The Real Estate Cycle Is Turning | Josh Pristaw on The New Cycle in Real Estate, Opportunity in Senior Living, Why AI Data Centers Are Too Big For Most Investors

**Jack Farley** (0:00)
Today's episode is brought to you by the Fundrise Income Fund. You'll hear more about the Income Fund later in the show, but for now, let's get into today's interview.
Today, we're gonna be talking all things real estate. I'm joined by Josh Pristaw, Managing Director and President of Clarion Partners, a real estate investment firm managing over $70 billion. Josh, welcome to Monetary Matters.

**Josh Pristaw** (0:21)
Thanks, Jack, pleasure to be here.

**Jack Farley** (0:22)
So Josh, you've got a huge portfolio in industrial apartments or multifamily, and I know you're also investing in senior living, so I want to get into that. But first, let's talk about a giant boom in the real estate market, which is data centers.
Many of your competitors are plowing billions and billions of dollars into data centers. Are you involved, and why or why not?

**Josh Pristaw** (0:47)
We're not directly involved, so we haven't made any investments specifically in the construction of data centers.
Where we are, somewhat on the periphery, but benefiting from that boom, I would argue, in a lower risk way, is in our industrial business. As you mentioned, we're pretty significant in there. We've got about $42 billion of industrial logistics assets in the United States. And so we are benefiting from the supply chain. So a lot of the subcontractors, the people that are storing and manufacturing equipment that eventually goes into data centers are our tenants. And we're seeing pretty significant demand in the markets we're in, in general, driven by both e-commerce sales, but also to a certain extent, the data center construction boom. But to come back to the specific idea, so I think it helps to take a step back and articulate a little bit, who is Clarion and what do we do? Well, we're overwhelmingly a manager of open-end, evergreen funds that are either core or core plus in risk profile. And so what do people look for in that type of vehicle? They look for income, they look for sort of durability, diversification and low volatility. And when we think about how we deliver that, we struggle a little bit with the data center opportunity.
So when you look at the core real estate world, the Odyssey Index, which is the institutional sort of benchmark, is about $280 billion total. We happen to have the fourth largest fund with about $18 billion. And then if you look at the whole non-treated REIT world, that's another $140 billion. So you add it all up, you got $400 billion.
One of the things we struggle with is that the sheer size of some of these data center investments don't fit particularly well in these core open-end funds. So in our $18 billion Odyssey fund, we don't have any asset that's worth more than $500 million. Coming back to this idea about diversification, and so fitting a $5, $10, $25 billion asset in one of these funds, we don't think makes sense. The other thing I would say that we struggle with is, when we look at what types of assets do we want to be in our vehicles, well, we want diversification, so there's a size question, but fundamentally we're looking for things where we have conviction that in the future, it will be worth materially more than it is today. And when you look at data centers, there's undeniably, there's demand from the tenants, there's great tenants, but what's the value of that residual asset 10 or 15 years from now when Microsoft, Meta or Google chooses to leave it? What will they, how will the technology change? We just struggle to see how it fits in a very long-term open-end evergreen vehicle. And but most of the capital that's been raised and is being deployed that you articulated is on the development side. It's people that are looking for, you know, a 20 plus internal rate of return that's all predicated on somebody like a Clarion in a core open-end fund buying that for more of a lower stable return. And we find there's some challenges in fitting it in our vehicles today.

**Jack Farley** (3:52)
Several of your investments are indirect beneficiaries from the data center boom because they're logistical, but you currently don't have any direct investments in data centers. And Josh, I think what you're saying is that even though you're one of the largest real estate investors, that the check size is just too high and for you to remain diversified. So that that is really striking to me. It just shows just how large the capital demands are and kind of just how how kind of crazy it is.

**Josh Pristaw** (4:23)
To build on that, if you look at, according to Jones Lang LaSalle, that the total sort of North American data center construction phase right now that's underway is about a trillion dollars.