Latest / Bloomberg Intelligence / Commercial Real Estate Set Up For 'Profound' Recovery: MMI CEO

Transcript

Commercial Real Estate Set Up For 'Profound' Recovery: MMI CEO · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penl podcast. I'm Paul swing you.
0:05
Speaker 1: Along with my co host Lisa Brahmas. Each day we
0:07
Speaker 1: bring you the most noteworthy and useful interviews for you
0:10
Speaker 1: and your money, whether at the grocery store or the
0:12
Speaker 1: trading floor. Find a Bloomberg Penl podcast on Apple podcast
0:16
Speaker 1: or wherever you listen to podcasts, as well as at
0:18
Speaker 1: Bloomberg dot com. We continue to dig into the economic
0:22
Speaker 1: ramifications of some of the closures, and we've seen a
0:25
Speaker 1: number of retailers furlow or layoff whole hosts of workers,
0:29
Speaker 1: the latest being Macy's today saying that it was going
0:32
Speaker 1: to close after closing all of its stores in March eighteenth.
0:36
Speaker 1: Now it's going to furlow most of it's a hundred
0:39
Speaker 1: and thirty thousand workers. This has led a lot of
0:42
Speaker 1: led to a lot of questions about commercial real estate values,
0:45
Speaker 1: rent payments and the like. Joining us to say I'm
0:48
Speaker 1: really pleased to say is Hassam no G He's president,
0:50
Speaker 1: chief executive officer of a major commercial real estate from
0:53
Speaker 1: Marcus and Millichap based in Calabas's, California, and Hassam, I'd
0:58
Speaker 1: love to get your take first of all, given the
1:00
Speaker 1: Macy's news, given the fact that we've seen retailers across
1:02
Speaker 1: the board just closed down stores in mass will this
1:06
Speaker 1: have a permanent effect on commercial real estate values that
1:10
Speaker 1: have not even yet been priced in? Good morning. Thank
1:15
Speaker 1: you for having me on the program. First of all,
1:17
Speaker 1: this is unlike anything we've all experienced, and at the
1:20
Speaker 1: risk of sitting the obvious and that it's really a
1:23
Speaker 1: health crisis, and most of our clients and everybody participating
1:26
Speaker 1: our industries first and foremost concerned about the health of
1:29
Speaker 1: their their employees, and their and their families. So it's
1:33
Speaker 1: very difficult to separate the emotional component of that with
1:36
Speaker 1: the business component at this minute, which is unusual, uh,
1:40
Speaker 1: from anything we've seen in the past. But to answer
1:42
Speaker 1: to your question, what's happening around us right now is
1:45
Speaker 1: hastening the trend that was already playing out for retail.
1:49
Speaker 1: As you know, e commerce has really profoundly changed brick
1:52
Speaker 1: and mortar retailing, and a lot of the obsolete older
1:56
Speaker 1: shopping centers and a lot of shopping centers that relied
1:59
Speaker 1: on department stores have been heard badly by what was
2:03
Speaker 1: already happening. This is just speeding that up. I think
2:06
Speaker 1: there's going to be more short term pain because of it.
2:09
Speaker 1: Clearly there is no way around that. But I also
2:13
Speaker 1: want to point out the rebirth of retail, where we've
2:15
Speaker 1: seen so many examples of renovations, repositioning, and re tenanting
2:21
Speaker 1: of retail that has been widely successful and has become
2:25
Speaker 1: a great investment vehicle. And there are components of retail
2:28
Speaker 1: like the stable grocery anchored type of retail that is
2:32
Speaker 1: of course doing very well right right now, but was
2:35
Speaker 1: doing well even before the health crisis began, and fast
2:38
Speaker 1: food restaurant, drug store, single tenant retail where you have
2:42
Speaker 1: one tenant on a long term lease and is much
2:46
Speaker 1: less risky. Those are doing very well and in great
2:50
Speaker 1: demand by investors. Some taking a look at the two
2:54
Speaker 1: trillion dollar fiscal stimulus package, what was in there for
2:57
Speaker 1: real estate? From your perspective, I think the most important
3:01
Speaker 1: part of the package is the fact that there's three
3:05
Speaker 1: d and fifty billion dollars allocated for small business forgivable
3:08
Speaker 1: loans and five billion for a large companies. As as
3:13
Speaker 1: much help as can be delivered to companies to stay
3:15
Speaker 1: afloat during the worst of this health crisis in order
3:19
Speaker 1: to limit employee layoffs is the most important component because
3:24
Speaker 1: that has to do with tenants, and tenants have to
3:27
Speaker 1: do with the octancies of commercial real estate. In addition
3:30
Speaker 1: to that, the way that the BED has stepped in
3:33
Speaker 1: at an unprecedented speed and scale very different from two
3:37
Speaker 1: thousand and eight two thousand nine. While we absorb, you know,
3:41
Speaker 1: the lack of a playbook, taking months to come up
3:44
Speaker 1: with solutions, has now resulted in their ability to be
3:48
Speaker 1: much more nimble and much more bold in the ways
3:52
Speaker 1: that come in to basically backstop liquidity and assure the
3:56
Speaker 1: functioning of the of the credit markets. That's a a
4:00
Speaker 1: found help for not just commercial real estate, but but
4:03
Speaker 1: all businesses. And I think it really lays the groundwork
4:07
Speaker 1: for a rapid recovery. Just as much as this is
4:10
Speaker 1: going to be a very deep, painful downturn and hopefully
4:14
Speaker 1: a short term one, the recovery because of the action
4:17
Speaker 1: that's being taken, should therefore be just as just as profound.
4:21
Speaker 1: Because some there's some talk about the defreezing of corporate
4:26
Speaker 1: credit markets as the FED steps in and uh says
4:29
Speaker 1: it's going to buy certain securities. They're given the fact
4:33
Speaker 1: that you're one of the largest commercial real estate financing
4:36
Speaker 1: companies close a lot of transaction. What's your sense of
4:40
Speaker 1: how much we are looking at possibility for just a
4:46
Speaker 1: complete shutdown or freeze in the commercial transactions going forward. Well,
4:53
Speaker 1: we're seeing deals continue forward. We're seeing deals closed in
4:57
Speaker 1: the last two weeks, in the last few days because
5:00
Speaker 1: they still make sense and the buyers and sellers are
5:02
Speaker 1: comfortable with the execution, and lenders are still coming through.
5:05
Speaker 1: Many deals are not moving forward. Uh. Some lenders have
5:08
Speaker 1: stepped out of the market. There are a wide variety
5:11
Speaker 1: of reasons for that and the locations for that. It
5:13
Speaker 1: isn't one or two trends. But the most important thing
5:16
Speaker 1: to remember is there will be a short time window
5:19
Speaker 1: where pricing will be difficult and being able to kind
5:23
Speaker 1: of read the market will be very difficult. But we
5:26
Speaker 1: expect as soon as the market kind of gets this
5:28
Speaker 1: putting on evaluation and begins to see the bottoming of
5:32
Speaker 1: the health crisis first and foremost, and then secondly the uh,
5:37
Speaker 1: you know, the beginnings of some kind of an economic normalization.
5:41
Speaker 1: I think the market is going to move very fast
5:43
Speaker 1: with a significant amount of pen of demand and transactional activity.
5:47
Speaker 1: I think the FEDS backstop is critical during this uncertainty
5:52
Speaker 1: window of uncertainty because it's kind of prevents, uh, you know,
5:56
Speaker 1: a lot of loan defaults and a lot of if
5:59
Speaker 1: you will, fire sale expectations that really aren't justified. You know,
6:04
Speaker 1: we have to remember, prior to this crisis, commercial real
6:06
Speaker 1: estate was in great shape. We hadn't over build it,
6:09
Speaker 1: we hadn't over leveraged it. The economy was in great shape.
6:13
Speaker 1: That added added to the all the actions that are
6:16
Speaker 1: being taken by the FRET and the government really spells
6:18
Speaker 1: it pretty uh, you know, pretty good shape. Samnogi, thanks
6:22
Speaker 1: so much for joining us to snog is the CEO
6:24
Speaker 1: of Marcus and Millichap talking to us about the commercial
6:27
Speaker 1: real estate business and clearly some tough times coming up
6:31
Speaker 1: for that business. At Lisa and again we just saw
6:33
Speaker 1: some you know, it's gonna be really really difficult on
6:36
Speaker 1: a lot of you know, small and mid sized businesses,
6:38
Speaker 1: and obviously that'll be that'll trickle down to the real
6:41
Speaker 1: estate as well. Looking at w T I crewed twenty
6:47
Speaker 1: twenty cents a barrel just extraordinary here. So when we
6:51
Speaker 1: talk about commodities like oil, we talked about supply and demand,
6:55
Speaker 1: and it doesn't look good on either side for oil
6:58
Speaker 1: right now. That's why we're fortunate to have our next guest,
7:00
Speaker 1: Ellen Wald. She's a president of Transversal Consulting and a
7:03
Speaker 1: Bloomberg Opinion contributor. Ellen, thanks so much for joining us.
7:07
Speaker 1: So we know the demand picture is bad and seemingly
7:10
Speaker 1: getting worse by the day. But let's start with supply.
7:13
Speaker 1: What are the Russians and the Saudis thinking about today? Well, exactly, Well,
7:19
Speaker 1: the Russians are probably thinking about the phone call that
7:22
Speaker 1: President Trump says he's going to have with President Putin
7:25
Speaker 1: later today, during which he plans to discuss oil. But
7:30
Speaker 1: the interesting thing is that the real problem is actually
7:33
Speaker 1: Saudi Arabia. In fact, there's been indications that Russia is
7:38
Speaker 1: at the very least not increasing production and possibly interested
7:42
Speaker 1: in cutting it. We heard some indications of this from
7:46
Speaker 1: some of the Russian oil companies last week. Meanwhile, Saudi
7:49
Speaker 1: Arabia is coming out and saying not only are they
7:52
Speaker 1: increasing their production to twelve million barrels per day, uh,
7:55
Speaker 1: it's starting April one, but they're also planning, starting in May,
8:00
Speaker 1: of making ten point six million barrels per day of
8:05
Speaker 1: oil available for export, So essentially they're taking their drop
8:09
Speaker 1: in domestic demand and they want to put that on
8:11
Speaker 1: the market to Alright, this has been leading to fears
8:16
Speaker 1: and the reality of storage space being filled up. Literally
8:20
Speaker 1: there is nowhere to put all of this oil. And
8:22
Speaker 1: we saw in the US here a driller actually paying
8:26
Speaker 1: someone at one point to just take their oil because
8:28
Speaker 1: they had too much of it and needed a place
8:30
Speaker 1: to put it. What's the end game here? The end
8:34
Speaker 1: game is that production is going to have to decline.
8:38
Speaker 1: That's that's really the only option here. Dwellers are going
8:42
Speaker 1: to have to start plugging wells. Uh, they're going to
8:45
Speaker 1: have to start reducing recounts. We've already seen recounts going
8:49
Speaker 1: down in the Permian. But the reality is unless they
8:53
Speaker 1: want to fill every ship on the sea with crude
8:57
Speaker 1: oil and products and every idle jet with jet fuel, Uh,
9:02
Speaker 1: they're going to have to calm down with this production because, Uh,
9:06
Speaker 1: the demand problem isn't going to be resolved immediately. Demand
9:11
Speaker 1: is going to take some time to come back. Gasolene
9:14
Speaker 1: demand could come back pretty quickly once social distancing and
9:18
Speaker 1: lockdown restrictions are eased, But it doesn't seem like we're
9:22
Speaker 1: going to be getting that anytime soon. Alright, So give
9:27
Speaker 1: us a sense ellen of what the Saudis are thinking
9:30
Speaker 1: about here. What do you think is their mindset? Here?
9:33
Speaker 1: They can see where global demand is and is not
9:37
Speaker 1: h and they can look ahead and just see where
9:38
Speaker 1: the storage capacity issues are. What are they really thinking here? Yeah,
9:42
Speaker 1: this is this is the big question. When when this
9:45
Speaker 1: whole issue got got started in the beginning of March
9:49
Speaker 1: this nowady has actually had a pretty good plan before
9:54
Speaker 1: UH the coronavirus lockdowns started across the US and then
10:00
Speaker 1: in UH, in Europe and now in India, demand was down,
10:04
Speaker 1: and particularly from China, but it wasn't bad, and so
10:08
Speaker 1: their plan to increase production was actually had some merit.
10:11
Speaker 1: The idea would be increased production, you'll increase revenue even
10:15
Speaker 1: if you send oil prices down by a bit. The
10:18
Speaker 1: problem happened when, first of all, they got into this
10:22
Speaker 1: price more kind of narrative, and that sent prices down
10:26
Speaker 1: further than they probably would have liked. And then on
10:29
Speaker 1: top of that you add in the coronavirus lockdowns which
10:32
Speaker 1: were just killed demand almost immediately, and that sent prices
10:37
Speaker 1: down further. So now even if they're producing and selling
10:40
Speaker 1: a lot of oil. If they're only selling it at
10:43
Speaker 1: you know, dollars a barrel, they're not making more revenue.
10:48
Speaker 1: And sooner or later they're going to have to realize
10:50
Speaker 1: that this is a serious problem. And I think we're
10:53
Speaker 1: going to start to see that in April as we
10:55
Speaker 1: see the big question is Ken Saudi MAYBEA actually sell
10:58
Speaker 1: all of this oil that have buyers? They say they do.
11:02
Speaker 1: Anecdotal evidence suggests that maybe they don't, but we're going
11:06
Speaker 1: to have to watch this play out basically in the
11:09
Speaker 1: tanker space. Are we going to see these tankers filling
11:12
Speaker 1: with oil leaving Saudi Arabia and then unloading it? And
11:15
Speaker 1: if we don't, then that's going to expose Saudi Arabia's problem?
11:19
Speaker 1: And what does this mean for the shail patch when
11:21
Speaker 1: we see pipeline operators actually saying to drillers just stop,
11:25
Speaker 1: just keep it in the ground guys, because we don't
11:27
Speaker 1: have any space. Are they all going to go bankrupt?
11:31
Speaker 1: It's likely that a lot of them will go bankrupt,
11:33
Speaker 1: They'll be bought by others. There are going to be
11:36
Speaker 1: a lot of consolidations. It's not going to be pleasant.
11:39
Speaker 1: We're going to see production slow down, in the United States,
11:42
Speaker 1: and we were already looking at somewhat of a production
11:46
Speaker 1: slow down coming on by maybe this is going to
11:48
Speaker 1: be a much more dramatic drop. The good story in
11:52
Speaker 1: all of this is that the oil is still there
11:54
Speaker 1: and when this is all over, when demand picks up,
11:58
Speaker 1: which it will then, and that oil is still going
12:01
Speaker 1: to be there. And even if the same companies aren't there,
12:04
Speaker 1: new ones will likely form or the few that kind
12:08
Speaker 1: of brought up the assets of the others will start
12:10
Speaker 1: producing again. So the Americus future as an oil producer
12:15
Speaker 1: is not over. This is not the end of that story.
12:18
Speaker 1: Ellen Wald, thank you so much for being with us.
12:20
Speaker 1: Ellen Wald, president of Transversal Consulting, and a Bloomberg Opinion
12:24
Speaker 1: Calumness joining us. I gotta say, Paul, my favorite quote
12:27
Speaker 1: that I've read over the past few weeks has been
12:29
Speaker 1: rocks don't go bankrupt. That that's one of the silver
12:32
Speaker 1: that's the silver lining for the show patch right now. Yeah,
12:35
Speaker 1: there's still oil in the ground, and as ellen said,
12:37
Speaker 1: when the market comes back, there will be some some
12:40
Speaker 1: oil people out there drilling and bringing it out for Yeah,
12:43
Speaker 1: although I do have to think, what does it say
12:46
Speaker 1: if you have pipeline operators literally saying just keep it
12:49
Speaker 1: in the ground. It's not going anywhere good right now,
12:51
Speaker 1: guys looking right now at Brent Crew, that's really what's
12:54
Speaker 1: taken on the chin this morning. It's down to two
12:58
Speaker 1: dollars and sixty a barrel, the lowest in seventeen years.
13:08
Speaker 1: Interesting to see what's going on right now in credit
13:12
Speaker 1: in the meantime, because you have sort of dual forces,
13:14
Speaker 1: given the fact that oil prices are falling to the
13:17
Speaker 1: lowest and seventeen years, and then you also have concerns
13:20
Speaker 1: about growth, and then you have the FED trying to
13:23
Speaker 1: backstop the whole thing, which is leading to this jumble
13:26
Speaker 1: with a lot of dire predictions, and yet people still
13:29
Speaker 1: saying it's time to buy Paul. Sort of this odd
13:32
Speaker 1: moment where there seems to be an opportunity here, but
13:36
Speaker 1: people aren't sure whether they're going to get just to
13:38
Speaker 1: quote to quote, walls speak, their faces ripped off in
13:42
Speaker 1: the process. Um And someone who's been attracting this really
13:45
Speaker 1: well and which has been frankly on the ball every
13:48
Speaker 1: time we speak to him is Greg Hahn, who wasn't
13:51
Speaker 1: necessarily as enthusiastic earlier about the enthusiasm we were seeing
13:55
Speaker 1: in the markets and now joins us chief investment officer
13:58
Speaker 1: for Winthrop Capital Management. Greg I'm curious from your perspective,
14:03
Speaker 1: is this a time of opportunity in the high yield
14:06
Speaker 1: space or is this a time of growing risk. So
14:10
Speaker 1: so in the high yield space, we have to separate
14:12
Speaker 1: it from the high the high yield basis. In the end,
14:15
Speaker 1: we take the energy sector out because of what's going
14:17
Speaker 1: on with oil prices. We think the energy sector is
14:19
Speaker 1: going to go through some turmoil. Um and it's a
14:22
Speaker 1: it's uh. I think at the end of the day,
14:24
Speaker 1: it's a buyer's market. But you've got to do your
14:26
Speaker 1: homework and you've got to be selective. But there's some
14:28
Speaker 1: good companies out there that are on sale. So what
14:31
Speaker 1: are some of the sectors? Are the companies that are
14:34
Speaker 1: on your screen at the moment. So we've been focused, candidly,
14:37
Speaker 1: we've been focused on the up and quality trade. So
14:40
Speaker 1: in away from high yield and the investment grade sector.
14:43
Speaker 1: The new issue market has been extremely active and where
14:45
Speaker 1: we can buy in the short end. The short end
14:47
Speaker 1: has had some serious dislocations. So we were buying two
14:51
Speaker 1: in three year paper that had yields of six percent,
14:53
Speaker 1: which was just from force selling. We're also seeing opportunities
14:57
Speaker 1: in the CMBs market, and that's where the problems are
14:59
Speaker 1: gonna or is is we see you know, we expect
15:02
Speaker 1: um rent payments on the corporate side. We're gonna miss
15:06
Speaker 1: rent payments for April, We're gonna probably miss them for
15:09
Speaker 1: May um and so we're going to see some deterioration
15:12
Speaker 1: in some increase in delinquencies and CMBs, so that there's
15:15
Speaker 1: force selling of the CNBS sector. That's put a lot
15:18
Speaker 1: of paper out on the street and that's kind of yields.
15:22
Speaker 1: What are your baked in assumptions, Greg, I'd love your
15:25
Speaker 1: sense as you extrapolate out of how deep and long
15:28
Speaker 1: the recession will be and whether that even matters in
15:31
Speaker 1: terms of where things are being valued in the opportunity therein. Yeah,
15:35
Speaker 1: So for us to make sense of this, we have
15:37
Speaker 1: to separate what's going on the economy and what's going
15:39
Speaker 1: on in the financial system with what's going on in
15:42
Speaker 1: the capital markets. So we put those into it all
15:45
Speaker 1: gets pushed together. But if we if we focus on
15:48
Speaker 1: on the capital markets piece of it, Um, just specifically
15:53
Speaker 1: to your question, we think the ret the re sector
15:56
Speaker 1: right now is going to be challenged, but the way
15:58
Speaker 1: that it flows through in the commercial mortgage loan space, Uh,
16:01
Speaker 1: what we expect businesses to miss their April first you know,
16:04
Speaker 1: we're gonna see, you know, a decline in April first
16:06
Speaker 1: rent payments. We're going to see a decline in May
16:08
Speaker 1: first rent payments, and then we'll start to see some
16:11
Speaker 1: um improvement after that as businesses just get back to
16:15
Speaker 1: up and running. And that particularly isn't that strip mall
16:17
Speaker 1: space where you see restaurants, mail salons, barbershops, that kind
16:21
Speaker 1: of service stuff that's effectively shut down for this period
16:24
Speaker 1: of time. So, Greg, what kind of economic assumption are
16:27
Speaker 1: you guys kind of working on. We had a bunch
16:29
Speaker 1: of Wall Street investment banks over the last week coming
16:31
Speaker 1: out with GDP forecast quarterly for twenty twenty, and most
16:36
Speaker 1: had I would characterize as kind of a V type
16:39
Speaker 1: of recovery with a sharp, sharp contraction in Q two,
16:42
Speaker 1: but then it rebound in Q three and four. Is
16:44
Speaker 1: that what you're modeling in Yeah? So we I can't
16:48
Speaker 1: put numbers to it, but we if we look at
16:50
Speaker 1: shapes of letters, um, we're not looking at a V
16:53
Speaker 1: shape recovery right now, this one's gonna be it's gonna
16:56
Speaker 1: be shorter than the financial crisis of two thousand and eight,
16:59
Speaker 1: but this is going to be extended. Um, this is
17:02
Speaker 1: gonna go on for two quarters. Greg, I want to
17:05
Speaker 1: talk more about speculative grade credit in general, and you're
17:09
Speaker 1: talking about the opportunities in higher rated junk bonds. I'm
17:14
Speaker 1: just wondering about investment grade down grades, the fallen Angel
17:18
Speaker 1: kind of syndrome. We've seen an escalating number of down grades.
17:22
Speaker 1: I'm just wondering at what point that's going to cause
17:24
Speaker 1: forced selling that bleeds out into the top tier of
17:28
Speaker 1: high yield. How worried are you about that? Well, it
17:32
Speaker 1: absolutely will the I mean, we saw Ford get downgraded
17:36
Speaker 1: last week, I think it was last week or two
17:37
Speaker 1: weeks ago. Um, we're going to see it. This happened
17:41
Speaker 1: in the late nineties early two thousands, where we saw
17:44
Speaker 1: Georgia Pacific Board GM a number of investment grade companies
17:48
Speaker 1: get down graded. With with low interest rate and tight
17:51
Speaker 1: credit spreads, it's not going to have a fundamental impact
17:54
Speaker 1: on the company that doesn't it's not going to increase
17:56
Speaker 1: their bowering costs as long as they can access the markets.
18:00
Speaker 1: It's going to have a bigger effect in the capital
18:03
Speaker 1: markets for those of us who navigate where we want
18:06
Speaker 1: to allocate dollars. So a big, big amount of a
18:09
Speaker 1: large amount of credit coming from investment grade into high yield,
18:13
Speaker 1: we're gonna have to digest that into the high yield space. Yes,
18:16
Speaker 1: it's a great challenge. Yeah, what's your sense of the
18:19
Speaker 1: financial system, the health of the financial system, maybe say
18:22
Speaker 1: now versus two thousand two nine. Right, So in two
18:25
Speaker 1: thousand and eight, two thousand nine, we were dealing with
18:29
Speaker 1: UH growth in the subprime loan space that worked its
18:32
Speaker 1: way into UH structured product different types of product. We
18:36
Speaker 1: don't have from our view, we don't have those kinds
18:38
Speaker 1: of accesses UH in UM, the residential space. UM. We
18:44
Speaker 1: thought the commercial mortgage loan space was a little bit extended. UM.
18:48
Speaker 1: And so there's been a lot of development over the
18:50
Speaker 1: last eight years. The but the financial system is significantly
18:55
Speaker 1: stronger than it was twelve years ago, because we're talking
18:58
Speaker 1: about banks now that have capital levels and excessive eight percent.
19:01
Speaker 1: And a context for that is back in the financial crisis,
19:04
Speaker 1: I think the banking sector was close at four So
19:07
Speaker 1: I think the banks have enough of a shock absorber
19:10
Speaker 1: to to absorb this much better than they had. And
19:15
Speaker 1: part of this is the FED has responded so quickly
19:18
Speaker 1: to put programs in place to help support commercial paper
19:20
Speaker 1: and repurchase agreements, and it really does support the financial system.
19:24
Speaker 1: So it's got the shock absorbers it needs to help
19:28
Speaker 1: absorb these um this this crisis. So one thing I've
19:31
Speaker 1: been struggling with just taking a step back the entire
19:35
Speaker 1: there's a theory out there anyway that there's a big
19:37
Speaker 1: shift going on that's getting accelerated by the coronavirus to
19:40
Speaker 1: a digital economy. You're seeing slack, you're seeing zoom all surge,
19:44
Speaker 1: you're seeing sort of anything having to do with online
19:47
Speaker 1: delivery do well. And a lot of the high old
19:50
Speaker 1: market is tied to the old economy and industrial companies
19:54
Speaker 1: that are struggling arguably the most. What do you say
19:58
Speaker 1: to people who just argue that you have all these
20:00
Speaker 1: over leveraged companies that are going to not be able
20:04
Speaker 1: to grow into their capital structures. It's going to lead
20:07
Speaker 1: to a whole host of defaults with bigger loan losses
20:10
Speaker 1: on them, with loan loss recoveries than during the two
20:13
Speaker 1: thousand and eight crisis. I keep hearing more about that.
20:16
Speaker 1: Is that a real worry? Um? Yeah, the difference between
20:21
Speaker 1: the new economy and the old economy. The old economy,
20:24
Speaker 1: if if there are assets tied to those businesses, there's value.
20:27
Speaker 1: In the new economy where you've got technology based businesses,
20:32
Speaker 1: there's there's just from a credit standpoint, there's fewer assets,
20:36
Speaker 1: so that your your asset is actually your client base.
20:38
Speaker 1: It's not necessarily your website the technology to support it. Um.
20:43
Speaker 1: But it's a it's a valid point. I mean, it's
20:45
Speaker 1: we've got this whole shift. Every industry is going through
20:48
Speaker 1: some tectonic shift right now. And I always joke, we
20:51
Speaker 1: never saw we never got a memo when the typewriter
20:54
Speaker 1: left the office back in seven or whenever it left.
20:57
Speaker 1: You know, it's like it just starts to happen and
21:00
Speaker 1: then the typewriter repair shop goes out. So some of
21:02
Speaker 1: this is going to have an impact on literally how
21:05
Speaker 1: we do business. Greg Han, thank you so much for
21:08
Speaker 1: joining us and hanging on there. Greg Han, chief investment
21:11
Speaker 1: Officer for Winthrop Capital Management. Well, there's been a lot
21:16
Speaker 1: of back and forth between President Trump and General Motors
21:20
Speaker 1: about ventilators. Are they making them, are they being are
21:23
Speaker 1: they charging too much? Let's get the latest with David Walsh,
21:26
Speaker 1: Bloomberg Detroit Bureau chief. So David, give us the latest
21:29
Speaker 1: on what's going on with General Motors and switch pivoting
21:33
Speaker 1: into the manufacturing of ventilators. Yeah. So they've actually started
21:39
Speaker 1: tearing down the original machine at Ventech, which is GM's partner,
21:43
Speaker 1: turning the machine down at an auto parts plane Cocomo
21:46
Speaker 1: and rebuilding it and really kind of perfecting the called
21:50
Speaker 1: it an assembly line, but it's really a roomful of
21:52
Speaker 1: people assembling these things, uh, the factory that will make
21:55
Speaker 1: these things. So they're they're getting to the final throws
21:58
Speaker 1: of really setting up the whole process to make thousands
22:02
Speaker 1: of ventilators. And this is important because a vent check
22:06
Speaker 1: which which makes this critical care event or later that
22:09
Speaker 1: can be used for COVID nineteen patients. They were used
22:12
Speaker 1: to making a hundred and fifty maybe a good month
22:15
Speaker 1: two hundred and fifty units, and working with GM, they're
22:19
Speaker 1: going to try to get to ten thousand a month.
22:21
Speaker 1: So this is a huge leap for a company that
22:23
Speaker 1: makes something that, while important, was not here to before
22:27
Speaker 1: in such great demand. There was some controversy David over
22:31
Speaker 1: General Motors and how much they were charging for some
22:34
Speaker 1: of these Venti leaders, President Trump singling them out and
22:37
Speaker 1: talking about this, where are we on that? So Tom
22:41
Speaker 1: kind of the complete about faith in his press briefing
22:44
Speaker 1: yesterday and said GM is doing a fantastic job. But
22:47
Speaker 1: the written initial controversy was Trump just came out Friday
22:51
Speaker 1: and said they weren't moving fast enough, they were gouging uh.
22:55
Speaker 1: To be blunt, these are both kind of dodgy claims.
22:58
Speaker 1: UMS were in General Electric are trying to make these
23:01
Speaker 1: and they were saying they help me ready until June,
23:04
Speaker 1: and GM was looked at the start production in mid April.
23:06
Speaker 1: So they're ahead of every other venture out there that
23:09
Speaker 1: that at least has been discussed publicly. GM is actually
23:13
Speaker 1: not really even negotiated with vent Tech negotiates. In terms
23:16
Speaker 1: of the deal, GM is a contract manufacture that could
23:19
Speaker 1: be paid by Vente. GM is doing the work had cost,
23:23
Speaker 1: and Ventech is charging which they told me the same
23:26
Speaker 1: eighteen thousand dollars a unit that they've been charging all along.
23:30
Speaker 1: What may not be totally appreciated, Your in vent Tech
23:33
Speaker 1: unit is one of the cheaper critical care units out there. Uh,
23:36
Speaker 1: it's actually a five and one unit. It handles four
23:38
Speaker 1: other respiratory therapies that you need for these patients when
23:42
Speaker 1: the other ventilators are just that that are on the
23:44
Speaker 1: market are just ventilators, and you have to buy the
23:47
Speaker 1: other four pieces of equipment separately. So there's some talk
23:51
Speaker 1: that maybe that wasn't totally appreciated by the President when
23:54
Speaker 1: when he started compointing about price, but he seems to
23:57
Speaker 1: be happy with everything now because two days after his ranch,
24:00
Speaker 1: the kind of events, So David, just you mentioned mid April,
24:05
Speaker 1: give us a sense of kind of the ramp up
24:07
Speaker 1: here in terms of timing number of units of production.
24:11
Speaker 1: What's the best guess at this point. I think when
24:14
Speaker 1: they start producing in mid April, it's going to be
24:16
Speaker 1: pretty small numbers. Right now, GM has three people working
24:20
Speaker 1: on that plant and they need to over time get
24:22
Speaker 1: up to a thousands. So they're looking for volunteers who've
24:26
Speaker 1: been laid off with their current plant in Cocomom, Indiana,
24:29
Speaker 1: open for volunteers from the metal stamping plant in nearby Marrying, Indiana,
24:33
Speaker 1: and they're gonna have to do some new hires. They're
24:35
Speaker 1: gonna have to they're still kind of finishing the process
24:38
Speaker 1: that they used to make these. And keep in mind
24:40
Speaker 1: when engines or cars are assembled, they go along a
24:43
Speaker 1: rolling assembly line and work a sort of you know,
24:46
Speaker 1: they do certain tasks with robotic arms as the car
24:49
Speaker 1: goes by, making ventilators. There's a lot more like making
24:52
Speaker 1: watches and assembling cars. You have a lot of people
24:55
Speaker 1: sitting at tables with small tools, looking row lens and
24:58
Speaker 1: screwing small electronic components to That's why GM chose this
25:01
Speaker 1: planet's and trying components plant. Yeah, that's what it did before,
25:05
Speaker 1: but it's still a different process GM has never done before.
25:08
Speaker 1: Their parts suppliers. These are all automotive parts suppliers that
25:12
Speaker 1: are doing kind of work with new parts for them,
25:16
Speaker 1: and they're not to validate, just make sure all works.
25:18
Speaker 1: We'll got starts in mid April. You're going to see
25:20
Speaker 1: pretty small amounts. Maybe by the end of April, you know,
25:24
Speaker 1: you'll be up to hundreds or you know, they're they're
25:26
Speaker 1: really good over a thousand months. So yeah, well so
25:30
Speaker 1: we're not going to see we we were not going
25:33
Speaker 1: to see huge numbers there. The other place we're not
25:35
Speaker 1: going to see huge numbers is just the auto manufacturing
25:37
Speaker 1: in general, how low our auto sales going to be.
25:40
Speaker 1: What are some of the predictions at this point, So
25:44
Speaker 1: we're probably looking at a March that was pretty well
25:47
Speaker 1: decimated by this. Everybody was saying that first week was
25:49
Speaker 1: pretty good, and then all the shutdowns started hitting. People
25:53
Speaker 1: were avoiding dealerships. Uh, you know that there were towns
25:59
Speaker 1: and states basically keeping people inside except for essential industries
26:03
Speaker 1: and so forth. You know about all of that. So
26:05
Speaker 1: that's really hammered sales. So it's it's going to be
26:08
Speaker 1: a rough corder when we see see the numbers on
26:10
Speaker 1: Wednesday and going into April, I expect the same thing
26:14
Speaker 1: because you're probably still going to have a lot of
26:17
Speaker 1: people staying home, even if they're allowed to go out
26:20
Speaker 1: in their states, just to avoid contact with others. David Wals,
26:24
Speaker 1: thank you so much for being with us, and all
26:25
Speaker 1: the best to you and your family. David Welch, Bloomer,
26:27
Speaker 1: Detroit Bureau Chief. Thanks for listening to the Bloomberg P
26:31
Speaker 1: and L podcast. You can subscribe and listen to interviews
26:34
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. I'm
26:37
Speaker 1: Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa A.
26:40
Speaker 1: Bram Woyds. I'm on Twitter at Lisa A. Bram Woit's
26:42
Speaker 1: one before the podcast. You can always catch us worldwide
26:45
Speaker 1: on Bloomberg Radio