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This is Bloomberg Business Week with Carol Messer and Tim Stenebeck on Bloomberg Radio. It is Bloomberg Business Week, and I don't know if you had a chance to check out our weekend show over the long weekend, but Carol, we went all in on real estate, from design, resilience and sustainability with the CEOs of Gensler, to commercial industrial and multi family with the CEO of Crow Holdings, to so called alternative real assets such as storage and senior
and student housing with the CEO of Harrison Street. You can still catch our weekend show, by the way, on our podcast feed. Yeah.
Good stuff, right, and there's a lot of questions when it comes to real estate. It's a great indicator too of what's going on in the overall economy. One thing though we didn't really do as deep a dive into, and that was Read's real estate investment trucks, so we definitely wanted to tap into that. Laural dru Ku is head of Global listed real Assets at Morgan Stanley Investment Management and she's with us from New York City. Laura, good to have you here with us. First let's start
big and wide. What are you seeing when it comes to the environment, And it's hard because not every read is the same. So what's kind of a smart narrative as you look at the group overall?
So glad to be here, thanks for having me.
I do think that the environment right now is very nuanced, as you had indicated, and a lot of the top down macro is really centered around interest rates, in the direction of interest rates, and the markets expectation of the
direction of interest rates. But when you look at the nuance, when you look at the idiosyncratic, there really are some very important secular drivers of demand that are propelling growth for a lot of these alternative asset classes that you were just referencing that are really impactful for the reit sector.
What are those things?
So, when you look at from again from more of a top down perspective, technology and innovation is a theme that is really important in the broader equities market, and it is also very important for the real estate market. When you look at the data center market, it has been a growing piece of the overall remarket for the past twenty years, and so when you're thinking about what's going on with artificial intelligence today that is very impactful
for the data center sector. There it's a wildly overlooked but important beneficiary of AI and new technologies that have been evolving.
Yeah, one thing that's interesting about this now, or well, one thing that's interesting about this now is that, you know, four years ago, we wouldn't have been talking about you know, NIX in the context of AI. We would have been talking about it in terms of cloud storage. So talk to me a little bit about how that conversation has shifted. And Equinox, of course, is one of your picks ticker eqi X.
Yeah, no, absolutely.
So when you think about there's been a bunch of different what I would call transformational moments in time when thinking about computing and data and therefore data centers.
So first it was just the rise of social.
Media and how that created so much more data to be stored in these data centers around the globe than it was the rise of cloud computing and how the virtualization of the machine was so important for data centers.
And now we're seeing AI and the impact that.
AI is going to have on the space likely is going to be a game changer. EQUINEX ticker EQIX. As you said, certainly is benefiting from that, but we are still in what I consider it to be the infancy of demand stemming from artificial intelligence.
Yeah, it's interesting, right, and I think you know here we thought last year was all about the excitement and hype, but it is feels like it's pulling or gaining even more momentum Laurel this year. Right, It's not just going away like we're realizing that there's you know, a lot to be learned and understanding in terms of AI impact. But it doesn't feel like it's going away here.
Yeah, no, absolutely.
And when you think about the impact for data centers, the GPU is going to require significantly higher power draw than the CPU when regular compute, and so that requires two to four times more power and that therefore means two to four times more data center that we need for the same amount.
Of actual data.
And so this is something again that's transforming for the space not only because of this incremental demand, but because of that incremental power draw that is required.
Hey, I want to go to DLR Digital Realty ticker DLR another one of your picks. This one is a pure play data center owner. How does it just differentiate from Equinix.
So Digital Realty ticker DLR really is pure play data center owner, operator developer. They have the hyper scale focus, meaning that they are really looking to those large footprint tenants. They were a huge beneficiary of cloud computing. They will be a very big beneficiary of artificial intelligence. You saw the company report last week and they actually reported some
disappointing expectations with regard to earnings growth. But if you dig a little deeper and understand the nuance there, it's actually because they have been doing a lot with their capital stack in order to be able to write size their balance sheet in order to be able to meet this AI demand and fund new development and therefore be able to realize that growth in twenty five and beyond. So Digital Realty is a company that has a refreshed management team.
They have a new CEO, a new CFO, they.
Have a new Chairman of the board who is really making some tough decisions with regard to what needs to be done.
As I said, they've right sized their balance sheet.
They have created new joint venture partnerships that really is providing them with ample access to capital to be able to develop into the bullseye of AI.
Demands.
Hey, I want to broaden out the conversation a little bit and talk about one more of your picks. Carol, I know you were really interested in this one.
Well.
Iron Mountain is an interesting See the trucks everywhere, No, we do see, and actually they're not far I believe one of their offices, their main offices, not far from where I live. So I see their trucks.
Just struck off your paper and get it shredded there exactly.
No, I don't, but yeah, but there are people who do. I mean, this is you know, from high tech to low tech if you will. But right, all of these data centers, there's a lot of paper that comes out. You got to do something with it. You don't want to just leave it laying around.
So Iron Mountain ticker, I am definitely another interesting one when thinking about the storage of data. And as you had mentioned, they have been a the primary paper storage company across the globe. They are also a new entrant into data centers and digital storage. They've really evolved their business model to capitalize on their core competency and the relationships that they have with all of these businesses and enterprises around the globe in order to capture digital storage
as well. So they've been building data centers for the past several years. Right now, it only represents about ten percent of their revenue, but it is a growing piece of their business, and they've built up this competency, They've built up this platform to be able to develop.
Into this AI demand.
Interestingly, when you look at it from a valuation perspective, this company is trading at about a six to seven turn multiple discount versus those pure play data center companies that I was just talking about, and over the next couple of years they're going to have very similar earnings growth. So this is the value play within the data center worlds.
Hey Lauril, before we let you go thirty seconds on the best way investors can have exposure to the aging population, those baby boomers who will move into senior living twenty seconds here.
Yeah, So when you think about the aging pop relation, the best way to play it is through ticker well w E L L.
Well Tower.
They have about seventy percent of their earnings coming from seniors housing. Seniors housing is going to be a big beneficiary of the aging demographic.
Over the next decade, We're going to have about.
Eight million more people enter the eighty plus year old age cohort versus only about two million incremental people they've been added over the past decade.
So well, power is one that's going to be able to benefit from this growing demands.
Come back soon. This is fun smart Laurel Drquay, she's head of Global listed real Assets at Morgan's Stale Investment Management. Tim safe to say. We hear it over and over again from the leaders of companies. Their most important asset that they have are their workers.
Do you believe that.
It's like okay, okay, what versus their their relationship with the banker.
Or like, okay, how regularly how important is it that Disney has the rights to like all the Marvel stuff and.
You know that's pretty important, but also employees so important?
Yeah, okay, I think it's fair.
We go back and forth.
I think it's true. I do think it's.
True until it AI replaces it, until get laid off. All right, Well, the relationship employees have with their employees has definitely changed a lot in recent years. Our next guest argues that the quote normal ways of working are not coming back, so we cannot rely on what worked back then to work in the future.
We have with us Tabitha Scott. She's the author of a new book. It's out today. It's called Powering Change, The Hidden Resource to unleash potential, productivity and profits. She joins us from Denver this afternoon. Tabitha, how are you hey, I'm great.
How are you today? Tim and Carroll?
Yeah, we're doing well. Congratulations on the book. Okay, So I want to start big picture. How would you describe the current state of the typical American business the ones that you work with as a consultant right now, Like, how would you describe their workforce and how their employees are doing?
Yeah, I think we have three key challenges in the workforce right now. One is the accelerated pace of change. You know, during the entire year two thousand, the technological change now occurs every thirty seconds, and so we're distracted. We can't keep up. We're chasing change. The second thing is we're off balance. We're off balance because we feel disconnected. There is no new norm. It's more like chaos theory or theory instead of linear math. And we're burnout as
a result. So all of those things tie together, and the further we get away from natural systems and science and the way the world works, the worse we're going to get.
What do you mean everything changes thirty seconds? Like, I agree, things are fast and furious, but thirty seconds it's a little extreme, don't you think. I mean, we see the chance.
True, It's so true if you think about it. We have more computing power right now on our cell phones than NASA did when it landed a spacecraft on the moon. So that's right.
But we've run into it right and it's become you know, we talked earlier about how all of this stuff has also helped make us much more productive with and that might be a plus in terms of kind of raining in some of the inflationary pressure.
So some of it's good, some of it is absolutely good. And the key thing there is to stop chasing change, like trying to follow every little rabbit that pops up, and instead think about your current spot on the growth curve on the growth cycle. Where is your company and how do you sync into that and really do the things that you need to do to eke everything you can out of that phase of the cycle. In the past,
companies would think about the whole growth cycle. Now you just need to think about where are you and which thing do you need to deploy right now to get the most out of your business.
Okay, so let's think about it from the perspective of folks who don't necessarily run businesses. When I talk to folks like you who work with businesses, they're also takeaways in what you write and what you do for just empowering individuals and helping individuals find more efficient ways of doing things. Give us a lesson that you would normally give a manager that to somebody who isn't necessarily managing someone.
Yeah. Absolutely, So the things that energize you, you will be more productive, engaged, innovative, And so that goes true whether you're talking about yourself or you're talking about the team that you're leading. Everybody places somewhere along the growth curve. For example, people at the beginning of it love taking risks, it's a challenge. People at the top are more like Sheldon from Big Bang Theory, don't mess with my stuff like they love finding risk and making it more efficient.
So ninety percent of Purdue engineers they fall into that category because they're great at refining and using existing frame of references. A lot of HR folks are in that category as well, very necessary. And then at the beginning you have your elon musks, your people that are always creating new ideas like Steve jobs was and everywhere in between. If you're in the middle, you have execution. Now, the cool thing is you can tie that to cognitive diversity
and whether it's people or the way machines think. Carol, when we came on, you were talking about AI. AI is at the tip of the curve. Data management is in the middle. It takes inputs, turns it into action, and at the top you have things like automation to fine. So the secret sauce is figure out a sess where you are on that curve, align it to your job, and then adapt with every project that comes up. Every sprint does a little bit different. You don't need the same team every time anymore.
You know.
One of the things that I think about when we were talking on our planning call early this morning with our producer Paul Brennan, is the idea of how you take lessons from physics, bioscience and nature and then kind of mix that in with organizational research so to kind of get to what you put out in this book, Powering Change, give me get talk to me a little bit about about physics and bioscience. What that teaches us in terms of maybe creating a better workforce or a better group of employees.
Yeah, so the growth curve that we were just talking about is one example of science or physics. If you take it on down the other side of the curve, you have a sign wave and once you hop onto the next curve, as they teach in all your strategy courses, then you couple them together and it looks like a DNA he looks over time. So if you boil down everything, and I mean everything, humans, animals, plants, and organizations, we're all made of energy and data at our core.
That's it.
It's that simple. So if you figure out how to tap into your energy, if you figure out what jazz is you up and then you know how to produce, you'll be more innovative and you'll be more engaged. And the same is with organizations. If they really understand which phase of that life cycle they're in, is it birth, growth, maturity, like a cash cow, or decline, then they can understand how to plan ahead to the next step as well as get as much juice out of what they can for the current phase.
Have you worked with companies that are in decline absolutely?
Absolutely well. They use things like all of the key business models that are out there, like human design or total quality management. They all fit on the growth curve somewhere. So if this is a decline phase client, then you're going to use something like human design or design thinking in order to leap onto the next curve, something creative. If you're working with a scaling company or a growing organization, that's when you're going to use things like lean six
sigma and you're going to streamline and make it more scalable. Hmm.
I'm trying to figure out because I feel like, to be fair, Tabitha, you know, we have a lot of guests on that. I feel like we talk about how do you how do you motivate workers? How do you do it? And six sigma I think, you know, it was certainly a powerful tool of Jack Welt and his disciples.
I think some might be rethinking some of that, But I do wonder in this environment where you have increasingly employees who want balance or the flexibility to work from home, you know that doesn't necessarily always coincide with an employees or employer's goals, like how do you? I don't know, how do you? What's the right conversation around that?
Yeah, there's a number of ways that you can look at that. Knowing that the core of that person is energy. What is the thing that energizes them and how can they do more of it? Maybe they're not able to work at home every day, but can you give them one day a week. Maybe they're not able to stay in an office of whole day, So maybe you gamify it by saying, Okay, at lunch, you get to go outside and go for a walk. Whatever it is that person enjoys, and you can find it for yourself. If
you love mentoring, try to do more of that. If you love dark chocolate, you know, if you get all your reports done, have some dark chocolate. It sounds silly, but as long as you have something that brings your vibe up, because we're made of energy, you'll be more productive and more engaged.
You got my attention when you say chocolate, Tabitha, I really appreciate your time. Tabitha Scott Scott, excuse me, Tabitha Scott. She's the author of a new book. It's out today, Powering Change the hidden resource to unleash potential, productivity and profits. Treading us from Denver