Stewart (01:14):

Hey, welcome back. We are the home of the world's smartest money in the InsuranceAUM.com podcast. And my name's Stewart Foley, your host, and I want to remind you that we're having a Texas Private Credit and ABF event that is coming on November 5th and 6th in beautiful Austin, Texas, at the Thompson Hotel. It is open to insurance investment allocators and not other asset managers. Thank you so much. Although they keep registering in large numbers, we're thrilled with the response we've gotten to this point. There are a few spots remaining. You can find it at insuranceaum.com/events, and it'll be right there at the top of that page. I want to get to today's podcast, which is called the title of which is Navigating the Future Macroeconomic Challenges and Commercial Real Estate Opportunities. We're joined today by Erin Patterson, who's the Global Co-head of Research and Strategy at Manulife. Erin, welcome. How are you today?

Erin (02:14):

I'm doing great. How are you, Stew?

Stewart (02:16):

Good. Finally, we got this thing going. We got little technical problems here and there you are. The Global Head of Research and Strategy of Real Estate Private Markets. You're responsible for developing and executing real estate platforms, overall research and strategy, and house view. Talk to us a little bit. You also have an interesting educational background. So you've got a Master's in Science of Urban and Regional Planning from the London School of Economics, a BA in Art History from Binghamton University. Talk to us a little bit about Manulife and then a little bit about you.

Erin (02:51):

Yeah, sure. Thank you. So, going high level, I've been at Manulife for a little over two years now. It's been a great experience so far. So at Manulife Investment Management, our roots are in the insurance industry, and they help us create custom solutions for insurers around the world. We get how important stability is for insurance clients, no matter what's happening in the market. That's why we focus on global strategies that really balance capital protection with income generation and managing regulatory risks. And within real estate, we have a current platform of almost about $20 billion in assets under management. 44% of those real estate assets are in the US. 35% of that is in Canada. The balance is in APAC. So again, really looking at real estate investment through a global lens, achieving the best income returns for our clients.

Stewart (03:48):

And where did you grow up, and what was your first concert? That's our current question.

Erin (03:54):

Ah, great question. Yeah, it's okay. So I grew up outside of Manhattan. So in Westchester County, some people from Long Island term that as upstate. As you mentioned, I went to Binghamton, so that's upstate New York, and that's where I grew up. And I was always into real estate from an early age. I mean, hearkening back to the gaming days of Sim City. That was one of my go-tos as a kid, and I really never got away from that. And I think it's been a really exciting time to really be in this research world my whole career. There's been so many things that have happened and going through several recessions and the volatility we see today, it really has put me in unique position throughout my career to be front and center of a lot of exciting things. And then, including the stage, I love concerts. So my first concert was Tom Petty, actually my sophomore year of high school Jones Beach. So really special experience.

Stewart (05:02):

That's a good one. That would be a good one. So let's just start at a high level. So in your mind, what are the toughest macro challenges today and is there any way to use those to an investor's advantage?

Erin (05:21):

Great question. So I would say there's so many dynamics right now happening on a macro level. As you mentioned, I am global co-head of research and strategy at Manulife. My co-head is Victor Kana, who is a PhD-trained economist. And so we are constantly keeping tabs on what's going on from a macroeconomic aspect globally. I think the overarching theme is really volatility. So whatever indicator you're looking at, whether it's GDP growth, whether it's interest rates, whether it's, there's so much noise and volatility in the market today. So one of the things we're really trying to pay attention to amidst this volatility, the ups and the downs, the challenges, the headwinds is it helps us see what sectors are truly resilient, what markets are truly resilient. So I speak of this from a commercial real estate lens, of course. So when we think about what's happening in the markets, whether it is payrolls, whether it's GDP volatility or even gross metro product volatility, we're really looking at what sectors and markets still appear to transcend these challenges, what are most resilient?

(06:39):

And that helps us educate any of our strategies across our several funds and separately managed accounts gives us an advantage into identifying in the future what offshoots of those sectors also might be more resilient. And then if we think about where we stand today, we're in this government shutdown, so it's not unprecedented. It certainly isn't long. Has only been six business days. So that piece doesn't necessarily make us nervous. What challenges us a little bit more is the data. Again, we have so many volatile indicators out there in the market today and we want as much data as we can get our hands on. And so a government shutdown, for instance, really hampers our ability to get insight into some of that data. So the BLS numbers, for instance, were supposed to come out, we're not seeing those. Does it directly or immediately impact our strategy?

(07:40):

No, because again, we're looking at these indicators over time. We recognize that there's volatility in the markets, so we truly have high conviction in the markets and sectors that we identify that are successful through this volatility. So tariffs are something that we're really looking at been a lot of imminent impact on trade disruption in the markets from a negative aspect and creating some uncertainty as to what's happening to consumer wallets. On the advantages side of that though, we also see new trade hubs coming up, markets emerging, and opportunity in those markets where we can potentially leverage new labor pools, new investment.

Stewart (08:24):

It's interesting to me because I have a theory that isn't captured in the data, which is there are things happening, and this is not a judgment about what those are, but there are things happening that have never happened before. BLS numbers come out, they aren't good, fire the BLS person, that's never happened. Firing a Federal Reserve governor never happened. Massive tariffs never happened. What I'm saying, my theory is that it's not interest rates or employment, it is the uncertainty that causes folks to pause and reevaluate and it doesn't take much pausing and reevaluation to cause an economic slowdown. So that isn't captured in the numbers anywhere. Does that make any sense to you, or is it like, I mean, I'm a podcast host, but I do see, at least here in Texas, I do see things that are marginally like the non-essentials, the spending on non-essentials seems to be declining.

Erin (09:39):

No, you make a lot of really great points, and hey, this is part of the reason I'm in research and strategy. I like the art science mix of numbers, quantitative and qualitative. So this is why we have real estate. We always need real estate. And what's fascinating is how the consumption of real estate has changed over time. You're spot on. There's, as we already talked about, tons of volatility, tons of uncertainty, it's a lot of psychological pieces as well in the market. What does 25 bips really do to the market? Does it really incite transaction activity? Does it get people excited? You could argue both sides of the coin. I think that for real estate, a lot of investors have been on the sidelines over the past year and are eager to get back into investment because we know that over the long term real estate is a strong income-generating sector.

(10:40):

We know that there can be stability in real estate, and it can look different depending on where we are in the cycle. So to your point, spending on non-necessity items is certainly falling. We still need necessity items. So what in real estate satisfies that need? How can we make investments in sectors that are again going to be resilient through uncertainty, through downturn? And we're constantly thinking about that. And as data trickles in, whether it's positive or negative, and it goes both ways all the time, how do we bake that into our strategy? How do we consider that? How do we continue telling our story that retains our conviction in these more resilient sectors? So absolutely, it can be a psychological game. There are a lot of unprecedented actions going on in the market that we're aware of. Again, we always think that there are headwinds that come with this, but tailwinds as well.

Stewart (11:38):

This is interesting because this is a term that is reality right now, but it's not one that I've said very much, which is deglobalization. Is that infiltrating the CRE investment market, and how does that impact your strategy and decision-making?

Erin (11:55):

Yeah, that's a great question. So we're really keeping our eye on what we're calling the five Ds at Manulife: democratization, deglobalization, demographics, decarbonization and digitalization. So you hit the nail on the head with one of them, which is deglobalization, which can be very difficult to understand. And also counterintuitively can seem negative considering we've had decades of work towards globalization and sort of more collaboration. So I think what deglobalization is ultimately going to do globally is it may create some new centers of gravity away from the US, in particular, with some reputational risk exposure that might be associated with investing in the US right now because of all the uncertainty that you're talking about. But we think it really can create some longer-term opportunity with regional efforts, new hubs, and that's both domestically and internationally. So we are a global investor, so for us, we're looking at where this deglobalization can really harness new investment, new growth areas globally.

(13:05):

What new synergies can be created amongst regions outside the US? How does that work in our favor from a supply chain point of view, and then harness some real estate investment domestically, seeing something a little bit similar. The US is huge, right? So we have a lot of really strong markets already within the US, and there's a lot of untapped areas of strength as well, whether that's in the labor pool infrastructure, and anything else that might anchor real estate development. So when we think about the deglobalization and the impact of tariffs, for example, and perhaps onshoring new manufacturing, that again could create long-term opportunity. We don't see that happening tomorrow by the end of the year, or even next year. It will be a long-term path, but ultimately, again, we always identify some potential advantages with these perceived negative changes.

Stewart (14:02):

Here we are, October 6th, and we're looking toward year-end. Can you talk a little bit about some key themes that you're seeing as we close out 2025 that guide your investment strategy into next year? You talked about the five Ds. Can you kind of put it in a lens that looks forward a little bit?

Erin (14:23):

Yeah, of course. So we're really closely watching demographics. Real estate consumption is changing by the way that we have different preferences. We saw it during COVID, moving from office into home and now more of a transition towards hybrid working. More people are going back into the office now. So we're in the pandemic. We saw a net migration, of course, outside coming from urban into more sunbelt markets. And we're seeing some of that shift again. So we're closely watching where population flow is going. And this both affects obviously how we consume residential real estate, but also how we work and where we are doing that work. So with tracking these population flows, we're able to really see where people want to be, where people have to be, and that's where we're making our investments. So we're constantly pivoting our strategies to follow where that population flow is going. We also think about it in terms of different age cohorts, too. We're not necessarily looking at movement all the time, but where growth is happening within cohorts. So that lends us to looking at things like senior housing, student housing, again, really focused on demographics.

Stewart (15:43):

That's super helpful. So let's talk a little bit about, we talk about diversification and investments as being a free lunch. You reduce your risk and need to reduce your return, but can you talk to us about the benefits and risks of diversification? How do we work to understand these sectors without a long history of robust data? I mean, not only has the consumption of real estate changed, but what's available has changed too, right?

Erin (16:13):

It's really fascinating. I've always described being in commercial real estate research for more than 20 years now. I've always described: it's not Bloomberg commercial real estate does not have a Bloomberg. We can't just dial in and find out what's going on in real time. A lot of the data lags. What's fascinating about alternative real estate is that it really has been around for a while. So I like to call it the artist formerly known as niche that are now becoming mainstream in our portfolios. And you know why? It's interesting, it's really intriguing. Real estate has always been known as the diversifier for portfolios, and then the pandemic really disrupted that idea of these traditional sectors commanding real estate investments. So Office, for example, was always the stabilizer was always the go-to, particularly, honestly, for insurance companies. That was the income generation. So with alternative real estate, it's really again, evolved to be more mainstream in portfolios by many institutional investors, however, under the guise of being within certain sectors.

(17:29):

So let's take residential, for example. So traditionally, we invest in multifamily rental. Now we're looking at things again, student housing, senior housing, active adults, different ways we use residential. What we're doing differently at Manulife is really intentionally creating a sleeve of investment for these areas that we're terming as sort of alternative adjacent sectors. So they're not quite new and fancy, they're still part of a residential investment thesis, but have different offshoots, have different protections, different resiliency measures depending on what's happening in the cycle. And then how do we educate that investment without having a ton of data at our hands? We look at, again, tying it to a more traditional sector like multifamily. Some of the drivers are very similar, so we can lean on different indicators that we look at within multifamily. And then, if we're looking at other sectors like industrial and industrial outdoor storage, really looking at what we can use as a proxy to understand the potential performance of these alternative sectors.

Stewart (18:39):

That's super helpful. I read an article this morning that OpenAI was going to buy a billion dollars' worth of chips from an MD, and it talked about the amount of energy required to drive AI, which is massive. It reminds me that, and I'm a car guy, so when you drive behind like a sixties vintage muscle car, you can smell the gas pouring out of the thing. It's so inefficient today. Cars are much more advanced, and I wonder if there's an innovation coming that could change the dynamics of the power consumption and need for this massive computing. Which leads me to this: how does technology automation, AI support portfolio innovation and future portfolio construction?

Erin (19:38):

We have a time limit here, right? Yeah, we do. We do. I'm sorry. No, it's all good. We think about this in a lot of different ways, and I think the one thing you really nailed is the question around power. Where is it? How do we harness it? Do we have enough? What are future options? So, at this point where we're at in terms of the progression of our real estate team, the maturity of our team, we are really looking at partnering with our infrastructure team more, being more collaborative, understanding what they're looking at in the market as well. So on a monthly basis, I'm meeting with our research teams across our different Manulife verticals. And so infrastructure is one of the areas that we're trying to collaborate more with. So we have some insight on where they're seeing opportunities, what markets they're looking at.

(20:38):

That helps us create a supportable, more robust strategy for our real estate, particularly if we want to leverage things like digitalization in the market. And that can happen in a lot of different ways. We talk a lot about investing in AI adjacency. That might not mean investing in a data center. We have some doubts about data center liquidity. How much has jumped on that bandwagon? So, for us, being more strategically adjacent to data centers and AI-driven real estate is what is our priority right now. So by that I mean looking at what markets data centers are in, where is the money going, what kind of real estate product can we invest in that indirectly might support the data center, whether that is through employees or through supply chain, through retail. So, leveraging AI in that respect. Then we can also think about using AI to inform our strategy.

(21:42):

We leverage AI on a daily basis in research we're using, we have our own MFC chat which really helps us dig into markets, and this goes actually back to your question, how do we learn more about markets and sectors that we don't have robust data for? AI has really helped us to create peer market sets more easily, being able to pull in a wealth of information very quickly. And then the third way that we're seeing AI and digitalization really inform our portfolio construction is thinking about where the future job growth is, right? So we're not just talking about the data centers again themselves, but we're thinking about what are those support roles, those support job functions, some that don't even exist yet, but where are they going to be? I was at a presentation recently that highlighted where the most of the AI job growth right now is really happening in our US coastal gateways, our major markets, which is a great sign for urban resurgence and getting people back into those city centers really looking at our New York's, our San Francisco's, our Seattle's as potential leaders of the with AI. So yeah, thinking that we're folding it in a lot of different ways and using all those three layers together is really, really guiding our portfolio construction.

Stewart (23:08):

And kind of related to technology. And there are a couple of questions here that are related. So are there particular sectors that you see that are evolving more rapidly and transforming the way you invest? And are there green shoots that you see today that could be a bigger market going forward?

Erin (23:33):

Sure. So we all know that retail brick and mortar has really transformed. And part of that is in response to, again, the way we use real estate, real estate consumption, and consumer behavior, really moving towards that experience model. And so as you step into a store knowing that the retail assets that we're investing in have the technological capabilities to harness that experience, that's one way that we've seen real estate change in response to more AI, more technology. Where I see a lot of many green shoots is in the industrial market. So the industrial market is in its own sort of transformation right now. We saw the e-commerce boom happen more than a decade ago now, but that continues, right? E-commerce penetration is still a big key indicator of how we look at industrial real estate growth. And within industrial real estate, we're really looking at this next-gen industrial space.

(24:36):

So, thinking about what are the new warehouses are that really can accommodate the digitalization efforts, the high technology, what tenants have the capital to invest in that space, to use it the way it's intended for? We have some concerns right now in the industrial market with supply shock in very select markets. However, again, where this supply shock is happening is in previously high-growth markets that we do think have resiliency over time. And also, the supply shock is in this newer stock, this newer inventory that can accommodate this high technology and automation, and infrastructure. So that's going to be really important going forward. So I do think we'll see a balanced correction of that oversupply, and that gives me a lot of conviction in the industrial space. And then also the creativity and the ways that we can use industrial real estate. So when we think about AI adjacency and how that guides our strategy, we actually recently executed the acquisition of a facility that manufactures a driverless rideshare fleet as well as other cars. And this is a brand new rail served asset in Austin. It's a hundred percent lease to a major auto manufacturer. They have a long-term lease there. So we're not necessarily investing in AI in power, but we're investing in a facility that supports those activities.

Stewart (26:07):

Those cars are buzzing around this town.

Erin (26:09):

Oh yeah.

Stewart (26:10):

Everybody's like, no way, whatever. And I'm like, listen, the car insurance phone is like, I got to think that accidents go down. I mean, I got to think that accidents go down with that. So it's really interesting. It's been a phenomenal education on macroeconomic challenges and commercial real estate opportunities. I got a couple of fun ones for you on the way out the door. The first one really tries to address the culture at Manulife, and it goes like this. What characteristics are you looking for when you're adding to members of your team, and related to that, and maybe a rephrased way is what characteristics over your career have you found that lead to a successful career in this business?

Erin (26:55):

Oh, that's a great question. So when I think about the culture of life, one of the things that drove me to join this team is the emphasis on high-quality employees, really high intellectual, high curiosity, highly collaborative people. And when I was interviewing for this role, and I knew who the team was, it really energized me to step up myself and really want to be a part of that team. And I think that we've talked about a lot of change and evolution in real estate over the course of this conversation. I think that's the same in our real estate roles. So I've been in this role for this type of role for more than two decades now. I did take a hiatus for a while in real estate consulting, which I absolutely loved. And that was more on the occupier side of the business. And so that really opened my eyes in terms of thinking like a tenant.

(28:02):

How do I use real estate? What do I need to support my people, my business, my productivity? So I've brought that back into how I run our team here, how we run research. So when I'm looking at people to add to my teams these days, I want different backgrounds. I want creative thought. I don't necessarily need a traditional resume. I want to see that you love real estate because it's a special person who really appreciates the tangibility and experience of real estate. But I think any different lenses of real estate lend to many of the roles we have on our broader investment team. And collaboration is the keyword on our team. We always talk a lot with each other. We're sharing information. The feedback loop is super important and definitely a priority for all of us.

Stewart (28:58):

That's super cool. Just go to a one-question interview. Did you play Sim City as a kid, yes or no?

Erin (29:05):

All the time. I think I might've actually mentioned that at the beginning. So yeah, absolutely my first, one of my first go-tos. Absolutely.

Stewart (29:14):

That's great. Okay, so last question. Erin Patterson, who would you most like to have dinner with? Alive or dead? You get up to three guests. You can have one, two, or three.

Erin (29:25):

I'm going to have all of them at once because I am a full-time working mom. So I like to create efficiency in my personal time. So I'm always the one gathering big groups of people. So at that table, I would have Queen Elizabeth the First because I love the Tudor era and all of that. And she is probably one of the first, well-known, most powerful women out there. I would also have Frederick Law Olmsted at the table, who is the urban planner who curated Central Park, really in the late 1800s, was prioritizing wellness and green in our cities.

Stewart (30:07):

Interesting.

Erin (30:08):

Yeah, he would be at the table. And then lastly, I would have Lyn Lemaire, who is the first to complete an Iron Man World Championship as a female back in 1979, I believe. So the year before I was born. So I am a triathlete myself, and so really inspiring.

Stewart (30:28):

That is inspiring. Wow. Very nice. I really enjoyed it. It's been great. We've gotten a great education today. I just want to say thank you so much for taking the time with us today.

Erin (30:39):

Yeah, thanks for having me, Stewart. This has been lovely,

Stewart (30:42):

Been a lot of fun. Today's topic has been Macroeconomic Challenges and Commercial Real Estate Opportunities, and our guest has been Erin Patterson, global co-head of research and Strategy at Manulife. If you have ideas for podcasts, please shoot me a note at podcast at stewart@insuranceaum.com. You can rate us, like us, and review us on Apple Podcast, Spotify, or wherever you're listening to your favorite shows. Or if you want to watch us, you can on our new YouTube channel at Insurance AUM community. My name's Stewart Foley. We're the home of the world's smartest Money. We'll see you next time on the insuranceaum.com podcast.

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. These risks are magnified for investments made in emerging markets. Currency risk is the risk that fluctuations in exchange rates may adversely affect the value of a portfolio’s investments.

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. You should consider the suitability of any type of investment for your circumstances and, if necessary, seek professional advice.

This material is intended for the exclusive use of recipients in jurisdictions who are allowed to receive the material under their applicable law. The opinions expressed are those of the author(s) and are subject to change without notice. Our investment teams may hold different views and make different investment decisions. These opinions may not necessarily reflect the views of Manulife Investment Management or its affiliates. The information and/or analysis contained in this material has been compiled or arrived at from sources believed to be reliable, but Manulife Investment Management does not make any representation as to their accuracy, correctness, usefulness, or completeness and does not accept liability for any loss arising from the use of the information and/or analysis contained. The information in this material may contain projections or other forward-looking statements regarding future events, targets, management discipline, or other expectations, and is only current as of the date indicated. The information in this document, including statements concerning financial market trends, are based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. Manulife Investment Management disclaims any responsibility to update such information.

Neither Manulife Investment Management or its affiliates, nor any of their directors, officers or employees shall assume any liability or responsibility for any direct or indirect loss or damage or any other consequence of any person acting or not acting in reliance on the information contained here.  All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment, or legal advice. Clients should seek professional advice for their particular situation. Neither Manulife, Manulife Investment Management, nor any of their affiliates or representatives is providing tax, investment, or legal advice.  This material was prepared solely for informational purposes, does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Investment Management to any person to buy or sell any security or adopt any investment strategy, and is no indication of trading intent in any fund or account managed by Manulife Investment Management. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation does not guarantee a profit or protect against the risk of loss in any market. Unless otherwise specified, all data is sourced from Manulife Investment Management. Past performance does not guarantee future results.

Manulife Investment Management

Manulife Investment Management is the brand for the global wealth and asset management segment of Manulife Financial Corporation. Our mission is to make decisions easier and lives better by empowering investors for a better tomorrow. Serving more than 19 million individuals, institutions, and retirement plan members, we believe our global reach, complementary businesses, and the strength of our parent company position us to help investors capitalize on today’s emerging global trends. We provide our clients access to public and private investment solutions across equities, fixed income, multi-asset, alternative, and sustainability-linked strategies, such as natural capital, to help them make more informed financial decisions and achieve their investment objectives. Not all offerings are available in all jurisdictions. For additional information, please visit manulifeim.com.

This material has not been reviewed by, is not registered with any securities or other regulatory authority, and may, where appropriate, be distributed by the following Manulife entities in their respective jurisdictions. Additional information about Manulife Investment Management may be found at manulifeim.com/institutional

Australia: : Manulife Investment Management Timberland and Agriculture (Australasia) Pty Ltd, Manulife Investment Management (Hong Kong) Limited. Canada: Manulife Investment Management Limited, Manulife Investment Management Distributors Inc., Manulife Investment Management (North America) Limited, Manulife Investment Management Private Markets (Canada) Corp. Mainland China: Manulife Overseas Investment Fund Management (Shanghai) Limited Company. European Economic Area: Manulife Investment Management (Ireland) Ltd. which is authorised and regulated by the Central Bank of Ireland Hong Kong: Manulife Investment Management (Hong Kong) Limited. Indonesia: PT Manulife Aset Manajemen Indonesia. Japan: Manulife Investment Management (Japan) Limited. Malaysia: Manulife Investment Management (M) Berhad  200801033087 (834424-U) Philippines: Manulife Investment Management and Trust Corporation. Singapore: Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) South Korea: Manulife Investment Management (Hong Kong) Limited. Switzerland: Manulife IM (Switzerland) LLC. Taiwan: Manulife Investment Management (Taiwan) Co. Ltd. United Kingdom: Manulife Investment Management (Europe) Ltd. Which is authorised and regulated by the Financial Conduct Authority United States: John Hancock Investment Management LLC, Manulife Investment Management (US) LLC, Manulife Investment Management Private Markets (US) LLC and Manulife Investment Management Timberland and Agriculture Inc. Vietnam: Manulife Investment Fund Management (Vietnam) Company Limited.

Manulife, Manulife Investment Management, Stylized M Design, and Manulife Investment Management & Stylized M Design are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.

4943801