Here are the trends and events that we think will define commercial real estate in 2024.

Four quick takeaways from Ares on emerging market opportunities... 1. Focus on alternatives -- Global alternatives market: $220T ($140T institutional, $80T retail) -- Private equity growing 10% YoY -- Private credit growing 11% YoY -- Real assets (CRE/infrastructure) growing 7% YoY -- Secondaries growing 9% YoY 2. Retail investor channels -- Pool of capital from investors with $1M of retail investments to grow from $80T to $100T over next four years. -- Retail investors' allocation to alternatives to go from 3% to 6% -- High net worth segment to grow from $3T to $13T by 2032 3. Shrinking banks -- $12T question: how much of bank loans will find a new home? -- Banks under pressure (cost structure and short horizons) -- Number of banks shrinks from 14K to 4K (and falling) -- C&I loans were 29% of bank loans in 1982 vs. 16% in 2023 -- Private credit has grown 14%+ YoY for last 10 years -- Private credit dry powder is a small fraction of private equity dry powder 4. Haves vs. have nots -- Top 25 investment managers control 56% of market (up from 39%) -- 4 of the largest 6 managers control 52% of semi-liquid market -- 115 platform acquisitions by largest 50 managers since 2012 (See section that starts on slide 17.)

At the end of each FastTrack course, we ask participants if they have any final comments after taking the post-course survey. Zach Bean had this to say 3-4 years ago: Any final comments? “Just want to say thank you for all the work put in to make this class awesome! Loved every module and will continue to dig in on the material even though the class is done.” This single comment is a great reflection of Zach. Nice, humble, hard working, and focused on constantly getting better. Congrats Zach Bean! We’re all thankful to be in your orbit.

Great example of how real estate "winners" and "losers" are defined over decades not months... ---- Flashback ---- Why were REITs slow to recover from the GFC? 1) What was once “conservative” wasn’t Before the GFC crisis, 43% LTV sounded safe, but a 40% decline in values turned that “conservative” leverage to 70%, leaving many REITs scrambling. Forced equity sales at low prices and distressed property sales became common. 2) Financial distress is extremely costly *** Despite property values recovering to exceed their 2007 peaks, REIT share prices stayed low for nearly a decade. The gap was largely due to the hangover from financial distress. 3) More debt means missed opportunities While private equity firms like Blackstone snapped up bargains during the trough, heavily leveraged REITs couldn’t play offense. 4) Better leverage metrics are essential Using asset values in leverage calculations can be misleading during market bubbles. Post-crisis, income-based measures emerged as better indicators of leverage. *** In its compelling study on effective REIT capitalization, Green Street noted: "Credit crunches have proven to be such disruptive events, that they create wonderful opportunities for companies that keep large amounts of 'untapped borrowing power.' The tendency of markets to transition from bubble to bust and back again has never been more obvious, and companies with balance sheets that allow them to play offense amidst the worst busts are likely to create a lot more value for shareholders than companies that are on their heels the whole time." Source: Capital Structure in the REIT Sector (2/26/15), Green Street ---- Back to today ---- "Balance sheet restructuring" may not sound as sensational as "bankruptcy," but a slow race to escape a troubled balance sheet may be more painful (and costly) than traditional bankruptcy. We think there are three big bombs in real estate: 1) Too much supply 2) Too much debt 3) Interest rate spikes One of these bombs tends to explode every ten years. ---- Sidelined ---- This downturn's culprit was an interest rate spike, destabilizing many real estate balance sheets. Firms reliant on unsustainably cheap debt originated during the Covid rebound, when the Fed pushed interest rates down by putting $4T+ into the bond markets, are sidelined. ---- In the game ---- REITs learned their lessons in the aftermath of the GFC. They couldn't compete with debt-fueled acquisitions over the last decade but are emerging with unique advantages. Among these advantages is more consistent access to relatively cheap debt. Since interest rates peaked last October, REIT bonds have been more than 15% cheaper than conventional commercial mortgage debt. REITs are in the catbird seat and will almost certainly use these advantages to make big moves in the coming months and years.

"Getting an entry-level job at Blackstone is 12 times harder than getting into Harvard. I doubt I'd be able to be hired today.” Steve Schwarzman, Blackstone CEO 62,000 applicants for 169 positions. This choke point could be a sign of what’s to come for commercial real estate investment roles. Why? Commercial real estate investing has traditionally been the best white collar example of an apprentice-based field. Traditional CRE investor career path: In your 20s, work long hours processing data in Excel/Argus, building presentation decks, reviewing estoppels, etc. …in exchange for a perch that allows you to see how decisions are made. Typical comp: $75-150k a year. In your 30s, become more of a decision maker while continuing to process information and increasingly recruiting/training younger associates to process information. Typical comp: $200-500k a year. In your 40s and 50s, get more opportunities to replace retiring decision makers as windows open for value creation. Spend significantly more time “thinking” and much less time “processing”. Typical comp: $1m+. Thousands of people have followed this path, defined by an entry point where ambitious 20-somethings traded their primary asset (time) for skills, which they leveraged to build wealth in the back half of their careers. Problem… We think we’re in the early innings of AI blowing up this path before it starts. There will almost certainly be fewer entry points. Solution… Focus on building real estate thinking skills instead of processing skills. Ps - How much do you think the best Excel modeler made last year? How much did the best real estate investor make? One indicator: Blackstone’s Jon Gray made nearly $300 million last year.

The U.S. housing market is ______. Simple answer: "undersupplied." Boomers and Gen X: "in great shape." Gen Z: "too expensive." Our take: "complicated." The answer to this question depends on your perspective. We say its complicated for many reasons, including differences between markets, differences between households (rented and owned), differences in preferences and needs (especially unit sizes), and--importantly--differences in supply. This chart begins to get at some of these differences. What's your answer?

Winners and losers: This track record tells the story of the last real estate cycle... Bridge is a multifaceted investment manager ($1.2 billion market cap) with just under $50 billion under management. Unlike many investment managers, Bridge specializes in property type-specific funds, so the firm's track record shares direct performance insights. "The returns for Total Office Funds are not presented because Bridge Office I is incalculable." Ouch.

We're all above average? 94% of professors, 87% of Stanford MBAs, and 80% of drivers say they're above average. Reality check: there are no career trophies in commercial real estate. We encounter thousands of early-career real estate professionals, and now that we've been at this for several years, we see very strong correlations between what works and what doesn't in terms of career paths. Broad observations... 1. The competency difference between the top few and the top 10% is massive. The difference between the top 10% and "average" is even greater. 2. People aren't static. Some people have it and lose it while others learn, practice, and thrive. Then there's a big group that has all the answers but never seems to find what they're looking for. Success tends to follow humility and curiosity. 3. Not about smarts. This is real estate, not rocket science. B students are fine, but you must show up in full. 80% of the battle is bringing it every day and getting the easy stuff right. 4. Real estate skills are not innate but they're 100% learnable. You typically don't find them in a textbook. It's an apprentice industry and early-career professionals need direction, frameworks, and practice. 5. There are no shortcuts. Many people are looking to find 'the answer' under a rock. If they flip enough rocks, they'll get lucky. Skills don't work this way. You have to have effective practice. Any observations you would share with early-career professionals?

Great listen! Michael Levy’s candor is refreshing and interesting for real estate professionals of all ages and backgrounds.

Less bid, more ask: Sobering fundraising trends “Dry powder” gets a lot of attention, but capital’s influence on volume and pricing is nuanced. Two subsurface realities: 1. Every dollar comes with return expectations. Closed end funds are inherently value-oriented (non core), and open end funds are much more income-oriented (core/core plus.) Higher returns = lower prices. 2. Closed end funds have defined hold periods. Investors want their money back after __ years. Here’s the sobering part… CRE markets experienced an epic fundraising run with non-core capital between 2015 and 2022, and most of those funds had stated lives of 7 years. Those investors want their money back. I.e., there will be sellers. What about buyers? Closed end fundraising has fallen off a cliff. It’s also been extremely concentrated in the the big mega funds. Less capital on the buy side in the near term. These dynamics could create stronger pressures on the sell side, putting upward pressure on sales volumes and downward volumes on pricing.