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The New Social Media: Video Games · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
0:04
Speaker 1: my co host Matt Miller. Every business day we bring
0:06
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets podcast
0:15
Speaker 1: called Apple Podcast or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com Slash Podcast. Paul Matt Miller is
0:22
Speaker 1: going to be really bummed he's not here today because
0:25
Speaker 1: I know for a fact that he is a big
0:27
Speaker 1: Call of Duty Slash video game fan, and we're going
0:29
Speaker 1: to talk about video games. Now. Joining us as Adrian Montgomery.
0:32
Speaker 1: He is CEO of Enthusiast Gaming, which is a gaming
0:36
Speaker 1: company that is based in Toronto, Canada. Adrian, it's great
0:39
Speaker 1: to talk to you, and I just want to talk
0:41
Speaker 1: about the video gaming industry broadly because clearly it got
0:44
Speaker 1: a big boost during the pandemic because, let's face it,
0:47
Speaker 1: over the last year, there wasn't much else better to
0:49
Speaker 1: do than sit on your couch and play video games.
0:51
Speaker 1: Right now that the world is reopening and you can
0:54
Speaker 1: go out to bars, you can travel, are we about
0:56
Speaker 1: to see a significant pullback in demand? Uh? The short
1:02
Speaker 1: answer to that question is no. Uh. And the good
1:05
Speaker 1: news for people like me and companies like Enthusiast Gaming
1:09
Speaker 1: is you needn't um believe me. Just ask any parents.
1:13
Speaker 1: Ask any parents if their children's love of their smartphone
1:17
Speaker 1: and love of their video games has anything to do
1:21
Speaker 1: with the weather or anything to do with the pandemic,
1:24
Speaker 1: And the answer is is ten times that attend. No.
1:27
Speaker 1: This is a visceral connection that young people have with
1:30
Speaker 1: video games. Um. It is their favorite sport, it is
1:34
Speaker 1: their favorite pastime. It is how they connect with their friends,
1:37
Speaker 1: it is how they spend their money, it's how they
1:39
Speaker 1: spend their parents money. So um, yes, we saw a
1:43
Speaker 1: surge during the pandemic, but but that is not going
1:46
Speaker 1: to going to claw backwards. Adrian, give us a sense
1:50
Speaker 1: of kind of the future as you see it of
1:53
Speaker 1: video games, whether it's you know, the mobility of it,
1:57
Speaker 1: kind of the platform agnostic kind of how do you
1:59
Speaker 1: think about that? Well, first of all, the thing that
2:05
Speaker 1: needs to be understood among people who perhaps didn't grow
2:09
Speaker 1: up with video games is that video games is the
2:11
Speaker 1: new social network. Yeah, you, you and me both video
2:16
Speaker 1: games is the new social network. Young people are staying
2:20
Speaker 1: in touch, making new friends, my CFO. He had two
2:25
Speaker 1: people at his wedding last year he only ever met
2:28
Speaker 1: over the Xbox console. This is this is real, This
2:31
Speaker 1: is this is and and try telling him those relationships
2:34
Speaker 1: aren't worthy of a wedding invitation. Um, this is how
2:38
Speaker 1: people connect with each other. And so, as you know,
2:43
Speaker 1: three out of four gen zears don't watch television, they
2:46
Speaker 1: don't listen to the radio, they don't read things called newspapers.
2:50
Speaker 1: But they they watch video games and they congregate in
2:53
Speaker 1: communities to discuss them. And so as we move forward,
2:58
Speaker 1: video games will be the nexus for fashion, for music,
3:02
Speaker 1: for pop culture. Um, they're going to be pervasive for politics.
3:06
Speaker 1: Adrian certainly m our company Enthusiast Gaming played UM an
3:14
Speaker 1: interesting role with the Biden Harris campaign in the fall
3:17
Speaker 1: of two thousand and twenty. Um, they had aggressively targeted
3:22
Speaker 1: the gen Z vote. Um. Alongside them, you had you know,
3:26
Speaker 1: Congresswoman AOC gaining lots of traction and attention by playing
3:31
Speaker 1: video games with famous gamers. The Biden campaign took took
3:36
Speaker 1: ads out in Animal Crossing and yes, seventy two hours
3:40
Speaker 1: before the vote. Believe it or not, the Biden campaign
3:44
Speaker 1: did a customized map in the game of Fortnite four
3:47
Speaker 1: years ago, if you had extra money to burn for
3:50
Speaker 1: four days before a vote, you'd take out an hour
3:53
Speaker 1: of primetime on NBC. This time, they took over a
3:57
Speaker 1: map in Fortnite, and I think that just shows you, um,
4:00
Speaker 1: where this is going. So, Adrian, I'm looking at a
4:03
Speaker 1: chart of your stock and again the symbol for your
4:05
Speaker 1: company e g l X is the ticker kind of
4:08
Speaker 1: over the trillion, twelve months, not much going on until
4:10
Speaker 1: November and then it goes from you know, roughly a
4:12
Speaker 1: dollar up to eight. Did you guys get caught up
4:14
Speaker 1: in that meme trading kind of frenzy? I don't think so. Um, certainly,
4:22
Speaker 1: much to artist's appointment, we don't seem to have a
4:24
Speaker 1: whole lot of followers yet in those US based reddit forums,
4:28
Speaker 1: like like the other memes stocks do. I think people
4:31
Speaker 1: we were telling people for the longest time we have
4:35
Speaker 1: three hundred million monthly visitors to our platform, um, and
4:39
Speaker 1: I think at some point that started to register and
4:42
Speaker 1: people started to understand the power and the rarity of
4:46
Speaker 1: our platform. And then shortly thereafter, Enthusiast Gaming was added
4:51
Speaker 1: to the list of the calm score one hundred, which
4:53
Speaker 1: is the list of the hundred largest Internet properties in America.
4:57
Speaker 1: And alongside Twitch, which is owned by Amazon, as you know,
5:00
Speaker 1: it's it's the only gaming platform to be on that list.
5:04
Speaker 1: So I think people kind of woke up and said,
5:06
Speaker 1: maybe what these guys are telling us is is the
5:08
Speaker 1: real deal. And of course last week you had that
5:12
Speaker 1: share offering eight million shares price a little lower than
5:15
Speaker 1: where your stockrustrating at the time. Do you plan to
5:17
Speaker 1: continue to raise capital or issue shares in that way
5:20
Speaker 1: going forward? Yeah, we see in front of us, we
5:25
Speaker 1: see an incredible opportunity to aggregate and consolidate more and
5:30
Speaker 1: more of these fan communities, the digital fan communities um
5:34
Speaker 1: AND and fan communities in all shapes and sizes are
5:37
Speaker 1: are going to be, in our opinion, are going to
5:39
Speaker 1: be more valuable. Uh, certainly as as third party data
5:43
Speaker 1: becomes harder and harder to access and privacy revolution uh
5:47
Speaker 1: sweeps the Internet. And so we want to aggregate as
5:50
Speaker 1: many of these fan communities and in many ways were
5:53
Speaker 1: looked at because we're a gaming company as as an
5:56
Speaker 1: acquirer of choice. So we want to press that advantage
6:00
Speaker 1: um AND and continual access to capital from great shareholders.
6:04
Speaker 1: Helps us do that, Adrian, give us a sense for
6:06
Speaker 1: people don't know kind of how you guys generate revenue.
6:10
Speaker 1: Is it advertising as it events? Is I know e
6:12
Speaker 1: sports are going part of the business. Give us a
6:14
Speaker 1: sense of how you guys at your company generate revenue. Sure. Well, again,
6:19
Speaker 1: very difficult. Corporate America of the corporate world is pulling
6:23
Speaker 1: their hair out trying to figure out how to get
6:24
Speaker 1: in front of gen Z's and how to get gen
6:27
Speaker 1: zs to pay attention to them. So when you when
6:29
Speaker 1: you reach three million of them, sixty million in the
6:32
Speaker 1: US alone. UM. We we sell a lot of advertising,
6:36
Speaker 1: a lot of digital advertising UM. And we were encouraged
6:39
Speaker 1: today to read in the journal that that's expected to
6:41
Speaker 1: increase this year. So so that's a good sign. But
6:45
Speaker 1: we sell a lot of advertising UM. And the other thing,
6:48
Speaker 1: we're starting to sell more and more and more of
6:51
Speaker 1: his subscriptions and freemium content. UM. We've built a business
6:55
Speaker 1: around avid video gamers, and avid gamers will pay extra
7:00
Speaker 1: for extra content, and so these premium offerings, we've seen
7:03
Speaker 1: our subscribers double year over year UH, and we're looking
7:08
Speaker 1: at more and more subscription packages to offer UH content
7:13
Speaker 1: licensing is starting to become a significant growth area for us.
7:18
Speaker 1: It seems every O T T platform in the world
7:21
Speaker 1: wants more and more gaming content. So we're putting our
7:24
Speaker 1: channel channels on SAM some of the smart TVs UM
7:28
Speaker 1: and then we're going to migrate to e commerce and
7:31
Speaker 1: social networking and all those sorts of things. Lots of
7:33
Speaker 1: areas to grow. It's a fast growing segment of consumer
7:37
Speaker 1: spending for Shore. Adrian Montgomery, CEO of Enthusiast Gaming, they
7:41
Speaker 1: have the largest gaming media platform in North America. This
7:46
Speaker 1: is Bloomberg. Let's dive into the high yield market. Ken Monahan,
7:53
Speaker 1: He's co had a global high yield for a MUNDI
7:56
Speaker 1: about two trillion dollars in assets under management. So they
8:00
Speaker 1: do a treat or too, I think every day. Ken,
8:02
Speaker 1: Thanks so much for joining us here. Looking at the
8:04
Speaker 1: high old market, it's been a risk on market for
8:07
Speaker 1: a long time. Is there any juice left there? Or
8:10
Speaker 1: am I just clipping coupons on my high yield piece
8:12
Speaker 1: of paper? You know, Paul, it's a good question. I
8:15
Speaker 1: think the answer is you're right. Is it has been
8:17
Speaker 1: a risk on market for a year plus now, after
8:21
Speaker 1: obviously a big fade in uh In in March of
8:25
Speaker 1: last year. UM, so we're up quite substantially and spreads
8:28
Speaker 1: her back to pretty close to tight levels. UM. You know,
8:32
Speaker 1: I think we think they can get a little tighter
8:33
Speaker 1: from here, not dramatically, um, but they can still get
8:36
Speaker 1: a little tighter from where they are UM. And I
8:38
Speaker 1: think that there's a couple of reasons for that. In particular,
8:41
Speaker 1: if you have to recognize that the marketplaces, even over
8:44
Speaker 1: the last eighteen months, has become increasingly double B centric.
8:49
Speaker 1: A lot of that came from downgrades, but the quality
8:51
Speaker 1: of the markets improved, and that would argue that spreads
8:53
Speaker 1: a little tighter, tighter than two basis points for high yield,
8:57
Speaker 1: that that is something right there. But of worse, what
9:00
Speaker 1: has driven spreads in part to be this tight from
9:04
Speaker 1: where they blew out last March was the FED and
9:06
Speaker 1: the fact that the FED said, hey, I got your back.
9:08
Speaker 1: We're going to have this corporate credit facility that's unwinding. Now,
9:12
Speaker 1: what's the impact of that. You know, I think that
9:16
Speaker 1: the Fed's decision just stepped into the high yield market
9:19
Speaker 1: was important at that point in time and obviously provided
9:22
Speaker 1: a flora not only for high yield but for other
9:24
Speaker 1: asset classes at the same time. Um, So that was
9:27
Speaker 1: critical at that juncture, but I don't think it's been
9:29
Speaker 1: critical for the last hand, for the months or even quarters.
9:32
Speaker 1: I think that the economy is momentum on its own,
9:35
Speaker 1: is supporting in the direction of spreads. So can again,
9:39
Speaker 1: the FED has been supporting, you know, providing liquidity for
9:43
Speaker 1: this marketplace, and I guess that's resulted in credit quality.
9:47
Speaker 1: You know, it's been much better than I would have expected. Certainly,
9:51
Speaker 1: you know, fifteen months into this pandemic, is it potentially
9:54
Speaker 1: masking Is the FED support potentially masking credit quality issues
9:58
Speaker 1: that the high market's going to have to deal with
10:01
Speaker 1: at some point? You know, there's there's a there's an
10:04
Speaker 1: ideal here there that's coming to marketplace that you kind
10:07
Speaker 1: of raise your eyebrows at. Um. You can see that
10:10
Speaker 1: there's maybe a little bit more coming to market and
10:12
Speaker 1: triple cs, but it's on the margin. It's I would
10:15
Speaker 1: tell you, by and large, most of the credit quality
10:17
Speaker 1: of the things that have been coming to market are
10:19
Speaker 1: pretty reasonable. Now, we could argue about pricing whether you're
10:22
Speaker 1: getting paid for the risk, but in terms of the
10:24
Speaker 1: credit risk itself, it's not all that it's not it's
10:26
Speaker 1: not all that sour UM And the other thing I
10:29
Speaker 1: think you need to look at is um and we've
10:31
Speaker 1: had an explosion of issuance this year. We're running in
10:34
Speaker 1: a record pace and a lot of that relates to refinancing.
10:37
Speaker 1: So companies are making use of the low rates for
10:40
Speaker 1: treasuries and then the low spreads for credit to to
10:43
Speaker 1: refinance their debt, even refinancing their term loans. Yeah, and
10:47
Speaker 1: just borrow because it's cheap to do so. So why not,
10:49
Speaker 1: right exactly, you were talking about triple cs there in
10:54
Speaker 1: the issue as we've seen, but we've also seen outperformance
10:56
Speaker 1: in that risky is debt. What do you chalk that
10:58
Speaker 1: up to? Way, I like to think if you look
11:01
Speaker 1: at it was obviously on its on its rear end
11:03
Speaker 1: last year and particular in the first quarter and to
11:06
Speaker 1: a certain extent in the second quarter as well, so
11:08
Speaker 1: I think it's a recovery from that. In addition, I
11:11
Speaker 1: think that there's been a level of of cleansing that's
11:15
Speaker 1: taken place in the triple V space, particularly if you
11:18
Speaker 1: look at energy um SO, a lot of the more
11:20
Speaker 1: problematic companies in the energy sector UM filed last year
11:24
Speaker 1: and I think so that cleansing process really allowed spreads
11:27
Speaker 1: to tighten and gave the triple sea markets winded. It's
11:32
Speaker 1: back can talk to us about the funds flows into
11:35
Speaker 1: the high yield space. Our investors still keen that they
11:38
Speaker 1: can get some return in hiotas or is money going
11:41
Speaker 1: perhaps even farther out on the re spectrum. Well, you know,
11:45
Speaker 1: that's interesting to look at because if you look at
11:47
Speaker 1: the high yield marketplace, you would see then as it
11:49
Speaker 1: relates to mutual funds, which is let's say about a
11:51
Speaker 1: quarter of the market high yield funds, whether you're looking
11:54
Speaker 1: at actively managed ones which we're focused on, or ets,
11:57
Speaker 1: there's been outflows, um, not in warm as outflows, but
12:00
Speaker 1: there's been outlaws pretty much eaching every week this year.
12:04
Speaker 1: Um and uh it amounts to not insignificant amount. But
12:09
Speaker 1: I would argue if you look what's happening on the
12:11
Speaker 1: other side, is it's clear that there are other buyers
12:14
Speaker 1: in the market. So who's buying I think that their
12:16
Speaker 1: crossover investors in particular that are coming in and that's
12:19
Speaker 1: really been the big support of the market. And I
12:22
Speaker 1: think the reason for that is if you look at
12:24
Speaker 1: where triple bees are. They're trading at very tight levels.
12:27
Speaker 1: And if you look at the spread relationship between triple
12:30
Speaker 1: bes and double bes in particular, those are much closer
12:33
Speaker 1: to historic averages than they are historic tights, and I
12:36
Speaker 1: think that that's been very supportive of flows. Can we
12:38
Speaker 1: only have about thirty seconds left, but if we get
12:41
Speaker 1: a hawkish surprise from the Fed on Wednesday, what's the
12:43
Speaker 1: read through to credit? Well, let's let's recognize that, you know,
12:48
Speaker 1: the the on the high yill side, we're talking about
12:51
Speaker 1: bonds with a duration that's half of that of an
12:53
Speaker 1: investment grade, So does it not um the investment grade
12:57
Speaker 1: market on its rear end? Potentially it has much more
13:00
Speaker 1: negative impact though on i G. Than it does on
13:03
Speaker 1: high yields. So that I think that that's our viue
13:05
Speaker 1: as to what moment if that in fact happens. That's
13:07
Speaker 1: very ratrically all right, Ken, Thanks, We appreciate you coming
13:11
Speaker 1: on as always giving us the latest on the high
13:13
Speaker 1: yield market. Ken Monahan, co head of Global high Yield
13:16
Speaker 1: at a mundy U s Uh, that's interesting question because
13:19
Speaker 1: we're gonna have you know, is a market you think
13:22
Speaker 1: expecting anything like that? It's not priced for it right now,
13:25
Speaker 1: I'm looking at a ten year yield at one point
13:26
Speaker 1: for eight percent. That to me looks like it's expecting
13:29
Speaker 1: a devish. That's right, right, that would be consistent what
13:32
Speaker 1: I guess the rhetoric we're certainly getting from the FED historically. Well,
13:38
Speaker 1: during the pandemic, it just seems like we're all buying
13:42
Speaker 1: more online Amazon boxes. As far as the hi can see.
13:46
Speaker 1: You see the Amazon Prime trucks all over the place. Um,
13:50
Speaker 1: but that raises the issue not just for Amazon, but
13:52
Speaker 1: for all e tailing, and that's counterfeit. It's been big
13:55
Speaker 1: in the luxury market. What's happened here during the pandemic?
13:59
Speaker 1: Ronya set Home, she's managing partner I've set Home Law Group.
14:02
Speaker 1: She joins us here. Ronnie, thanks so much for joining us, UM,
14:06
Speaker 1: talk to us about counterfeit luxury goods. I know it's
14:10
Speaker 1: always been an issue for e commerce. Kind of where
14:13
Speaker 1: are we today? First? Thank you so much for having
14:17
Speaker 1: me on the show today. Well, the luxury space is
14:21
Speaker 1: quite fascinating when it comes to counterfeiting, particularly on Amazon.
14:26
Speaker 1: And what I find of particular interest is that the
14:31
Speaker 1: counterfeit items on Amazon are sometimes double the M S
14:36
Speaker 1: R P. In the store. So I just think that
14:39
Speaker 1: UH is very fascinating and someone should study why individuals
14:44
Speaker 1: are purchasing items for more money on Amazon. Is it
14:50
Speaker 1: just convenience or is it something else? I have no idea. Well,
14:55
Speaker 1: I Ranya must summit. I am a convenience shopper and
14:57
Speaker 1: I probably get six Amazon packages a week. How would
15:01
Speaker 1: I know if I'm buying something counterfeit? That is a
15:05
Speaker 1: great question. So there are two things that consumers can do.
15:08
Speaker 1: And I do purchase some items on Amazon, but not
15:12
Speaker 1: all items on Amazon. And this is what I do.
15:15
Speaker 1: Whether I want to buy a luxury good or I
15:18
Speaker 1: want to buy a consumer good like christ tooth taste
15:20
Speaker 1: or whichever tooth taste you like. The first thing I
15:23
Speaker 1: do is determine whether or not those items are actually
15:28
Speaker 1: for sale on the Amazon site. UM with the permission
15:32
Speaker 1: of the brand. At the bottom of several UM brand
15:37
Speaker 1: name websites, there's something called stockists or find us, and
15:42
Speaker 1: it'll lift it out for you. So, for example, HP,
15:46
Speaker 1: very well known brand, if you go to the HV website,
15:49
Speaker 1: it does tell you that there are real Amazon products,
15:52
Speaker 1: real products of Amazon Amazon, and that might give you
15:56
Speaker 1: some comfort, and it should but the biggest problem them
16:00
Speaker 1: with buying anything on Amazon is that if it is
16:03
Speaker 1: fulfilled by Amazon, it means that the legitimate product is
16:07
Speaker 1: sitting in a warehouse with fake products, and you don't
16:12
Speaker 1: know which product you're going to get. Even worse, when
16:16
Speaker 1: you see, uh the reviews for the product, it's for
16:19
Speaker 1: the product, not for the product from this particular seller.
16:22
Speaker 1: So consumers are at a disadvantage. What I customarily tell
16:27
Speaker 1: people is, first check the price doesn't make sense in
16:30
Speaker 1: comparison to the brand name that you know. Secondarily, you know,
16:35
Speaker 1: check the reviews. If everyone loves the review and it's
16:38
Speaker 1: thousands of people, you're probably buying an authentic product. And
16:42
Speaker 1: then third you know, ask yourself, does it make sense
16:46
Speaker 1: that this product would be on Amazon? So run you.
16:52
Speaker 1: When someone finds themselves the victim of counterfeit, what recourse
16:57
Speaker 1: do they have to say Amazon? Well, Amazon does have
17:03
Speaker 1: a very generous refund policy, and I think that's what
17:07
Speaker 1: they've been hanging their hat on as that term is
17:10
Speaker 1: used to them. I think, again, this is just an
17:14
Speaker 1: educated guess. If you can get a refund, the really
17:17
Speaker 1: really isn't that much of an issue. But the problem
17:19
Speaker 1: is that some of the items that you're purchasing, not
17:22
Speaker 1: the luxury ones, but the consumer good products. Some of
17:26
Speaker 1: them can harm you, and the refund may not be enough,
17:30
Speaker 1: you know, depending on what it is you're suffering from
17:33
Speaker 1: the purchase of the counterfeit good So it's just refunding
17:36
Speaker 1: isn't enough. How can Amazon get a better handle on this?
17:39
Speaker 1: What do they need to do? I think it would
17:42
Speaker 1: be a very helpful if there was an easy way
17:45
Speaker 1: for consumers to report UH fake goods or counterfeit goods
17:50
Speaker 1: to Amazon. Right now, they are listening to the brands,
17:53
Speaker 1: which means you would have to call the brand and
17:55
Speaker 1: you'd have to tell the brand as a consumer, oh,
17:58
Speaker 1: I purchased a fraudulent item from Ammazon, and then they
18:01
Speaker 1: need to investigate, and then the brand needs to work
18:03
Speaker 1: with Amazon. That UH takes a lot of effort. It
18:07
Speaker 1: would be great if there was a mechanism for consumers
18:09
Speaker 1: to go directly to Amazon and have their voice heard. That's,
18:13
Speaker 1: you know, the first thing. The second thing would be
18:15
Speaker 1: UH allow us to purchase items that are not just
18:18
Speaker 1: fulfilled by Amazon. So we know if ABC seller is
18:23
Speaker 1: selling this, and we've had you know, good experience with
18:26
Speaker 1: ABC seller, we know, we're getting ABC sellers product as
18:30
Speaker 1: opposed to a random product in the warehouse. So ron
18:34
Speaker 1: you just give us a sense of Like on the
18:35
Speaker 1: luxury side, I'm always shocked at people would buy a
18:38
Speaker 1: luxury item, you know, worth thousands or tens of thousands
18:40
Speaker 1: of dollars without actually seeing it. But is this a
18:43
Speaker 1: growing part of e commerce? I think that it is,
18:47
Speaker 1: And I think what's happening is that some of the
18:49
Speaker 1: luxury brands are so well known that the consumer likely
18:53
Speaker 1: already saw the product at some point in time, and
18:57
Speaker 1: they remember it and they're still pining for it, and
19:00
Speaker 1: then there it is on Amazon and they purchase it.
19:03
Speaker 1: There's no need to to look any further. Fascinating story, Ronna,
19:09
Speaker 1: thanks so much for joining us. Really appreciate that this
19:11
Speaker 1: is a I guess a big issue, Kaylene. People spend
19:14
Speaker 1: more and more time online shopping online, and you know
19:18
Speaker 1: online has just grown dramatically over the past fifteen months,
19:20
Speaker 1: kind of pool maybe three years of growth forward that
19:23
Speaker 1: this can be a bigger issue. Yeah. Now I'm going
19:25
Speaker 1: to go home and check all the products on Amazon
19:28
Speaker 1: over the last six months or so exactly, Ronne said,
19:31
Speaker 1: Home managing partner for said, Home Wall Group joining us there,
19:33
Speaker 1: and we appreciate that. Again, Uh, we've seen this at
19:37
Speaker 1: you know, the e commerce traffic just skyrocket and as
19:40
Speaker 1: everybody when they were forced to stay at home, buying
19:42
Speaker 1: more and more uh products, different types of products than
19:46
Speaker 1: perhaps they were comfortable buying in the past, all because
19:49
Speaker 1: of the pandemic, but a big change to retail. We'll
19:52
Speaker 1: have more coming up. This is Bloomberg when the pandemic hit.
20:00
Speaker 1: One of the areas of the economy that was hit,
20:02
Speaker 1: you know, probably just so hard and so brutally was
20:06
Speaker 1: the real estate market what we had. Obviously, if we
20:09
Speaker 1: can all remember back, people leaving cities looking for the burbs,
20:13
Speaker 1: looking for more room, uh, looking just to get away
20:16
Speaker 1: from the congestion and the uh, you know, the density
20:19
Speaker 1: of the cities. The question is how long term uh
20:22
Speaker 1: is that. Let's check in with Brad Dillman. He's a
20:24
Speaker 1: chief economist for the real estate firm Courtland. Brad, thanks
20:28
Speaker 1: so much for joining us here. Again here in New
20:30
Speaker 1: York City, we saw it firsthand, people leaving uh the
20:33
Speaker 1: city for the suburbs. Rents plunged. If you want to
20:38
Speaker 1: get an apartment in the city, it was a good time, uh,
20:41
Speaker 1: to be a renter. Give us a sense of how
20:43
Speaker 1: you think this market is going to play out as
20:46
Speaker 1: we come out to the other side of this pandemic. Yeah, definitely,
20:50
Speaker 1: and I'm glad to be here. You know. I think
20:52
Speaker 1: we need to first recognize that this is a trend
20:54
Speaker 1: that was occurring prior to the pandemic. The pandemic, of course,
20:57
Speaker 1: accentuated it. It is something that we see across markets.
21:00
Speaker 1: We see a migration from more expensive markets too cheaper
21:04
Speaker 1: metropolitan areas, and then also within these markets from the
21:06
Speaker 1: core out to the geographic periphery. So in many ways,
21:09
Speaker 1: it's trends been underway since two thousand twelve. If you
21:12
Speaker 1: look at pricing, it really is kind of compressing across
21:15
Speaker 1: the spectrum in some ways. And I mean that between
21:16
Speaker 1: markets and also within markets. So when we look ahead,
21:20
Speaker 1: some people would say, hey, you know, maybe this is
21:21
Speaker 1: gonna reverse. People are going to come back into the city.
21:24
Speaker 1: The reality is there doesn't seem to be that much supply.
21:27
Speaker 1: The bulk of multifamily supply, as an example, is in
21:29
Speaker 1: the urban core. But if you look at it in
21:31
Speaker 1: terms of units, it's really not enough to really move
21:34
Speaker 1: the needle in an under house market. Again, You've got
21:36
Speaker 1: estimates that the US is under built to the tune
21:38
Speaker 1: of about a million housing units are more? Are we
21:41
Speaker 1: going to see that supply and demand gap narrow at
21:43
Speaker 1: any point? I think we will if we were to.
21:47
Speaker 1: If we look at our gauges of of cumulative under
21:49
Speaker 1: supply right now, it does look like we hit peak
21:51
Speaker 1: under supply a few years ago. And then as we
21:53
Speaker 1: see these excellent prints and things like housing starts, uh,
21:56
Speaker 1: you know, particularly on the single family side, that this
21:58
Speaker 1: country's housing situation and will slowly right size from a
22:02
Speaker 1: supply demand perspective. You know. One of the things Brad,
22:06
Speaker 1: that I think I've learned over the last several years,
22:08
Speaker 1: and we talked to folks in the home business, is yes,
22:11
Speaker 1: new homes are getting built, but they're not getting built
22:13
Speaker 1: for the entry buyer, the first time buyer, and that's
22:17
Speaker 1: really where the supply issues are. Is that changing at
22:20
Speaker 1: all or a builders still going for them the higher
22:23
Speaker 1: margin McMansion. Well, builders are always going to switch their strategies,
22:27
Speaker 1: you know, based on on short term fluctuations. Believe it
22:30
Speaker 1: or not. They are actually little more nimble than we
22:31
Speaker 1: would think. I think if We're looking at millennials, for example,
22:34
Speaker 1: and just the age that they already are with the
22:36
Speaker 1: vast bulk over thirty. Um, you know, the buyer the
22:39
Speaker 1: the home builders are going to have to shift their
22:41
Speaker 1: strategy at different times based on where where not only
22:45
Speaker 1: costs are coming in, but also where mortgage rates are
22:48
Speaker 1: going for where and when these millennials are able to buy.
22:51
Speaker 1: So I don't know if I would call it make
22:52
Speaker 1: a systematic call on that kind of shift. I do
22:54
Speaker 1: think you look at smaller oscillations that define that kind
22:58
Speaker 1: of uh strategy on the part of homebuilders. Yeah, I'm
23:01
Speaker 1: in here guiltily raising my hand as a millennial who
23:03
Speaker 1: is nowhere close to buying my first home. So how
23:06
Speaker 1: if I'm a builder, how would you play me? Do
23:09
Speaker 1: I need to build for renters? So you do have
23:12
Speaker 1: home builders building four renters. This was really an opportunity
23:15
Speaker 1: that emerged called it five six years ago, but really
23:18
Speaker 1: only got steam in the last two years. And uh,
23:22
Speaker 1: I do think there's a strategy there for home builders.
23:23
Speaker 1: But I think what they're gonna find is that rather
23:25
Speaker 1: than building single filming attached you're gonna slowly actually migrate
23:28
Speaker 1: more towards a traditional multi family structure. That's to say,
23:32
Speaker 1: something like a town home style community where you can
23:35
Speaker 1: fit more housing units onto the same into the same
23:38
Speaker 1: geographic area of the community. I do think there's a
23:40
Speaker 1: strategy there. I think we're going to see more of it.
23:43
Speaker 1: At the same time, when you have really low mortgage
23:44
Speaker 1: rates like we do now, we've had very low mortgage
23:47
Speaker 1: rates the last two years. It's priced off of a
23:49
Speaker 1: ten year Treasury rate that's negative and real terms, there
23:52
Speaker 1: is the occasional opportunity to deliver in scale to first
23:56
Speaker 1: time home buyers or just you know, new buyers in general.
23:59
Speaker 1: You know, out here in the New York metro market,
24:01
Speaker 1: the story is Florida, Florida, Florida. It seems like everybody
24:06
Speaker 1: is leaving for Florida. What are some of the other
24:09
Speaker 1: I guess hot areas of the country that you're seeing
24:11
Speaker 1: in terms of demand both for rentals and ownership. Yeah,
24:15
Speaker 1: Florida flags well for US UM also. But you know,
24:19
Speaker 1: an area that's been a little bit overlooked has actually
24:21
Speaker 1: been the Northwest, and not just the Seattle Cascadia, but
24:24
Speaker 1: really the peripheral northwest Idaho. So you've got Spokane, Washington,
24:29
Speaker 1: and Eastern Washington, You've got Boise. These are markets that
24:32
Speaker 1: are looking really attractive right now. So I think we're
24:34
Speaker 1: gonna see a little bit more focused on that area.
24:36
Speaker 1: I do know that there's some smaller homebuilders really focusing
24:38
Speaker 1: on places like Cort Lane. Uh. And of course these
24:40
Speaker 1: areas are supported by excellent migration out of California. But
24:44
Speaker 1: if we get that migration and more people are going there,
24:47
Speaker 1: how long is the cost of living that makes it
24:49
Speaker 1: so attractive actually going to stay relatively lower. That's exactly
24:54
Speaker 1: the point. It really is converging very quickly. If you're
24:57
Speaker 1: a local in those markets. This is in many respects
24:59
Speaker 1: that does us or four years as people bring kind
25:02
Speaker 1: of California purchasing power, you know to Boise, Idaho, it's
25:05
Speaker 1: a it's a bit tough tough if you've been, you know,
25:07
Speaker 1: living and working in Boise on a Boise income and
25:09
Speaker 1: saving a Boise rates. So we don't know. I think
25:13
Speaker 1: that the clearest indication that we do have is just
25:15
Speaker 1: how long it's going to take to right size the
25:17
Speaker 1: overall supply environment in this country. If we're undersupplied by
25:21
Speaker 1: about a million units, that's my estimate. There's other estimates
25:24
Speaker 1: out there. It's going to take about four or five
25:26
Speaker 1: years to right size the overall market, and until that happens,
25:29
Speaker 1: you're gonna see a continued flight of people to the
25:31
Speaker 1: periphery until such times that things like you know, energy
25:35
Speaker 1: shocks or things like this drive them back into the
25:36
Speaker 1: city when commute to become too arduous. But if we
25:38
Speaker 1: can see right now, commute truly aren't the issue, as
25:41
Speaker 1: people can work from home more and that kind of
25:43
Speaker 1: trend is only going to support movement to the periphery.
25:45
Speaker 1: All right, Bratt, thanks so much for joining us to
25:47
Speaker 1: really appreciate getting your perspective on the residential real estate market. Renters, buyers, worthy,
25:54
Speaker 1: growth is um and you know, interesting to see how
25:58
Speaker 1: this plays out as would come out on the other
25:59
Speaker 1: side of this pandemic. Uh, what will the market look like?
26:04
Speaker 1: And Uh, it's gonna be interest to see which markets
26:06
Speaker 1: do well and which lag Brad Delman, he's a chief
26:07
Speaker 1: economist for Courtland giving us an update there. This is Bloomberg.
26:13
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can
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26:24
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