Surveying the Landscape of Real Estate

There isn't a dinner party conversation in Abu Dhabi without real estate in it. So, we are literally on the money this morning. We're also on the clock. We have got less than 25 minutes. I've got three great speakers.

My job is largely to get out of the way. I'm going to find out over the next 25 minutes where we are, what's shaping where we're going, what you're doing strategy-wise and where we should be putting the smart money. Now, let's start with what's actually shaping strategy at the moment. the factors that we've been hearing about over the last 24 hours here in Abu Dhabi that are affecting nearly all asset classes, technology, generational lifestyle and and capital shifts, AI particularly changes in lifestyle, what forces do you think are going to redefine value creation in the real estate states and and how is it affecting your strategy at the moment?

Uh, I'll go ahead and start. uh Drew Goldman from AIA where I run real estate. Um you know I think I think the whole concept of AI is a complete gamecher in the real estate space and trying to identify the trends that are going to be I would say upending uh what exists today in a real estate hierarchy. If you if you think about what happened with Amazon and the rise of Amazon, people woke up a few years after saying, "Wait, folks aren't going to the malls anymore. They're buying from Amazon."

But some people were smart enough to start buying logistics and warehouses because they had the foresight. And the question is with this next transformation, what sectors are going to be the winners out of all of this increased productivity that are going to come? Data centers is obviously uh one space that we all know about, but I think there will be others. Um, you know, I would I would just add that um I really think the the big focus needs to be on demographics and some of the demographic shifts we're seeing. And you know, for us thinking about the need for education, health care, aging population, uh the growing need for housing for students.

So to me, the demographic shift is a big focus. And you couple that with just really the lack of supply that we're seeing. So I think those are those are two big fundamentals right now driving what what we believe is going to create a great opportunity and and almost some of the best vintages if you like to be investing um in this period of time. Um I think at mod the way we look at uh technology really is how can it enhance and make the lifestyle uh experience for our residents and our communities uh better. So it's really about how can we integrate um technology integrate uh AI uh into the community living um of our residents.

Uh I think you know at the core people still want to um enjoy uh an elevated lifestyle. I think that's particularly on offer here in Abu Dhabi in the in the real estate sector. So it's really how can we uh integrate uh AI integrate technology into the uh living experience. Uh I think that's on on the on the back end. on the front end as a real estate developer.

Um, you know, technology has completely changed the way that we've looked uh at doing our business. Um, you know, just to give you an example, at Monon, just in our procurement department this year, we've rolled out 27 different uh AI initiatives. Um, and for things like tendering, uh, you know, major construction packages, we've reduced the average review time for tender submissions down from six weeks to four days. Uh, and that's just one of the kind of proofs of concept of how we can integrate AI today. And I think we spend a lot of time thinking about how AI will impact us in the future.

Um but we're really trying to embrace how AI can improve our business performance right now.

Yeah. One one one thing that I would point out uh we're a a large holder of hotels uh around the world and we have implemented AI so that call center calls that used to cost seven or eight dollars per call are down to 30 cents. And the other interesting thing is the um AI generated uh responder to the calls doesn't feel bad about uh upselling you on a room that has a pool view versus a parking lot view. So it's not just on the expense side, but it's also on the revenue side.

You mentioned data centers, Drew. I want to talk about what today we're calling alternative assets, but we might not be very soon. Whether that is your student housing, whether that is your data centers, whether that is wellnessled communities, senior living, something that's being discussed more and more here in the UAE, which do you think will start to outperform traditional sectors? And and how do you tell the difference between a real structural shift and a cyclical one? Yeah.

So, um, you know, piggybacking on what Chris had said around demographics, demographics are really driving a lot of the demand and the positive outcomes um, within this alternative uh, real estate asset classes. I think senior housing is probably one of the best examples. If you look at what's happening in the United States and you look at the baby boom generation that's aging, what I think surprised people was that they wanted to age longer in their homes and then you had COVID which happened which was I think two things that nobody really expected. As you look today, the number of people that are entering these senior living facilities, which may be very low touch, it just may be an over 55 or over 60 community is is very strong. And if you look at the tailwinds that are pushing uh the performance of senior housing and you look at the lack of supply because of what we've experienced over the last uh four or five years in terms of performance, it's an opportunity that I think a lot of people didn't see, but everyone including Chris is taking advantage of now by buying uh recently built assets that have been struggling and don't have a capital structure that'll will necessarily um let them get through um to this this huge increase in demand.

Yeah. And I mean, you know, what's what's happened with the alternative segment, you know, we've been we've been at it for two decades. Um is you've seen such a growing institutional acknowledgement and awareness of where these asset classes fit within a portfolio. Uh when when we started the business, these asset classes were not meant to be part of a core real estate portfolio. But now you're seeing student housing, senior housing, medical property, self- storage actually fitting within core portfolios because I think people have seen how they've performed over a number of cycles.

Um and you saw 20 years ago 1 to 2% of all transactions were in alternative segments and now that's upwards of 12 to 15%. If you look at the public RE market in the US over 60% is alternative real estate asset classes. So again you're seeing a growing demand and I think a growing understanding of the benefits of these asset classes. At the same time they're fragmented. They're harder to access, but because of that, you can drive what we believe is a better risk return arbitrage.

You can get a better income return on these assets because of the fundamental nature of hard to access. And again, as Drew mentioned, you're seeing within senior housing, people living longer, very hard to take care of a loved one with health or memory issues. people living longer, memory issues, and there is such a chronic under supply right now in the US of senior housing. We're going to wake up in five or six years and wonder how are we going to manage this problem. You're seeing a huge movement away from the hospital to medical office properties with technology advancements, outpatient.

So, a lot of these demographics are just driving such amazing opportunities, but the challenge is capital and it comes down to capital at the end of the day. Yeah, I think I think for us as a master developer, it's how do we integrate all of the asset classes into our master developments because you at the scale that we're master planning and the scale that you know city like Abu Dhabi is expanding. We we don't it's not communitydriven, it's really master development driven and you have to embrace all of the asset classes to have a a true master development. And as a master developer, uh it's really important for us to identify which of those asset classes we can integrate uh and which ones uh improve our business resilience because some of those asset classes are not as sensitive to the cycles uh or don't go through the same cycles that uh develop to sell go through. So in terms of building a recurring income portfolio that's uh more resilient to

uh the buy and sell development cycles or real estate cycles, it's really important for us to identify and leverage those asset classes.

Well, some of those asset classes we have the luxury of literally building from a groundup blank state data centers in the middle of the desert, taking an entire island and populating it. Given what you've said there about changing demographics, dealing with housing shortages, how do we get that right? How do we make sure that we maximize that opportunity? I mean, particularly here.

Yeah, I I think it's really needs to start out at the master planning uh stage and really identifying what are the needs of the master development uh and what are the opportunities going forwards. Um I I think as uh again the mind shift of uh you know developers here is shifting a little bit. Uh in the past the big opportunity was developed to sell. Uh but you you are capturing a customer when you sell them a a propert a property that can be your customer for the next 25 years. So it's really identifying what are the asset classes, what are the businesses and what are the opportunities where you can continue to extract value from that customer base.

Um and it's how can you retain their confidence uh and how can you make through technology through AI and through the other platforms that we can offer uh you know make them married to you for the for the lifetime that they're living in your uh community. So that's means that we really have to find ways of making those services extremely accessible um affordable and uh really offering a good value proposition.

How does it affect how you two invest? Well, I I I would say that um that's where one can make a mistake in some of these alternative asset classes is really not understanding the design elements. Uh not understanding how you're taking care of your customer. Uh within senior housing, food service, the layout of the property, uh within student housing, you're leasing the property, you're releasing it within two weeks of the year, everyone's moving in and moving out. How do you manage that process?

How do you manage roommate matching? So the operating partner is a very it's such a vital part of these asset classes from not just a management but also design element. So I think identifying the right groups that you can work with is very important and frankly that's where we see a lot of mistakes. People come in and say look at demographics are there. I'm going to build a senior student housing asset but they don't understand the unit mix.

They don't understand how to manage it and then that creates opportunities to kind of come in and reposition assets. How do you identify it?

How do you identify the

the right mix? How do you make your choice?

You know, again, I think it's just experience. I mean, I think it's experience. You know, we having done it for for 20 years now and and done over a thousand of these properties, I think you really get a sense of what the unit mix needs to be. You really get a sense of really how do you take care of the customer? And again, it's cycles of learning.

It's we've made tons of mistakes over the years. And it's taking that and trying to continue to implement it so you can develop these sort of best practices. But it's really just experience in having gone through these cycles.

Yeah. I mean I when I look at what's been happening in Abu Dhabi and the growth that's happened here in the last three years that I've been here, it's astronomical. When I look at what Modan or Aldar on Sadiat or Jubel or Raman, I mean they're creating these ecosystems. It's kind of a a live, work, play where you you offer an experience and you cultivate that experience. Guess what?

It's a bit more expensive because of this master plan and the level of service, but it's something that people obviously desire. when you look at the the positive results that you've seen out of our local star developers who have curated amazing um experiences for people to be able to live in. And I think that you're going to see more and more of that not only here but in the rest of the world. Um and I think I think the technological angle which will help um all of these developers and all of us as capital allocators um to be able to fund these to be able to build these and to be able to be successful. I think Abu Dhabi is is a perfect um lab where we're seeing all of this actually happen in a very successful way.

So which real estate subsectors Drew is AIA putting its firepower at the at the moment?

So [snorts] I think I'd probably bifurcated into two areas. We invest in both um um equity and uh in debt and I would say that private credit in the real estate space is still an attractive place. We're still seeing returns in the low teens, which on a riskadjusted basis is a very attractive return. Um, we're very cautious to watch what's happening with rates, uh, what's happening with underwriting standards and we have the ability to turn off a lot of the commitments that we've made because there are individual accounts versus going into a fund. But I still feel uh, very constructive on credit.

And then I think um I think the other one that I would point to is probably on the senior housing side because when you look at the demographics again as Chris talked about and you look at what's gone on over the last five years and you look at the opportunity that exists now I think it's very attractive. What that opportunity looks like in five years I don't know. Um, but you know, with a philosophy of holding assets four to six years on on average and then turning them, I think I think that's a really attractive place to be right now.

Okay. Well, let's look forward that fiveyear plus horizon. Where do you think the market is either underestimating or overestimating risk, mispricing it, or missing an opportunity? Um you know I think there's a lot of conversation around data centers as a whole. Um I am probably more partial to inference over learning.

I'm also more partial to hypers scale development where you actually have a credit tenant there hopefully one of the big seven or 10 where you know if you if you build the data center and for some reason you can't sell it soon after building it you can hold it you know through the duration and whatever residual value there is is great but you will have received the rent for a 15-year period and that to me is very attractive I I think some of the more speculative uh building of data centers where you don't have the tenants but you think the demand will come. I think that's probably more risk than we're willing to take. I'm not saying that it's not a place where people can't make money but I think from my personal perspective it's something that I think we'll try to avoid.

Chris, your high level ideas at the moment.

Well, you know, again I I couldn't couldn't agree more in terms of healthcare. I think you know healthcare is we're certainly underinvesting in the need for health care assets. Um you know one of the areas that I think is really not talked about that there is tremendous opportunity. Um you know we've been very large owners of off-campus student housing. We're now one of the larger owners of actually onampus and actually working with universities with their onampus facilities.

Public universities just don't have the capital. There's tremendous embedded deferred maintenance. And so we can come in and work with universities. we can work with hospitals with their onampus assets. So, one of the big growing areas we believe is really these public to private partnerships with these universities with these health systems.

And so, to us, that's going to be a a huge huge market and a great potential in in the coming years. So, again, in addition to a lot of these demographic asset classes, you know, again, things like public or private partnership um is is going to create good opportunities. How does that translate locally, Bill?

Look, I I think seconding on that, I mean, you'll have seen that earlier this year, Modon launched an infrastructure platform which is targeting deliver delivering infrastructure here in the Emirates through a PPP uh arrangement. Uh which traditionally hasn't been the case in Abu Dhabi. Um and that derisks our development cycle because it ensures that we get the infrastructure on time for our developments. Um I think going beyond the investment and looking actually on delivery. Um something else that we need to be cogn cognizant of in a in a very um uh rapidly growing market like Abu Dhabi is uh our delivery partners.

So the entire supply chain for uh development consultants uh contractors uh and vendors of construction materials. uh we're working very hard to make sure that both the capacity is there and the capability because we are promising a luxury product here in Abu Dhabi. So it's not just about capacity but it's about the the capability of our contracting sector and the availability of uh the supply chain product as well and all of that at a competitive price because we still need to maintain our our margins. So that's something in the background that we've been working very uh hard on on the delivery side because as a developer we make a promise to our clients but we're dependent on the supply chain to deliver on our promise. So it's very important that we work together with them and ensure that the capacity and capability is in the market.

Okay. Well, I've got one minute left for each of you. Talk to me about 2026. We're nearly in it. What is going to shape your strategy?

What's that going to look like? and what macros could or anything else could just throw it off.

Um, you know, I think uh I think what we've seen from a geopolitical standpoint, from um a politics standpoint, from an economy standpoint, there's a lot of confusion um and and there's a lot of indecision as to what's going to happen. I think one thing that definitely will happen in 2026, I think that people and banks and funds who have been kicking the can down the road for the last several years, I think they will finally have to deal with some of the problems that they have. And I think that creates opportunities for those of us with capital. And you know, I don't I don't you know, mean to sound like a like um a scavenger here, but I think people have been hoping that things would get better, both from an economic standpoint, from an interest rate standpoint, and banks and investors have been allowing them to wait and I think I think the waiting is over. So, I think there'll be more transaction volume at more realistic prices and I think that that just creates opportunity.

Yeah, I I think 2026 is going to be for the real assets. It's going to be one of one of the great opportunities that that we've seen in many many years. Um there's a chronic chronic under supply right now um in essential infrastructure- like assets and that could be anything education, healthcare to data tradition traditional infrastructure and again for folks that have relationships with operators that have relationships with lenders that have access to capital it is going to be a tremendous time to put money to work. Not going to be easy. It's going to be very challenging.

There is uncertainty in a number of things. But if you play the long game and you focus on these essential asset classes, again, I think it's going to be a fantastic entry point uh both not just in North America, but also in Europe.

Bill, the final minute is yours.

Yeah, I would I would second what the guys are saying. We we're very bullish on 2026 uh both on our international expansion portfolio. uh and what we're working very hard to do is identify those uh those opportunities and those asset classes, but very bullish on the market here in Abu Dhabi uh as well. I think Drew alluded to the turbulence that likely continues into 2026. I think what we've seen Abu Dhabi do spectacularly well since co you know which was one of the biggest uh events of global turbulence to to have happened is to embrace it and identify very quickly what are the opportunities that uh that can provide both here and uh and abroad um and we're extremely excited about 2026.

Well, we were told to keep to time gentlemen and we have which given the size of your subject is an achievement indeed. Drew Goldman, Abu Dhabi Investment Authority, Christopher Merrill, uh, Harrison Street Asset Management, Bill Reagan, Moden Holding. Thank you very much for your time today.

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