In this episode of Leaning In, Terry Montesi sits down with Mark Gibson to break down the current state of real estate capital markets and what’s actually happening beneath the headlines. Mark shares a data-driven perspective on investor behavior, capital flows, and why many widely discussed risks may be overstated. The conversation covers everything from the return of core capital and shifting investment strategies to the evolving outlook across office, retail, and multifamily sectors. Throughout, Mark emphasizes the importance of focusing on fundamentals, playing through market noise, and structuring investments to withstand uncertainty.
They discuss:
- Why institutional investors are shifting back toward core assets and what that means for pricing and deal flow
- How capital availability remains strong, with debt markets wide open and becoming a substitute for asset sales
- The resurgence of retail as a top-performing sector and what’s driving tenant expansion and landlord leverage
- The multifamily supply cycle, current oversupply dynamics, and why long-term fundamentals still point to strong demand
- How office is bifurcating, with top-tier assets thriving while lower-quality inventory faces an uncertain future
- The growing importance of operational excellence and sponsor quality in attracting institutional capital
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Transcript
[Mark Gibson]
The out-and-front, the leaning in, we’ll say investors are way beyond office curious. They are office serious, and you’ve already seen the announcements in Dallas. I mean, we have been blessed to be a part of those, both on the 2B builds that you were mentioning, so virtually every new building we have done, but also on the trades that you have seen come in.
So institutional capital is executing office product at very good economics. And I think when you look at, is that a good investment or is it not a good investment long-term, I think you’ll look back and think it was an extraordinarily good investment, particularly in most of these deals are trading at significant discounts to replacement costs. But when you look at what is driving, I think if we just step back and we think about what defines a great business, can you really run a great business from home?
[Terry Montesi]
Today, I’m excited to welcome back one of my favorite people in the industry and my friend, my good friend, Mark Gibson, CEO of North America Capital Markets at JLL. Mark has a front row seat to how capital markets move across our industry, and he’s also one of the top speakers on the topic in the US. With everything happening right now, tariffs, the war, inflation, et cetera, so much uncertainty.
It’s a great time to step back, talk about where the market is going. Mark, welcome back to Leaning In. Good to be here, Terry.
It’s a privilege. Thanks. Thanks for being here with me.
Well, we go back a long time, but for the audience, tell us about your journey. How did you get to where you are today? Where’d you start?
How’d you get here?
[Mark Gibson]
That’s the most uninteresting thing anybody wants to hear, Terry. Well, the short answer is the first person in my family would go to college, so no one in my family went to college. I went to play sports.
Probably wouldn’t have gone otherwise. Turns out I like school and I like sports too. In college.
Yeah.
[Terry Montesi]
Where’d you go to college?
[Mark Gibson]
I went to the University of Texas, which was great. Yeah, the bar was much lower when I was a lot… Yeah, to get in.
So that’s the reason I was probably there. And then got out and went to work for a bank and went to law school at night. Looking at both of those, decided that probably needed something a little different.
Was fortunate to join three people who just started a company.
[Terry Montesi]
And did you graduate from law school?
[Mark Gibson]
No. I midway through law school at night and the bank kind of stopped.
[Terry Montesi]
I thought I would have known that.
[Mark Gibson]
Yeah, no, no, no, I didn’t. And said, you know, I think God has a different path for me. And I was fortunate to join a guy named Hal Holiday and John Finolio.
And together, they took me in. I think we had four or five people at the time. And then we just…
I’m unemployable otherwise. So that’s why I’m still with the company. But we’ve gone through multiple iterations, as you know, Terry.
So we…
[Terry Montesi]
I remember Holiday, Finolio, Fallard, Dr. Dean Gibson.
[Mark Gibson]
Was that right at my time? I never liked that. But wasn’t that the name for a while?
It was there. So we shortened it, made it easier with HFF. And then we…
You know, we bought out some partners and then we sold it to Ambrezco first, and bought it back, and then Lend-Lease, and then bought it back. And then we took it public, sold a 45% interest to the public, that eventually we grew it into something reasonably nice. And then we merged with JLL, just seeing some global shifts across the world, and particularly in technology and a few other areas.
And it’s been a great one plus one equals four. Yeah. So that happened in 2019.
So… Yeah. It’s been that long.
Yeah. So when you buy and sell yourself multiple times, and take yourself public and all that, you realize how many mistakes you make in the long run. So it’s…
We have more wisdom as a result.
[Terry Montesi]
Yeah. Don’t you wish… I tell people all the time, boy, do I wish I knew 20 years ago what I know now.
[Mark Gibson]
That’s a fact. That is a fact.
[Terry Montesi]
I’m sure we’re not the only people that have ever thought of that. Probably not. Okay.
So Mark, set the table for us. How are the capital markets and institutional investors responding to the current climate with all the uncertainty from the war, potential inflation, potential recession now because of all that? Which contrasts though with healthy fundamentals in a lot of the sectors.
Give us an update.
[Mark Gibson]
Okay. So first of all, there’s always uncertainty. No matter what cycle we’re in, there’s always going to be some uncertainty.
So let’s just… It’s just the normal. There’s a little more uncertainty than we have seen over the last five years in our careers.
But you only think a little more, not a ton more. Well, when you look at it relative to our businesses. So let’s take COVID out of it for a minute because that was a little different than what we’re talking about generally here from an economic standpoint.
But COVID was a major, not normal situation. It’s taken us a while to get back. But if we look at the markets and however you measure the markets, whether it’s liquidity in the marketplace, I’m not talking real estate, I’m talking in general.
So if we look at real estate, if you look at the listed securities markets around the world, you look at the bond market, you look at the BE market, they played through this noise. So if you want to objectively answer versus opinion, which is what everyone should be doing, you would be hard pressed to say the market has reacted in a negative way to what we have determined is a little bit too much volatility over time with a lot of uncertainty. So the market’s played through the noise.
From a real estate perspective, that is most certainly the case. So when you look at real estate and you look at where we sit today, there really hasn’t been any lack of capital for a long time, either debt or equity. There’s one exception, which has been core capital at scale.
I’m going to come back to that because that is changing rapidly, particularly over the last three months. But when you look at the overall capital availability across the real estate spectrum, it’s just been a matter of price. And we’ve been adjusting from the pre-COVID, post-COVID capital cost shifts and the cost overrun issues that we have all seen for quite some time. So that has been the issue. It’s been the cost overrun situation primarily caused by COVID and the supply chain logistic issues. And then it’s been cost of capital shifts that have been pretty dramatic.
And so regardless of what you were doing, whether you’re developing or buying, if you’re developing to a four and a half to a five and you’re going to sell at a three, that doesn’t work right now, no matter what product type it was. If you bought under the same construct from a core standpoint, it doesn’t work. So it takes real estate a while to adjust.
And I think we are now there. Core capital ironically has not been as prevalent as the value add in the opportunistic capital. And the reason being is that most people went along in development looking at real estate as a little bit of alpha that they’re needing in the return.
And they went pretty long. And then they went right into the teeth of these cost overrun, the cost of capital shifts.
[Terry Montesi]
And so the concept here- Mostly retail and industrial at the time, right?
[Mark Gibson]
I mean, I’m sorry. Multi and industrial. And they went long in life science and a few other things that were in vogue at the time.
And so when you look back at that, and if you’re an investor, you got no current distributions. And then you’re expecting it to be all taken care of on the residual. And when that doesn’t occur, then you got to look back and adjust your strategy.
So they have all done this. So I’m talking about the largest LPs in the world. So think about sovereign wealth funds.
Think about large state plans. Think about endowments in many cases, most of whom were largely the predominant deployment has been opportunistic and value add. That has shifted dramatically in the last 90 days for the reasons I just discussed.
So they’re going to core and they’re going to core at scale.
[Terry Montesi]
And the core investors are back.
[Mark Gibson]
You will see it in the very near future. It has been back but in smaller denominations. What I’m talking about is billion dollar plus core trades that have been absent the marketplace.
And what they’re really looking for is to mitigate the risk that they’ve seen over the last four to five years. So they need a percentage, call it 50 to 70 percent of their total return and current cash on cash, which ironically was the construct that we were operating under from 2010 to 2019. So we’re going back to a little bit of that, which I think will be helpful in a lot of cases because as you know, a lot of folks just hadn’t gotten their money back in quite some time.
And again, it’s price. So we still have to adjust the price and the new normal on cost of capital, but that’s been fairly normalized over the last four years.
[Terry Montesi]
Right. So we have two multifamily projects under construction, high quality ones. So that should be good for us the next couple of years with core investors back.
[Mark Gibson]
Yeah. Yep. We’re looking for best in class assets, low leverage, current consistent cash on cash.
[Terry Montesi]
What are the institutional investors paying attention to right now as they get ready to deploy capital and which leads kind of what should we be paying attention to? And I lumped that in with the idea that we discussed earlier, Mark, about what systemic risk in the environment would cause institutional investors to move to the sidelines.
[Mark Gibson]
Well, let me finish up one thing on four, because I think it is interesting. And I do want to dispel headlines that have been in the press for quite some time, that perhaps these large sovereign wealth funds are not as interested in investing as they once were in the US. And nothing could be further from the truth.
[Terry Montesi]
Because of the current geopolitics.
[Mark Gibson]
Yeah. Well, for whatever reason.
[Terry Montesi]
That’s what the articles are saying.
[Mark Gibson]
But what I’m stating, and again, like we said, play through the noise, right? So the markets have clearly played through the noise. I would encourage everyone to play through that noise, because what’s actually going to occur is the majority of their deployment is going to be in the US.
And the reason for that is when you look at the tax bill that was passed last summer, by any historical measure, that is highly stimulative to GDP. The investors see it, they understand it, and then they do look at the doubling down on the manufacturing base in the United States for a host of reasons, which is attracting massive amounts of capital currently. So when you look at where the investors are putting their money, particularly over the last six months, and most and accelerating over the last 60 days, you have a lot of institutional overseas capital coming to the US at scale.
So that is not an accurate statement that folks were doing. And they are looking at the core construct. But another aspect to the tax bill that some people know and some people don’t know is for the first time in US history, the best way to describe it is put illiquid securities or illiquid assets or investments into a 401k or defined contribution plan.
Well, the defined contribution market in the United States is 14 trillion. So we took some liberty and just guessed at what might be coming to commercial real estate, and we chose 3%. It could be 1%, it could be 5%.
If it’s 3%, it would equal the amount of institutional capital in the marketplace. So in real estate, well, it’s no matter who knows, because it’s not… The math would work.
If it’s 3%, it could be 1%. But the point of the matter is it is core capital because it’s retirement accounts. It will be low levered.
It will be smaller denominations than the sovereigns. And that is coming. It’s going to be delayed more so than the large institutional investors which are investing now.
So that’s going to be…
[Terry Montesi]
And what form might that be?
[Mark Gibson]
It’s going to come through your established investment manager constructs. Generally speaking, I won’t go into all the rationale behind it, but there’s a 1940 acts that you have to comply with in terms of liquidity that you have to hold. So that is something that a lot of folks have been working through, which is a great protection for all of our retirement accounts, which is terrific for protection, but you do have to work through the structuring of it.
So think of your large mutual fund families that are now looking and very keen on investing in real estate and how are they going to do that. So everyone is… It’s going to come through a lot of different existing constructs in the marketplace, whether it’s your large real estate investment managers or whether it’s the fund families or it could be some of your larger more established broker dealer networks or RAs, but it is coming and it’s not going to be small.
[Terry Montesi]
So those two things are core.
[Mark Gibson]
Yeah, it is. So I think when you look at the tax bill, those are the two major takeaways. One, it’s stimulated GDP, and then you look at the retirement capital.
Both those are very good for real estate when you look at that. And the other broad thematic that people should think about is when you look at the stock market. So any listed securities exchanges are generally speaking up 75% over the last four years.
And generally speaking, real estate is down 25%. Well, everyone wants to be a relative value investor, not an index investor, generally speaking. So where’s the best relative value?
Well, if you’re an investor and you’re looking at your alternatives across the world of investments, anyway, real estate looks pretty darn attractive. Particularly if you’re going into the core and you’re going to get half your total return in cash on cash and half perhaps or even less and residual. That’s a great nugget.
I hadn’t heard.
[Terry Montesi]
So you didn’t address one thing. You’re an optimist. I’m an optimist by nature, but we’re also paid.
[Mark Gibson]
I’ve gotten worn down.
[Terry Montesi]
I’m more of an, I don’t know, I’m a realist these days. We’re both paid to manage risk for our clients and our investors. So how much worse could this systemic risk in the environment get?
What should we be watching? You know, there’s so many people like if this war goes on for X long or if treasuries move to X, what just help us understand on the risk management side, some things would be paying attention.
[Mark Gibson]
Well, the good news is we’ve seen it all right already. So take the war out of it. And by the way, I’m not really going to, nobody knows.
So at the end of the day, it would be disingenuous and somewhat foolish for me to even comment on it because no one really knows.
[Terry Montesi]
It’s more what do you think the investors are paying attention to?
[Mark Gibson]
So what I think is investors have gotten used to uncertainty over the last five years. I mean, we have been trained like it or not. We have been trained already.
So I’d even say the last 11 years. So maybe the last well, yeah, permitting, right?
[Terry Montesi]
Yeah.
[Mark Gibson]
And just think about the swings we’ve gone through, you know, primarily in your business, Terry, if you just look at your retail business and your multi house retail was terribly out of favor post COVID. Now it is the darling and I know we’re going to get to it. You look at multi housing, it was unbelievably in favor in COVID.
And now it’s having some demand issues a little bit. So it changes. We see that all the time.
But I think how you would manage risk is not shifted. So you have to think about the worst case and you have to plan for the worst case and you move on down the road with it. So I think what makes the most sense for a lot of us is when I say the worst case, I’m just, what could go wrong?
And that’s what I’m asking. Let’s go ahead and plan for it. And really that comes down to financial structure.
So all of us need to be thinking about a bulletproof financial structure that no matter the economic climate, we’re going to be fine. And I’m going to attribute this to Jerry Hines. So Mr. Hines. So I cold called him when I was 27 years old. That’s great. And I was begging for business.
And as Mr. Hines, you know, I’d like to finance one of your assets or maybe sell one of your assets or whatever. And he goes, well, Mark, I appreciate you coming in, but I have a little advice for you first. And I go, okay, well, what’s the advice?
And he said, well, you know, if you invest in or build high quality real estate and you don’t over leverage so you can get through economic cycles, it always goes up. You’re going to be fine. It always goes up.
And I went, well, Mr. Hines, if I ever have any money, I’ll keep that in mind. But right now, I just need for you to hire me. So, uh, but that simple statement is pretty darn true.
So I think we can, uh, we can mitigate risk, uh, pretty handily if we’re just thinking about the financial structure of both our businesses. Um, as you’re aware, each of them have never had that. Uh, so we were planning that volumes, which had never happened in the past dropped 50%.
And could we sustain it? Because we had a, we think very highly of our people and we wanted to make certain that no decision we would have made could have risked their jobs or anything like that. So we took it very seriously.
So it applies at a business level, but also at a property level. And so if we just bulletproof it in some form of fashion, I think that’s the way to get through it because there’s going to be changes that we can’t.
[Terry Montesi]
Well, you know, that’s, as you were saying that I was thinking that systemically, we’re still essentially in a max leverage of 60, sometimes 65, but let’s, on average, max leverage of 60% right now compared to back when I started, you know, developing. Yeah. 80, 85, 85.
[Mark Gibson]
Yeah.
[Terry Montesi]
Um, so now is that bulletproof under every scenario? Maybe not, but that’s pretty bulletproof still systemically to have that little leverage.
[Mark Gibson]
Yeah. And then you think about, yeah. And then you think about, you know, what form, what form of that is that going to be floating?
Is it going to be hedged? Is it going to be fixed? Uh, so we have a lot of risk in our business, uh, Terry, you and I, we’re in different businesses, but we share the same risk at the end of the day.
Uh, so the question really is we, we have risks that are, uh, specific to our businesses. You have, um, contractor risk, you have cost control risk, you have lease up risk, you have economic climate risk, you have a lot of risks. Yeah.
Retailer, um, health. And so when you add up all those risks, if you can just start eliminating them and want an easy way is rates. Uh, so we don’t need to be, uh, we don’t need to be taking interest rate risk if we can avoid it in a, in a cost effective manner in our view.
So that’s another way to think through it. So we don’t, we’re not caught short at a inappropriate time in a economic climate.
[Terry Montesi]
Yeah. And you talked to a lot of big investors and most of the stuff we’re doing is with big institutional folks and you talk to them all the time. Do you sense that they are, that they’re still the long-term view is prevailing the, the fact that they’re not, that they’re not, uh, well, they’re putting on the equity side, putting 40% equity in that these are blips that they’re not panicking right now and ready to run for the sidelines yet.
[Mark Gibson]
Uh, I don’t see panic anywhere. You don’t know. Um, and again, I would, I would caution everyone to let’s just go back to a fact set, uh, and quit reading the headlines, uh, across the board because it’s inflammatory in many ways.
And you know, the latest is probably, you know, private credit. Well, that’s primarily in the asset backed lending businesses, starting in the auto businesses, which are almost all domiciled around fraud that was happening in that business. It’s moved into some technology and software related to AI, et cetera, but there’s no, there’s no carry over commercial real estate, at least at present.
So you’re going to get these things. And the point of the matter is, well, what does that really look like? And when you dig into what I just discussed, there’s no systemic risk there.
The wall street journal came out and had a very measured article and said, look, everyone needs to take a breath and take a look at it. So even those types of things, let’s go back to, okay, what really, what risk are we really talking about? And how would that play out?
So that started, um, with your question of panicking and we don’t see it. Uh, we see very measured, thoughtful, approaches to the business. We do see much more attention paid to risk mitigation and much more focus on sponsors who they’re doing business with.
And in particular, more focus on specific geographies than we have seen because there are risks in relative, uh, cities and states within the U S and everyone’s recognizing that. So the question is, who are we going to invest with? Let’s do a very thorough analysis, uh, of what we’re going to do there.
And second of all, you know, longterm, where do we see the most jobs and most popular? Yeah. Uh, because ultimately that’s what, that’s what real estate investors really care.
[Terry Montesi]
Yeah. Well, since you teed that up, I’ll skip forward in my, in my question planning to what about DFW because that’s, that’s also very macro before we get into different sectors. Um, I heard the other day that there’s essentially 40 states that are no growth, no job growth.
No population growth. And, um, you know, sure. Most of the 10 are in the Sunbelt that that have a growth, but DFW in particular place you and I’ve been doing business now for 40 years plus, um, it’s, but at least the last 2025, it’s been certainly one of the top places to invest in the U S.
Um, and just recently we’ve heard some little bit of crack, some cracks, um, small cracks in the system on job growth and population growth. Um, do y’all have a house perspective on DFW’s future? Is it, is it slowing down materially?
Is it still relative to other places still going to be a great place to invest? What’s your view on DFW?
[Mark Gibson]
Yeah. Um, so let, let, let’s go back to a little history. So for the last hundred years, this is the U S census data.
So, uh, we can go back and fact check exactly what I’m going to say. So there has been, uh, a non debatable, uh, movement of population, uh, North the South and, uh, to some extent the West and that has been going on for a hundred years. It’s been a consistent trend line.
It is not shifted. It accelerated during COVID, but it’s back down to its normal trend line. So again, just looking at data, uh, you would have to go, okay, well that’s interesting.
What, what is attracting, uh, that there’s a lot of reasons for all of those moves we’ve been talking about, but it’s shifted. I mean, it’s been a hundred years Terry. Wow.
And it’s, it’s a very consistent friend. So let’s just, let’s, let’s baseline that.
[Terry Montesi]
You know, I don’t remember a hundred years ago. That’s why I like talked about 20 to 25.
[Mark Gibson]
Well, since we’ve been in DFW, we’ve seen it, right?
[Terry Montesi]
Yeah.
[Mark Gibson]
So when you just look at the population growth that you’ve seen, uh, just in DFW, getting back to DFW has been, been incredible. Um, we’re very bullish on taxes for a host of reasons. Uh, the amount of investment that is being deployed into the state from a manufacturing base standpoint, from an energy perspective on all forms of energy, it’s going to be very positive for the built environment.
So we’re very, very positive. We’re very positive on taxes, but we’re specifically positive on DFW. At the same time we go through, we’ve talked about these trend lines, but when you look at the, um, the population and you look at job growth, you can’t discount New York and you can’t discount, uh, San Francisco, all of which are making significant comebacks.
And so you can’t sound bite it as much as people want to say, uh, or sound bite it. And there’s a lot of reasons for that. There’s, um, you know, talent hubs in certain markets that industries got to have, uh, particularly around technology or other things where you have a base that is just easier to grow from.
If you’re going to relocate there from, uh, an industry perspective, but relatively speaking, um, the, some belt is going to outpace growth, uh, because it’s been a consistent trend for a hundred years. So again, as a real estate investor, you have to be thoughtful about that. And then you see this, this, uh, distributed work construct.
And what I mean by that is if you’re a large company in the U S I will name any, as we deal with all of them. But if you, if you think about, uh, one of the largest employers in the U S historically, they would have a headquarters with a significant number of their, uh, employment base within that geographic location. That’s not the case anymore, uh, because they understand the risk too from a regulatory standpoint and a lot of other risks that they, uh, could encounter.
So distributed work is, you know what, we’re going to have five to seven locations of scale, uh, in the U S and I’m talking about it. The largest, uh, the largest companies in the U S. So if you just look at DFW, look at the relocations that we have seen, getting a bunch of that, if you, I mean, just think through, uh, everything that we have witnessed.
I mean, if you take a look at Toyota and you look at Goldman Sachs and you look at a few others that are coming at scale and you look at, uh, fidelity and you look at, I mean, there’s, there’s so many, it’s hard for us to name. So when you look at the distributed work, I think we’ll be the beneficiary of that, um, long-term because everybody will have a regional hub in this area. And before we jump into specifics, uh, I do want to hit two big forces that are taking place, uh, in commercial real estate that I think, uh, people might have an interest in.
One is, um, we talked about conviction, uh, in terms of conviction of investors to invest because of the relative value construct of real estate versus alternative investors. So that is real and we’re seeing that play out, but it doesn’t really matter if there’s not product to buy. Uh, and so we’ll call that capitulation.
And what we have seen is pin up the demand from a supply side standpoint. What I mean by that is people want their money back. So if you’re a large scale investor and you went into a closed end vehicle, closed end fund, or you went into an opening fund that has been not able to provide liquidity or what are you went into a single JV and the GP has wanted to hold for a period of time for obvious reasons, because we’ve wanted to see the cost of capital shifts and demand, et cetera.
And we wanted to see pricing rebound and we wanted to see core capital come back and all those reasons. Well, that is now hit a pitched.