Latest / Bloomberg Intelligence / Gol's Lark on Airline Business in Brazil

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Gol's Lark on Airline Business in Brazil · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma Waits, each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  Speaker 1: you and your money. Whether at the grocery store or
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  Speaker 1: the trading floor. Find a Bloomberg penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
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  Speaker 1: at Bloomberg dot com. Let's go down to Brazil. Let's
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  Speaker 1: talk about the Brazilian and the South American airlines business.
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  Speaker 1: To do that, we welcome Richard Lark. Richard's a CFO
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  Speaker 1: of Goal Airlines. It's the largest airline within Brazil in
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  Speaker 1: terms of market share. Richard, thanks so much for joining
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  Speaker 1: us here on our Bloomberg Interactive Brooker Studio. First of all,
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  Speaker 1: just give us a sense of kind of what Goal
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  Speaker 1: Airlines is, how big you are, kind of what your
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  Speaker 1: market is, and how the businesses is trending there. We're
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  Speaker 1: the largest domestic in Brazil, about seven or fifty flights
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  Speaker 1: a day to over a hundred destinations. About eight percent
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  Speaker 1: of our business is within domestic Brazil and about our
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  Speaker 1: destinations to the majority of South American countries and uh,
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  Speaker 1: the state of Florida. All right, So when I think
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  Speaker 1: about South America right now, I think about what's going
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  Speaker 1: on in Chile, which is disrupting the economy dramatically, Argentina,
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  Speaker 1: which potentially is on the break of default. We've seen
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  Speaker 1: some issues in in Bolivia and in other regions. How
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  Speaker 1: much is that affecting your business? Yeah, we we have
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  Speaker 1: US about half of our international revenues are O and
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  Speaker 1: D s between Brazil and Argentina. UM that was doing
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  Speaker 1: very well until about a year ago. That has suffered
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  Speaker 1: a lot because of what's been going on economically and
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  Speaker 1: the reduction and purchasing power with the Argentinees. We have
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  Speaker 1: a small portion of our business in Chile, and we
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  Speaker 1: we've also seen UH disruptions. They are primarily because of
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  Speaker 1: the protests, not because of economic but because of the
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  Speaker 1: protests and people being um afraid of getting stuck in airports,
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  Speaker 1: and we've seen that also affect other airlines in Chile.
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  Speaker 1: So within Brazil. Just gives a sense of how the
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  Speaker 1: Brazilian UH airline business differs from that in the US. Well, UH,
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  Speaker 1: I would say a couple of points. Structurally, generally, it's
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  Speaker 1: a shorter haul for our average flight in Brazil's about
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  Speaker 1: an hour in ten minutes. About sixty five percent of
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  Speaker 1: our consumers are traveling for business purposes, so they tend
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  Speaker 1: to be more price and elastic customer. UM. So we're
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  Speaker 1: about you know, six business thtcent. Leisure with the US
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  Speaker 1: is the opposite of that. We're in the US, you
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  Speaker 1: have much more price sensitive passenger. And what that means
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  Speaker 1: is that in Brazil the customer is much more demanding
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  Speaker 1: in terms of the product. And you know, for example,
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  Speaker 1: Goal UH from two thousand thirteen to two thousand eighteen,
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  Speaker 1: over that five year period, we invested around two fifty
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  Speaker 1: million dollars in UM what today is the most attractive
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  Speaker 1: product for the business customer, which goes from everything to
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  Speaker 1: the network of the punctuality as well as the customer experience.
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  Speaker 1: Were the only company in Brazil it has UH onboard
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  Speaker 1: WiFi and all of our aircraft. And so what that
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  Speaker 1: means I think versus the US, the Brazilian customer is
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  Speaker 1: much more demanding UH in terms of the product than
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  Speaker 1: you might find in the US. It just occurred to
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  Speaker 1: me that they could make UH you know, business in
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  Speaker 1: the front, party in the back actually means a thing
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  Speaker 1: different anyway, I digress moving right along the shares of
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  Speaker 1: goal up more year to date. Back at the end
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  Speaker 1: of last year, you completed an eighteen month restructuring and
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  Speaker 1: had to recreate the business going forward, And I'm just wondering, generally,
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  Speaker 1: at a time when the consumer is strong, what's been
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  Speaker 1: your pitch, UH, to sort of get business back up
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  Speaker 1: and running. What's the key to success given the competitive
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  Speaker 1: environment in airlines right now? Well on the consumer side, UH,
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  Speaker 1: it's been um for us in Brazil, especially given the
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  Speaker 1: economic contraction that happened in fifteen sixteen, being able to
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  Speaker 1: offer to the business customer the best product in the market.
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  Speaker 1: Right now, we're starting to shift our focus a bit
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  Speaker 1: to the non business to the leisure side, which is
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  Speaker 1: much more fair sensitive. But the key to our success
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  Speaker 1: over this last part of the cycle UM, which has
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  Speaker 1: been UH a down part of the cycle, has been
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  Speaker 1: our our focus on the business customer. What's year One
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  Speaker 1: of the things we talked about the airline is one
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  Speaker 1: of the big issues that we talked about is just
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  Speaker 1: kind of the bowing the seven thirty seven max. What's
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  Speaker 1: your exposure there and how are you kind of dealing
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  Speaker 1: with kind of the grounding of this aircraft. Yeah right,
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  Speaker 1: it's uh. We when the Max was grounded, we had
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  Speaker 1: seven aircraft that were immediately grounded. Uh this year. We
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  Speaker 1: would have had delivery of another twenty four this year.
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  Speaker 1: Uh So as of the fourth quarter this year, it's
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  Speaker 1: started to have a more significant impact on our business financially,
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  Speaker 1: which is baked into our numbers. But we are we
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  Speaker 1: are in discussions with Boeing on what kind of conversation
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  Speaker 1: we're gonna receive we're gonna receive from that. But our
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  Speaker 1: ability this year to deliver on our guidance in spite
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  Speaker 1: of what's been happening to Max has been a result of,
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  Speaker 1: you know, the leadership of our CEO kacking Off, combined
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  Speaker 1: with power high flexibility on the fleet manage inside, which
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  Speaker 1: has allowed us to resource aircraft to cover our fleet needs.
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  Speaker 1: With the problems we've had this year, we effectively had
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  Speaker 1: to INTR year resource and additional forty aircraft uh inside
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  Speaker 1: of our jet right Max and also the pickle fork
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  Speaker 1: issue that affected some of the older versions of the
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  Speaker 1: n g's and we have to be extremely flexible and
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  Speaker 1: effectively resource about one third of our fleet needs INTR year. Yeah,
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  Speaker 1: just quickly here. Since the restructuring, you are rated in
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  Speaker 1: the B credit tire by the credit rating companies. I'm
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  Speaker 1: wondering going forward, you've said you want to restore the
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  Speaker 1: double B rating. When do you think you can do that?
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  Speaker 1: In half? The second quarter of next year is our target.
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  Speaker 1: We planned the second quarter next year to amortize around
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  Speaker 1: another four and a million dollars of debt of gross debt,
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  Speaker 1: which should be enough to push us back above into
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  Speaker 1: the double B category. But does it take away from
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  Speaker 1: the ability to spend elsewhere that you need to know,
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  Speaker 1: We've already got that cash reserved on the balance sheet.
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  Speaker 1: This year we topped it up with with a very
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  Speaker 1: successful convertible bond offering, so we already got about a
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  Speaker 1: billion dollars of liquidit on the balance sheet. We use
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  Speaker 1: about that to UH to advertise this that in the
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  Speaker 1: second quarter of next year. How many times you've been
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  Speaker 1: to Carnival um Nonethe less ten years, but in my
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  Speaker 1: earlier days so many times. Richard Lark, thank you so
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  Speaker 1: much for being with us. Richard Lark, chief financial officer
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  Speaker 1: for Goal Lena's eras am I pronouncing it right? Absolutely
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  Speaker 1: not bull planes, Yeah, that I can do. I will
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  Speaker 1: say I actually lived in in Chile back, you know,
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  Speaker 1: a while back, and uh, you know, I went to
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  Speaker 1: Brazil and Portuguese. When you read it, it looks very
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  Speaker 1: similar in practice. Forget it anyway, it was, it was.
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  Speaker 1: It was a very enjoyable trip. Thank you so much
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  Speaker 1: for being with us. Well, we've talked a lot about
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  Speaker 1: the softening in values in certain coastal cities in the
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  Speaker 1: real estate market, both on the commercial side as well
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  Speaker 1: as the residential side. To pass through what we're seeing
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  Speaker 1: and what we can expect going forward. We're so glad
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  Speaker 1: to have with us here at Andrea Oshan. She's chief
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  Speaker 1: executive officer of Ocean Properties. She's joining us from Burdens
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  Speaker 1: twenty nine real Estate Industry Executive Forum. Andrea, can you
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  Speaker 1: give us a sense right now as you look at
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  Speaker 1: the national landscape, are you more worried about the coastal
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  Speaker 1: cities right now or some of the secondary and tertiary
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  Speaker 1: cities that a lot of people are going to to
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  Speaker 1: invest I definitely I am worrying about the secondary in
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  Speaker 1: tertiary cities much more than the coast. I think the
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  Speaker 1: coasts have really good fundamentals in terms of people moving
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  Speaker 1: in UH in terms of job growth, in terms of UM,
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  Speaker 1: business growth and business development, I think where you're seeing
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  Speaker 1: UM a lot of distress is in the secondary intertiary
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  Speaker 1: markets where it's UM. It's very hard to get labor UM.
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  Speaker 1: The rates are very high. UH, there's a lot of
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  Speaker 1: oversupply in the retail market, and there doesn't seem to
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  Speaker 1: be a lot of fundamental job growth to help either
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  Speaker 1: take the burden off of the wage rates for hiring
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  Speaker 1: or to UM really spur any sort of business development
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  Speaker 1: that would help fill whether it's repositioning a vacant retail
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  Speaker 1: UH fill UM office B and C office UM in
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  Speaker 1: the suburbs UH and even BNC garden style. Well centially,
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  Speaker 1: we had a lot of retail companies report earnings today
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  Speaker 1: and some some week earnings and we've seen grown accustomed
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  Speaker 1: to in that retail segment as Amazon takes over the
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  Speaker 1: retail business. Give us a sense of that part of
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  Speaker 1: the market that commercial retail space. Are our malls just
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  Speaker 1: going out of business? If so, what do you with
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  Speaker 1: a space? And is there any way to make money
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  Speaker 1: on that side of the business. Yeah, I think listen,
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  Speaker 1: I think they're the good malls are really good, and
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  Speaker 1: I think people do want to be in brick and mortar,
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  Speaker 1: and you're seeing a lot of clicks to bricks retailers
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  Speaker 1: um Warby Parker being the most obvious, but you see
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  Speaker 1: it with Casper or Jenny Cain Um or different retailers
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  Speaker 1: and and both high end and throughout the spectrum mid market.
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  Speaker 1: And these retailers are very sophisticated. They have data. So
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  Speaker 1: it used to be that when you leased a space,
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  Speaker 1: it was all based on the retailer's projections and you're
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  Speaker 1: you're arguing the demographics of the neighborhood and they're arguing
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  Speaker 1: their projections, and the truth is it was really a
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  Speaker 1: crystal ball or a wet finger in the air. And
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  Speaker 1: now because they sell so much online and it's so omnichannel,
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  Speaker 1: they really understand where they want to be and they
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  Speaker 1: already know they're going to do well somewhere when they
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  Speaker 1: get there. UM. So I think for those locations they
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  Speaker 1: have a high degree of conviction um and you you're
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  Speaker 1: able to to sign leases. It's in all the other
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  Speaker 1: places is that are more marginal or where distribution networks
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  Speaker 1: make it such that it's not worth it to rent
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  Speaker 1: a space and commit to the staffing and the training
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  Speaker 1: and the build out and all that. Where you see
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  Speaker 1: retailers say, you know, one one store in this market
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  Speaker 1: is enough. So I always give the example of Dayton
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  Speaker 1: used to be a three store market for the gap
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  Speaker 1: and each gap store was ten thousand square feet. Well, now,
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  Speaker 1: there's no reason to have a three store market, and
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  Speaker 1: they did. They closed two out of the three, so
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  Speaker 1: they have one market. They have one store in the market.
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  Speaker 1: It's not paying very much rent, but you don't need
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  Speaker 1: to have three stores for people to know what a
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  Speaker 1: gap item is and they're able to shop online and
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  Speaker 1: if they want to go in store they can. Where
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  Speaker 1: are we in the housing market cycle. That's a really
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  Speaker 1: good question. I think that um, I think we are.
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  Speaker 1: We've already hit peak and we're starting the decline. I
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  Speaker 1: think there's a real fundamental shift to long term rental,
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  Speaker 1: and I think that that's where it used to be
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  Speaker 1: that as a market picked up, rental was always seen
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  Speaker 1: as transitional, and I actually see rental now as more
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  Speaker 1: long term stable, and you're seeing a lot of people
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  Speaker 1: do single family rentals. So what does that mean in
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  Speaker 1: terms of how much values are going to depreciate? I
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  Speaker 1: don't know that they are. I I what I'm hoping
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  Speaker 1: and and is that it actually slows the development of
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  Speaker 1: more for sale housing. And I think that in New
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  Speaker 1: York we're seeing really an oversupply problem in terms of
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  Speaker 1: softening prices um and has that worked itself through yet
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  Speaker 1: or not yet? Not even close? And I think the
• 11:34
  Speaker 1: low interest rates are part of the problem. So you
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  Speaker 1: have developers who have extremely low interest rate loans and
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  Speaker 1: they're able to sit on product and still service their debt.
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  Speaker 1: So they're waiting for price because either their investment structure
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  Speaker 1: demands it um or they just want to come out
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  Speaker 1: of the deal, and so they're willing to hold on
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  Speaker 1: um while interest rates remain low. And so it hasn't
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  Speaker 1: really forced that to to flush out yet. On the
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  Speaker 1: commercial side, is a capital available for development or the
• 12:01
  Speaker 1: banks still looking favorably on commercial real estate? Yeah, I
• 12:04
  Speaker 1: think there's capital in every piece of the of the
• 12:07
  Speaker 1: cap stack. There's a ton of private equity money. I
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  Speaker 1: think that's one of the big reasons why what we're
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  Speaker 1: seeing is that is this continued divergence between fundamentals and
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  Speaker 1: pricing because there's just so much cash chasing deals with
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  Speaker 1: low interest rates, and they're willing to just take the scrape. Um.
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  Speaker 1: There's banks are still lending um. Maybe they're not going
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  Speaker 1: as high in the cap stack, but that's okay because
• 12:29
  Speaker 1: there are tons of mes funds and preferred equity funds,
• 12:32
  Speaker 1: and we're even playing more in the preferred equity field
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  Speaker 1: um than we are in the equity because I'd rather
• 12:38
  Speaker 1: be in a more secure place in the cap stack
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  Speaker 1: and be getting better returns. So you said that we're
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  Speaker 1: not even closed to working through the supply glob that
• 12:45
  Speaker 1: you're seeing in New York City, for example, and yet
• 12:47
  Speaker 1: you're still more worried about the secondary and tertiary cities
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  Speaker 1: where places like Goldman Sacks Uh their merchant bank is
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  Speaker 1: seeing opportunities. Can you square those ideas? Yeah? No, I
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  Speaker 1: think listen, I think there are one or two areas
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  Speaker 1: that people are investing in which are sort of the
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  Speaker 1: good suburbs, if you will, which have some good fundamental
• 13:09
  Speaker 1: as you're seeing, you know, whether it's Memphis or Nashville
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  Speaker 1: or right, some of these Atlanta you're seeing investment. You're
• 13:15
  Speaker 1: not seeing this in you know, Spokane or um in Glendive, Montana. Right,
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  Speaker 1: You're not seeing these these cities where it's across the
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  Speaker 1: board um and they're they're building, you know, multi family
• 13:27
  Speaker 1: or investing in multi family because of of what I
• 13:30
  Speaker 1: spoke about with the rental fundamentals, the super high end
• 13:33
  Speaker 1: condos that were built assuming that tons of Chinese capital
• 13:38
  Speaker 1: or other foreign capital was going to come in and
• 13:40
  Speaker 1: buy them at any price to park cash. I think
• 13:44
  Speaker 1: those are those are challenged because they weren't needed um
• 13:48
  Speaker 1: and so I think that's where we're going to see
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  Speaker 1: some softening. And the truth is, should condos bets of foot?
• 13:56
  Speaker 1: Should Should it look like a deal when it's twelve
• 13:58
  Speaker 1: dollars a foot to buy to buy an apartment? I
• 14:01
  Speaker 1: don't think so, right? I mean, I think I think
• 14:04
  Speaker 1: the pricing has gotten so out of control. Will it
• 14:06
  Speaker 1: sell at a price like this is what we're talking
• 14:07
  Speaker 1: about about New York and and why New York is
• 14:10
  Speaker 1: so robust. In New York, it'll sell or it'll rent
• 14:12
  Speaker 1: at a price because there's constant demand, whereas in other
• 14:16
  Speaker 1: places you're just trying to beg people to move from
• 14:19
  Speaker 1: one garden style unit to another garden style unit, and
• 14:22
  Speaker 1: all you can compete on is concessions and pricing. But
• 14:26
  Speaker 1: you're not going to get them for more than a year. Andrea,
• 14:29
  Speaker 1: thank you so much. We appreciate you coming in to
• 14:30
  Speaker 1: share your thoughts. Andrea Allshan, CEO of Allshan Properties. She's
• 14:35
  Speaker 1: appearing today at the Burdens nineteen Real Estate Industry Executive
• 14:39
  Speaker 1: Form being held here at Bloomberg's HQ in New York.
• 14:58
  Speaker 1: Right now, we want to turn to real say Jennifer
• 15:00
  Speaker 1: Mclaim joining us here at chief financial officer for kushn
• 15:03
  Speaker 1: Our Companies, focusing mostly on multi family UH properties. Correct, Yes,
• 15:08
  Speaker 1: all right, so we just heard that there it does
• 15:11
  Speaker 1: seem to be a glut of the high end UH
• 15:15
  Speaker 1: condos in coastal cities. We know this, This has been
• 15:18
  Speaker 1: going on for a while and that pain could deepen.
• 15:21
  Speaker 1: So a lot of people have changed their sites to
• 15:23
  Speaker 1: the secondary cities. Do you also see that as the
• 15:27
  Speaker 1: place to be Yes. In fact, um, we've concentrated a
• 15:32
  Speaker 1: lot of our acquisition efforts outside of New York. We've
• 15:36
  Speaker 1: expanded this psyere into other markets including Maryland, Virginia, and Florida.
• 15:41
  Speaker 1: We just see the opportunity there with some of those
• 15:43
  Speaker 1: garden style UM apartments. Are you doing developing new properties
• 15:49
  Speaker 1: or buying existing properties. We're we're looking obviously on the
• 15:53
  Speaker 1: acquisition side, every opportunity we can get. But the challenges
• 15:57
  Speaker 1: supply there's not a lot of supply there. There's a
• 16:00
  Speaker 1: lot of money chasing deals. Uh. So our development efforts
• 16:04
  Speaker 1: have ramped up here the last year. We're going to
• 16:06
  Speaker 1: be developing close to six thousand units probably over the
• 16:09
  Speaker 1: next twenty four months. So how do you gauge whether
• 16:12
  Speaker 1: there is a ripe opportunity given the fact that those
• 16:15
  Speaker 1: areas tend to get hit if there is a big
• 16:17
  Speaker 1: employer that pulls out right, I mean, we and nothing's uh,
• 16:22
  Speaker 1: you know, nothing's ever sure, but we we do a
• 16:25
  Speaker 1: lot of due diligence upfront in terms of uh, you know,
• 16:29
  Speaker 1: studying the geographics of the area. A lot of work
• 16:32
  Speaker 1: goes into the analytics in terms of analyzing the deals
• 16:36
  Speaker 1: up front. Um. You know, we historically have have focused
• 16:40
  Speaker 1: on specific yields within different markets. We're a little bit
• 16:44
  Speaker 1: lighter now on our yields just because there isn't the
• 16:47
  Speaker 1: product there. Um what does that mean? Uh? The yields,
• 16:51
  Speaker 1: your return on your your returns and your the return
• 16:55
  Speaker 1: on investment is coming down a bit just because slightly
• 16:58
  Speaker 1: just the rents coming down and softening A no, not
• 17:00
  Speaker 1: the rent is just the opportunities and the supply isn't there,
• 17:04
  Speaker 1: So it's driving pricing up in the market. So it
• 17:08
  Speaker 1: give us a sense of competition. You mentioned it is
• 17:10
  Speaker 1: getting competitive on the acquisition front. Who do you who
• 17:13
  Speaker 1: do you find you typically run into in terms of competition, Yeah,
• 17:17
  Speaker 1: we're um, we're looking at the larger deals now. Um.
• 17:21
  Speaker 1: The most recent acquisition was a little over a billion
• 17:24
  Speaker 1: dollars about six thousand units, So you know we're kind
• 17:28
  Speaker 1: of in that area, um, right now, So there's a
• 17:31
  Speaker 1: there's a handful of individuals that we compete with that
• 17:35
  Speaker 1: similar size. About private equity, because I see the Blackstones
• 17:38
  Speaker 1: of the world raising money left and right in these
• 17:40
  Speaker 1: huge real estate funds start did they come and play
• 17:42
  Speaker 1: in your space? Yes, definitely. There's a lot of private
• 17:45
  Speaker 1: equity funds available right now. So that definitely is competition
• 17:50
  Speaker 1: in terms of our ability to get product. How how
• 17:54
  Speaker 1: much lower do you think returns will go? I mean,
• 17:57
  Speaker 1: just given the fact that how much more can you
• 17:59
  Speaker 1: boot this cycle? Yeah? Well, I mean we we've got
• 18:02
  Speaker 1: a threshold obviously. Um, I've seen the cash on kish
• 18:06
  Speaker 1: returns drop a little bit, but we're not We're still
• 18:10
  Speaker 1: smart investors. You know, we're not going to invest in
• 18:13
  Speaker 1: something that's a high level of risk or that we're
• 18:16
  Speaker 1: not guaranteed a minimum return on that investment. How do
• 18:20
  Speaker 1: you typically ideally like to structure your deals from a
• 18:23
  Speaker 1: capital perspective, debt versus your equity, versus maybe some preferred
• 18:26
  Speaker 1: equity and so on. Yeah, so obviously we take equity.
• 18:29
  Speaker 1: We've got skin in the game every single deal. Um
• 18:32
  Speaker 1: you know, with the interest rates, you know, the borrowing
• 18:36
  Speaker 1: is very attractive right now. Um So, we we've structured
• 18:40
  Speaker 1: our capital stack a couple of different ways over the
• 18:42
  Speaker 1: last eighteen months. We've got mas dat, We've got preferred equity.
• 18:46
  Speaker 1: Most of our recent deals there's a preferred equity piece.
• 18:50
  Speaker 1: Thank you so much for being with us. I really
• 18:52
  Speaker 1: appreciate it. Jennifer McClean is the chief financial officer of
• 18:56
  Speaker 1: Kushner Companies, joining us here from the nineteen Burden Real
• 19:01
  Speaker 1: Estate Industry Executive Forum, which is being held here Elmberg Headquarters.
• 19:04
  Speaker 1: Thank you so much for being with us. We are
• 19:20
  Speaker 1: talking real estated is the Burdens Real Estate Industry Executive Forum.
• 19:24
  Speaker 1: We're joined now by Richard Ruben, CEO of Ruben Companies, Richard,
• 19:28
  Speaker 1: thanks so much for joining us. Pleasure tell us where
• 19:31
  Speaker 1: you guys play in the greater real estate investment asset class? Right?
• 19:36
  Speaker 1: Uh So, Traditionally we have been office developers on the
• 19:39
  Speaker 1: East Coast in New York, Boston, and Washington. Uh. Lately
• 19:42
  Speaker 1: we've been downsizing a little on our office assets and
• 19:45
  Speaker 1: we've been focusing on multi family development, UM, primarily in
• 19:50
  Speaker 1: Washington and a little bit of Miami. But but but
• 19:53
  Speaker 1: we focus mostly on the East coast. Why are you downsizing? Uh? Good,
• 19:57
  Speaker 1: good question. Um. A lot of our office properties are
• 20:00
  Speaker 1: we call our legacy assets built in the sixties and seventies.
• 20:04
  Speaker 1: They're very capital intensive, so they require a lot of
• 20:07
  Speaker 1: capital to to upgrade them to be to be modern, modern,
• 20:11
  Speaker 1: contemporary office space like you see tenants like Facebook moving
• 20:14
  Speaker 1: to new buildings and black Rock and moving to hud
• 20:16
  Speaker 1: seniords very expensive to upgrade these buildings to be modern
• 20:19
  Speaker 1: office space. And after you've owned them for um, you know,
• 20:23
  Speaker 1: thirty forty years, it was time to put let someone
• 20:26
  Speaker 1: else put in that capital and take on the task
• 20:29
  Speaker 1: of upgrading them. So what's the area of the market
• 20:31
  Speaker 1: that you guys think as much attractive right now? Uh well,
• 20:35
  Speaker 1: right right now, we're not really pursuing equity investments as
• 20:38
  Speaker 1: much as we are trying to move up up a
• 20:40
  Speaker 1: little and seniority in the in the capital stack doing
• 20:43
  Speaker 1: preferred equity and mezzanine investing prices are prices have come
• 20:47
  Speaker 1: down a little from their peak, I think they I
• 20:49
  Speaker 1: think asset prices peaked probably two or three years ago, um,
• 20:52
  Speaker 1: but they're still pretty high because interest rates are low,
• 20:55
  Speaker 1: and there's uh tons of capital that want to come
• 20:58
  Speaker 1: here and take advantage of the interest rates heads between
• 21:00
  Speaker 1: US interest rates and say European Asian interest rates, and
• 21:04
  Speaker 1: also take care of take advantage of the political safety
• 21:07
  Speaker 1: of having the capital here. So between the flood of
• 21:10
  Speaker 1: of capital and low interest rates, it's still a very
• 21:12
  Speaker 1: hard time to find good equity investments in the US.
• 21:15
  Speaker 1: When you say that prices have come down a little bit,
• 21:17
  Speaker 1: I'm also thinking about actually commercial real estate rents in
• 21:20
  Speaker 1: places like Boston recently coming down, or at least demand
• 21:25
  Speaker 1: coming down for at leasing properties. Things that are starting
• 21:28
  Speaker 1: to cool in a material way. And I'm wondering how
• 21:31
  Speaker 1: far along in that are we. Uh yeah, I'd say
• 21:34
  Speaker 1: it's much more. It's much more of a supply issue
• 21:36
  Speaker 1: in most of these markets than it is a demand issue. UH.
• 21:39
  Speaker 1: There's there's demand in in um in UH. In Boston
• 21:43
  Speaker 1: and New York, there's plenty demand, but it's also a
• 21:45
  Speaker 1: ton of supply. There's a lot, as I said, a
• 21:47
  Speaker 1: lot of new building and Hutson Yards and Brookfield just
• 21:50
  Speaker 1: to the east of Hutson Yards, renovation of existing up
• 21:55
  Speaker 1: of inventory up and down Sixth Avenue at Third Avenue.
• 21:57
  Speaker 1: There's a lot of supply and that's effect the market.
• 22:00
  Speaker 1: Also in multi family up and down the East Coast
• 22:03
  Speaker 1: with a possible exception of rental properties in New York,
• 22:06
  Speaker 1: but in in Boston and Philadelphia and Washington and Miami,
• 22:10
  Speaker 1: plenty of supply of of of new uh new multifamily
• 22:15
  Speaker 1: properties and that's having an impact on the market. How
• 22:17
  Speaker 1: much of your activity now is actually developing properties versus
• 22:21
  Speaker 1: simply investing in existing properties and existing capital start right,
• 22:25
  Speaker 1: The returns are still much better in in development and development.
• 22:28
  Speaker 1: You can you can still UH develop a property. It's
• 22:31
  Speaker 1: it's much risk here. It's much more time consuming. You've
• 22:33
  Speaker 1: gotta pay really close attention. Lots of things can go wrong,
• 22:37
  Speaker 1: But but the returns are greater than in buying existing
• 22:41
  Speaker 1: existing properties. So what's your highest conviction I don't want
• 22:44
  Speaker 1: to say trade right now, but investment right now? Highest
• 22:48
  Speaker 1: eviction highest conviction investment I would say, would be uh,
• 22:52
  Speaker 1: preferred equity or mezzanine on developed on multifamily development deals
• 22:55
  Speaker 1: where uh, well, we know the East Coast, so I
• 22:58
  Speaker 1: would say up and down the East Coast, although we've
• 22:59
  Speaker 1: been looking you other other parts of the country as well.
• 23:03
  Speaker 1: So how do you think about that? Because obviously the
• 23:06
  Speaker 1: East Coast um has a certain economic vibe to it,
• 23:11
  Speaker 1: very different. I would guess if you go, you know,
• 23:13
  Speaker 1: away from the coast, but probably better value there. Maybe
• 23:17
  Speaker 1: how do you kind of weigh those two things? You
• 23:19
  Speaker 1: know what? Because because I grew up in New York
• 23:22
  Speaker 1: and because I'm basically an East Coast person, we tend
• 23:24
  Speaker 1: to look at things in other parts of the country
• 23:27
  Speaker 1: that I feel like the East Coast. For example, we
• 23:30
  Speaker 1: invest in something like like in Cleveland, so between a
• 23:33
  Speaker 1: university and a medical clinic, and it's not just anywhere Cleveland.
• 23:37
  Speaker 1: It feels like you sort of get a little New
• 23:41
  Speaker 1: York and energy out of it. Um. So uh, that's
• 23:46
  Speaker 1: just that's just that you know you you you tend
• 23:48
  Speaker 1: to invest what you're familiar with when you know and
• 23:50
  Speaker 1: that feels familiar. All right. So the bagels don't even compare.
• 23:53
  Speaker 1: But Florida in Florida, I'm talking about Florida because the
• 23:56
  Speaker 1: water just doesn't work with the bagels. There's terrible But
• 23:59
  Speaker 1: I you want to just get your sense if Florida
• 24:01
  Speaker 1: is starting to look a little more like New York
• 24:03
  Speaker 1: given sort of the salt taxes. In the migration. You know,
• 24:05
  Speaker 1: there has been migration down I would say the impact
• 24:09
  Speaker 1: of that migration has not really felt in the accepting
• 24:12
  Speaker 1: a very very small part of the market so far.
• 24:15
  Speaker 1: The big effect on Florida has been flight capital from
• 24:18
  Speaker 1: Latin America on a big effect in the residential market.
• 24:21
  Speaker 1: And that's what has stopped completely now and that's why
• 24:24
  Speaker 1: the for sale market in Miami is a little weaker
• 24:27
  Speaker 1: than it's been. Richard Rubin, thank you so much for
• 24:29
  Speaker 1: being here, My pleasure. Thank you. Richard Rubin is chief
• 24:31
  Speaker 1: executive officer of the Reuben Companies. Joining us from Burden's
• 24:34
  Speaker 1: twenty nineteen Real Estate Industry Executive Forum. Thanks for listening
• 24:38
  Speaker 1: to the Bloomberg P and L Podcast You can subscribe
• 24:40
  Speaker 1: and listen to interviews at Apple Podcast or whatever podcast
• 24:43
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• 24:47
  Speaker 1: I'm Lisa abram Woyds. I'm on Twitter at Lisa A.
• 24:49
  Speaker 1: Bramwoit's one before the podcast. You can always catch us worldwide.
• 24:52
  Speaker 1: I'm Bloomberg Radio