Good morning everyone and thank you so much for joining us today. I'm Deborah Costa, I'm a real estate reporter at the Wall Street Journal, and I'm honored to be here today with these three titans of industry. We'll start with Barry Sternlicht, the chairman and CEO of Starwood Capital. Barry has not only been a pioneer in real estate investment but also a visionary reshaping the global real estate market with his innovative strategies and forward-thinking approach. Next we have Rob Speyer, president and CEO of Tishman Speyer. Under Rob's leadership, Tishman has expanded globally from the US to Europe, Latin America, and Asia. He's also managed to diversify the company from mostly office to residential, industrial, and life sciences. And finally, we're honored to have Travis Kalanick, co-founder of Uber and the founder of City Storage Systems. Travis is known for revolutionizing transportation, but his current ventures in real estate through City Storage Systems are focused on transforming the commercial real estate sector. Thank you so much, gentlemen, for being here today. Barry, we'll start with you, and we have only a few minutes, so let's start with talking about how you recently made a hard pivot towards developing data centers. How are you looking at that strategy now that DeepSeek is in the picture?
Thank you and thanks for having me. Well, data centers are probably by far the hottest sector in real estate today. There's no sector of real estate with a 1% vacancy rate and a barrier to entry, which is the power needed to build those centers. I think DeepSeek is, for our strategy and people who are building data centers, basically irrelevant. Well, it's the strategy we're deploying. We don't really want to spend $100-200 million in the hope of attaining power, and then we don't get the power, the land is worth nothing, right? So I think what we do, and many of our peers do, is when we can secure that we have the power, we secure a 15-year lease from a AAA tenant. There are eight of them today. Then it's not a risky investment. So it's not us that's making the decision really on DeepSeek, it's really Amazon, Microsoft, Nvidia, Meta, Google, ByteDance, and the other major players in the space now. So I think we're not taking that risk. Mostly our approach was to buy industrial buildings in markets that like Dallas Airport, which is the largest market in the world for data centers, and then our downside was that we had an industrial building, and the upside was we were building a 450-megawatt plant for basically Amazon right now. Our upside is that we do get that lease, we do secure the power, and we've signed that deal. And these deals are massive, that's the other problem. They're so big, that deal will be close to four or five billion dollar investment. So we have about $20 billion invested. We own the largest data center company in Ireland, and we're taking them to the continent. I'm actually more bullish, and you didn't ask this question, I'm a little more bullish on Europe for data centers than the US long term. Not today, today the action is here, but they don't have the power that we have. We have the raw materials, we have the gas, we have the ability to power these new plants that Trump wants to build. In Europe, they don't have the resources to do that. And I think nuclear is a little bit way off, maybe 2032, and the whole landscape could change by then. But right now, the US is by far in the lead. It's part of our exceptionalism as a country, the growth, the cumulative spending of these seven mega players is nearly a trillion dollars. It's as big as the infrastructure fund, and it's creating an exceptionalism to our GDP that the market doesn't talk about. It's not the whole economy that's doing so great, it's just this entire race to data centers and to AI and deployment of it. And it is a race, it is an arms race between these Microsoft, Amazon, Google, and the rest of the guys. Oracle, I should have mentioned Oracle. So we've done transactions with almost all the majors now all over the world. And there are a lot of people deploying a lot of capital. It feels frothy, but we're not driving it. If we can't get the lease, we won't build. And that's really where the money goes in when you go vertical. So if you don't go speculative, and it's really interesting, the newest thing that's happened, it's evolving so quickly. The utilities are, everyone and their cousin, my kids, they find a piece of land they like, they put it under option, and they go approach the utility and say we need power. The utilities are basically saying you got to pay a million dollars to apply. So my son's out, he doesn't have his money yet. Or now they're saying I'm going to give you power in four years for 15 years, you have a take-or-pay contract, you have to put up money. So in some of our transactions, you have to put up $60 million today to secure the power. That is going to change the playing field. There'll be 10 of us instead of a hundred of us being able to play in the space. So it's going to be interesting. And the big question in data centers is our exits. We don't know exactly how we're going to get out of buildings that are worth $10 billion on a cap, on a yield basis. So I think we're all scratching our heads a little bit. And you expect these companies to go public, but it'll be really interesting to see how this evolves.
Rob, speaking of pivots, Tishman Speyer has been known for being a big player in the office space, part of the industry. How have you all pivoted to respond to some of the changes in the market lately?
So as mentioned, we've significantly diversified the company beyond office into residential, industrial, and even in the data centers, where to Barry's point, we recently did a deal in Frankfurt to convert an old industrial park into data centers. And importantly, we're doing it in a 50-50 joint venture with the power company of Frankfurt, because more important than the real estate is knowing you're going to get the power. But to address the office question, don't sleep on office. Office buildings, if they are well-located, high quality in global capital cities, if you look at many global capital cities around the world, rents are higher and vacancy rates lower than pre-pandemic. It's true in central London, it's true in central Paris, it's true in central Munich, it's here in Miami, Barry could tell you about that, and it's true of my hometown of New York City, Tokyo, Seoul, all of Singapore, fantastic office market. But in 10% of the office, the high quality, well-managed, well-sponsored office buildings, if you need a million square feet in Midtown Manhattan right now, you can't find it. And guess what? It's not going to deliver for another five years. There's actually a scarcity in some cities of really high quality new office buildings. And so I think there's a real opportunity there if you hit the right locations and obviously get it at the right basis.
What cities are you looking at to expand office?
I mean New York, and we wouldn't be alone in that. And in Europe, we've been aggressive at playing this theme again in the right locations for really high-quality product. And because we're super close with our customer base, we know what they want, where they want it. And if everybody else is going that way, it's probably a good time to be going this way.
This is quick. I mean Munich rents were up 15% last year, with a 2% vacancy rate. And we're acting in Munich in those very, it's not even a city, it's like a neighborhood. And then you have to go, okay, those guys are the haves, these guys are the have-nots. It's called knowing which, oh I know, I got you. There's a lot of have-nots. Like I'm in downtown LA, that's a disaster. But it was a disaster in the 1980s when it was built. They're saying I'm paying a buck 75 a square foot right now. I have a few things I could sell you, Travis, if you want.
Travis, speaking of distress real estate and looking for opportunities, during the pandemic you picked up a lot of properties all across the country, is that right, with your ghost kitchen initiative?
Yeah, I mean we were, it was really around the world. We're in 30 countries, so there was a lot of interesting stuff happening. We started the company in 2018. By the time COVID happened, we could not build enough kitchens given that so many restaurants couldn't operate in their normal way. So we were picking up real estate everywhere. And actually our demand was like this, and the pricing on the real estate for a short period of time was like that, so it was a good time to buy. But then of course there's the years after where COVID goes away and people come back out in the world, and then you're like, okay, how do I keep all this pipeline of real estate that's going live, how do I keep it full? And that was a very interesting dynamic in 2022 and 2023.
Yeah, speaking of distress, Barry, I think you're the king of distress and taking opportunities in distress markets. You did it here in Miami, also when you started Starwood Hotels. Where do you see those opportunities right now as the real estate market goes through this change?
