investors can benefit from high yield income whilst protecting against inflation.

TRANSCRIPT
Damian Cilmi: Hi listeners, welcome to another installment of the Premium Investment Leaders Series podcast. I'm your host, Damian Cilmi, Head of Investment Managers at Premium. We try and move around all the major asset classes and bring you insights from the world's leading investors. And today we are back to discuss global property.

We've done a few episodes in the past, looking at structural changes to retail and the impact of work from home on offices. And it's been quite a wild ride for real estate investors with the asset class dragged down by interest rate increases in 22, only to see a rally late in 23 when it appeared rates had peaked.

We're now at an interesting inflection point, and we're really pleased to be joined today by Matt Sgrizzi, CIO and lead global portfolio manager of LaSalle Securities, who's joined us from their head office in Baltimore. Matt, welcome to the show

Matt Sgrizzi: Great to be here, Damian. Thank you for having me. 

Damian Cilmi: Hopefully it's been very nice to you.

Matt Sgrizzi: It has been, as usual. 

Damian Cilmi: Oh, very good. And the weather's been nice, which is good. I appreciate that. It's good. And so, before we get into the interview, we'll talk about LaSalle. There's a large manager of real estate portfolios, over 900 staff and manage over U. S. 90 billion.

But just an introductory question, how does your team fit within the overall Jones Lang LaSalle business? 

Matt Sgrizzi: Yeah, so LaSalle Investment Management is the wholly owned investment management arm of JLL. So, all of the investment management services are within LaSalle. And that is the 900 staff globally.

The majority of that business is investing in and managing real estate, private equity. And then there are other businesses within LaSalle that invest in debt origination and indirect investments in, in real estate. And indirect means that we're not only investing in a portfolio of real estate assets, but also a third-party manager of those assets.

So co investments, private funds, and listed securities. And I work on the indirect, which is the unlisted funds and the public companies investing in those real estate assets. 

And then you've got the big group as well that, you know, does a lot of broken real estate services while they get a lot of insights out of that group.

Absolutely. So JLL you know, absolutely enormous global real estate service provider. Anything that you could think about with real estate, JLL will be happy to help you with that that problem that you might have and indeed, we, we rea

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Chapters

• 0:05 Global Real Estate Investment Insights
• 12:58 Office Leasing and Data Center Trends
• 29:04 Current State of Retail Real Estate

Transcript

TRANSCRIPT
Damian Cilmi: Hi listeners, welcome to another installment of the Premium Investment Leaders Series podcast. I'm your host, Damian Cilmi, Head of Investment Managers at Praemium. We try and move around all the major asset classes and bring you insights from the world's leading investors. And today we are back to discuss global property.

We've done a few episodes in the past, looking at structural changes to retail and the impact of work from home on offices. And it's been quite a wild ride for real estate investors with the asset class dragged down by interest rate increases in 22, only to see a rally late in 23 when it appeared rates had peaked.

We're now at an interesting inflection point, and we're really pleased to be joined today by Matt Sgrizzi, CIO and lead global portfolio manager of LaSalle Securities, who's joined us from their head office in Baltimore. Matt, welcome to the show

Matt Sgrizzi: Great to be here, Damian. Thank you for having me. 

Damian Cilmi: Hopefully it's been very nice to you.

Matt Sgrizzi: It has been, as usual. 

Damian Cilmi: Oh, very good. And the weather's been nice, which is good. I appreciate that. It's good. And so, before we get into the interview, we'll talk about LaSalle. There's a large manager of real estate portfolios, over 900 staff and manage over U. S. 90 billion.

But just an introductory question, how does your team fit within the overall Jones Lang LaSalle business? 

Matt Sgrizzi: Yeah, so LaSalle Investment Management is the wholly owned investment management arm of JLL. So, all of the investment management services are within LaSalle. And that is the 900 staff globally.

The majority of that business is investing in and managing real estate, private equity. And then there are other businesses within LaSalle that invest in debt origination and indirect investments in, in real estate. And indirect means that we're not only investing in a portfolio of real estate assets, but also a third-party manager of those assets.

So co investments, private funds, and listed securities. And I work on the indirect, which is the unlisted funds and the public companies investing in those real estate assets. 

And then you've got the big group as well that, you know, does a lot of broken real estate services while they get a lot of insights out of that group.

Absolutely. So JLL you know, absolutely enormous global real estate service provider. Anything that you could think about with real estate, JLL will be happy to help you with that that problem that you might have and indeed, we, we really tap into those resources, and I have to say, as a, as a global investor, which we truly are in the securities team having that information available to us, that network available to us, is just so powerful, and we really use it in how we determine our valuations of the companies, that we invest in and how we construct our portfolios.

Whether we're dealing with issues that are well known and well documented, like U. S. office, or looking at new markets. I remember when Turkish REITs were first becoming available, I was interacting with our JLL colleagues there at the time. It, it's just a fantastic resource and, and we really do use it, so it's, it's, it's very helpful to us.

Damian Cilmi: Yeah. Very powerful platform. Mm hmm. Amazing. It's good. So, let's get, get into it and I suppose with, with real estate securities, there's probably a bit of a, an element of history repeating itself. And we, you know, credit availability is probably a big thing. And we'll talk about rates and credit, I think, throughout all of this.

And you see regional banks fall over as well. Does this all sound familiar for a real estate investor? 

Matt Sgrizzi: Yeah, no, it really does. You know, one of the concepts that I'm here wanting to share with investors this week is that we've seen this happen multiple times in the history of real estate investing.

And these difficult times have given way to great times for real estate investing. Whether it was the savings and loan crisis, or the dot com bubble, or the financial crisis, and now we have the great tightening cycle, the GTC, which has been worse for real estate than COVID even was, which is almost kind of hard to believe.

Those difficult times dark moments gave way to a new era in, in, in real estate investing. And that was a, a great time to be a reinvestor in all of those periods. And indeed, bank lending, negativity about commercial real estate, which I'm here to pick on with you because your financial press is always saying commercial real estate so bad, but it's, it's office.

It's not commercial real estate. It's a misnomer. And that's, and that, and, and, and equities have done really well. And we can look around the corner, we can see an easing cycle from central banks around the world. Might have to wait for it a little bit, but we think it's going to come. And all of those elements come together to make an opportunity for, for REITs.

And we're, we're seeing it happen again. 

Damian Cilmi: Yeah. And just unpicking, you know, some of the issues around U. S. regional banks, how does that actually play itself out in your world? 

Matt Sgrizzi: Yeah. So, the, the regional banks have been big lenders to, to, to real estate. And I would say kind of disproportionately to office real estate and you know, let's say lower quality more the smaller types of apartment blocks and retail offerings and things like that.

Not the typical types of assets that you would have owned by the public companies, by the REITs. And they, they have, they've been pulling back ever since interest rates went up which put the, the banks in a tough financial position and we had the, the, the failure of Silicon Valley Bank and other banks that have, have failed or been on the edge.

They, they are just pulling back from all risk-taking activity, and that includes commercial real estate lending. So, so that has happened and it's actually pretty interesting. There's some great public data available in the U. S. There's something called the Senior Loan Officer Survey. And we can get a good kind of quarterly channel check of what the attitudes towards lending are from, from banks and the demand for loans at banks.

And it's been very negative for commercial real estate. It doesn't matter if you want to finance a, a fully stabilized apartment building or take out a new construction loan, it's been negative. But the latest tick actually has dramatically improved. That came out just a week ago. Sure. And so, I think banks are actually, you know, they’re starting to see that they're getting much better terms on their loans essentially, that they've repriced, real estate assets have, values have come down, interest rates are much higher they can get, they can finance better quality real estate at better terms than they could have gotten two, three years ago.

So, they're doing the right thing and kind of thinking about getting back in and, and the demand is also improving. At the same time the REITs, especially in the U. S. They don't really rely on bank financing. They overwhelmingly borrow from the, the capital markets, from the corporate bond market. And that's been wide open.

Credit spreads are way low availability's been, been very high. And so, you know, I kind of think that even if banks are pulling back, that that's an opportunity for REITs to take share. Because they don't have high leverage, they don't rely on bank financing, they've fixed their debt for pretty long terms.

And so, if your average, uh, real estate investor out there is using high leverage, floating rate debt they, they typically buy lower quality real estate, they're out of the market today. And that's an opportunity for REITs to take share. 

Damian Cilmi: Hmm. And so, with, you know, these recent financing transaction issues that you just talked about here, you know, that probably, you know, focuses a lot on the private market.

Yeah. Yeah. But how you witnessing the divergent experience between the private market and the public market? 

Matt Sgrizzi: Yeah. Yeah so, it's really that exact point is just it's this it's this availability of corporate level financing that the public companies can take advantage of that you can't get access to Really as a private investor, maybe the channel there would be CMBS the commercial mortgage-backed securities market You That's been a challenging market as well.

There's a lot of office. There are malls which are still not in perfect shape in that sector. And, and so that is not as, that financing, that channel is not as readily available as traditional kind of corporate borrowings that are available to these public companies because they own great, great quality real estate.

They have low leverage. They're, they're oftentimes the best managers of, of their real estate portfolios. And so, you know, they have good credit ratings, and they have, you know, the bond markets are just, are very open today. It's a weird. Credit 

Damian Cilmi: spreads are tight again. 

Matt Sgrizzi: Exactly. It's a weird dynamic to have credit spreads so low.

And banks kind of negative on real estate. It doesn't typically happen. And the public companies are in such great shape for that dynamic, which no one, you wouldn't have guessed it, but because of this the availability of all these other types of financial, financial, financing channels that are available to them.

Damian Cilmi: And again, on the divergence, I suppose some of the timing of, of valuations and marks on this year. So obviously public market work, work a lot more swiftly. Private market, maybe valuations between those two? 

Matt Sgrizzi: Yeah, no, excellent point. And look, I think. Real estate, private real estate values are coming down, clearly.

It is being reported, and that's kind of making its way through. Different countries in the world acknowledge that at different speeds, essentially. Say, the UK is kind of first. They have a very high-quality mark to market service and expectation in the industry. So, they have been taking their values down.

More proactively. The, U. S., Continental Europe, Australia a little bit slower. And it's because they can evaluators can say, ‘Hey, there's not a lot of activity happening’. We're not sure that values have come down. 

Damian Cilmi: Yeah, that was very much used as an excuse here in 22.

Matt Sgrizzi: Indeed. So, you know, I think folks have been hiding behind that. But look, what exactly a piece of real estate is worth in the private market, it is open to interpretation today. The bid ask spreads are wide, right? And it's because of this dynamic. So, to some extent, it's actually fair. We do our own analysis of what we think these portfolios are worth.

We kind of do it in two ways. A capital market-based way, where we look at these companies as going concerns. More of a private market comp kind of a way. And so, we look at those marginal transactions that are taking place. And they're thin but we use that to strike our own net asset value assessments.

And we have seen REITs came, came way down our NAVs came down, and then we had a rally at the end of the year, and that brought REITs to right around NAV, essentially. And it's been, what usually happens is that the private values come down, and the REITs come, kind of come back up that we meet at some equilibrium again.

And so that's around the kind of where we see things, but it's that our NAVs are based on the marginal transactions, not necessarily what, you Open ended vehicles will say their values are. Those are probably still lagging in a lot of markets. 

Damian Cilmi: Yeah. Okay. Very interesting. And we, we touched on office just quickly before, and I know we need to unpack a few things here, but we're touching on, you know, work from home observations, office demand around the world.

What, what are you seeing in that space there? 

Matt Sgrizzi: Yeah. It's the kind of hybrid work has settled in to a large extent. In the U S we've got really good data that, that tracks how often people are back at their workstations compared to pre pandemic levels. And it's really converged around 50% essentially.

So, people are only back at their desks 50 percent of the time. Look, some businesses are back 100 percent, and some have gone fully remote, and a lot are back a couple of days a week. Friday is a popular day to not work in the office in many, in many cities. It, that is settled in and that is kind of, I think, the new normal for now.

And that, that, that is where, where things are, but there's still leasing activity that's taking place in office. It's, it's actually kind of amazing that still people need to have, businesses need to have a place where people can come together, collaborate, even if it's just a couple days a week.

And that leasing activity, it's down. But it's still millions of square feet, a quarter so it's, and it's not like anyone's, you know, not aware of this new hybrid environment, so the leasing is taking place. And it is overwhelmingly taking place in new buildings, right? If, if you were going to sign a new lease today would you know, take a really cheap rent for a space that You know, is looking pretty tired, is in a location that's tough to get your, your team to come to or the environment of your location is not very good.

No, you're not. You're going to go for probably a little bit less space and higher quality space that is space that people want to come to. And that's where, you know, the demand is, is kind of shifting to. I think that that's Damien, that's always been the case in office. 

Damian Cilmi: It's always about A grade and then, you know, flowing its way down.

Matt Sgrizzi: It's kind of like bell bottom jeans and wood panelling, you know, like they come and go and, and it is always about having the new thing in office, but it feels like it's more accelerated today and it's because we're going through this big shift. So, you’ve got to have the capital to create those spaces, you've got to know where those places are.

Gotta has the land to in the first place. In the right spots, in the right spot to do that stuff. Yeah. And, and again, you know, I think that that's overwhelmingly the re portfolios, they own great locations in, in the, in the office sector. And they've, they've. finance themselves well. They had this whole dynamic I was speaking about earlier with corporate level finance available.

They can protect these assets that they have and invest in them. And that is very different. That could be very different from a building across the street that's got, you know, 20 percent equity when it was traded five years ago with, you know, 10 different investors and 80 percent CMBS loan against it.

That, as those leases roll off in that building, That's, that's going to become uncompetitive space and it's going to come off the market. 

Damian Cilmi: And they won't have money for CapX either as well, too. 

Matt Sgrizzi: They're going to be pointing fingers at each other for a decade. Who owns it? Who does what? And so, you know, that's a lot of stuff that is going to be coming offline.

And so, look, it's challenging, certainly the office an office building, the value proposition of it has been harmed by this dynamic. But. So, it's not going away, it's still important, and it's just about where it is and what it is going to be the factor. 

Damian Cilmi: And with, with those people looking at new office space as well, is there any particular, you know, characteristics other than location, like in the actual office space and the building itself, is there been any changes in the kind of demand or what they're looking for?

Matt Sgrizzi: It's again, I think it's always, it's always changing and there's always new expectations for leasing. But. Certainly the, the biggest changes in the environmental impact that a building has. Sure. Okay. So, the energy efficiency, the, the means with which the building was, was created, the materials and the was there attention to the embodied carbon of the building.

So, it's not always the right thing to do. thing to do for the planet to put up a shiny, new, super efficient building. Sometimes the right thing to do is to take an old building that exists already is already embodying a lot of carbon and do the best you can with that. Right. So that's a big issue that many tenants are considering more directly than ever before.

Certainly. And then I think, you know, open spaces, new materials all of that amenitised space, so a nice office building with gym space and cafes and some co working space is all, all the things that that tenants want to have in their building to provide that placemaking for their, for their, for their workers.

Damian Cilmi: Yeah. And I think with some more I don't know, a conferencing space and so forth, it's meant that they've probably actually taken out larger literable areas in a sense. 

Matt Sgrizzi: Well, it's interesting, so I think, I should have mentioned that it's a very good point. I think a lot of tenants think they'll take less space.

Damian Cilmi: Yeah. 

Matt Sgrizzi: Because we're in the office less. And then when everyone is in the office, they need a bunch of meeting rooms. 

Damian Cilmi: because yeah, they too, I couldn’t find a meeting room. Meeting rooms are hot commodities. 

Matt Sgrizzi: Yeah. The people that control the meeting space are the, the king makers in office buildings now.

And so, it's a real thing and, and yeah, there are structures of your office space where you could end up having less people in the office on a regular basis but need more space to accommodate these kinds of things. 

Damian Cilmi: Yeah. It's been an interesting dynamic and yeah. And I mean, offices, it's a real funny one because it's, these days, it's not that big a part of the index, but yet it still dominates so much discussion.

Matt Sgrizzi: I know. I want to shout from the rooftops of these, one of these empty office buildings that it's not. 

Damian Cilmi: Especially in global indices. Here, a little bit more. 

Matt Sgrizzi: Yeah. 

Damian Cilmi: Globally, we're talking about like six percent. 

Matt Sgrizzi: Pure focus, pure office focus companies are six percent of the global index today. That's. They were, they were 15 percent in, in 2011, so down a ton and, and look, it's because other sectors have grown a heck of a lot more and because those companies have gotten smaller and, you know, they've, they've de equitized, they've been running share buybacks, some of those companies, whereas you have some of the growth y sectors have been issuing equity.

And so, and then, and then the share prices have diverged significantly as well. So, there's you know, the sector's taken its lumps. It's kind of been disintermediated and, and so that's why it's, it's really not fair to say that the REIT market is, you know, being held back by commercial real estate woes.

It's it, you know, that the, the industrial market, the healthcare sector, data centres, cell towers, some of the niche residential sectors are going from strength to strength. So, you know, there it's the, those are, those are. sectors that are not suffering the same dynamic as Office.

Damian Cilmi: And you touched on one of them, data centres. And they are much, well not much larger, but they are a bigger part of the index than what Office is. Yeah. And that's been a really interesting sector to have a look at. And it's already, it's, it's been growing naturally already for the last 10, 15 years. But we're, now we're talking about another massive leg up.

Matt Sgrizzi: Yeah, there, it is. It's a sector that's gone from. Good to great in terms of the demand fundamentals. And, but it's really been the supply side of the equation that has changed. And that's what is leading to the really excellent pricing power that the sector has. So, you know, data, the data centre sector, it's been around for a long time like you mentioned.

But it wasn't always a great sector to invest in because there was a lot of supply. And it was, developers were pretty incentivized to take a marginal piece of land and get some power to it, get a lease, and all of a sudden, you've got a, you know, half a billion-dollar data centre value. And so, the development margins were huge, and whenever you've got that kind of a dynamic, then it can lead to overbuilding, which leads to lack of pricing power for, for the owners of that stock.

The, first we had the pandemic dynamic that, that drove supply bottlenecks for materials and construction for all sectors. That curtailed supply. We had obviously a, a, a breakthrough in demand even before AI with all of us consuming all this data at home. And, and, and now we have a shortage of power.

There's not enough power being generated around the world to, to meet the, the demand for these data centres. And so that has been a, a bottleneck as well. So, it's been all of those factors together that's led to the really positive fundamentals. If we If we just had the demand and not these supply issues, then you'd probably see a lot more supply coming to market, and the pricing might not be that good.

But that's not the case. And it's hard to see that really changing, because it's it just takes decades to build out the power the, the, the, the infrastructure to deliver that power, essentially. So, it's been that dynamic. We love to talk about AI, and that's, that's been a big incremental driver of demand and that is real, that is very real.

Damian Cilmi: Tell us some of the numbers on that because, you know, I mean, we heard some stuff on the energy consumption part and it's worth getting into that one there, but just like the pure demand that's going on from AI and data centres. 

Matt Sgrizzi: Yeah, so, I mean, we have record leasing activity for the past two quarters in data centre leasing activity around the world.

Digital Realty, which is the second largest data centre of which we're an investor in, reported its best leasing ever in the first quarter of this year. And a significant amount of that is AI related demand. And Damian, I have to say, when at first, you know, NVIDIA reported results and the world kind of changed in terms of its Outlook and expectations for AI.

I kind of thought that this could take some time to feed through to the data centre market. But it came very quickly, and it's been and it's there's depth to it and so there's a lot of leasing that's been taking place. And it's been it's been quicker than I would have initially guessed honestly. And there's a there's a land grab going on, by all these different technology companies to. One has their AI Answer essentially and their use case.

And then to have the, the data centre capacity to, to meet it. And, you know, AI computing and chips use a heck of a lot more power than standard processors. For right now, they, people will accept some latency with AI. And what I mean by that is if you're playing a cloud-based video game, you're not going to accept it being laggy, right?

Like it, you know, people want it to work right away. But if you're going to go on ChatGPT and ask it to summarize some notes that you took from a meeting, or, you know, my son uses it to write lyrics for songs about funny things. 

Damian Cilmi: I thought you were going to say he's doing his assignments. I was like, I don't know if you want to put that on public record.

Matt Sgrizzi: He better not be, if he's listening. The teachers already have AI to identify that, so it's an AI arms race. But they there's, you'll wait a couple seconds to get that feedback, right? So, if they're going to put AI computing technology in. North Dakota or Nebraska, which they're doing, that's okay because you'll wait.

But eventually, we're going to have AI in our phones that are helping us run our schedules and find do, do map directions. And we're not going to accept latency there. So, that stuff is going to come closer. And that's why data centres are a real estate business. As, as well as infrastructure, as well as a digital business.

Technology sector. But at the end of the day, data centres have to be close to people because that's who use them. 

Damian Cilmi: You did mention North Dakota and Nebraska. Yeah. And no offense to all of our listeners there. But they do sound like far more remote areas. Like, why those locations? Because the power is available. That's interesting. 

Matt Sgrizzi: Yeah, exactly. So, you have hydropower in some of those locations. You have, you know, power plants. You don't have the same demands on the grid that you do from these population centres and, and, and frankly some of those municipalities realize that's a business opportunity, and so they're providing incentives to bring your, your business there to do those activities and to make power guaranteed and cheap and readily available, so you know, that's happening.

Hmm. I'll take you there for a property tour. 

Damian Cilmi: Yeah, that's what I was going to say. You're probably going around to a lot more disparate places than you used to. 

Matt Sgrizzi: Now there, it's, there's not a lot of that happening yet, but it's, it is starting to happen. I actually don't think the public companies will get too involved in that because they've been more involved in some of the network dense types of data centres where, again, it's like a, it's a real estate business.

It's like a city. Why are people in this.

Damian Cilmi: What does it say about Virginia? Like, what's that called? Data Valley? Yeah, Data Centre Valley. Yeah, yeah, that's right. 

Matt Sgrizzi: And indeed, it's, it's it, look, it's a, it is a, an area where there's a lot of land available. Now that land is extremely valuable. It wasn't, it didn't used to be but it's close to people.

It's in the mid-Atlantic. It's where a lot of people are in in the U. S. and where a lot of internet activity is. And, and because it was kind of first just like the creation of a city, right? Like, why don't we have a city somewhere else? Well, because nobody's there. Everyone wants to be where everybody else is.

And that's what a network dense data centre is. It's, it's a centre, it's a data centre where it's close to people, it's on those it's got good power connectivity, it's got good fiber cable connectivity, and it will have Amazon, Google, Facebook Amazon. And the other large internet providers.

And they're all in there and they're connecting to one another. A lot of internet traffic is through a couple of websites, actually. 

Damian Cilmi: Yeah. Interesting. Slightly different tact talking about the industrial sector. Because that was another, I suppose, subsector in a way that saw a lot of interest and activity, even from a, from a COVID sense as well with the, you know, just in that large lake of explosion of e commerce.

So has it been, I'm not going to use the word regulated, but it hasn't been an orderly, you know, supply response in, in in that sense. 

Matt Sgrizzi: Yeah. So definitely a hot sector and you know, it's a different sector. It's office space, but it's, it's something, it's different. It has to have higher ceiling heights stronger floor plates.

And it usually, it's better for it to be in knowledge centres close to where this, where research is, is being done. And so differentiated type of real estate product, but kind of the flip side of the coin of office being under a lot of pressure, a lot of office space has become research and development or life science space, and it's become competitive.

And, you know, I think some of it's a reach and it's not really, but on the margin, it's kind of it has been a supply valve essentially, that's been released that can take up some of the demand. So that's been an offset I think in that sector. And we, and we've seen that sector slow down because there was, there was as well because it was a hot sector, you know, traditional core life science office space being developed.

And that's come online and, and, and all this fundraising that was done around the sector, that's cooled off as well as interest rates went up. And so, the demand side has cooled off a little bit around the same time. 

Damian Cilmi: Yeah. And so, like that explosion into, to e commerce. So, what are some of the numbers of, I suppose how much retail is being done online now?

And, and so we, we are not at a saturation point, but is it now? you know, recalibrated in a sense, like all these supply lines and infrastructure. 

Matt Sgrizzi: Yeah. So, the amount of retail space that's been built over the past several years has really come way off. Because we've been dealing with this e commerce dynamic and a reduction in brick-and-mortar retail spending, right?

It's, we're kind of 10 years into a real concern about that. So, there's a lot less new retail space being delivered. Right. And, you know, that, that is, again, the, the other side of the coin of lower demand is that, eventually, supply is reduced and that can bring balance. 

Damian Cilmi: So, it's so frugal, it's in a sense.

Matt Sgrizzi: Exactly, exactly, exactly. So but, you know, we, we do think that There's more penetration to come of ecommerce sales where we think we're kind of 70 percent of the way through it and that that's going to be a continued headwind for brick and mortar and a tailwind for logistics and e commerce activity but we're, again, we're, there's still more to go, but we're through most of it and there is no additional retail being developed.

So, we see that market really, you know, generally kind of, it is self-correcting, it's figuring itself out. Retail's becoming an interesting sector now. It's been, there's been negative sentiment on it for a long time. A lot of the retail centres that are around and are trading well today, they've been battle tested.

They the landlords have had to invest in them, and they're in good shape. And, you know, retail, kind of do what the economy does. It's never been a, you know, explosive growth type of sector and that's okay. And that's what it's kind of going to be delivering here over the next couple of years. 

Damian Cilmi: And so, I think we'll probably have to start wrapping it up.

But like if we, we put all this together, I think That, you know, for you as an investor, you've got, you know, a lot more levers than what people realize, and like, there's a lot more sectors that this is not just about office, and it's not just about retail. There's a lot of opportunities out there for you.

Matt Sgrizzi: Oh, there, I mean, more than ever before, and, and, and, you know, we, we talked earlier about, you know, how these tough environments for real estate give way, have given way to great opportunities. of real estate investing and not only did that with REITs materially out a change in the dynamic of the REIT sector and the real estate sector.

And that that's, that's very possible for that to happen again. But, but indeed there's, there is significant diversification across all these different property sectors that are available to us. 

Damian Cilmi: We haven't even really talked about geography either. We haven't talked. We've just been at sector level.

Matt Sgrizzi: Indeed. And so, you know, there's, there, we haven't really even got a chance to talk about multifamily. Indeed. Or niche residential sectors like student housing or single-family homes, which is a really exciting sector. Or manufactured housing, which doesn't sound like a really nice sector, which is kind of trailer parks.

But they're great investments, actually. And, and cell towers and healthcare. All these dynamic sectors that are available in the public markets that deliver what you want from a real estate investment. And at the end of the day, I think that's what's most important, is that real estate is a unique asset class, because it is a little bit like stocks, in that it's a perpetuity, and it provides inflation protection, and it's a little bit like bonds, in that it has a strong income component of the return.

And that's what makes it special, and hybrid, and that's what makes it a diversifier. And all these other sectors have those basic elements. They're giving you good income today, and there's growth potential in their income over, over the medium to long term. And that's real estate. And those sectors can continue to carry the torch while a sector like office is finding its automatic stabilizer.

Damian Cilmi: Yeah, that was excellent and a great I was going to say going around the world, but we didn't really, but we went through a hell of a lot of trouble. Very interesting. So Matt, thanks again for coming out to Australia and thanks for coming on the program. 

Matt Sgrizzi: No, it's always great to be here and it's great to do this with you, Damian.

Thank you for the opportunity. 

Damian Cilmi: Thank you.

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