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Ackman IPO, Meta Earnings · Bloomberg Intelligence

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Speaker 2: Let's get a look at where the action is in
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Speaker 2: the equity markets with.
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Speaker 3: Billy Billy Lipschotz. Thank you're sitting right next to.
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Speaker 2: Me, Billy Lipschotz. You can talk all you want about stocks.
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Speaker 2: I only have one question. Few Can you explain to
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Speaker 2: me what our good friend Bill Akerman is doing here?
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Speaker 3: Nothing now, nothing as of now? Walk us through this
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Speaker 3: story here. So earlier in the month, well, I guess
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Speaker 3: now in August. So in July he filed to launch
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Speaker 3: and price a closed end fund that would trade in
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Speaker 3: the US. It would be similar, in his words, essentially
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Speaker 3: mirror their European offering, which currently trades under the ticker PSH.
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Speaker 3: Space NA trades at a twenty percent discount to what
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Speaker 3: it actual the assets that it owns it's invested in, Alphabet, Chapotle,
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Speaker 3: Howard Hughes, Universal Music, a handful of stocks beating the drum.
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Speaker 3: He kind of said, you know, we see this as
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Speaker 3: a potential twenty five billion dollar offering going to court retail.
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Speaker 3: We're going to court institutions. Basically, I have a lot
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Speaker 3: of very wealthy friends. They're going to give us money.
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Speaker 3: It's going to be awesome. It's only going to be
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Speaker 3: a two percent fee. We won't charge that for a year.
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Speaker 3: Then a couple days later, he wrote a letter to
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Speaker 3: investors in the hedge fund saying, hey, demand's not as
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Speaker 3: strong as we would have expected. Initially. We're thinking that
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Speaker 3: maybe we'll raise between two and a half billion and
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Speaker 3: four billion dollars, so a sharp drop off from the
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Speaker 3: twenty five billion dollar number. He actually name dropped Seth
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Speaker 3: Clarmen's bow post. He named dropped Putnam among others, kind
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Speaker 3: of alluding to people who are already in for the book, saying,
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Speaker 3: get yours in soon. It's going to help us build
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Speaker 3: this out. Didn't realize that that had to be filed publicly.
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Speaker 3: So the next day we see that in a public filing,
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Speaker 3: or at least that's what we're told through the filings.
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Speaker 3: Seth Carmon and Bloomberg is reported isn't super happy about that.
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Speaker 3: They withdraw their order, they opt out. We see just
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Speaker 3: a few days later the fun coming back saying, you know,
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Speaker 3: we thought two and a half to four billion, now
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Speaker 3: we're actually gonna go after two billion, but don't worry,
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Speaker 3: it's gonna price next Monday. So we're still kind of
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Speaker 3: full speed ahead, two billion dollars, feeling great, perching squares
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Speaker 3: in for five hundred million dollars. Then yesterday we get
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Speaker 3: the filing that because to kind of oversimplify, because they
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Speaker 3: couldn't answer the question that investors wanted to know, why
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Speaker 3: would I buy this at IPO when I can buy
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Speaker 3: it at a discount, We're actually gonna pull the offering,
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Speaker 3: rework it potentially, and try to come back with a
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Speaker 3: different model. So going from twenty five billion to potentially
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Speaker 3: four billion to two billion to now nothing as of now,
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Speaker 3: though again he did say they plan on coming back
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Speaker 3: in some potentially different formation.
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Speaker 4: I don't know what to even ask about that. That
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Speaker 4: was a great explanation by that one, but it's such
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Speaker 4: a nightmare.
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Speaker 2: But at Mike angle is there's an angle here. He's
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Speaker 2: a really smart guy. How do you misjudge the market?
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Speaker 2: How do you misjudge demand? How do you make that
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Speaker 2: mistake of putting out a letter. These are things Bill
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Speaker 2: Ackman doesn't do well.
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Speaker 3: So to start at a high level, the largest closed
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Speaker 3: end fund in US history was just over five billion dollars. Okay,
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Speaker 3: So he was coming in with the ambition to four
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Speaker 3: x that because he has a million and change followers
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Speaker 3: on X and he has a strong track record. If
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Speaker 3: you even look at and invested in the European offering,
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Speaker 3: you've done pretty well over the last few years. But
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Speaker 3: to your point, there's so many snags that came out
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Speaker 3: of this. And when I talk to people who operate
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Speaker 3: in the closed end fund space, they initially were kind
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Speaker 3: of saying they don't this has to go through a
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Speaker 3: seasoning period. The SEC is going to hold it up,
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Speaker 3: which Pershing Square came out and said was actually playing
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Speaker 3: a factor in the delayed pricing to the extent that
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Speaker 3: I talked to a couple of advisors. You said maybe September,
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Speaker 3: just because you need this to cool off. The way
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Speaker 3: this is structuring, you can't just kind of ignore these
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Speaker 3: warning signs and keep your pedal to the medal. And
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Speaker 3: it does seem like a number of miscalculations have kind
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Speaker 3: of ended up throwing it into a tailspin. Well, it's
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Speaker 3: a fact.
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Speaker 4: I mean literally, like yesterday, he was on the exact
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Speaker 4: same time. We were talking about the different evolution of
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Speaker 4: the story. All right, Billy, you'll be coming back at
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Speaker 4: the top of the eleven as well. Billy lipschealz A
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Speaker 4: joining us. Bloomberg Senior Equities reporter Joining us.
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Speaker 4: Okay, let's go to the individual movers here. One of
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Speaker 4: them is meta. That's not popping ten percent. Did you
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Speaker 4: listen to the earnings call on the beach?
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Speaker 2: He did part of it, part of it, but then
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Speaker 2: then my swell came in, so I had to drop
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Speaker 2: an out.
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Speaker 5: I understand.
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Speaker 6: I mean this priority.
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Speaker 4: Mandy pp sing was not at the beach on the
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Speaker 4: earnings call. And I know this because he was on
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Speaker 4: set with me when the numbers came out. Mandy Singh,
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Speaker 4: Bloomberg Intelligence Senior at Tech Industry analyst, you were pretty
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Speaker 4: positive on Meta earnings in the street really agrees with you.
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Speaker 4: This is AI delivering on helping more targeted ads, meaning
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Speaker 4: more revenue straight.
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Speaker 7: I mean, look, with all the other AI spend that
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Speaker 7: we are seeing from the cloud vendors, they're saying the
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Speaker 7: revenue will come in twenty five twenty six, Meta is
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Speaker 7: actually delivering AI revenue right now. And that's the big
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Speaker 7: surprise that all the large anguid model investments they have done,
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Speaker 7: they have infused their apps with AI and it's actually
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Speaker 7: yielding tangible returns. And there was a good Macro read too.
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Speaker 7: I mean my sense was e commerce spending is strong,
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Speaker 7: Gaming spending is strong. That's why their advertisers who are
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Speaker 7: spending on Meta platforms. So overall, I think Macro looks
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Speaker 7: to be much better than what people talk about, and
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Speaker 7: ad spending is strong and that's why Meta did well.
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Speaker 2: Is this a cross for Amazon for Google in terms
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Speaker 2: of the ad spending angle?
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Speaker 7: Absolutely, I mean Amazon is que towards e commerce. In fact,
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Speaker 7: anybody who is an e commerce provider on Amazon's platform
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Speaker 7: has to spend on ads for you know, slotting, and
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Speaker 7: so I do think you know, and certain pockets when
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Speaker 7: it comes to ads aren't doing well, which is why
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Speaker 7: Google didn't have that sort of a lift, because they
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Speaker 7: are sort of equal across different sectors. Automotive, insurance, those
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Speaker 7: are the weak sectors, so they're probably not spending as
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Speaker 7: much on ads, but e commerce, retail, these are the
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Speaker 7: pockets where the AD spending is strong. And I think
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Speaker 7: Snap should do well.
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Speaker 4: Tonight, so the cap X spend also, So they narrowed
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Speaker 4: the range specifically to come in for thirty seven to
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Speaker 4: forty billion rather than thirty five to forty billion. They
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Speaker 4: didn't raise it, yeah, which is not what some of
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Speaker 4: the peers have done. Was that also positive for the stock?
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Speaker 7: Absolutely? I mean they've learned their lesson last time around.
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Speaker 7: They raised the CAPEX by three billion, the stock reacted negatively.
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Speaker 7: This was more of weight and see approach. They did
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Speaker 7: say twenty twenty five CAPEX will go up like every
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Speaker 7: other hyperscaler. But for this quarter they actually came out
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Speaker 7: below consensus, a billion dollars below consensus when it comes
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Speaker 7: to CAPEX for this quarter. And like you said, you
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Speaker 7: know they reinformed the guide and overall, I feel like
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Speaker 7: everyone keeps talking about how they are gpu constrained and
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Speaker 7: they need to spend more Capex. Meta didn't say that
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Speaker 7: that they are GPU constrained in anyway. At the same time,
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Speaker 7: they expect AI infrastructures spent to go out and they're
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Speaker 7: able to monetize it. WhatsApp to me was the real
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Speaker 7: bright spot.
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Speaker 2: I mean, nobody has any monetizing that yet.
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Speaker 7: Actually, yes, So they did give a data point yesterday
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Speaker 7: where family of apps other revenue grew seventy three percent.
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Speaker 7: Most of it is WhatsApp. So WhatsApp actually is a
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Speaker 7: four hundred million dollar rund reread business.
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Speaker 2: Now really okay, yeah, and taking ten years.
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Speaker 7: And that's where I think they called that the US adoption.
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Speaker 7: So WhatsApp now has one hundred million active users in
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Speaker 7: the US, and that's where they see AI infusing in
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Speaker 7: WhatsApp being a revenue generator.
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Speaker 2: All right, market likes it stacks up nine percent today
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Speaker 2: of forty seven percent year to date. All good in
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Speaker 2: metaaland tonight after the closed Amazon and Apple, let's start
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Speaker 2: with Amazon. What are you gonna be looking for there?
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Speaker 7: I mean cloud aws growth adds growth. I think the
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Speaker 7: one thing that stands out between Google, Microsoft and Meta
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Speaker 7: versus Amazon and Apple is Amazon and Apple don't have
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Speaker 7: their own large anglid model. One thing we realize with
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Speaker 7: Meta is because they own their large anglid model, they've
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Speaker 7: been able to deploy it so quickly. Well, Amazon is
8:46
Speaker 7: relying on Anthropic to give them the large anglid model.
8:49
Speaker 7: Apple announced Apple Intelligence, but they're delaying it. They don't
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Speaker 7: have their own large anglid model. And what everyone is
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Speaker 7: realizing is owning a large anglid model like Microsoft, OpenAI,
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Speaker 7: Google Gemini, that's a big advantage, and that advantage may continue,
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Speaker 7: I think, given everyone is so bullish on generative AI.
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Speaker 5: So how is that going to wind up showing up
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Speaker 5: in the numbers?
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Speaker 7: So, I mean, look at Meta's ad pricing. The reason
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Speaker 7: why ad pricing grew so much is because they actually
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Speaker 7: applied the large anglid model on their own products. Same
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Speaker 7: thing with Microsoft. The reason why their Microsoft's cloud revenue
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Speaker 7: has accelerated is because the workloads are getting deployed, the
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Speaker 7: copilots are getting deployed in their own products. So Amazon
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Speaker 7: has to somehow one leverage the large angliine model in
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Speaker 7: Tropic or somebody else's. In fact, Meta said they are
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Speaker 7: warming up to Amazon more and more to deploy their
9:43
Speaker 7: Lama large anglid model on AWS. That'll be an interesting
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Speaker 7: partnership if that pans out, because Meta doesn't have a
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Speaker 7: cloud facing business, whereas Amazon AWS is the largest cloud provider.
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Speaker 7: If they can leverage Lama model, which Meta owns, that
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Speaker 7: could be a huge, huge driver off revenue for both
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Speaker 7: Amazon as well as paying a licensing fee to Meta.
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Speaker 7: But obviously that nobody called that out, so that's a
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Speaker 7: speculation at this point.
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Speaker 5: Fascinating. All right, really good stuff. Can't wait.
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Speaker 2: It's not just selling ads anymore.
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Speaker 6: It's other stuff.
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Speaker 4: Well, it is about selling ads, but in a more
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Speaker 4: efficient way. I took my notes for those coming out
10:20
Speaker 4: after the closing bell. And you've seeing Bloomberg Technology, Bloomberg
10:24
Speaker 4: Intelligence senior technology analyst.
10:26
Speaker 6: There we go, I got it.
10:29
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10:44
Speaker 5: That im number, that's ugly.
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Speaker 2: That's got my attention there yet.
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Speaker 4: Also the job's number, the employment number in there with
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Speaker 4: forty three, that's definitely that's definitely something interesting that we're
10:54
Speaker 4: seeing the buying really coming in though to the bond market.
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Speaker 5: On that.
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Speaker 4: All right, let's get more into the data because this
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Speaker 4: feels icky. Tim Fiory is chair of the Institute of
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Speaker 4: Supply Management, a manufacturing business Survey committee, and he joins us, Now, okay,
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Speaker 4: we are at an eight month low near any We
11:12
Speaker 4: are contracting the most in about eight months for the
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Speaker 4: m manufacturing. You really had that weak employment data. What
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Speaker 4: is leading this? Does this data surprise for you?
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Speaker 8: Yeah, Alex, So, yeah, this is a disappointment. So the
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Speaker 8: last couple of months we've been stuck, stable, stagnant. We're
11:29
Speaker 8: no longer stuck stable or stagnant. We're declining at a
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Speaker 8: faster rate. We're off almost two points from last month.
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Speaker 8: We're off almost more than two points from expectations, twenty
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Speaker 8: one months into a contraction, and we haven't seen a
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Speaker 8: number at the headline level this low since November twenty two.
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Speaker 3: So, first off, the.
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Speaker 8: Good news, supplier deliveries are starting to stiffen up. It's
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Speaker 8: a little bit harder for them to deliver. That price
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Speaker 8: index number is a marginal expansion, very weak. Happy to
11:56
Speaker 8: see that, Glad to see that if you're looking for
11:59
Speaker 8: a rate activity that supports a rate reduction, no doubt.
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Speaker 8: On the demand side, we still can't find demand. The
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Speaker 8: demand is non existent, backlog is still extremely low, new
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Speaker 8: export orders very weak, and no real end in sight.
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Speaker 8: Our top six industry sectors all showed declines, significant declines
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Speaker 8: like forty five. In the demand side, new orders and production.
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Speaker 8: The big story here for the month is really the
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Speaker 8: production number. We've been talking for the last year and
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Speaker 8: a half. That look, as long as the production number
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Speaker 8: stays around fifty, revenues or expectations are being met, profitability
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Speaker 8: is probably okay. Just have to deal with the out
12:36
Speaker 8: the input side, Well, that's so long in the case here,
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Speaker 8: we've fallen down to a forty five to nine, big drop,
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Speaker 8: disappointing lowest since May of twenty twenty two. And then
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Speaker 8: coupled with that, we've got the employment numbers sagging really strongly.
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Speaker 8: So what it really says, and we've indicated this last
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Speaker 8: month the month before, is that without new orders, we're
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Speaker 8: gonna see a decline in production slash revenue, and we're
13:00
Speaker 8: going to see a decline in employment. And that's exactly
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Speaker 8: what we've see in here from a sentiment standpoint. You know,
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Speaker 8: I track headline sentiment month to month, running at a
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Speaker 8: one to one point four. So I think we're in
13:12
Speaker 8: for a ride here now.
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Speaker 1: You know.
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Speaker 8: The one last thing is we've been looking for a
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Speaker 8: soft landing. That doesn't necessarily mean that manufacturing is going
13:20
Speaker 8: to see a soft landing. We could actually have a
13:22
Speaker 8: moderate landing or even a hard landing. And it doesn't
13:26
Speaker 8: mean that the economy is going to see a hard
13:29
Speaker 8: landing or a moderate landing. So we're at a real
13:31
Speaker 8: strange spot here. I mean, if you're looking for data
13:34
Speaker 8: facts for the fat to support a ray cut, don't
13:37
Speaker 8: look any farther.
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Speaker 2: Don't look any farther than this, right, all right, Tim,
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Speaker 2: thanks for the breakdown, Really appreciated. Tim Fury, Chair for
13:42
Speaker 2: the Institute for Supply Management on their business survey. Again,
13:46
Speaker 2: numbers coming in. Wee can then expect it for the
13:48
Speaker 2: manufacturing front.
13:51
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14:09
Speaker 2: Bloomberg Intelligence, Alex Steel, Paul Spooney. Youre live here in
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Speaker 2: com and search Bloomberg Podcast and that's where you'll find us.
14:21
Speaker 2: One of the stories that you know, Alex ly like
14:23
Speaker 2: to continue to focus on is commercial real estate. It's
14:25
Speaker 2: undergone a tremendous change over the last four five six years,
14:29
Speaker 2: obviously with the pandemic and longer term trends here that
14:32
Speaker 2: still need to be understood and worked out. So we
14:34
Speaker 2: like to talk to smart people to get a little
14:36
Speaker 2: bit smarter on this. Hillaryspond joins us. She's executive vice
14:39
Speaker 2: president at b XP. BXP is a publicly traded real
14:43
Speaker 2: estate investment trust. B XP is the ticker handily market
14:47
Speaker 2: KAP eleven point two billion dollars stock's pretty much unchanged today,
14:50
Speaker 2: up about two percent year to date. Hillary, thanks much
14:53
Speaker 2: for joining us in our studio New York City. Let's
14:55
Speaker 2: focus on on New York City. That's your remit here.
14:59
Speaker 2: A lot of empty space here in New York City
15:01
Speaker 2: in the offices. Tell us where we are and how
15:06
Speaker 2: we're going to get out of this. If at all,
15:08
Speaker 2: explain to us how the commercial real state environment is
15:10
Speaker 2: in New York City today.
15:11
Speaker 9: Sure well, First of all, Alex and Paul, thank you
15:13
Speaker 9: for having me this morning. I think that it's fair
15:16
Speaker 9: to say that the market is bifurcating itself, and that means.
15:20
Speaker 10: That there are groups of properties that are.
15:23
Speaker 9: Performing quite well actually, and others that are performing less well.
15:26
Speaker 9: Those properties that are newly constructed, that have been reinvested
15:31
Speaker 9: in by their ownership, and that are well located are
15:34
Speaker 9: generally doing pretty well. And as evidence of that, if
15:36
Speaker 9: you look at the vacancy rate in the Park Avenue
15:39
Speaker 9: sub market of Manhattan, it's less than ten percent, which
15:42
Speaker 9: is quite tight by historical standards. You're seeing landlords there
15:47
Speaker 9: with the ability to push rental rates to reduce concessions
15:52
Speaker 9: like free rent, like capital that's associated with new leasing,
15:55
Speaker 9: and so therefore net effective rents are actually increasing in
15:58
Speaker 9: that sub market. The weaker sub markets and some of
16:01
Speaker 9: the older buildings, landlords have had more trouble attracting tenants.
16:05
Speaker 9: But for those businesses that are generating revenue that have
16:10
Speaker 9: clients that need to come visit them, that want to
16:12
Speaker 9: attract talent, being in a great building in Manhattan is
16:15
Speaker 9: a really good bet for them, and you're seeing strength
16:18
Speaker 9: in that segment of the market.
16:19
Speaker 6: So we've had some.
16:19
Speaker 4: Property people in here who've talked about those older buildings
16:22
Speaker 4: and over the last few years, I spent a lot
16:24
Speaker 4: of money retrofitting them and updating them to make them
16:26
Speaker 4: more appealing. Are we seeing a lot of that still,
16:29
Speaker 4: and like, what's the cost profile for that?
16:31
Speaker 5: Is it payoff? Like how does that work?
16:33
Speaker 9: So I think it's also a little bit location dependent.
16:35
Speaker 9: You're certainly seeing some buildings spend money that are would
16:39
Speaker 9: be classified as older or maybe less well amenitized, just
16:42
Speaker 9: not a newer building. But if they're in a great location,
16:44
Speaker 9: they can actually do quite well. And I would point
16:47
Speaker 9: to the Grand Central sub market as evidence of that.
16:51
Speaker 9: A lot of people who commute in the city are
16:53
Speaker 9: really looking for a one seed commute, meaning they get
16:55
Speaker 9: off of Metro North or they get off of Long
16:57
Speaker 9: Island Railroad.
16:58
Speaker 3: They walk to their office.
16:59
Speaker 9: So those buildings, despite the fact that they're somewhat older
17:02
Speaker 9: in that submarket, are leasing quite well. And a lot
17:04
Speaker 9: of the landlords that own in that district are amenetizing
17:07
Speaker 9: their buildings to great effect.
17:09
Speaker 10: The cost of construction have gone up.
17:11
Speaker 9: Radically over the last call it five years, and that
17:14
Speaker 9: does definitely have an effect. It tends to favor the
17:17
Speaker 9: landlords that are better capitalized, but for those that can
17:21
Speaker 9: do it, it really does benefit their leasing velocity.
17:24
Speaker 2: How about like I'm going to reference this once again
17:26
Speaker 2: I always do when having commercial real estate discussions in
17:29
Speaker 2: New York. Bloomberg News put out a piece maybe eighteen
17:32
Speaker 2: months ago and just focusing on Third Avenue between Grand
17:35
Speaker 2: Central and here we're at fifty eight to fifty ninth Street.
17:38
Speaker 2: You can't give that stuff away or talk to us
17:40
Speaker 2: about that market. I'm thinking, like the Lipstick Building. When
17:43
Speaker 2: I see one of those buildings, trade is there going
17:45
Speaker 2: to be a thirty percent discount, forty fifty sixty percent discount?
17:48
Speaker 2: Talk just about that kind of market because those are
17:50
Speaker 2: more I guess b properties as I understand it.
17:52
Speaker 9: Well, So there actually has been some activity on Third Avenue.
17:56
Speaker 9: Memorial Song kettering, I believe took some space in the
17:58
Speaker 9: Lipstick Building. One of the office buildings that is on
18:01
Speaker 9: Third Avenue was recently announced to be a conversion to residential.
18:04
Speaker 9: So folks are getting creative with that space. For us
18:07
Speaker 9: in our sub markets, we're focused on attracting large corporate
18:11
Speaker 9: tenants and investing the capital that's required to attract and
18:15
Speaker 9: retain them. But I think there's I think that third
18:18
Speaker 9: avenue has hope.
18:19
Speaker 5: So let's just game this out for a second.
18:20
Speaker 4: So swaps markets pricing in three fed rake cuts now
18:23
Speaker 4: for September, right, I mean, excuse me, for the rest
18:25
Speaker 4: of the year starting in September, let's say that happens.
18:29
Speaker 4: What's the trickle down to the commercial real estate market
18:31
Speaker 4: in a short term.
18:33
Speaker 9: So the transaction volume acquisitions, dispositions has been somewhat muted,
18:38
Speaker 9: not so much as a result of where treasuries are trading,
18:41
Speaker 9: I think, but how quickly they went from practically.
18:43
Speaker 10: Zero to where they are today.
18:45
Speaker 9: Any relief on the ten year I think would tend
18:50
Speaker 9: to support higher transaction volumes in our space, which is
18:54
Speaker 9: again the sort of higher end of the market. There's
18:57
Speaker 9: been very very little transactions because in general, landlords are
19:00
Speaker 9: not distressed and are not willing.
19:02
Speaker 10: To sell at depressed prices.
19:03
Speaker 9: So I think it would tend to tend to support
19:06
Speaker 9: a higher transaction volume going forward.
19:09
Speaker 2: You guys, BXP well capitalized, well experienced owner of real estate.
19:15
Speaker 2: Are you buying in New York City today?
19:17
Speaker 9: At the moment, we don't have active acquisitions, but we're
19:20
Speaker 9: constantly looking for new opportunities.
19:23
Speaker 10: The real gating.
19:24
Speaker 9: Issue for us is quality. So if we cannot find
19:27
Speaker 9: something that is at least equal to the quality of
19:30
Speaker 9: what we already own, we are not buyers. And the
19:33
Speaker 9: fact of the matter is there's relatively little available in
19:35
Speaker 9: the market for purchase that is consistent with our quality.
19:39
Speaker 9: That having been said, we do have a couple of
19:41
Speaker 9: development sites in New York City, the most active of
19:45
Speaker 9: which will be three forty three Madison this year. It
19:48
Speaker 9: is it's between forty fourth and forty fifth on Madison,
19:52
Speaker 9: and it will we will begin constructing the east side
19:55
Speaker 9: access to the Long Island Railroad in Grand Central between
19:58
Speaker 9: now and the end of the year. Solk will actually
20:00
Speaker 9: see cranes and construction on the site.
20:04
Speaker 5: So I live in Brooklyn, What about in Brooklyn?
20:07
Speaker 4: All the good kids? No, but they're like retrofitted, like
20:09
Speaker 4: that sugar factory. Not you guys, but sugar Factory is retrofitted.
20:13
Speaker 4: Like they're there, we go dominoes. Well, it is Brooklyn
20:18
Speaker 4: becoming a place where commercial real estate can truly thrive.
20:23
Speaker 9: So I would say that the demand for Brooklyn right
20:25
Speaker 9: now is a local demand. People that need to be
20:29
Speaker 9: in Brooklyn for a reason. Their manufacturers are located there,
20:33
Speaker 9: their talent base is located there. Those tend to be
20:35
Speaker 9: the companies that are expanding in Brooklyn. We own a
20:38
Speaker 9: building called DOC seventy two in the Brooklyn Navy Yard
20:40
Speaker 9: and we've had success in that building with leasing two Huge,
20:44
Speaker 9: which is a marketing company that was formerly based in Dumbo,
20:47
Speaker 9: has moved to the Navy Yard, the Pratt Institute, and
20:51
Speaker 9: other large sort of Brooklyn based institutions. I would say
20:56
Speaker 9: that DOC seventy two has attracted the majority of the
21:00
Speaker 9: large tenants that are active in the Brooklyn market now.
21:02
Speaker 9: But no question, it's sort of a local demand market
21:05
Speaker 9: at the moment.
21:06
Speaker 2: You guys own the General Motors Building, one of the
21:07
Speaker 2: most iconic buildings in the city. Tell us about that building.
21:11
Speaker 9: So the building is ninety six and a half percent least.
21:15
Speaker 9: We recently had a client expand by one hundred thousand
21:19
Speaker 9: square feet in the building, taking up most of the
21:21
Speaker 9: availability in the building. We recently spent a lot of
21:26
Speaker 9: time and effort of minetizing the second floor of the
21:28
Speaker 9: building with wellness, with food and beverage options, and with conferencing,
21:32
Speaker 9: which I think is increasingly important to clients today. And
21:36
Speaker 9: it's really borne itself out in the leasing that we've
21:38
Speaker 9: been able to achieve there. So the building is basically full.
21:41
Speaker 6: So what's when we say wellness?
21:43
Speaker 5: What does that mean?
21:44
Speaker 9: We have a seventeen thousand square foot gym that has
21:48
Speaker 9: personal training, it has physical therapy, it has massage available,
21:53
Speaker 9: It has locker rooms that are like a spy.
21:57
Speaker 6: I'm in a massage. I didn't any time you want to?
22:00
Speaker 6: So there we go. What would you guys like?
22:04
Speaker 11: Not?
22:04
Speaker 6: What doesn't make sense right now?
22:06
Speaker 4: Like if people, I'm clearly sellers are going to want
22:08
Speaker 4: to be out there selling their property.
22:09
Speaker 5: It's obviously the price is going to be a problem.
22:11
Speaker 4: What have you been pitched to that You're like, no way,
22:15
Speaker 4: Why would anyone think that's a good idea?
22:16
Speaker 5: Or is it just a price situation?
22:18
Speaker 7: No?
22:18
Speaker 10: For us, Again, I think it gets back to quality.
22:21
Speaker 9: There are certain assets that we would not want to
22:23
Speaker 9: own just because we don't think that they can be
22:26
Speaker 9: made into a premiere workplace, which is where we're focused.
22:29
Speaker 10: That's our segment of the market, and so.
22:32
Speaker 9: We are gating issue is is it already premiere or
22:35
Speaker 9: can it be made to be premiere through reinvestment? And
22:38
Speaker 9: those are the assets that we're interested in nothing else.
22:41
Speaker 2: Are your clients where are they in terms of back
22:43
Speaker 2: to work? Are we now at the new normal? Whether
22:47
Speaker 2: it's three days a week or Bloomberg's four days a
22:49
Speaker 2: week for example, are we added new normal? Is that
22:53
Speaker 2: what your clients are telling you?
22:54
Speaker 9: So in our space again, our buildings tend to have
22:57
Speaker 9: people who are revenue generators for their company occupying the space.
23:01
Speaker 9: They have been back to work, and it's really not
23:04
Speaker 9: so much a topic of conversation in our office at
23:06
Speaker 9: all anymore. We are at or above physical occupancy that
23:11
Speaker 9: existed pre pandemic.
23:13
Speaker 10: Today. Now it's off a little bit.
23:15
Speaker 9: On Fridays and Mondays, but in the middle of the
23:16
Speaker 9: week we actually are right back where we were before
23:18
Speaker 9: the pandemic.
23:19
Speaker 4: You guys also own the five ninety nine Lexington that
23:22
Speaker 4: a beautiful building has like a like a tower.
23:26
Speaker 9: It's like, well that's six oh one, I think on
23:30
Speaker 9: five Nimes right across the street.
23:32
Speaker 5: Yeah, how are those doing?
23:33
Speaker 10: They're great?
23:34
Speaker 9: So six ZHO one Lex has nine thousand square feet available.
23:38
Speaker 9: It's a two million square foot building. Plus remind us
23:41
Speaker 9: and five nine Lex is where our offices are actually
23:45
Speaker 9: and that building is very well leased as well. We
23:47
Speaker 9: do have a little bit of space coming available in
23:49
Speaker 9: that building and there is a lot of demand for it.
23:51
Speaker 9: People are calling us and saying we want it and
23:53
Speaker 9: can we have it now?
23:54
Speaker 2: But you know, right here Election fifty eighth and fifty nine,
23:57
Speaker 2: all these stores are empty except the chocolate store because
24:00
Speaker 2: that everybody needs chocolate. Yeah, what's going on in your buildings?
24:03
Speaker 2: Do you have that ground floor retail is out a
24:06
Speaker 2: component of your buildings?
24:07
Speaker 10: We do.
24:07
Speaker 9: We have lots of retail in our buildings. We built
24:09
Speaker 9: out of food Hall and six someone Lex, we also
24:11
Speaker 9: have street level retail. Look, we think of our retail
24:14
Speaker 9: as complementary to the office experience and for our clients
24:19
Speaker 9: that have office space with us, we want to make
24:22
Speaker 9: sure that they have a great experience going out and
24:25
Speaker 9: grabbing something healthy and fresh and convenient for lunch.
24:28
Speaker 10: And so we've really looked.
24:30
Speaker 9: At our retail as a way to complement our premiere
24:34
Speaker 9: workplace and not just as a revenue generator. In and
24:37
Speaker 9: of itself, and we've been able to attract really really
24:39
Speaker 9: great options. So I think you know, our approach has
24:42
Speaker 9: been very successful. But it's very it's very much done
24:45
Speaker 9: with our clients in mind.
24:47
Speaker 4: Really great stuff, really interesting. Thank you so much for
24:49
Speaker 4: coming in, come back, keep us updated. We love touching
24:51
Speaker 4: on this topic.
24:52
Speaker 5: It's all so important.
24:54
Speaker 12: An architectural oddity along Park Avenue.
24:57
Speaker 6: Sound like my husband, but yes, no, it's true.
25:00
Speaker 12: Because the lobbies are all raised kind of if you
25:04
Speaker 12: go down there, and that's because the lack I suppose
25:07
Speaker 12: the lack of elevator wells because underneath the buildings you
25:12
Speaker 12: can't go down there are railroad tracks.
25:14
Speaker 10: You are exactly right.
25:15
Speaker 2: John Tucker, bringing out some mercy college.
25:18
Speaker 6: Just did you research time while we were there? Was different?
25:21
Speaker 2: Just now he saw a YouTube video and that's all
25:24
Speaker 2: his knowledge.
25:27
Speaker 10: Lobbies are wrong, but you're exactly correct.
25:30
Speaker 12: That's very okay.
25:30
Speaker 6: Thank you, very John Tucker.
25:32
Speaker 2: The brilliant city all my life. Thank you very much
25:36
Speaker 2: for join us. Hell respond Executive Vice President b XP
25:39
Speaker 2: joining us live here in our interactive broker studio talking
25:41
Speaker 2: about commercial real estate again. I guess the story I'm
25:44
Speaker 2: learning as if you've got your properties are in good shape.
25:46
Speaker 2: If you have something less than good, then perhaps still
25:49
Speaker 2: a struggle out there.
25:51
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
25:55
Speaker 1: weekdays at ten am Eastern on Apple, car Play and
25:58
Speaker 1: and Roight Outo with the Bloomberg Business. You can also
26:01
Speaker 1: listen live on Amazon Alexa from our flagship New York
26:05
Speaker 1: station Just Say Alexa playing Bloomberg eleven thirty.
26:10
Speaker 3: Busy earning cycle Here for the tech games.
26:12
Speaker 2: We had met a last night, some good numbers that
26:14
Speaker 2: stock trading up, and big big afternoon today after the
26:18
Speaker 2: close Apple and Amazon report, let's check in with one
26:21
Speaker 2: of our go to tech folks, Dan Ives, managing director
26:24
Speaker 2: and senior equity analyst, What Bush Security. He's not in
26:27
Speaker 2: your studio and he's not even zoom, so we can't
26:29
Speaker 2: even see what is outlandish outfit.
26:32
Speaker 4: He's probably wearing like a black suit at this point,
26:34
Speaker 4: and I mean, we can't see it.
26:36
Speaker 2: It's upsetting exactly, Dan, thanks so much for joining us here.
26:38
Speaker 2: Let's start with Apple here. I kind of feel like
26:42
Speaker 2: they need some more explaining to do in terms of,
26:45
Speaker 2: you know, some of their strategies here in terms of
26:47
Speaker 2: the market in China, what are you going to be
26:49
Speaker 2: looking for from Apple.
26:51
Speaker 13: I mean, it's really about the China growth. We think
26:53
Speaker 13: it's the last negative quarter for China and then that
26:57
Speaker 13: starts to now have a tailwind going into the AI
27:01
Speaker 13: driven supercycle. And I think this is this is the
27:04
Speaker 13: beginning of what's going to be a historic period for
27:07
Speaker 13: Apple and I think broader tech as this week's Nowaday,
27:12
Speaker 13: the AI revolution is real and now the consumer piece
27:15
Speaker 13: comes to Apple.
27:17
Speaker 4: So this is still going to be a show me
27:18
Speaker 4: story though, Dan, because all the indications we've gotten from
27:20
Speaker 4: China from any sector is not good.
27:25
Speaker 13: Well, our I mean our checks in terms of units,
27:29
Speaker 13: which originally five phone sixteen was what's called eighty four millions,
27:33
Speaker 13: which is now up to ninety. So the point is
27:37
Speaker 13: like for iPhone sixteen that continues to wratch up, but
27:40
Speaker 13: it speaks to our point. The haters hate Apple at
27:44
Speaker 13: one sixty, despise it at two hundred, and will absolutely
27:48
Speaker 13: hated at two fifty. So as we're going into this phase,
27:53
Speaker 13: it will be proved. Me but betting against Apple and
27:56
Speaker 13: Coupertino has been the wrong movie.
28:00
Speaker 2: So talk to us about the services side of the business, Dan,
28:03
Speaker 2: because for you know, a long time, a lot of
28:06
Speaker 2: bulls were saying, you got to focus on services because
28:08
Speaker 2: that's the high margin business and it takes you away
28:10
Speaker 2: from the replacement cycle risk and all that is. Service
28:13
Speaker 2: is still a key story for the Apple stock.
28:16
Speaker 13: Oh, I mean me, and you've thought about it a lot.
28:18
Speaker 13: I mean services is key to the valuation of Apple.
28:24
Speaker 13: It's been big to the sum of the part story.
28:27
Speaker 13: And actually, I'd say the biggest way that maybe people
28:30
Speaker 13: have missed Apple is not recognizing that this essential was
28:34
Speaker 13: a reading story wed by services the last two years.
28:40
Speaker 4: So when it comes to their indications on their own
28:45
Speaker 4: Apple Intelligence, you know, Man Deep saying are from Bloomberg
28:48
Speaker 4: Intelligence was pointing out that, you know, Apple doesn't have
28:50
Speaker 4: its large language model.
28:52
Speaker 6: So what do you think we're going to What are the.
28:54
Speaker 4: Questions that you and other analysts are going to have
28:56
Speaker 4: on the call about LLM.
28:59
Speaker 13: Big focus is really developers. Developers now will start the
29:04
Speaker 13: process of building hundreds of apps on the Apple ecosystem.
29:09
Speaker 13: So I think Cook talking about what initial feedback is
29:12
Speaker 13: from developers maybe given some breadcrumbs into iPhone sixteen, that's
29:18
Speaker 13: going to be the important thing. But if you take
29:21
Speaker 13: a step back two hundred and seventy millions have not
29:25
Speaker 13: upgraded their phone. Paul could be included in the last
29:28
Speaker 13: four years. And I think now you go into what
29:33
Speaker 13: should be is an AI driven supercycle.
29:37
Speaker 2: So from your perspective, Dan, has Tim Cook and Apple?
29:42
Speaker 2: Have they allayed the concerns of investors or some investors
29:46
Speaker 2: that Apple's really not going to be a prime beneficiary
29:49
Speaker 2: of AI? Have they allayed those concerns? Do you think?
29:51
Speaker 7: Oh?
29:51
Speaker 13: I think they have. I mean book goes back to
29:53
Speaker 13: WWDC stock was one ninety, right, yep, everyone thought it's
29:57
Speaker 13: over the din't showing it look at today. And the
30:00
Speaker 13: point is because I think now the street recognizes that
30:04
Speaker 13: the AI revolution on the consumer side goes to Apple Park.
30:09
Speaker 13: On the enterprise side, it's godfather of AI, Jensen and
30:12
Speaker 13: Vidio as well as Madella, But on consumer it's Apple.
30:15
Speaker 6: Yeah, it's such a good point.
30:17
Speaker 4: And I think you made that point with us on
30:18
Speaker 4: our show a few weeks ago, and that was a
30:20
Speaker 4: good distinction, right, which kind of brings us then to
30:22
Speaker 4: Amazon because Amazon has the consumer side when it comes
30:26
Speaker 4: to e commerce, and then it obviously has the cloud.
30:29
Speaker 4: Then that AI side, what are you expecting after the
30:31
Speaker 4: bell that's not as flat now on a pretty heavy tape.
30:35
Speaker 13: Big focus is AWS. Look at the cloud strength we
30:39
Speaker 13: saw from Alphabet by the knee jerk react right to
30:42
Speaker 13: continue to be as the adscratcher. Look at the Microsoft
30:45
Speaker 13: cloud number. I think Amazon's going to be on AWS
30:49
Speaker 13: and that's important for them to show. Don't forget about
30:54
Speaker 13: us when it comes to the AI revolution. That's what
30:57
Speaker 13: Jassi is really going to be focused on the call.
31:00
Speaker 2: So give us a sense, Dan about how how investors
31:05
Speaker 2: should position, you know, Amazon Web Services in the context
31:09
Speaker 2: of the AI play. How do they fit in?
31:12
Speaker 13: Really that's a great question. I view it as if
31:17
Speaker 13: Apples could show, and I believe they can, that they
31:21
Speaker 13: can monetize that leadership position in cloud and actually monetize
31:26
Speaker 13: from an AI perspective very somewhere what Microsoft's doing to Google.
31:31
Speaker 13: That that then all of a sudden from some of
31:33
Speaker 13: the parts could add significant value some of the parts
31:36
Speaker 13: of the Amazon stories. So that's really what they need
31:40
Speaker 13: to focus on. Consumer is what it is. I don't
31:43
Speaker 13: I mean advertising and margins and you could kind of
31:46
Speaker 13: you there's some focus there, but it's really about cloud
31:49
Speaker 13: improven that they will be an AI beneficiar.
31:52
Speaker 5: How did we see that in the line items When
31:54
Speaker 5: it comes across.
31:56
Speaker 13: It's really around the eight I WUS strength. We expect upside.
32:00
Speaker 13: And then on the call, walking through not just anthrophics,
32:04
Speaker 13: but like the overall AI strategy and what they're starting
32:07
Speaker 13: to see in their customer base. You triangulate that with
32:12
Speaker 13: alphabet Microsoft AMD. It's nine pm in the AI party,
32:17
Speaker 13: goes to four am.
32:19
Speaker 3: There we go.
32:20
Speaker 5: There's the headline for you. What about cap X for Amazon?
32:24
Speaker 13: I want to see them continue to accelerate it. To me,
32:29
Speaker 13: it's an arms race that's going on. So as much
32:32
Speaker 13: as you could fret about some of maybe the cap X,
32:36
Speaker 13: that's what you want to see from Meta. You want
32:38
Speaker 13: to see Microsoft. You want to see from Amazon. Now
32:42
Speaker 13: Investors be like, Okay, where's the payback room? Wasn't built
32:45
Speaker 13: in a day? This is going to take six, nine, twelve,
32:47
Speaker 13: eighteen months. But at the end of it Fourth Industrial Revolution,
32:51
Speaker 13: Amazon wants to be a huge part of that, and
32:53
Speaker 13: that's what investors want to see. Even though bad is good,
32:56
Speaker 13: good as bad.
32:58
Speaker 2: Microsoft just you know one segment on that, Dan, how
33:01
Speaker 2: do you how's the Microsoft story shaping up for you?
33:03
Speaker 2: I know you've always been very supportive and of the
33:05
Speaker 2: stock where are they right now?
33:08
Speaker 13: It was a validation movement. I mean the reason tech
33:12
Speaker 13: went green yesterday and all the white knuckle fields were alight,
33:16
Speaker 13: it was because in Thedella it's talking about the acceleration
33:18
Speaker 13: and azure and talking about AI monization is now here
33:23
Speaker 13: because there's two people that everyone in the world's focused on.
33:27
Speaker 13: What they say on AI, godfather of AI, Jensen Nadella.
33:31
Speaker 13: And when you heard from Theadella that n Rubik's cube
33:34
Speaker 13: that you're trying to figure out, that was bullish in
33:37
Speaker 13: terms of AI validation combined with the Elisha shoe talked
33:40
Speaker 13: about from me and be very polish.
33:42
Speaker 4: So before I let you go, Dan, we're looking at
33:45
Speaker 4: a day where stocks are selling off. We definitely had
33:47
Speaker 4: a bad news is bad news when it came to
33:49
Speaker 4: the ISM manufacturing dat at the top.
33:50
Speaker 5: Of the ten o'clock hour, how much how much.
33:53
Speaker 4: Leg do you think this maybe next move of the
33:56
Speaker 4: tech selloff can have.
33:58
Speaker 13: I think this rotations big tech, the small cap we
34:02
Speaker 13: think is very short lived. Said next move to cut
34:08
Speaker 13: in that cycle with big big tech earnings that we're saying,
34:11
Speaker 13: I'm not saying that you're not going to have some
34:13
Speaker 13: speed bumps here. We weive we are still in the
34:16
Speaker 13: early stages of this techical market and that's how we've
34:19
Speaker 13: handheld investors through some of the roller coaster.
34:24
Speaker 2: All Right, Dan, thanks so much for joining us. Dan
34:25
Speaker 2: I've C's a managing director senior equity analyst at web
34:28
Speaker 2: Bush Securities, giving us his thoughts on big tech again
34:31
Speaker 2: after the close today, Amazon and Apple, I'll be paying
34:36
Speaker 2: attention from Yeah, I.
34:38
Speaker 5: Think it's been really fun. I was really surprised about Meta.
34:40
Speaker 4: I mean, you know, I was really skeptical going in
34:42
Speaker 4: in terms of they don't have the same kind of
34:44
Speaker 4: cloud plus AI to deliver, but that ad impressions and
34:49
Speaker 4: that in terms of the quality of the ads was
34:51
Speaker 4: really quite impressive. So I was surprised, and that's not
34:54
Speaker 4: holding up despite the sell off in the equity market.
34:55
Speaker 2: Yeah, so, I mean, I think for for Meta and
34:58
Speaker 2: for Google as well, anybody who's advertising, what AI does
35:01
Speaker 2: is allows you to target better target your audience, which
35:04
Speaker 2: is important for advertisers because they don't want to waste
35:07
Speaker 2: their advertising dollars. They want to make sure every advertising
35:09
Speaker 2: dollar is going to someone who they really want to reach,
35:13
Speaker 2: and that's one of the advantages of digital advertising overall,
35:16
Speaker 2: versus say, buying a TV at or buying it at
35:18
Speaker 2: the newspaper or something like that. You're getting everybody people
35:20
Speaker 2: you don't want as well. Digital does it better. Targeting
35:24
Speaker 2: AI just makes it even better.
35:26
Speaker 6: Yeah, so has a premium? Does digital have a premium
35:28
Speaker 6: to TV?
35:29
Speaker 3: Oh?
35:29
Speaker 2: Yeah?
35:30
Speaker 4: Okay, all right, so well it always has, hasn't it
35:33
Speaker 4: last ten years or so?
35:34
Speaker 1: Yeah?
35:34
Speaker 2: I mean it's it's interesting. It's they target different advertisers.
35:37
Speaker 2: But the CPI is the cost per point is really interesting.
35:42
Speaker 2: So it's just a premium. You're taking share across the board.
35:46
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
35:50
Speaker 1: weekdays at ten am Eastern on Apple car Play and
35:53
Speaker 1: Android Auto with the Bloomberg Business app. You can also
35:56
Speaker 1: listen live on Amazon Alexa from our flagship New York
35:59
Speaker 1: station just Say Alexa playing Bloomberg eleven thirty.
36:04
Speaker 2: Let's continue our conversation on commercial real estate. I heard
36:07
Speaker 2: from someone earlier today, I guess who really is focusing
36:11
Speaker 2: on the New York market In New York. If you've
36:13
Speaker 2: got a list of properties, you're fine. If you've got
36:14
Speaker 2: B and C not so fine. Here let's broaden it
36:16
Speaker 2: out a little bit. We can do that with Greg Friedman,
36:18
Speaker 2: managing principle and CEO of Peachtree Group. I'm just guessing
36:21
Speaker 2: it's Atlanta. He joined us live here in our Bloomberg
36:24
Speaker 2: and Arrective Brokers studio. Abigail do little joints as well.
36:28
Speaker 2: We appreciate that. Abigail Dottle, markets reporter for Bloomberg News. Greg,
36:32
Speaker 2: thanks so much for joining us here talk to us
36:34
Speaker 2: about Peachtree. How do you guys play the commercial real
36:37
Speaker 2: estate business? Equity, debt, regional? Where do you guys go?
36:41
Speaker 11: Yeah, so we invest across the US, so it's just domestic,
36:45
Speaker 11: but we invest up and down the capital stacks. We
36:47
Speaker 11: invest on the credit side as well as the equity
36:49
Speaker 11: side of commercial real estate. So we're a little bit
36:51
Speaker 11: unique in the sense that we do as part of
36:54
Speaker 11: our company. We have different verticals that go out and
36:57
Speaker 11: actually lend to commercial real estate. We buy a lot
36:59
Speaker 11: of debt from financial institutions and banks and regional banks.
37:03
Speaker 11: We also buy and develop, you know, real estate. We
37:05
Speaker 11: buy and develop primarily hotel assets that are you know,
37:08
Speaker 11: select service, limited service type hotel properties on the equity side,
37:12
Speaker 11: but the CREDITSIBE, We're diversified.
37:14
Speaker 3: All right.
37:14
Speaker 2: I'm trying to get a sense, I think a lot
37:16
Speaker 2: of people are trying to get a sense is how
37:18
Speaker 2: bad is a commercial real estate out there? And where
37:21
Speaker 2: are we going to see it? Where are we going
37:22
Speaker 2: to feel it? Where are we in the kind of
37:24
Speaker 2: this nine innings of trying to normalize this market when
37:28
Speaker 2: people's behavior has really changed, whether it's working or traveling
37:31
Speaker 2: and that kind of stuff. How do you guys think
37:32
Speaker 2: about that?
37:33
Speaker 11: Yeah, I think commercial real estate's very bifurcated today. If
37:35
Speaker 11: you have like a long term fixed rate loan, you
37:37
Speaker 11: bought an asset several years ago, you feel really good
37:40
Speaker 11: about where you sit in life, assuming that loan's not
37:43
Speaker 11: maturing here, you know, in the near term. If you
37:45
Speaker 11: have loan maturity issues, if you're you know, if you're
37:49
Speaker 11: dealing with you know, loans that are floating rate, that
37:51
Speaker 11: are on hedge, you're dealing with a lot of that
37:53
Speaker 11: balance sheet stress. You hear a lot of the headlines
37:55
Speaker 11: talk about the stress that's going on in office, which
37:58
Speaker 11: is really just that secular stress. You take office out
38:01
Speaker 11: of the equation, you know, real estate with loans that
38:03
Speaker 11: are maturing are under heavy pressure right now because these
38:07
Speaker 11: rates are resetting in most cases, you know, double or
38:09
Speaker 11: even trouble what they were paying, you know, from the
38:12
Speaker 11: previous loan.
38:13
Speaker 14: Well, let's talk more about that, because by the end
38:15
Speaker 14: of twenty twenty five, let's call it, more than one
38:19
Speaker 14: hundred one trillion to one point five trillion cnbs coming due.
38:23
Speaker 14: Because you are on the credit side, you're really seeing
38:26
Speaker 14: the plumbing a little bit more closely. It's interesting there's
38:29
Speaker 14: this debate among some of the commercial real estate people
38:32
Speaker 14: that we speak to, and some are a little bit
38:34
Speaker 14: more optimistic saying it's just office, and then there's others.
38:37
Speaker 14: And Josh Ziegan is coming to mind strictly on the
38:40
Speaker 14: credit side, very close to the banks, saying it's much
38:43
Speaker 14: much more negative than people think.
38:45
Speaker 10: Where do you stand on that?
38:46
Speaker 14: Do you think it's a much more difficult position than
38:48
Speaker 14: say some of the Blackstone activity might suggest.
38:52
Speaker 11: Personally? I think it is. I think it's it's a
38:53
Speaker 11: lot more negative. There's a lot of negative leverage. So
38:56
Speaker 11: if you're buying assets today, in a lot of cases,
38:59
Speaker 11: you're having negative leverage because rates are so much higher
39:02
Speaker 11: than where a lot of these assets are trading on
39:04
Speaker 11: a cap rate basis. Even though cap rates have moved up,
39:07
Speaker 11: and not to mention, if you bought an asset pre
39:09
Speaker 11: twenty twenty two, especially during the pandemic, cap rates had
39:13
Speaker 11: compressed down to this like unsustainable level where a lot
39:16
Speaker 11: of assets, if it was like a multifamily asset industrial,
39:19
Speaker 11: we're trading in this three to four percent range, in
39:21
Speaker 11: some cases a little bit higher, but renal growth rates
39:24
Speaker 11: haven't really allowed for those cap rates to grow enough
39:28
Speaker 11: to sustain interest rates that are you know, again, in
39:30
Speaker 11: most cases you're in the you know, mid single digits
39:33
Speaker 11: at a minimum, if not higher single digits. And that's
39:36
Speaker 11: what's causing you know, a big challenge across commercial real estate.
39:39
Speaker 2: All right, So what I'm sitting on a piece of
39:41
Speaker 2: real estate down in Peachtree Street, Southwest and Atlanta the
39:44
Speaker 2: worst city in the country for naming streets by right,
39:48
Speaker 2: I mean it's a bunch of second graders. I'm sitting
39:51
Speaker 2: on a piece of property. My mortgage is coming up.
39:55
Speaker 2: I got a refinance it twice or maybe three? What
39:58
Speaker 2: do I do?
39:59
Speaker 11: Yeah, I mean, there's so there's definitely dead out there today.
40:03
Speaker 11: The reality is regional banks, community banks, the national banks
40:06
Speaker 11: make up fifty percent of the commercial real estate lending market.
40:09
Speaker 11: They're not lending at the same level that they once were.
40:12
Speaker 11: Groups like us on the credit side, we're doing lending today.
40:15
Speaker 11: We've done about a billion dollars of loans this year
40:18
Speaker 11: so far. So we're actually providing loans to groups that
40:21
Speaker 11: need to recapitalize or refinance as loans are maturing. In
40:24
Speaker 11: a lot of cases though using that example, they're going
40:27
Speaker 11: to have to come in with additional liquidity, so they're
40:29
Speaker 11: gon'n have to do it potentially cassion exactly, don't have
40:32
Speaker 11: to come in with capital to allow for that refinance.
40:34
Speaker 11: SI curd that equity.
40:35
Speaker 14: So speaking to the other side of your credit business,
40:38
Speaker 14: you also buy, and during the pandemic, you were one
40:40
Speaker 14: of the biggest buyers of loans. I would imagine there's
40:43
Speaker 14: a lot of bargains out there today. Are you super active?
40:47
Speaker 11: Yeah, so, I mean we bought over one hundred and
40:49
Speaker 11: eighty loans during the pandemic, so we were super active.
40:52
Speaker 11: As you mentioned today, we've bought you know, this year,
40:54
Speaker 11: we bought close to about a dozen loans since the
40:56
Speaker 11: end of last year to you today, so we haven't
40:58
Speaker 11: bought as much paper as I would expect.
41:00
Speaker 14: Where are you buying that on the dollar, although I
41:02
Speaker 14: know some folks say that's not a good way to
41:04
Speaker 14: look at it, but like in terms of what kind
41:05
Speaker 14: of bargain are you.
41:06
Speaker 11: Guys, Yes, so what we filned and what assets? Yes,
41:08
Speaker 11: So it's not huge discounts because what we're finding is
41:10
Speaker 11: unlike during like the Great Financial Crisis, because we bought
41:13
Speaker 11: a bunch of loans, then we got huge discounts. And
41:16
Speaker 11: you know, back then banks had done higher leverage lending,
41:19
Speaker 11: you know, going into this cycle and even into the pandemic,
41:22
Speaker 11: you know, leverage levels were much more i would say
41:24
Speaker 11: conservative by most you know, banks and financial institutions. So
41:27
Speaker 11: the discounts weren't as large. But we're finding that the
41:30
Speaker 11: banks that are trading paper, they're usually selling off their
41:32
Speaker 11: better paper, which means that it's loans that were the
41:35
Speaker 11: asset values greater than the loan balance, and so the
41:38
Speaker 11: discounts just aren't as large given that factor.
41:40
Speaker 5: So how hard is it to come to agree on pricing?
41:43
Speaker 4: It's it's very challenging because it easier or harder now
41:47
Speaker 4: than like I don't know, eight months ago or something.
41:48
Speaker 3: It's still hard. Yeah, it's still very hard.
41:52
Speaker 11: I think that's going to change towards the end of
41:54
Speaker 11: this year because part of the challenge the losses that
41:56
Speaker 11: different banks need to take. They don't have the reserves
41:58
Speaker 11: to take them, and they're not will want to take
42:01
Speaker 11: those losses today. I think that's going to change as
42:04
Speaker 11: our lone loss reserves are increasing over the next couple
42:07
Speaker 11: of quarters. And I wouldn't be surprised if you saw
42:08
Speaker 11: a lot of regional banks sell off a lot of
42:11
Speaker 11: paper in the fourth quarter this year.
42:13
Speaker 2: Do you think the commercial real estate business, I don't
42:15
Speaker 2: know to pick however you want to answer this. Has
42:17
Speaker 2: it found its bottom yet? Or are we still searching
42:20
Speaker 2: for a bot of evaluation?
42:21
Speaker 1: Yeah?
42:22
Speaker 11: So I think a lot of people believe we found
42:24
Speaker 11: a bottom. I question it just because we don't have
42:26
Speaker 11: a very active transaction market. It's very muted on the
42:29
Speaker 11: transaction side. I do think you're probably closer to the bottom,
42:33
Speaker 11: although I wouldn't be surprised depending on where rates settle
42:36
Speaker 11: over the next six to twelve months. That will be
42:38
Speaker 11: a big indicator. When I say rates, really the ten
42:40
Speaker 11: year treasury rate, I mean the ten year treasury rates
42:42
Speaker 11: come down below four percent today but that's still double
42:46
Speaker 11: where we were pre twenty twenty two when you look
42:49
Speaker 11: over that decade, where we average closer to two percent.
42:52
Speaker 11: So that's putting a lot of pressure on the underlying
42:54
Speaker 11: values of these assets, and that potentially means values could
42:57
Speaker 11: potentially reset higher the ten years stays above four percent.
43:01
Speaker 14: So in terms of that bottom no matter who you
43:03
Speaker 14: talk to you whether they think that things have already
43:05
Speaker 14: bottomed out or if they're going to bottom out in
43:07
Speaker 14: six months or twelve months, one thing that everybody, everybody
43:10
Speaker 14: involved in commercial real estate, seems to agree that this
43:12
Speaker 14: is going to take a long, long, long time to
43:14
Speaker 14: work out.
43:15
Speaker 10: Do you agree?
43:16
Speaker 14: And if you do, how long is it is? Are
43:18
Speaker 14: we looking at a couple of years just scuttling along
43:21
Speaker 14: the bottom of and why is everything so logjammed? When
43:24
Speaker 14: does it break up?
43:25
Speaker 1: Yeah?
43:25
Speaker 11: So I'm a big believer that we're going to have
43:27
Speaker 11: a sluggish It's been sluggish over the last couple of years,
43:30
Speaker 11: so starting you know, going back to the end of
43:32
Speaker 11: the first quarter of twenty twenty two, so now for
43:34
Speaker 11: commercial real estate, it's been a very sluggish period and
43:36
Speaker 11: I think we're going to continue to have that. Unfortunately,
43:39
Speaker 11: that sluggish period for commercial real estate over the next
43:42
Speaker 11: several years, and it's just going to take time as
43:44
Speaker 11: these loans are maturing, asset values continue to sort of
43:48
Speaker 11: you know, recal or really ownership groups have to recalibrate
43:50
Speaker 11: to where the new interest cass is. So it's just
43:52
Speaker 11: going to take time to get through this slug.
43:54
Speaker 4: Well, that's not really interested in because let's just say
43:56
Speaker 4: we get seventy five basis points it cuts this year
44:00
Speaker 4: right as swaps market are now pricing. And how immediately
44:02
Speaker 4: does that affect what you see?
44:05
Speaker 11: Yeah, I personally, I think it doesn't really move the
44:08
Speaker 11: needle that much. I mean, I think it helps a
44:10
Speaker 11: little bit, but it doesn't really it's not as impactful
44:13
Speaker 11: as you think. I mean, it obviously brings down debt
44:15
Speaker 11: service costs, you know, floating rate debt, you know by
44:18
Speaker 11: call it fifteen percent, which is helpful. You know, if
44:21
Speaker 11: it went down seventy five BIPs, you know, roughly about
44:23
Speaker 11: fifteen percent. But your interest costs, if you think about
44:26
Speaker 11: pre twenty twenty two, you're still up caught seventeen x
44:30
Speaker 11: because I mean you're next to zero, right like what
44:32
Speaker 11: people are paying off of sofa and now all of
44:35
Speaker 11: a sudden, you know, you move down seventy five BIPs,
44:37
Speaker 11: it's not going to be you know, probably as helpful.
44:39
Speaker 10: The so going a little bit more macro.
44:41
Speaker 14: I know that about thirty percent of your portfolio on
44:43
Speaker 14: the equity side hotels, mid scale, mid level hotels you own,
44:47
Speaker 14: I think ninety of them or so, although some of
44:48
Speaker 14: that might be credit. Sean Hair of Trinity Investments joined
44:52
Speaker 14: us last week and also joined Alex and Paul, and
44:54
Speaker 14: he was saying, for luxury hotels right now, the growth
44:56
Speaker 14: is eight percent, but for lower level hotels it's down
45:00
Speaker 14: two percent. Are you seeing this and what does it
45:03
Speaker 14: say about the consumer because we continue to see this
45:05
Speaker 14: bifurcation on the consumer between the high end and the
45:07
Speaker 14: low end. Are you seeing that relative to your hotels?
45:10
Speaker 11: Yeah, I think without question, I think consumers that are
45:13
Speaker 11: you know, on the lower inside obviously are impacted by inflation,
45:16
Speaker 11: higher debt expense. You know, the luxury segment hasn't been
45:20
Speaker 11: as impacted. And that's you know, that's because consumers held
45:24
Speaker 11: up much better, you know, this time around. I do believe,
45:27
Speaker 11: you know, when you look at our portfolio, we're in
45:28
Speaker 11: the mid you know, the mid segment and so we
45:31
Speaker 11: have a lot of Selex service hotels that are like
45:33
Speaker 11: Marriott Hilton branded assets, and those hotels are continue to
45:36
Speaker 11: have positive rep par growth. So we're up about three percent,
45:39
Speaker 11: you know, year to date. But you're definitely seeing you know,
45:41
Speaker 11: I can see slow down a red pars.
45:45
Speaker 2: I know, I know, revenue for an available room.
45:48
Speaker 3: That's right.
45:48
Speaker 2: I'm just going to show it out to Alex and
45:50
Speaker 2: Abigail just real quickly. If you were to go buy
45:54
Speaker 2: a piece of commercial real estate and office park in
45:57
Speaker 2: suburban Atlanta, what kind of discount do you think you'd
46:01
Speaker 2: get off of the pre pandemic evaluation.
46:04
Speaker 11: That's I mean, it really depends on this because it's
46:06
Speaker 11: only seventy I've seen his property thousand times in a
46:10
Speaker 11: thousand towns.
46:11
Speaker 2: It's seventy percent occupied, it's parking lots half empty, all
46:14
Speaker 2: that kind of stuff.
46:14
Speaker 11: I mean, you're if it's going to trade, you're getting
46:16
Speaker 11: like fifty percent discounts. Wow, is my you know, just
46:20
Speaker 11: high level number without going through the nuances, and potentially
46:23
Speaker 11: you're even seeing larger discounts for some of these assets
46:25
Speaker 11: to trade. I mean, there's one big asset in Buckheat,
46:28
Speaker 11: Atlanta right now, that's you know, coming to market. That's
46:31
Speaker 11: or at least the debt's coming out to market. It's
46:33
Speaker 11: going to trade out a pretty substantial discount to where
46:35
Speaker 11: it was.
46:35
Speaker 14: You know.
46:36
Speaker 2: Buckhett still bucket, buckets, still bucket. Yeah, it's just it
46:39
Speaker 2: just shows you that it's called a buckhead.
46:43
Speaker 3: They loved me back the love they loved you back.
46:45
Speaker 4: Yeah, now not so much. This is a really fun conversation.
46:48
Speaker 4: Thank you both so much. Greg Freeman, a Peachtree Group
46:50
Speaker 4: managing principal and CEO. Abigail do Little Bloomberg News markets
46:55
Speaker 4: reporter who also has her real estate beat as well.
46:58
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