← The Walker Webcast
The Walker Webcast
James Millon, President & Co-Head of Capital Markets U.S. & Canada at CBRE Capital Markets, Justin Wheeler, Chief Executive Officer of Berkadia, and Michelle Herrick, Head of Commercial Real Estate at JPMorganChase
00:59:00
Loading summary
Transcript93 lines
- [00:11]
A
Join Willie Walker, Walker and Dunlop's chairman and CEO as we bring you fresh perspectives about leadership, business, the economy and commercial real estate. Willie hosts a diverse network of leaders as they share wisdom that cuts across industry lines. His guests are experts in their fields, from leading economists and CEOs to Harvard and Yale professors and everything in between. Our one goal is simple, providing you with unique insights, unparalleled data and real time market analyses.
- [00:44]
B
It's great to have everyone here. You can see up on the screen my three guests, Michelle Herrick, James Millen and Justin Wheeler. It's a real pleasure for me to do this panel here at NBA cref. I consider these three people both friends as well as competitors. And so one day they are my best friend because we're working together to do something for the industry, and the next day I won't say they are seemingly my enemy, but they're certainly fierce competitors with my firm. And so it's a real pleasure and I see my friend Justin at the end there. Justin and I have spent a lot of time in the trenches together, both on policy issues as well as competing for business and competing for talent and things of that nature. And I'm very much looking forward to diving into this discussion before I begin with questions to my three colleagues. Yesterday in getting ready for this, I went to GROK because I looked at the three firms that are sitting on my left and I said I wonder what GROK would say if I say who are the largest lenders to commercial real estate in the United States. And this is unedited screenshot. Unedited screenshot. So the first one that comes up of it says these rankings include bankers, brokers and it says Newmark, CBRE and Walker. And Dunlop was the first screen that came up. Second one that came up was in multifamily focused lenders, Walker Knop and Brickadia. Clearly I have my GROQ trained so that Walker Knop goes above Brickadia in the slide. And then the final one was on portfolio and banks, JP Morgan at the top, Wells Fargo and BofA. And so what you have here in front of you, the three people to my left are the, the very three of the largest providers of capital, the commercial real estate industry. Let me start with this, Justin. There's a lot of question marks about where we are in the cycle, where we are from a capital markets perspective. I went down to the CREF C conference in Miami in mid January and you would have thought that this was the greatest market we've ever been in. Euphoria Lots of capital, debt capital, equity capital. And then all of a sudden, you and I then went to Las Vegas at nmhc and they're owners of apartment buildings, are sitting around sort of, not necessarily with their hands in their heads, but not nearly the attitude that you were seeing at Craftsy. So it feels like there's a lot of capital that's looking for a home. Yet from a fundamental standpoint, at least in multifamily, things aren't that great. What's your take on the market today?
- [03:09]
A
You kind of nailed it, Willie. First, I'd just like to say thanks. When I got the original invitation to speak, they said it was the Wheeler webcast. And so.
- [03:16]
C
No, it's great.
- [03:17]
A
I would say. Yeah, I think you kind of tracked it. Right. And I think the thing that I would say is that there is so much debt capital that I'm seeing and so aggressive like we're seeing people. You know, there are places where there are loans that are kind of struggling from maybe banks or things like that. And you'll find. You'll find cmbs or debt funds who are willing to come in and take them out at a higher ltv. And so there doesn't have to be, you know, an equity injection or things like that. So I. I kind of move from extend to pretend to pretend to pretend a little bit of thought going on. There's also some lenders who are coming in and willing to see things at a basis and say, hey, if I can get in there, I know it's a 75, 80, 85 LTV, but that's a good basis if I end up owning that property. So we're seeing some of those lenders coming in. But to your point about the equity and especially pointing to the nmhc, there just still is that kind of, you know, all of the buyers, we just recently did an investor sentiment pull. Everyone's a buyer, everyone wants to buy more, but no one wants to sell at today's prices. So you got this real mismatch. And I think that has persisted for a couple of years now and kind of continues into the first of this year where you really don't have that flow business that kind of like there's a willing buyer and a willing seller. What's being sold has a story, what's being bought has a story. And you still have a lot of equities. A lot of people have raised a lot of equity, but there's not a lot of equity being placed. And really see the hesitation specifically amongst the institutions feels like there's kind of the place where people are like, I'm not going to be the first guy to walk into the Harvard Club and say, hey, I sold my stuff at the six cap. And everyone laughs at you. You know, you don't want to be that guy. So I think there's still a little bit of hesitation there. On the institutional side, from my perspective,
- [04:53]
B
James Justin talked about the fact that nobody really kind of wants to sell, if you will. And our Buyer Seller Sentiment Index, it's interesting. Properties are sold, they're not bought. I mean, you can sit there and say, I want to buy and buy, but if someone does want to sell it at this cap rate, at this price, they're not going to do it. CB Obviously has an enormous investment sales business, sort of across all asset classes. Do you see 26 as being a year where sales expands and comes back further, or do you see it being, you know, flat or down from what we saw in 2025?
- [05:23]
C
Yeah, well, I would qualify that statement, which is nobody wants to sell unless they have to. Unless you have a limited partner that says it's time to sell. And so what we're seeing, if you just look at all of the, you know, Justin alluded to some of the capital that's been raised that's sitting in some of these funds. There was a statistic that I read yesterday. $300 billion of NAV is trapped in closed end funds past their fund maturity date. Those have to exit. You can't do continuation vehicles again and again and again. LPs want their capital back. The new acronym is DPI, not NAV. And so we're starting to see that. And then, you know, the Justin touched on something that I think is actually really important, which is, you know, this, this delta between where people have assets marked on their, on their books versus where the market is today. There's, there's a lot of owners, a lot of institutional owners that actually have assets that are priced at core. But there's been, you know, all the capital that's been raised in the marketplace has been opportunistic and value added. Right? So you have core assets, but nobody wants to sell core assets to value add or opportunistic returns. Right? And so we still see, you know, that, that bid ass bit offer start to tighten. And we saw it, you know, most notably in the fourth quarter. And we trade a lot of, a lot of, a lot of assets. Last year we traded, you know, north of $75 billion of activity. And, and, and we're starting to see that Come back. I think financing has a, has, has a, is a, is a large catalyst to bringing that bid ask closer together. When we start talking about things like neutral leverage and positive leverage again, does
- [06:54]
B
that sort of, if you will force selling to return capital to their LPs concern you at all as it relates to what those returns are going to look like for those middle market sponsor groups and then their ability to go and raise capital again in a new fund?
- [07:09]
C
Well, I think it's the cycle. You can't go and raise capital until you return capital back to those same LPs. And so you need to see the transactional activity to know exactly where you know assets are, are marked and valued today in order to then go and have a strategy to raise capital again. Everything is cycle based and we're going to see, you know, aspirationally, even if returns are not what they were, you know, led to believe in, in sort of a prospectus, it still is, is starting to get assets to clear through the marketplace and will allow know for that formation of capital once again. Assets resetting again. And as we start to see early days now, we're starting to enter into that new cycle of values starting to increase over time.
- [07:53]
B
Justin, I saw you nod your head on that one. Do you there is some concern about sort of the middle market funds where their returns have come down and their ability to go out and raise that next fund. Does that drive increased consolidation in the industry where the big get bigger and the middle get absorbed by them? Or do you think that there is a space in the market for those middle market players? I mean back when you and I started here, someone raises a billion dollar fund and they're, they're, they're, they're sizable in this industry. Now all of a sudden we have the big, you know, the big guys and gals raising $10 billion funds. Can you make it as a someone who's raising an 800 or a billion dollar fund on an every five year basis?
- [08:29]
A
Well, it's so interesting because when you look at kind of the ownership of multifamily it is still really fragmented and there are institutions play. I mean I think make, I can't remember the exact number of say 10 to 12% of overall ownership is institutional at some level. So I think there's a ton of product and there's a ton of middle market players and a ton of have done that. But I do believe there will be consolidation. I do believe that people's track record, I mean imagine that track record matters. That wasn't what it was in 2021, it was just raise money, get it out. It was musical chairs, everyone made money. I think now track record matters. And so I think some of those lower performing funds and lower performing vehicles that people have, have raised, they're people are going to be looking at track records and saying it matters. And so I do think there was going to be fallout and there's going to be consolidation in a way or else just falling out in the bigger, you know, some guys are going to grow a little bit and other people are going to drop out.
- [09:19]
B
Michelle, you at JP Morgan are what I would say is sort of the tip of the spear as it relates to new cycles. You do a lot of construction lending where your appetite for new projects, your underwriting that says I'll put a construction loan here is, is really what leads to a new supply wave. And we've been particularly in the multi family space at the end of a massive supply wave in office, you've really had no new office. You continue to get new supply and industrial and hospitality has been one of those asset classes. There really hasn't been a whole lot of new supply. As we've been waiting for fundamentals to come back. What's your sense right now as you're looking at new capital going into new products? Are you saying, hey, we're all on as it relates to construction lending or are you still being, if you will, discerning as it relates to where those dollars are going?
- [10:05]
D
If you think about how we think about it at J.P. morgan, we're in a customer service business. We're helping our clients with where they're going or else we're not a very meaningful banking partner to them. But what we're hearing from clients, and I agree with the discussion so far today in the institutional space, it was nice to see increased liquidity back in part because some of the transaction volume picked up and people could recycle capital a broader lens beyond just the institutional money. We did see a lot of patient local capital from the past five to 10 years, find very meaningful opportunities in that recycling of the capital. The last few. And so beyond our institutional businesses, about 60% of the money we put out last year was net new. As you think about supply to the multifamily markets across the country, broad brush, oversupply, certainly markets like New York, a lot of the California markets remain constrained. And we'd love to, we'd love to talk about how we can get more supply to some of those markets, particularly affordable from our client side and then Our construction, lending support of what they're doing. We saw selective starts in 25, as you would expect. We're talking about more in 26, but nowhere near the level of 21.
- [11:33]
B
And so risk on, risk sideways, risk off for us.
- [11:38]
D
Yeah, risk consistent. And if I could just do an infomercial of the whole debt industry when there's more debt than deals, why don't we all try for that so we don't go illiquid from time to time. But yeah, we, we pride ourselves on consistency of capital. We're supporting clients in a levered industry. So while we offer all banking products and we love to help people run their business is better. Can't really start those conversations to this industry without a meaningful amount of mortgage debt. And so for us to be able to deliver a return to our shareholders and remain meaningful for clients, it's always consistency of capital, which starts with client selection and risk discipline.
- [12:20]
B
Justin, here we are at MBA Craft with lots of bankers and brokers who you all are consistently looking to, in some cases bring across to Bradia. What's the, what's the sales pitch for Bradia of someone who wants to come work with you? What do you say to somebody who's at another firm or is new in the industry and says why would you come to Bria?
- [12:44]
A
Oh yeah, I mean a couple of things and we do, we do a lot of recruiting. I mean that's kind of one of the. I probably spend, you know, 25 to 30% of my time doing that. And really the, there's a couple of things with the pitch. Number one, our ownership. It's really nice not to be a public company, quite honestly. It's really nice to have Berkshire Hathaway as at least half of the ownership because that really lets us take a long term view that I think is kind of rare in the business. And so we're making decisions every day. We're making investments, we're making, you know, investments in the people and in the technology, for instance, that allows us to, you know, we don't have to worry about a quarterly earnings or we don't have to worry about, you know, an ROI that's immediate or something like that. And so that's one thing that's really kind of the backbone of our company and something we use to pitch. You got to sell what you got. I don't have stock to give to people, so I sell that story. And the other thing is we really are trying to work as a team. Like how do we actually get our investment sales Mortgage bankers, our equity group, our specialties. How do we get them to present themselves in an advisory way, in a team way, in a collaborative way, so that we can all, you know, one plus one plus one equals far more than three. And so we really do kind of search and screen on the fact that, you know, we want to have the most collaborative people and we want to be able to have our person, you know, are on the debt side. It's bankers are matched up with clients. We want them to see themselves as the conduit for all of Brickadia's offerings. There may not be a debt financing that needs to be done, but there may be a sale. There may be a need to recap, There may be another. They may have a. They have a hotel. Who knows what it is. We want to bring the entire power of Berkadia to the platform, to the clients, and that's part of the recruiting pitch we give to people.
- [14:22]
B
So, James, someone's come in, interview with you. They've just met with Justin and heard that as a sales pitch. What's the CBRE sales pitch?
- [14:29]
C
Yeah, listen, we. We differentiate with our size and our scale and what we love about, you know, and it's not just, you know, within my world of. Of capital markets, which is our debt and structure finance business, our investment sales business, in our investment banking business, and then by extension, we have our advisory business, which is our leasing business, our valuations business. We're in this game to service clients and deliver exceptional outcomes for all of our clients. And similar to what Justin said, we do that not with an individual or even a team, but we do that with transactional acumen across multiple disciplines to come up with what we call really strategic advisory. Less brokerage. Brokerage, in my mind, is somewhat of a commoditized business that just simply reflects, you know, transacting. We want to be doing a strategic advisory for our clients, and we want to bring people over to CBRE who have that type of a mindset.
- [15:27]
B
So, Michelle, you're part of the world's largest bank. You've just heard two, I think very compelling sales pitches as it relates to the focus both in people and the market. From Justin and from James. How do you get people to come across to JP Morgan?
- [15:43]
D
I think it's a similar pitch in what is not surprising in a crowded capital space, but it is, if I may do ours, we have a very meaningful CRE franchise. I'm overseeing 150 billion of the balance sheet, which is significant in and of itself. But when you broaden that to everything around our knowledge base and what we can offer the industry, largest to smallest clients. I have a very meaningful partner and Brian Baker doing the securitized offerings. We have a global investment bank that's top led by Tom Greer. We have 75 million of our own square footage in our JP Morgan used spaces, notably 270 and now replicating that in London and other major markets. That gives us a great knowledge base for what's happening from a lot of our client side in the industry. And then we also have our asset management platform led by Chad Treadway. And so we're looking at this 300 billion plus, however you measure it of CRE knowledge. And what I want to extract from all of that partnership is to make sure whatever our clients need, with maybe the caveat of max leverage, full cash flow availability for the short term, we have that offering for them under the JP Morgan umbrella. Because what we found is you can maybe beat us in a silo, but when we can deliver the power of that whole franchise, we're pretty unstoppable. And sorry, no, go ahead to the talent question. If you want to make a name for yourself in this industry, you need capital backing you, you need depth of products so that you can have meaningful conversations. I think for my seat it does a really nice loop of attracting the right people to represent our platform to further deepen our clients.
- [17:30]
B
So you work for one of the truly iconic business leaders in America today, Jamie Dimon. A what's it like to work for Jamie? And second of all, what's the leadership quality that you see in Jamie that you try to emulate?
- [17:44]
D
So he just had an off site last week with all of us, which is great because I was just thinking about this for an extended period of time. I think it's the authenticity in his leadership style combined with this insatiable appetite to never stop learning. Right. So he isn't deep on a topic and he isn't broad on a lot of topics. He's deep on a lot of topics because that's how he challenges himself. He challenges the team around him to think about the global landscape in that way. And what I like about the J.P. morgan story that he has built right since the days of Bank One, it was scrappy Bank One that has now become arguably biased by me, the most meaningful bank in the world. He doesn't rest on those accomplishments. He's investing significant thought, effort and resources of the bank for things that are beyond banking. If you think about our security and resiliency initiative that was rolled out in 2025. How do we take what we know and onshore to America? Supply chains that are essential to advanced pharmaceuticals and defense. Right. I mean, that's pretty fun to work at a bank where you get to spend time thinking about those things or take policy lessons, advice, learnings, and make sure that we're sharing that with all of the countries and different markets around the globe that we're expanding to, who may not have as deep of advisory solutions as we do with our huge research machine. So that's all Jamie's leadership and the next couple of levels under him who have been trained in his thought. But it is a really fun work in a commoditized business. But take it to a real global advisory thought leadership.
- [19:34]
B
James, Bob's done an amazing job both leading and building CBRE into the largest commercial real estate services company in the world. Similar question to you as it relates to working for Bob. And what's the Bob's leadership piece that you try and emulate?
- [19:51]
C
Yeah, and look, there's many. But I would say clarity and strategy for Bob. And it, it starts with an aspiration. And then from that aspiration we have a strategy. And then from a strategy, we then have our strategic pillars on how we effectuate that strategy. And every decision that, that he makes and then by extension those who cascade down from him make everything has to tie back to the strategy. And so he's, he's incredibly focused on making sure that all the decisions that everybody in the leadership committee undertakes ties back to the existing strategy that was set from the very beginning.
- [20:29]
B
So before I asked Justin the same question. Justin's actually his own boss, but I've got a little bit of an anecdote before I turn it, turn this question to him, which is about. I don't know whether it was eight or 10 years ago. I was doing a similar type talk at a BizNow conference in Virginia and I had as my two guests Barry Sternlich and Bob Faith. And we'd had this great, engaging conversation. And at the end of it, I turned to Barry and Bob and I said, look, the two of you have been amazingly successful. This is a big room, very similar to this room. And I said, tell us an experience you've had that your success and your wealth has brought you that people in this room might not have had access to. Or just tell us a fun little anecdote. And so the two of them sort of sit there and I'm sure both of them were sort of saying, how much do I really want to Kind of show in front of this group of a thousand people, where I seem like I'm giving an experience that's a relative experience, but not sounding like I'm some, you know, billionaire, which both of them are, and flying around on my jet. And Bob Faith goes, well, I got one for you. He goes, actually, it's about a competitor of yours. Last year, Berkadia flew me out to. I flew out to Omaha, Nebraska, to
- [21:37]
A
meet with
- [21:40]
B
the Oracle of Omaha, and I had a really, really great time meeting with Warren Buffett. It was really a true life experience. And by that time, I'm down on the floor going, like, please take that out of my back, that stab that you just put in there. And got Bob to say how great it was to go and meet with the Oracle of Omaha. What's it like working for Warren Buffett?
- [22:04]
A
Liberating. I mean, honestly, I worked for a public company for 15 years, and I wouldn't.
- [22:08]
B
I.
- [22:09]
A
So I know the pressures and what that's like, and to be working with him is great. I have just a few. He doesn't spend a whole bunch of time thinking about Berkadia because we're a. We're a rounding error, for sure. I have a few really funny experiences, some that are kind of painful to me, but I'll give kind of one in a short phrase. When I first became the CEO of Brocadia, we have a big servicing book, and we have escrows. And those escrows have to be super liquid, super safe, all that kind of stuff. And we were earning about. I think it was 17, 18 basis points on about $6 billion. And I was like, man, I'm this new CEO. I'm like, I gotta do this. If I could get that to 40 basis points, I'd be, like, a genius. And so I have a finance background. So I went back and looked at all these ways we could use synthetics and credit default swaps, all this amazing stuff that these genius finance people come up with. And I sent him a memo, and there was a lady who was between Warren and I who had lunch with him every Saturday, and her name was Tracy. And I said, tracy, I sent this memo to Warren. Will you make sure that he reads it and talk to him this Saturday? And she said, yeah, I'll do that. So Monday comes Monday morning, nothing. Phone doesn't ring Monday. By noon, I can't even eat lunch because I'm stressing over this memo I sent. Monday afternoon, I finally called Tracy, and I said, tracy, did Warren read the memo? And she said, yeah, yeah. Did he say anything about it?
- [23:27]
B
Yeah, yeah.
- [23:28]
A
Well, what do you say? And she's like, do you want me to paraphrase it?
- [23:31]
C
And.
- [23:32]
A
Yeah. And I said, no, no, no.
- [23:33]
B
I'm a big boy.
- [23:33]
A
Like, let me have it. And she said, Warren said, tell Justin his job is not to figure out how to get excess yield on extra capital. I'm pretty good at that myself. Tell Justin his job is to build the best franchise in the industry. It was at once the most painful thing you talk about. Like. Like the dart went in and it stayed there. And it was very painful, but also the most liberating thing that's ever happened to me. Like, we do not have to worry about the day to day. You know, I was done with 2025 in September of 2025. I mean, it was because we were looking forward and figuring out how we're going to, you know, take that next step in that evolution of building the best franchise in the industry. We're a long ways from it, but we're working hard at it kind of every day. And that's. That, to me, was a great. There was one other comment that was made that he made that was really funny. I asked him, like, how does. How do you kind of, like, you just seem like you're calm, like you're just relaxed, like, but you gotta have a billion things going on in your head. How do you do it? And he kind of looks at me with that smile.
- [24:31]
B
Yeah.
- [24:31]
A
And he said, it's a calm assurance of effortless superiority. I like that.
- [24:35]
B
Yeah.
- [24:36]
D
Are we allowed to ask you?
- [24:37]
B
You'll have to ask me.
- [24:38]
C
Yeah.
- [24:39]
D
Is this one way, or do you want to talk about Walker and Dunlap and the culture you set out?
- [24:45]
B
Wow, Michelle, I hadn't expected that. You're so. No, it's okay. I'll. I'll answer the question. Look, I've been. You guys have all been taking my. My questions. I would just say that, you know, going from a small, privately held company and turning it into a reasonably large, publicly traded company is a transition and a transformation that I don't think. I would only say this when we went public back in 2010. I was completely naive. And Justin and I were both in the industry at the time, and he saw this happen. I was completely naive to what was required to be a publicly traded company. I thought it sounded great. Bankers had come to me and said, you got the size and scale to go public, go do it. And we were the first company after the gfc, either single family or commercial to go public. And so it was really quite something getting us out. But to be blunt about it, the world really didn't need a micro cap commercial mortgage bank in the public realm at that time. And I would say the only other piece to it is that, you know, I listened to what. And first of all, I know I don't know Warren, but I. I clearly know Bob well and I know Jamie well. And I've learned a lot from watching what Bob has done at CBRE and what Jamie's done at JP Morgan. And clearly, I think all of us have looked at what Warren has done with Berkshire Hathaway, and you can't help but A, be impressed, but B, just pick up those little lessons that Justin was talking about, right? You just what he says and you're sort of like, wow, I'd love to think that way, I'd love to act that way. I'd love to be as relaxed about certain things or saying, you know, don't worry about getting excess revenue on your. On your escrows. Just go build the business. And by the way, Justin and I had a meeting years ago where the two of us are sitting around just talking about. Because the two of us compete for talent all the time. And, you know, he's taken people from me and I've taken people from him. And one of the things that Justin said to me that I will never, ever forget, and I thought it was so insightful.
- [26:42]
D
He.
- [26:42]
B
He said, you know, if we lose someone to Walker or to CB or someone else, it's shame on me for not having created something at Mercadia for them to stay for.
- [26:52]
C
It's not.
- [26:53]
B
I'm pissed off at Willie for pulling him across or whatever else. The responsibility is on Justin to keep me at Percadia. Responsibility is on me to keep him at Walker. And I thought it was such a. Interesting lens to look at it because I learned a lot in that meeting with you where it was just sort of like, you don't look at, wow, they offered him some great signing bonus and they walked across the street. And I'm pissed off at the competitor for pulling him across. It was like, shame on me for a platform that they would want to stay at and be able to disregard that signing bonus because they see something at CB or they see something at Bri to stick at. So I guess in response to your question, I've learned a lot by both engaging with the three of you other people as well as the people that we've just talked about. Let me go back to my question, so data centers I don't think is a topic that's really talked about a whole lot at MBA CREF in past years, but there's so much capital going to it. James, you guys manage over 700 data centers across the globe for big operators. Michelle, you all are some of the largest lenders in the, in the world on data centers right now. Let me, let me start with you Michelle, on this. As you all look at lending on data centers, is it a real estate deal or is it a borrower? I mean it's always a borrower credit deal. But the bottom line is are you looking at it as a real estate transaction? Are you looking at it? I'm just looking at the corporate credit of the borrower and saying I'm either going to do the deal with Blue Owl or Oracle or you know, Google. Less so than what are the operating fundamentals of the actual real estate?
- [28:26]
D
Yeah, it's the ultimate tweener, right. You can look at it from a real estate perspective. There's certainly a very compelling overlap with infrastructure and real estate. And at the, at the highest scan back it is, you know, you want the US to dominate this space. It's essentially using everyone's data. And so it's also a security risk and an investment thesis for our country to make sure that we're doing quite well in this space. Any deal, any specific deal goes back to those fundamentals around who's the borrower, who's the tenant, what outs specifically for large dollars before construction completion and tenant takes occupancy. All of those still matter. But yeah, there is a much broader lens that we're supporting in the investment around AI but data centers to power that.
- [29:19]
B
So if you're doing a large data center loan, does it stay inside of the real estate group or does the corporate credit group and the bond group come in where it's just a broader analysis than just hey, this is the real estate. Here are the rents we're going to get and it stays in your group.
- [29:34]
D
It's everyone involved as it should be because there's so many constituents to each, each of those transactions. And to my earlier comments, in a silo we miss altogether. We, we create max value for our clients and then ultimately for our shareholders. So it's, it's everyone involved.
- [29:51]
B
And James, I mentioned that you all manage 700 data centers across the, across the world that install base of clients, that management of those facilities much must be a huge competitive advantage to you all in working on the capital market side of financing Them and, and leasing them and then managing them ultimately are you guys being able to leverage off of that capital markets business?
- [30:11]
C
We definitely have an information advantage and that started three or four years ago Willie, when you know we, we call these Data Center 2.0, right? We all remember the data centers, you know the Colos from the early 2000s and how that went. This is these hyperscaler tenants and, and even a non hyperscalers and neoclouds, turnkey, hyperscale hybrid turnkey powered shell. Very, very different asset class. So to answer your question in terms of just our information flow, we started three years ago really writing white papers for many of these lenders to actually get back into this space who are not familiar with what this data center looked like. Clearly there's different attributes of these data centers that are easier to underwrite fundamentally than ones that are not. And that 15 year investment grade tenant when you can almost put a CTL like structure together and amortize your basis down to a dark value that you feel reasonably comfortable with even in places like North Dakota and Arkansas versus a non investment grade rated and the market looks at those two opportunities fundamentally different. And coming back to the information advantage that we believe we have at CBRE because we have data center specialists, we have the operational side of the business, we have made principal investments in the sector through our real estate investing segment. We bring all that together to inform our views as to what is the right risk adjusted returns for that sector. And then if it's in an advisory capacity, making sure that we inform those views or we communicate those views to either a lender or a JV partner in a financial structure of some sort or if it's a regular buy, sell to a buyer.
- [31:53]
B
Justin, I want to jump to you in a second but Michelle, one of the things that CB being an intermediary, being a manager of them is clearly moving to where there are fees from a management standpoint or a debt placement standpoint, you're holding the credit risk. Do you have any concerns that we are overbuilding, that we are in a.com bubble as it relates to the amount of capital that's going out to data centers right now and that some of these long term exposures that JP Morgan is taking might end up not being paid off Again?
- [32:23]
D
Brad Brush, should the investments be me being made? Yes, to the fundamentals of, of all of the industries that are involved, the, the nuance and the structure on how you do individual deals or where you choose to take your exposures really matter. I feel. We feel comfortable with what we've done so far. Remember, a lot on the balance sheets is the construction, so a shorter term hold period into what will ultimately have to be created, which is a broader long term market of significant size for these assets.
- [32:56]
C
I mean also they're, they're, they're de risking by syndicating out the risk as well. Right. $2 billion projects are not, you know, even if it's 85% loan across financing, those are not sitting on JP Morgan's balance sheet. Right. There's, there's a piece of it that clearly is as an agent, but they're syndicating that risk more broadly out there into the ecosystem.
- [33:14]
D
You're asking the right questions. Like I wanted to really badly ask Jane, like what is the appropriate dark value for North Dakota, South Dakota. Right. Even it's, it's a hard, it's a hard question to get around and think thoughtfully through when at the end of the day a lot of this is individual asset finance.
- [33:32]
A
Yeah.
- [33:34]
D
So we look at that with strong tendency, recourse, appropriate hold levels. Same, same as we always do for anything we're lending on the one thing
- [33:44]
B
that keeps coming kind of you talk to people about why the AI build out is distinct from the dot com build out and what I keep hearing back is we'll look at who's investing in it. There are these companies with these massive balance sheets and they're enormous enterprises. Whereas in the dot com buildup it was all these dot com companies that basically had no revenues and had no earnings and therefore when everything crashed down, it just came down catastrophically. And my only concern there is that everyone continues to talk about the fact that there, there are going to be winners and losers here. And right now we're betting that everyone's a winner. We're betting that every single one of these large language models is going to be used by all of us the way that they're being used today. And there's going to be no consolidation. And the bottom line there is that when you're making these $1.2 trillion bets like OpenAI is if they're not the winner, that tail risk is enormous.
- [34:35]
D
I do think something that was very healthy to happen in 25 was that off balance sheet investment being made by the Big seven ultimately came clearly into the light of the capital markets. Right. There's no going unnoticed because you're doing it in an off balance sheet vehicle, if that was ever the intent. This is fully watched, reported around heavily and calculated into their values, which is good. Transparency is Always important.
- [34:59]
B
Justin, the, the, the Oracle of Omaha has always sort of looked at Bitcoin as something that he didn't get and therefore wouldn't invest in. Is Berkshire athlete an investor in the AI boom in any way?
- [35:11]
A
No way that I've seen a significant way. No. I mean, you know, I think Charlie compared it to something rather smelly was his remark on Bitcoin. I think that ethos remains. I mean, obviously there's been a changeover of the CEO from Warren to Greg, but I don't see that as being a revolutionary change, at least at this
- [35:28]
B
point as it relates to the use of AI. Tell me, if I were a Berkadia customer, how's Berkey make my life easier?
- [35:40]
A
Yeah, I mean one of the things we really try to focus on the client experience and in. And again, kind of going back to this, the, the advisor or the banker being able to bring the entire firm to our clients. And so Berkey, that's just our instance of chat GPT that's internal to Bercadia and we're, you know, hooking it up to all of our internal data, which includes, you know, we have about 450 billion of servicing. We have some other things that we have proprietary that we kind of pull into that. And we're really trying to get what we call actionable insights. So how can we get something that actually means something to a client is going to change their mind, is going to help inform their strategy, is going to let them think differently about a market or an asset or, or, you know, a strategy or a portfolio, an existing portfolio or things like that. So we can give them, you know, expense comparisons with an anonymized group of assets that are like their assets and like places and things along those lines. And we're really trying to make that so that the, it's really hard to kind of get that to the last half mile, which is the advisor or the banker. So it's really a plane. You, you know, you type in a prompt with the, you know, anything you kind of want and it kind of pulls things out. We're doing a lot of things around having prompt a thons and other things. We're trying to find out what are those best practices and ways to glean information and then how do we standardize those across the platform once again, all in service to the clients. And one of the things that's really interesting me, this is not Warren, but my boss before that who was also a crazy billionaire. One of the things he, when I asked him, I Said, I said, ian, what's the worst thing that ever happens to you? You've got, like, five houses, you got. Got, you know, 10 cars, you got three jets. You got all this stuff. What's the worst thing that ever happens? And he kind of sat back a second, he said, inconvenience. And I was like, bang. That's what we're trying to do at Brocadia. How do we make ourselves more convenient? How do we get the answers that people want quicker? How do we move faster? How do we kind of provide those things that allow our clients to get a leg up on their competition? That's really the end game for Mercadia. And so we're. We're trying to find all the ways to use Berkey and other AI like tools, you know, to speed things up, to make things a little more accurate, to make them a little more precise, to make them a little more action oriented. That's kind of our goal.
- [37:47]
B
When you think about Brickadia in 2030, you obviously think it's going to continue to grow. Do you have more employees or less employees in 2030 than you do in 2026?
- [37:58]
A
That's a great question. And I would just say that I think the way I think about AI, and a lot of people say, well, AI, you know, it's just. It's this job eliminator. Like, we're going to have, you know, 3000 employees, are going to go down to 1500. And where you go, I actually. That may or may not be the case in 2030 is hard for me to, like, see because technology is changing so fast. What I really see it as right now is we have a host of processes that we do. I mean, we have thousands and thousands of processes. And there's a scale that's like, part of that is scientific. Part of that is this. I call it part of it is the science. It's just things that have to be done. They have to be done the same way. They have to be done repetitively. And then there's the art, and people are the art, and machines are the science. And we want all the science to be done by machines, because that frees up the creative spirit of the Brickadians to, like, solve people's problems, to engage with their clients more, to understand deeper what the issues are, what the challenges, opportunities, needs are of the clients. And so I really see it as this really big productivity booster and creativity booster within Berkadia. That's like, chapter one. Do I hope we're doing twice as much business with the same number of people. Yeah, I do think there's an absolute productivity boon to that for sure. Where will that growth be? Will we double in size? Will we. I don't. I'm not exactly sure where that Nexus meets. James.
- [39:18]
B
What does. What will Ellis get me that Berkey doesn't?
- [39:21]
C
Well, listen, I. We've been in the lab, no pun intended, for the last couple of years on, on just, you know, AI applications. And, you know, we start with the broad pools of data that we have available to us, right? There's the public domain that everybody will be able to access pretty soon with, you know, generally the same AI prompt. And then there's the proprietary data. And we look at our transaction business in terms of debt and structured finance, where, you know, 2,500 transactions last year and $65 billion. That's one pool. We look at our investment sales business. We did 3,000 transactions last year, $75 billion. We look at our servicing business, which is 350 billion in our servicing book. And those are tremendous. Those are just three that sort of sit under me within capital markets. And then we also have our valuations business where we're valuing assets literally on a daily basis. And all of that data is incredibly helpful. And then the question is, well, you know, much like Justin said, well, how do you use it to your advantage as it relates to strategic advisory for clients?
- [40:21]
D
Right.
- [40:22]
C
And whether that's predictive capabilities, looking at trends, spotting trends, doing regression analysis, lining up everything to understand where, where we're going with certain strategies, or it's understanding real time data as it comes through and being able to just access that information very, very quickly, whether it's performance data, looking at, you know, whether it's our servicing book and, and figuring out exactly the hotspots or where there's potential problems that, you know, need to be addressed very, very quickly. And then the thing that Justin mentioned also is there's the operating leverage part of the equation, which I think Willie, goes to your question 2030. What does the employee base look like? Is it larger or smaller than what you have now? I don't know what 2030 is going to look like. I do think that people are going to have to change their skill set, much like has happened over the past couple of decades when there's been technological advancement that has disrupted industries. But I think for the next two years, that's the more applicable question, which is what does your employee base look like relative to today? And, you know, the first question that we have to look at is Whenever we have a hiring aid is and we're in an economy right now that is a slow hire, slow hire, slow fire, sort of, sort of ego economy. We look at, you know, what are the applications for AI over the next 24 to the 48 months and can we augment what we have today versus replace it?
- [41:49]
B
Right.
- [41:49]
C
I think that we're all going to be in a position where we're going to be able to weaponize AI and be smarter and faster and more intelligent and de risk transactions where we can. But you know that it's very much an open question. It's one that's going to be debated for a while now.
- [42:07]
A
But one thing I would say is that that's really interesting. I'm a dad. I have four kids. Well, the youngest one's 20. So I've got like kids in the thick of trying to figure this out. That's, that's. There's a real interesting kind of. I don't know if it's a conundrum, but it's something you know, that's, that's kind of getting figured out as we go. This. It's the entry level type jobs. It's the kind of think of us as like it's the analyst, the first year analysts coming out of college. So much of the stuff that they do that really helps them learn the business for the first two or three years is repetitive. It is process. It is boring is what my son says is boring. And he can just talk to his chat GPT. I mean, you know, like how that actually works out and how that goes through the workforce at a place like Mercadia and I'm sure everyone on stage and out in the crowds the same way how that actually works out is going to be very, very interesting. I remember I had a professor when I was a, when I was a senior in, in college. Just tells you how long ago it was. He wouldn't let us do it, use a calculator to, to calculate compound interest. We had to use the old tables and do the stuff. He's like, you're always going to need to know that we don't need to know that. Like no one needs to know that. I never, never in my single life pulled out one of those things. But how much of that is like AI, like how much is it going to literally like take things off people's plates that people will never have to learn how to do versus how much do they need a little bit of that thing? And in our company and I think most it's almost an apprenticeship model. You're sitting at the foot of someone learning something and you're growing kind of into their shoes and moving that AI has, it's going to disrupt that. How exactly that is I don't know. But it's a, it's something we're all wrestling with. And I'm wrestling with it as a dad, let alone as a CEO of a company.
- [43:43]
B
Michelle, you're making, you know, five, seven, ten year loans in some instances that are on assets that are requiring growth. They're requiring tenants to come and take office space, they're requiring residents to come in and live in a multifamily property. You hear someone like Justin say Arcadia might be able to double its size, but maybe have the exact same size workforce five years from now that it has today. Does that concern you?
- [44:10]
D
No. No. To your point, everything should, should be growing. And this is not new to that discussion. This is not new to constantly be innovating and introducing new solutions to be more efficient at the work. The way that we think about this space, the rolling out both of digital products and AI solutions, it's very similar to, let's take retail for example, right? Remember when E commerce was going to disrupt all spaces? You find that right balance of convenience of product and human interaction. And I love that. I mean, I sat in some things this year where it was like, you know, as if it was breaking research. Humans desire human connectivity. Like what are we even talking about, right? There's a balance. And then of course we'll introduce and enjoy tools that make our day to day work easier, right? No one likes doing the task part of their jobs. Everyone likes doing the thought part of your job. And so to the extent that these tools can take some of the tasks off of people's day today, particularly if you think about in banking where, you know, we're a combination of many predecessor organizations which came with legacy tech. And so we do have swivel seats. That's just data entry. And so now that you have an AI agent that can do a lot of that, it really helps us for two reasons. One, be faster with less errors. But two, have the employees that were in that swivel seat do something that they enjoy more. And so yes, I think there will be finding that right balance of how many bodies? I think what your question was, is the tenant base in these assets declining or are people struggling to pay rent because they can't find a job? I'm not ready to jump to that. I think that there's a, there's a new normalization. And this one's definitely happening at a quicker clip than the introduction of the Internet did, or Excel versus calculators or calculators versus the original spreadsheets. I think the differentiator which I can get behind is you have to know the interconnectedness of the numbers. You have to know the core assumptions in any body of work. And so what I do see and I make myself use the models daily, a lot of it is like 80%. Right? But that's useless, right? I mean it helped you aggregate a lot of things that at a senior level you can see missed the heart of what the content needed. And they'll get smarter and we'll continue putting data in there, et cetera, to keep them going. But I don't think that displaces the junior analyst. I think the analyst that takes the time to understand the interconnectedness of all the numbers and can do the scan for what their model outputs to correct where the model is still wrong really stands out. Which to loop is grit and never stopping learning and pushing yourself just with new digital tools to do it. I have three teenagers, so I think about this a lot. And also will they get jobs as they graduate college. But that's how I can get behind it with them. Right.
- [47:26]
B
I think it is important to think back. If I said to you in 2000 that the Internet and E Commerce was going to make Amazon worth $5 trillion in 2025, I think you would immediately short all bricks and mortar retailer and you would go long Amazon. Well, going long Amazon, first of all, if you bought it in 2000, you didn't make money on that stock until 2007. So just remember that. But the other piece to it is that even with Amazon's growth to becoming a $5 trillion company today, Walmart's market cap just went over a trillion. And only 16% of retail in America today is online. 1684% of retail in America today is still bricks and mortar. And so while we clearly are all sitting there spinning out in our minds saying what's AI going to do? And are our kids going to get jobs at the types of firms that we all had our start and things of that nature, I do think that it's important to keep in mind that even with the incredible success of what E commerce did a it took a while for it actually to have the business model work. And then second of all, a quarter century later, you still have 84% of commerce going through bricks and mortar and only 16 online. So I Think that's helpful to keep in mind. Justin, let me switch gears before we run out of time. Fannie Mae and Freddie Mac are a big supplier of capital to the multifamily industry. 40 to 50%. You all were the largest GSE lender in 2025. Congratulations on that. The regulator Bill Pulte has just raised the caps on Fannie and Freddie by 20% between 2025. Doubled the amount of LI tech investing that Fannie and Freddie can do. What's your outlook in 2026 as it relates to just the overall multifamily market and the role that Fannie and Freddie are going to play in the market in the coming year?
- [49:22]
A
Yeah, look, I think they're going to continue to play an outsized role. It's one of the wonderful things about the multifamily side is you have these two entities that are always in the market. They're always providing, you know, stability, liquidity, the kind of their charter. And so that's what they're out there doing. You know, it's very interesting from my perspective, I think there will be enough activity to help them if they so desire and can kind of operationally handle getting to their caps. Last I heard there, you know, one of them was at 27 billion firm and funded. The other's at 2020, 22 billion firm and funded. That's really. We're in February. I mean, there you're, you're working yourself towards that a little bit. They had a lot of carryover from last year, obviously, so I think that that can happen. But what is really interesting to me, Willie, is like, for ourselves, we were the largest GSE and HUD originator. It was, it was less than half of our business. I mean, we still have, we, we funded with 250 different capital sources last year. There are a lot of, there's a lot of debt capital that's available and the deals now, you know, you're struggling with exit tests out of the, out of the agencies. You're struggling with other things. There's other capital that's willing to step in at higher proceeds at different structures and all those sorts of things. And so I'm not, as of right now, as I'm kind of looking at it, I'm just saying the debt markets are super liquid. I think the agencies will get their share and should get their share. I don't feel like they, they necessarily are like, that's a goal. It's like if we get there and it's the business that we want to do, that's what we're going to do. If we don't, we won't. And I think that's actually, I think that's kind of, that's kind of a healthy attitude. What I worry about is there's deals out there that they should do and could do, but operationally that much more volume through a machine that has been shrunk in size from the number of people, the amount of experience that's available, actually getting the deals through the pipe. I worry about that more than I do the other.
- [51:15]
B
And James, as we look at sort of housing policy writ large, the president has been very straightforward in saying that he wants to lower the cost of housing in America. And yet at the same time, he doesn't want to do anything to impact the value of homes In America, the 170 million homeowners who actually have an existing home. He doesn't want to see that come down, but he wants to allow for entry level homeowners to get into a house more effectively. As you hear that from a policy standpoint, what's that make you think about multi and where multi fundamentals go in 2026?
- [51:47]
C
Yeah, look, I mean he's, you know, there's clearly an announcement a couple of weeks ago about, you know, Fannie and Freddie buying $200 billion of mortgage backed securities to, in an attempt to try to subsidize some of that rate. I think that with multifamily fundamentals, when we look just broadly across the United States, there's clearly been a supply wave that's hit in certain parts of the country, most notably in the Sunbelt. We're working through some of that supply now and some of the concessions that are burning off right now. But broadly speaking, you feel pretty good about the macro setup to multifamily and what we call the secular tailwinds in the sector more broadly, there's going to be some softness and, you know, negative tradeouts in certain markets. But over the next three to five years, given the affordability crisis that we have in this country and given the supply dynamic that Willie, you mentioned and rates being generally pretty stable, not having sort of a volatile component to them, we feel pretty good about where the multifamily sector is going. And on top of it, you've got certainly an abundance of, of capital that's out there right now, mostly in the form of credit, that it's really difficult to find an example of a multifamily asset that you cannot capitalize through debt or equity in this market today.
- [53:08]
B
Michelle, I mentioned that Walmart just went over a trillion dollar market cap. JP Morgan is right on the cusp of going over a trillion dollar market cap, which is quite something. As you look at the backdrop of the economy today, you look at a Dow that's at record highs and S and P that's at record highs. A 10 year treasury that's around 4 18, 419 last time I checked. You look at unemployment at 4.3%. You look at a lot of economic indicators that would say to you that the economy is in really good shape. Does that translate in your view into health and the commercial real estate industry over 26 and 27, or is it. It's great for the hyperscalers, it's great for, you know, the macro, it's great for the S and P, but it doesn't translate down into a solid commercial real estate backdrop.
- [53:59]
D
Look, commercial real estate generally lags, right, because we're looking for macro trends that are driving usage of assets on the office side, retail side, job creation from our apartments in different markets. All of those are true. You layer on, as you mentioned, asset valuations are quite high across all industries, making real estate look relatively reasonable on a comparative basis. I think that what we're seeing in increased fundraising, increased transaction flow of standing room only of lenders here that we're talking to all point to. And further on top of that, close to a trillion of debt, a lot of it, 21 vintage that will need to be refinanced over the next 12 to 18 months. It should be an active, meaningfully strong couple of years. There are certainly macro and geopolitical risks, but for now we see opportunity on the rise.
- [54:57]
B
So my final question to the three of you and super appreciative of all of you and all of your thoughts and inputs today. I asked Peter Linneman a year ago, if he had to pick one asset class to invest in, what would it be? And I said, obviously location is very important to what asset class you can do. There's great real estate in bad markets and there's bad real estate in great markets. And he said if I were to stay rich, I would invest in multifamily. And then my next question to him was, well then, what's your get rich asset class? And he said office. And then I said what's your get poor asset class? And he said data centers. So my question to the three of you is if you had to go and make, you only could make one loan in 2026 and it has to be on an asset Class in a location. What's that loan that you have all the confidence in the world that either from a fundamentals of that, that micro market or from that asset class in that market. That is the loan that you want to do. And it's gonna, it can either be loan or equity. Cause you think that the upside's gonna be so great. But what's that market that you're looking at right now that says if I could buy office in San Francisco, I'd go there or what, whatever. So Justin, let me start with you.
- [56:10]
A
Well, you just took mine actually. That was a lot I was going to do. So I'm going to have to, I'm going to have to rethink it. But that or farm ground. Potato ground in Idaho.
- [56:19]
B
Potato land in Idaho. I was just there yesterday.
- [56:21]
A
Yeah. You know God's country. Yeah, yeah, I do that. But mostly just so I could build a house in the middle of it. No one could build. No one could build clothes. No. But I have it actually was going to be office in San Francisco. So I got to stop the games.
- [56:32]
C
Yeah. It's about risk. Adjusted returns, not risk equals returns. And so for me it's playing within the capital structures of trophy office in major markets. And I'll just take my market of New York City and if you can go and buy an HRR bond and yield 9% at effectively 60% of today's value at a 9% debt yield, that feels pretty good.
- [56:53]
D
Michelle, if I get to put on an equity hat for a minute, aside from my usual lender office, San Francisco and my day job, which is lending any multifamily in a supply constrained market, just given the discussions around New York, I'll say New York, to be provocative, we put out a piece last week, Michael Cymblist, who you know well, did a 50 year look back on the new supply creation in New York City and to the discussion earlier, really encouraged to see local, state and federal all trying to circle this problem with a variety of solutions, some which may work better than others. But to see everyone in 2026 talking about housing affordability and how we can all make it better. We spend time together in D.C. this was pushed aside for a number of years. So hopefully this is the year we all make progress on it.
- [57:49]
B
Yeah, I would underscore the Trump administration has been very focused on that. And this affordability drive and what the regulator Bill Pulte at FHFA has done to try and have Fannie and Freddie step in here is really having an impact on the markets. And so I would just underscore what you just said. Final thing I'd say for everyone to remember is that two of the three here were office in San Francisco. Not one of the four of us could get a bid on a piece of debt on an office building in San Francisco 18 months ago. You couldn't get a dollar to go into an office building in San Francisco 18 months ago. And right now we're saying that's the all on risk of where you can go make some really good money. These markets move and they move quickly. Thank you, everyone. Thanks to the three of you. It's been great.
- [58:34]
D
Thank you, Willie.
- [58:35]
C
Thanks.
- [58:35]
B
Thank you. Will.