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AI Fears Mount on CEO Calls for Slowdown · Bloomberg Intelligence

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  Speaker 1: All right, let's get to the story of the day,
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  Speaker 1: of the week, it feels like.
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  Speaker 6: Yeah, it does.
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  Speaker 1: I mean, maybe even the month.
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  Speaker 3: And that is really about how the AI industry itself
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  Speaker 3: wants to slow down development, but the U.S. government is
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  Speaker 3: resisting that. President Trump wants to go all, you know,
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  Speaker 3: guns blazing, moving ahead.
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  Speaker 1: He wants the U.S. to stay ahead of China.
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  Speaker 3: And in fact, the AI czar of the U.S., David Sachs, says, well,
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  Speaker 3: if industry wants to slow things down, go ahead, slow
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  Speaker 3: it down on your own. Let's bring in Matthew Bloxham.
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  Speaker 3: He's our senior... media and tech analyst joining us from
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  Speaker 3: London right now. Matt, how are you reading what's happening here?
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  Speaker 3: This is David Sachs and the Trump administration kind of
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  Speaker 3: daring the industry to do, you know, if they want
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  Speaker 3: to slow down to do it on their own.
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  Speaker 1: How do you think about this?
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  Speaker 7: Yeah, I mean, it's a very complex situation, actually, when
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  Speaker 7: you look beyond the headlines. Actually, there is a fair
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  Speaker 7: amount of common ground between the different parties. Obviously, Anthropix
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  Speaker 7: founder put out a 3,800-word essay over the weekend where
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  Speaker 7: he kind of set out a few options. And, you know,
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  Speaker 7: first and foremost was the kind of a proposal that
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  Speaker 7: the industry should kind of try to self-pace. But, you know,
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  Speaker 7: I think in admission, and perhaps kind of written between,
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  Speaker 7: not really written, but between the lines that they may
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  Speaker 7: be worried that if they self-pace, some of their other
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  Speaker 7: competitors might not. And therefore, there'd be a competitive advantage.
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  Speaker 7: And so trying to kind of push this view that
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  Speaker 7: there's a benefit for society at large for some kind
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  Speaker 7: of controls and that perhaps the industry needs some outside
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  Speaker 7: help to put those guardrails in place.
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  Speaker 8: Matthew, I've been referencing this morning an opinion column piece
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  Speaker 8: by Tom Friedman in the New York Times, and he
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  Speaker 8: made several points, one of which is, At some level,
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  Speaker 8: at some point, the U.S. and China at that level
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  Speaker 8: have to work together. When you talk to these companies
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  Speaker 8: and these investors, is there any belief that that could happen?
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  Speaker 7: I think it's seen as a kind of very low
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  Speaker 7: probability outcome. And again, you know, when we go back
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  Speaker 7: to this anthropo-guess over the weekend, the three options that
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  Speaker 7: were up for proposal, the third was kind of geopolitical
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  Speaker 7: agreement between democratic and non-democratic nations. And China called out
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  Speaker 7: as the most obvious example there, but acknowledgement that binding
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  Speaker 7: agreement between, say, the US and China would be incredibly difficult.
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  Speaker 7: And obviously, there's kind of evolving leverage on both sides. And,
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  Speaker 7: you know, I think as much as Perhaps the Trump
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  Speaker 7: administration would want to kind of use familiar tools of
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  Speaker 7: constraining access to technology in China, particularly chips. China has,
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  Speaker 7: you know, a stranglehold almost over the rare earths industry.
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  Speaker 7: And that's crucial for both the military complex, but also
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  Speaker 7: the technology complex. And I think China's kind of prepared
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  Speaker 7: to kind of use that in leverage to get access
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  Speaker 7: to technology.
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  Speaker 3: And, of course, that visit will be on September 24th
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  Speaker 3: with AI on the agenda, Xi Jinping visiting the U.S.
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  Speaker 3: I also want to get your take, Matt, on OpenAI.
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  Speaker 3: It has told us it's not going public this year,
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  Speaker 3: but it may move forward with a new funding round. Apparently,
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  Speaker 3: the latest talks for more funding was initiated by investors.
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  Speaker 1: Is that significant?
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  Speaker 7: Well, I think it certainly fits with the delayed IPO narrative. And,
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  Speaker 7: you know, whatever the source of the discussion or suggestion was,
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  Speaker 7: I mean, I think these are companies that are burning
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  Speaker 7: through cash at a very vast rate. And so they
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  Speaker 7: probably do need more money. And I think perhaps there's
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  Speaker 7: a bit of an opportunistic moment here for some of
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  Speaker 7: their investors. Bigger backers like, for example, SoftBank that may
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  Speaker 7: be seeing that they can perhaps increase their exposure a
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  Speaker 7: bit so that when it does find the IPO, they're
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  Speaker 7: getting a nice kickback on that investment. But for sure,
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  Speaker 7: you know, if they're delaying the IPO, they'll need money
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  Speaker 7: from somewhere to kind of sustain the investments that they'd
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  Speaker 7: be making.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 8: I kind of feel with this AI story, it seems
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  Speaker 8: like every quarter, every month, now maybe every week, we
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  Speaker 8: need to step back and say, where are we with
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  Speaker 8: this AI story? Where is the technology going? How do
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  Speaker 8: I want to invest in it? Is it going to
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  Speaker 8: be the end of the world? That's the discussion over
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  Speaker 8: the last week or two.
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  Speaker 6: I don't know.
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  Speaker 8: But I mean, that's why we have smart people coming
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  Speaker 8: through here to try to help us understand. Mandeep Singh
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  Speaker 8: is one of them. He is the head of our
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  Speaker 8: technology research group at Bloomberg Intelligence. And he's been doing
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  Speaker 8: this stuff for decades. He's seen it come and go. Mandeep,
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  Speaker 8: the conversation around AI has moved from, hey, are they
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  Speaker 8: spending too much money? Are they getting good returns on investment? To,
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  Speaker 8: is AI going to.
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  Speaker 6: End the world? In a matter of a couple of weeks,
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  Speaker 6: that all changed.
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  Speaker 8: Talk to us about Everything we've heard from the Sam
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  Speaker 8: Altmans of the world, the Elon Musk of the world,
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  Speaker 8: President Trump. How do you think this, where are we
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  Speaker 8: in the global discussion of this right now?
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  Speaker 4: So a couple of things to frame this. One, everyone
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  Speaker 4: sees the use cases of AI, the coding agents, the
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  Speaker 4: customer service. Those have been hugely successful and they're being
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  Speaker 4: used by companies, by, you know, consumers. The second aspect
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  Speaker 4: of this is agentic AI. agentic AI is you've got,
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  Speaker 4: you know, a workflow where you do certain things in
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  Speaker 4: a sequence. can AI do this end-to-end? And that's where,
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  Speaker 4: you know, when this Hugging Face OpenAI incident happened, where
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  Speaker 4: OpenAI had hundreds of agents that were given a task,
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  Speaker 4: you know, in terms of cybersecurity-related tasks where agents tried
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  Speaker 4: to be deceptive, you know, there weren't logs enough to
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  Speaker 4: see what exactly was going on. That raised alarm bells
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  Speaker 4: in terms of what AI could do in a longer chain,
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  Speaker 4: in a sequence of events. And that's where I think
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  Speaker 4: the concerns are fair where You know, if you are
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  Speaker 4: given a goal and the agents are goal seeking and
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  Speaker 4: they're working off a reward function, they can do so
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  Speaker 4: many things that people have no clue about with the
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  Speaker 4: pursuit of that goal. Whereas when we interact with AI
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  Speaker 4: through a chatbot or a coding agent, we see the
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  Speaker 4: results and we see the output fairly quickly. So it's
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  Speaker 4: that agentic aspect that is coming into focus. And we
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  Speaker 4: just did a token survey, token consumption survey, because tokens
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  Speaker 4: are the basic units of AI. That's how you can
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  Speaker 4: track AI usage. I mean, enterprises, the top 100 enterprises
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  Speaker 4: we had in our survey have increased their token budgets
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  Speaker 4: by two to five times over the span of last
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  Speaker 4: 12 months. And their intentions are also to continue to spend.
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  Speaker 4: So this technology is real. Companies are putting money out
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  Speaker 4: of their IT budgets. It's just the agentic aspect is
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  Speaker 4: what is drawing a lot of scrutiny. And that is
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  Speaker 4: what is getting reflected here in the discussions.
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  Speaker 6: I've referred to it several times today.
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  Speaker 8: Tom Friedman of the New York Times has an opinion
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  Speaker 8: column out which is just thought provoking if nothing else.
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  Speaker 8: And basically the two takeaways I had from this to
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  Speaker 8: this topic is number one, there's a big aspect to
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  Speaker 8: this and that the horse is already out of the barn.
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  Speaker 9: These models are out there.
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  Speaker 6: That's disturbing.
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  Speaker 8: The second aspect was no matter what, ideally the US
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  Speaker 8: and China seriously get together and think about what they
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  Speaker 8: want to do together here. Given your experience with this industry,
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  Speaker 8: how do you kind of view those issues?
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  Speaker 4: I mean, at some point, there has to be regulations around,
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  Speaker 4: you know, how do you evaluate these models? How do
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  Speaker 4: you audit and monitor these models? Because that's what's coming
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  Speaker 4: into focus here is, look, AI can do a lot
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  Speaker 4: of things. The models have a lot of capabilities.
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  Speaker 1: How do I audit?
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  Speaker 4: If you are an enterprise that is deploying this swarm
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  Speaker 4: of agents... you got to have some sort of accountability
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  Speaker 4: in terms of the work that is being done. And
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  Speaker 4: somebody should be able to verify and independently evaluate everything
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  Speaker 4: that's going on. And that's where the regulators will come in. Now,
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  Speaker 4: I don't know the geopolitical aspect, how that's going to evolve,
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  Speaker 4: whether we can come to an agreement in terms of
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  Speaker 4: what the Chinese models and US models will do in
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  Speaker 4: terms of the guidelines. But clearly, there is a concern
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  Speaker 4: in terms of what this means for intellectual property, for cybersecurity.
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  Speaker 4: Because if the agents are goal-seeking, which is what we
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  Speaker 4: saw in the Hugging Face incident, they can go to
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  Speaker 4: any length to break any software system. And that's a
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  Speaker 4: real risk here.
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  Speaker 10: All right.
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  Speaker 8: I'm going to speak for most, if not every single
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  Speaker 8: one of our viewers and listeners.
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  Speaker 6: Who is this guy, Dario Amodi, the CEO of Anthropic?
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  Speaker 6: We need to kind of know who this guy is,
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  Speaker 6: don't we, going forward?
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  Speaker 4: You should bring him to your show. I mean, definitely
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  Speaker 4: there are a lot of questions that only him and
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  Speaker 4: the likes of Sam Altman and Elon can answer. But clearly,
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  Speaker 4: I think there is a lot that is black box
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  Speaker 4: nature with these AI models. And then when you extend
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  Speaker 4: that to agentic AI, where, like I said, you're doing
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  Speaker 4: so many steps, the model is making hundreds of calls.
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  Speaker 4: You've got to have more verifiability and, you know, auditability.
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  Speaker 4: And that's where I think the regulators have to come
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  Speaker 4: in and ask for more.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 10:36
  Speaker 5: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 10:40
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 10:43
  Speaker 5: Auto with the Bloomberg Business app. Listen on demand wherever
• 10:46
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 10:50
  Speaker 6: Let's switch gears hard here to electric vehicles.
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  Speaker 8: Again, I'm kind of an expert here, having been in
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  Speaker 8: a Waymo from Santa Clara University to a In-N-Out Burger.
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  Speaker 6: And that was pretty cool. So I know what I'm
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  Speaker 6: talking about.
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  Speaker 8: Adam Grant, he's the real pro. Bloomberg NEF, head of
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  Speaker 8: intelligent mobility. So, Adam, where are you guys in terms
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  Speaker 8: of your outlook for, you know, passenger vehicles and the
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  Speaker 8: Waymos of the world?
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  Speaker 6: What's your outlook?
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  Speaker 2: So we just put out a note that looks at
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  Speaker 2: the passenger car industry as a whole and that top
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  Speaker 2: line number, and we can get into electric vehicles and
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  Speaker 2: robotaxis in just a minute. But this outlook starts off
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  Speaker 2: with the near term and goes all the way out
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  Speaker 2: to 2050. But for 2026, we're on track for just
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  Speaker 2: shy of 85 million passenger cars sold globally. That's a
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  Speaker 2: modest 1% increase from last year. But where it really
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  Speaker 2: gets interesting is at a regional level where you have
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  Speaker 2: the world's biggest car market in China significantly increasing. below
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  Speaker 2: previous sales numbers, 14% below what we'd kind of initially
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  Speaker 2: expected at the beginning of the year, and really starting
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  Speaker 2: to depend on those export markets as it looks to
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  Speaker 2: kind of keep passenger car production and sales from domestic
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  Speaker 2: automakers nice and high. Where sales go from here, there's
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  Speaker 2: kind of a long pathway with still some growth in
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  Speaker 2: the industry ahead, but we have the outlook peaking at
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  Speaker 2: just under 100 million vehicles sold globally in about 2037.
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  Speaker 2: And just tell.
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  Speaker 3: Us a little bit more about the kinds of vehicles
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  Speaker 3: that are leading the growth.
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  Speaker 2: So it's really about the markets. I mean, SUVs are
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  Speaker 2: incredibly popular and we can talk about drivetrains as well
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  Speaker 2: with hybrids having a kind of a resurgence in popularity
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  Speaker 2: in the United States. But the markets where there is
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  Speaker 2: kind of strong growth in total passenger vehicle sales are
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  Speaker 2: markets like India and Southeast Asia. uh which are kind
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  Speaker 2: of growing rapidly uh from very low bases of motorization
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  Speaker 2: or vehicles um vehicles per user but it's not always
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  Speaker 2: just about the sales it's also about the total vehicles
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  Speaker 2: on the road uh there's about 1.4 billion passenger vehicles
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  Speaker 2: on the road today we see that rising to just
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  Speaker 2: shy of 1.7 billion in 2039 And from there, it's
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  Speaker 2: really about looking at the types of vehicles that complete
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  Speaker 2: certain types of trips. So we spoke about robotaxis, and
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  Speaker 2: those are increasingly becoming real businesses that are contributing meaningful
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  Speaker 2: trips and are no longer science projects. They're getting you
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  Speaker 2: to your in-and-out burgers, as you mentioned.
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  Speaker 8: We're on the robotaxi business, which is fantastic. Not even
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  Speaker 8: in the nascent stage here in the United States. It's
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  Speaker 8: almost impossible to get one, although I did and had
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  Speaker 8: a good experience. Talk to us about the rest of
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  Speaker 8: the world. Where are you seeing robo taxis, driverless vehicles?
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  Speaker 8: Where are you seeing that business really starting to grow?
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  Speaker 2: Well, I mean, the U.S. is a leader in this space,
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  Speaker 2: and a lot of the most serious robo-taxi deployments that
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  Speaker 2: we track are in the United States. But also in China,
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  Speaker 2: where there's kind of a handful of cities with what
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  Speaker 2: we'd classify as fully operational commercial deployments, that means that
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  Speaker 2: there's kind of no strings attached or very few strings
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  Speaker 2: attached in order to be able to get a ride.
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  Speaker 2: You might... as you put it, have to work a
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  Speaker 2: little bit harder to get a ride because they're kind
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  Speaker 2: of intermingled with a human-driven ride-hailing fleet. But really, those
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  Speaker 2: are the two markets that have leading operations at the moment.
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  Speaker 2: But there's expansion happening in the Middle East, so Dubai
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  Speaker 2: and Abu Dhabi, and then Saudi in Riyadh as well.
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  Speaker 2: But Europe is also an active growth market for this technology,
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  Speaker 2: but that's at an even earlier stage than what you're
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  Speaker 2: seeing in the United States. you're really just starting to
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  Speaker 2: get the first initial deployments in those markets at this stage.
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  Speaker 1: Stay with us. More from Bloomberg Intelligence coming up after this.
• 14:55
  Speaker 5: You're listening to the Bloomberg Intelligence Podcast. Catch us live
• 14:58
  Speaker 5: weekdays at 10 a.m. Eastern on Apple CarPlay and Android
• 15:02
  Speaker 5: Auto with the Bloomberg Business App. Listen on demand wherever
• 15:05
  Speaker 5: you get your podcasts or watch us live on YouTube.
• 15:09
  Speaker 1: You know, we have a Fed meeting today.
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  Speaker 6: We do?
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  Speaker 2: Yeah.
• 15:12
  Speaker 1: 2 p.m.
• 15:13
  Speaker 3: Is the actual announcement. I think it's pretty much a
• 15:16
  Speaker 3: no-brainer in terms of what markets are priced in at
• 15:19
  Speaker 3: this point, which is a rate hike. The big question
• 15:21
  Speaker 3: is what Kevin Warsh says at 2.30 p.m. and how
• 15:24
  Speaker 3: that shapes people's perceptions of where the central bank goes next.
• 15:27
  Speaker 3: And of course, that has huge ramifications for real estate
• 15:30
  Speaker 3: and commercial real estate. In particular, Laura Rappaport is here
• 15:34
  Speaker 3: with us in studio at the Bloomberg Interactive Broker Studio.
• 15:36
  Speaker 3: She is founder and CEO of Northbridge. And Northbridge, of course,
• 15:41
  Speaker 3: involved in commercial real estate, involved in the financing of it.
• 15:44
  Speaker 3: How are you thinking about how momentous this rate decision
• 15:48
  Speaker 3: day is for your industry?
• 15:51
  Speaker 9: It has a major impact.
• 15:53
  Speaker 10: If the tenure right now is at five, so assuming
• 15:56
  Speaker 10: that all goes as planned right now, the rate The
• 16:01
  Speaker 10: problem we have is twofold. One, in terms of the
• 16:03
  Speaker 10: wall of maturities, there's a trillion dollars of commercial real
• 16:07
  Speaker 10: estate debt that is maturing. And these deals were done
• 16:10
  Speaker 10: in an environment that was sometimes 500 basis points inside
• 16:14
  Speaker 10: of where we are today for the 10 year. And
• 16:17
  Speaker 10: so for being almost 400 basis points lower. So you
• 16:20
  Speaker 10: have a tale of have and have nots in terms
• 16:22
  Speaker 10: of the deals that will be able to be refinanced
• 16:25
  Speaker 10: and those that will not. Fortunately, Banks have come back
• 16:28
  Speaker 10: in terms of injecting more liquidity into the CRE market,
• 16:32
  Speaker 10: but that's very much concentrated into certain asset classes like
• 16:35
  Speaker 10: well-leased multifamily, well-leased industrial. And so other projects that may
• 16:40
  Speaker 10: not be stabilized yet that have had cost overruns and
• 16:43
  Speaker 10: delays or are not in favor are going to have
• 16:46
  Speaker 10: a really hard time refinancing. And so private credit is
• 16:50
  Speaker 10: going to have to be really creative. The other way
• 16:52
  Speaker 10: this impacts the real estate industry is in construction starts.
• 16:55
  Speaker 10: We have a very supply constrained market in certain asset classes,
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  Speaker 10: especially multifamily, especially office in certain.
• 17:01
  Speaker 9: Markets, even hotel.
• 17:03
  Speaker 10: And with a higher price of SOFR and higher start
• 17:08
  Speaker 10: financing costs, lack of liquidity, more equity is going to
• 17:11
  Speaker 10: be needed to inject into these deals. And that's on
• 17:14
  Speaker 10: top of more inflation, higher inputs, more expensive labor. So
• 17:19
  Speaker 10: fewer projects are going to get started. Those that do
• 17:21
  Speaker 10: get started will have very creative capital stacks, but it's
• 17:24
  Speaker 10: going to create more of a supply, demand, and balance
• 17:26
  Speaker 10: in the market.
• 17:26
  Speaker 8: I know I've asked you this before, but I'm going
• 17:28
  Speaker 8: to ask you again, because maybe some of our audience
• 17:31
  Speaker 8: forgets it.
• 17:31
  Speaker 6: What is CPACE financing?
• 17:33
  Speaker 10: CPACE is Long-Term Sustainable Finance. that can be used for
• 17:38
  Speaker 10: refi and rescue capital, as well as new construction. What
• 17:42
  Speaker 10: we do is we help borrowers get access to total
• 17:45
  Speaker 10: proceeds by bringing down the overall cost of capital. So
• 17:48
  Speaker 10: we are an assessment, not a mortgage. We're very passive capital,
• 17:52
  Speaker 10: and we help projects be refinanced through a passive liquidity injection.
• 17:58
  Speaker 10: We also help projects be built through construction financing with
• 18:01
  Speaker 10: mortgage partners.
• 18:01
  Speaker 8: So that's why you're focusing on that wall of capital
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  Speaker 8: that may need some help in recapitalizing.
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  Speaker 2: I guess.
• 18:08
  Speaker 10: Exactly. We're very active looking at projects that have been
• 18:11
  Speaker 10: built that may not yet be stabilized that need a
• 18:14
  Speaker 10: passive liquidity injection.
• 18:15
  Speaker 9: For which our capital.
• 18:16
  Speaker 6: But is that equity or.
• 18:17
  Speaker 1: It's debt.
• 18:18
  Speaker 10: No, so our financing actually is very passive. Our payment
• 18:21
  Speaker 10: is through a real estate tax. So it's an assessment.
• 18:23
  Speaker 9: It's not a mortgage.
• 18:25
  Speaker 10: And as a result of that, we can put money
• 18:27
  Speaker 10: into projects, create a long duration for us to be
• 18:31
  Speaker 10: paid back, help pay down a lender, lend and extend,
• 18:34
  Speaker 10: and allow the borrower time to stabilize or buy the
• 18:37
  Speaker 10: cap or all the above. So we're coming in into
• 18:39
  Speaker 10: a number of situations to help resize a capital stack
• 18:44
  Speaker 10: and on new construction to come into projects where we
• 18:46
  Speaker 10: can bring down the overall cost of capital through the
• 18:50
  Speaker 10: private credit industry, partnering with different lenders as well to
• 18:53
  Speaker 10: provide borrowers the much-needed proceeds at that 70%, 80% leverage amount,
• 18:58
  Speaker 10: but at a lower overall blend in cost of capital,
• 19:00
  Speaker 10: which is very attractive for people trying to start projects.
• 19:03
  Speaker 3: We're here in Midtown Manhattan, so I feel like we
• 19:05
  Speaker 3: need to ask you about this trend of converting office
• 19:09
  Speaker 3: buildings into residential buildings. It took a bit of a hit,
• 19:12
  Speaker 3: this trend, earlier this year because of some issues with
• 19:17
  Speaker 3: the foundation with one of the buildings. There was a
• 19:19
  Speaker 3: collapse of one part of it. Has that slowed things down?
• 19:23
  Speaker 3: So I was actually here.
• 19:25
  Speaker 10: The morning it was happening, and it was happening real time,
• 19:28
  Speaker 10: which was really terrifying and interesting at the same time.
• 19:32
  Speaker 9: Fortunately, no one was hurt.
• 19:34
  Speaker 10: What that ultimately found is that the project's continuing on.
• 19:38
  Speaker 10: There's a lot of very smart people working on it.
• 19:40
  Speaker 10: We're not part of that, so I can only comment kind.
• 19:42
  Speaker 9: Of high level.
• 19:42
  Speaker 10: But what we're seeing is a big trend towards office
• 19:45
  Speaker 10: to residential conversion. And there are 74 starts this year
• 19:49
  Speaker 10: alone in New York City, which represents 10,000 units, which
• 19:53
  Speaker 10: is a third of new housing starts. And there's 122
• 19:56
  Speaker 10: projects in New York City going on right now. This
• 19:59
  Speaker 10: is a newer trend and one that I think we'll
• 20:02
  Speaker 10: see and continue to grow because New York City is
• 20:04
  Speaker 10: very supply constrained, especially Manhattan, for new construction projects.
• 20:08
  Speaker 9: And for multifamily.
• 20:09
  Speaker 10: And so this is a very effective way to create
• 20:12
  Speaker 10: housing stock, not only affordable, but also market rate housing
• 20:17
  Speaker 10: that's much needed.
• 20:18
  Speaker 9: What I do believe we'll see is more.
• 20:21
  Speaker 10: Scrutiny over these projects, more scrutiny from the DOB, potentially
• 20:25
  Speaker 10: take longer.
• 20:26
  Speaker 9: Fewer people will be able to execute.
• 20:28
  Speaker 10: Them well, but there are a number of very talented
• 20:31
  Speaker 10: developers in New York and other markets that can execute
• 20:34
  Speaker 10: these projects.
• 20:34
  Speaker 8: Do we have any sense of what the returns are
• 20:36
  Speaker 8: going to be on these? Because you guys have your
• 20:38
  Speaker 8: rates that you're looking for.
• 20:39
  Speaker 6: What is it called? The cap rate?
• 20:41
  Speaker 2: Yeah.
• 20:41
  Speaker 6: Whatever that is. I don't know how that works in
• 20:42
  Speaker 6: real estate.
• 20:43
  Speaker 1: That's the real estate, commercial real estate term.
• 20:45
  Speaker 6: Okay.
• 20:46
  Speaker 9: The cap rate's usually NOI over the value. So that's
• 20:49
  Speaker 9: how you get to the overall cap.
• 20:51
  Speaker 7: Thank you.
• 20:51
  Speaker 4: There you go.
• 20:52
  Speaker 6: So what is it like for these things? Do we
• 20:53
  Speaker 6: have any idea how they'll play out?
• 20:56
  Speaker 10: One of the things that's interesting about where we are
• 20:59
  Speaker 10: in the market right now, given all the dynamics, especially
• 21:01
  Speaker 10: the change happening this afternoon... The cost of capital has increased,
• 21:05
  Speaker 10: which really reduces the overall profitability of projects. One of
• 21:08
  Speaker 10: the things that makes a conversion interesting is that the
• 21:11
  Speaker 10: building's already built. Conversions are actually very complicated, sometimes far
• 21:15
  Speaker 10: more complicated to build than new construction. But the building's
• 21:18
  Speaker 10: already built, so at this point, you have a foundation
• 21:21
  Speaker 10: and the actual structure of the building, and then it's
• 21:23
  Speaker 10: about changing the asset.
• 21:25
  Speaker 9: So there's already a structure.
• 21:27
  Speaker 10: That's in place, as opposed to trying to get a site,
• 21:30
  Speaker 10: maybe there's an asset on it, tear it down, create foundation,
• 21:34
  Speaker 10: and build up new, which is really hard to do
• 21:35
  Speaker 10: in Manhattan. With that said, the profitability is going to
• 21:39
  Speaker 10: be impacted because the cost of capital.
• 21:42
  Speaker 9: Is now so expensive.
• 21:44
  Speaker 10: The inputs, the labor, the raw materials going into it
• 21:47
  Speaker 10: is going to be more expensive. However, there's going to
• 21:50
  Speaker 10: be fewer projects actually getting done because the cost of
• 21:52
  Speaker 10: capital to build these new projects is now increased. So
• 21:56
  Speaker 10: perhaps maybe there will be some decrease in overall cost.
• 22:00
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