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Megalith's Sidhu on Real Estate: Buyer Pool Has Shrunk (Audio) · Bloomberg Intelligence

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  Speaker 1: Let's get on with our live broadcast here from Eisner Amber,
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  Speaker 1: their Midtown Manhattan offices. They're getting ready for their annual
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  Speaker 1: real Estate Private Equity summit this Wednesday, Chelsea Piers, and
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  Speaker 1: we are getting ready to bring into the show now
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  Speaker 1: Sam to Do, founder and CEO of Megalith Capital Management,
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  Speaker 1: to talk about foreign investment in the New York real
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  Speaker 1: estate market. Sam, welcome, Thank you, Kathleen and Pam. It's
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  Speaker 1: great to be here. You know, I've heard contradictory things
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  Speaker 1: on our show from people in the real estate business
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  Speaker 1: that yes, uh, money coming in from China, to a
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  Speaker 1: couple of years ago coming in from Russia from at
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  Speaker 1: least drove up prices in New York and southern California,
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  Speaker 1: any coastal city. Others saying hasn't been that big of
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  Speaker 1: a deal. What's your view now, It absolutely has been.
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  Speaker 1: I think what we first saw in two and fourteen
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  Speaker 1: was in the luxury condom market. You saw a lot
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  Speaker 1: of buyers, firstly driven by Russian and Chinese and then
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  Speaker 1: broader Asian coming into that market. And what you're seeing
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  Speaker 1: now in two thousand, fifteen and into sixteen is the
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  Speaker 1: second wave of buyers more in the institutional sales market
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  Speaker 1: buying office and residential product. That's definitely propping up the market.
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  Speaker 1: And what you hear from the investment sales brokers out
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  Speaker 1: there and the market is that, you know, historically you
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  Speaker 1: would have a cluster of five ten people in the
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  Speaker 1: in the top top echelon of the sales process, and
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  Speaker 1: now you have only one or two foreign bidders sort
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  Speaker 1: of sitting there propping up the prices. So sellers are
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  Speaker 1: meeting their expectations, but the buyer pool has shrunk. The
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  Speaker 1: buyer pool has shrunk. What's that done the prices? And
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  Speaker 1: do you think that perhaps the buyers ought to expand
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  Speaker 1: their range of what they'd like to invest in. Well,
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  Speaker 1: New York City real estate is New York City real estate, right,
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  Speaker 1: That's the reason that buyers are are sort of, uh,
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  Speaker 1: will always be investing in this safe haven, you know
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  Speaker 1: here in New York. The question about the buyer pool.
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  Speaker 1: The buyer pool has shrunk, I think because there has
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  Speaker 1: been a recognition that there has been a you know,
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  Speaker 1: sort of a global I wouldn't call it a slowdown,
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  Speaker 1: but a global correction or a global reversion. New York
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  Speaker 1: City has experienced it and I think that there's less
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  Speaker 1: of this um euphoria to catch the wave while it's
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  Speaker 1: still um, you know, on it's on the up and up,
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  Speaker 1: and I think people are calling the top of the market,
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  Speaker 1: and I think that has led to the tier one
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  Speaker 1: players to kind of come back and sit on the sideline.
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  Speaker 1: So broadly speaking, the residential and condo market in New York,
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  Speaker 1: howes it look to you? You know, we are currently developing,
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  Speaker 1: by way background, about a million square feet of mostly
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  Speaker 1: residential condo as well as some rental product in Manhattan
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  Speaker 1: and Brooklyn. Um, what you saw, what you are seeing
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  Speaker 1: right now is at sub five million dollar units are
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  Speaker 1: are selling well. More efficient and smaller units are selling well. Um.
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  Speaker 1: But I think what you're gonna see in the next
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  Speaker 1: wave of supply as it comes onto the market is
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  Speaker 1: that buyers are going to become a lot more discerning,
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  Speaker 1: a lot pickier, because the commodity product is about to hit.
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  Speaker 1: Folks that paid a little bit too much for land
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  Speaker 1: and had higher construction costs and thus need to price
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  Speaker 1: their product at a higher price per square foot and
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  Speaker 1: or an absolute dollar value are now going to find
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  Speaker 1: that their product is not as appealing and buyers may
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  Speaker 1: want to be in a tier tier one building and
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  Speaker 1: take a tier two unit rather than taking a tier
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  Speaker 1: one unit one of these commodity buildings. The commodity buildings
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  Speaker 1: that you talk about, are we are we're going to
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  Speaker 1: see some kind of you know, weeding out. I mean
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  Speaker 1: people are gonna are some people are going to go under.
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  Speaker 1: I think that you will see definitely people making less
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  Speaker 1: money than they thought they were going to make. Development
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  Speaker 1: is a very tricky and complex business, and everything always
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  Speaker 1: goes wrong, and that's what our job is as developers
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  Speaker 1: is to manage that risk um. But I think that
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  Speaker 1: you know, what you will see is that that you know,
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  Speaker 1: I think that the price per square foot that folks
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  Speaker 1: initially ought was going to continue to rise and rise
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  Speaker 1: and rise, um has now slowed, and buyers are going
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  Speaker 1: to become a lot more cognizant of that, and they
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  Speaker 1: want to see the finished product. They want to see
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  Speaker 1: the finishes, they want to see the unit layouts. And
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  Speaker 1: I think that that's what you're gonna I don't want
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  Speaker 1: to just hear about the power is shifting. So are
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  Speaker 1: we at the top in the market. I guess I'm
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  Speaker 1: thinking of a seller. If I'm a seller, and I'm thinking,
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  Speaker 1: oh boy, I've written this wave. I'm sitting on a
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  Speaker 1: lot of money. Now, baby, should you think about selling now?
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  Speaker 1: Our acquisitions team hasn't been very active in the last months,
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  Speaker 1: and we're expecting to become a lot more active in
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  Speaker 1: the next six to twelve months. And that's not for
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  Speaker 1: marketed processes for sellers who are getting top dollar. It's
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  Speaker 1: for picking up some of what we would call I
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  Speaker 1: wouldn't call the pieces of a distress market, but sort
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  Speaker 1: of having an opportunity to come in and recapitalize projects
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  Speaker 1: that might be going sideways and some of the projects
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  Speaker 1: that I mentioned earlier. Uh, you know, we started off
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  Speaker 1: this segment by talking about foreign investment outside of the
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  Speaker 1: United States. Uh, what if I was going to be
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  Speaker 1: in this business? Now? What language, What's who? Who do
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  Speaker 1: I need to understand in order to to do well? Well?
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  Speaker 1: I can tell you don't really need to understand any language,
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  Speaker 1: because I've said in many meetings with interpreters, and I've
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  Speaker 1: gotten very accustomed to sitting across the table from various Asian,
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  Speaker 1: Um and Russian you know, investors and developers who want
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  Speaker 1: to get experience and you know, and access to the
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  Speaker 1: New York City market. UM that come and bring those
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  Speaker 1: types of you know, UM interpreters, quick questions. We hear
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  Speaker 1: that Disney has maybe a bid out on Twitter, considering
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  Speaker 1: it seriously, you just purchased land from Disney right here
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  Speaker 1: in Manhattan, so quick, quick to part. Does this deal
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  Speaker 1: make sense? And where you building now? Well, believe it
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  Speaker 1: or not prior to real estate. I come from a
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  Speaker 1: background in media, UM, and many of my colleagues have
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  Speaker 1: been at Disney as well as at Major League Baseball
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  Speaker 1: and are working on some of the deal that you
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  Speaker 1: mentioned right there. UM, I think it's a very interesting deal,
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  Speaker 1: and I think it's you know, Twitter has lagged in
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  Speaker 1: the past couple of years, and it's Instagram and Snapchat
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  Speaker 1: and Facebook have really taken over. So I think it's
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  Speaker 1: interesting to show to your earlier point that UM, Disney
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  Speaker 1: is pivoting into sort of the next wave. All right,
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  Speaker 1: we're gonna I think I'm signing up for your Twitter.
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  Speaker 1: Sam to Do is a founder and the chief executive
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  Speaker 1: of a Megalith Capital Management. You can follow them on
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  Speaker 1: Twitter at Megalith Capital. This is Bloomberg