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Speaker 1: Bruce Richard's the Marathon Asset Management CEO and chairman, and

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Speaker 1: he joins us now, bru, it's good to see you else.

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Speaker 1: So I wonder have we finally rerated? Like is the

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Speaker 1: least dubbish option now finally priced out of the market

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Speaker 1: and the market's in the FED finally on the same page.

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Speaker 2: It's I think what you said opening like, there's nothing

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Speaker 2: to see here, nothing to do in March, nothing do

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Speaker 2: in May. First cut in June, June twelfth, and probably

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Speaker 2: three cuts this year. And what's going to surprise the

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Speaker 2: markets is not the three cuts, because they've already priced

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Speaker 2: down from seven to six, five to four, and now

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Speaker 2: they're at three. You're finally where the FED wants them

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Speaker 2: to be. What I've been saying all long, three cuts.

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Speaker 2: But what's going to surprise you next is the Tennessee

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Speaker 2: two step. And what the Tennessee two step is like

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Speaker 2: I know that I know you love your country, Westion,

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Speaker 2: because you know your daughter and you are Swifties now,

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Speaker 2: so you love your customers. What the Tennessee two step

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Speaker 2: is is going to move seventy five base points and

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Speaker 2: then he's going to wait for meeting over six months

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Speaker 2: he's gonna wait and see did the stimulus of lower

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Speaker 2: rates do anything to regnite inflation? Did do anything to

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Speaker 2: restimulate GDP? And if it did, they have more to

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Speaker 2: wait for, but it probably won't. And so after that

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Speaker 2: first move, and after that pause for four to six months,

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Speaker 2: which no one's talking about in the marketplace, then it

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Speaker 2: can resume, bringing RAG down to three percent, where I

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Speaker 2: think it eventually gets to FED funds. So it's like

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Speaker 2: when you went from zero to five and a quarter.

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Speaker 2: It was like driving from I don't know, since we're

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Speaker 2: talking about Tennessee, So like driving from New York to

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Speaker 2: see the Grand ol Opry in Nashville, right, but on

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Speaker 2: the way back on to drive back really relaxed, really lost.

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Speaker 2: We'll we'll have a dinner tonight, we'll stay at this hotel,

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Speaker 2: we'll go to see some friends in the morning, you know,

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Speaker 2: before we continue on. And that's what it's going to be.

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Speaker 2: The two step. That's actually a.

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Speaker 1: Really helpful way of looking at it.

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Speaker 3: Now that I know what the two steps, I'm gonna see.

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Speaker 1: So I'm definitely we're definitely gonna steel that. So based

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Speaker 1: on that, where are the biggest diss locations that Bruce.

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Speaker 1: These opportunities, Well.

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Speaker 2: First of all, I got to remark how amazing the

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Speaker 2: credit markets are, and how amazing of a job palasd On,

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Speaker 2: because here we are at higher rates, and despite the

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Speaker 2: equities being relatively flatte they've been screaming. And so imagine

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Speaker 2: the economy doing as well as it is. That the

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Speaker 2: fixed income markets have done as well as they have,

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Speaker 2: and it's all doing quite well despite what is higher rates.

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Speaker 2: And so you know, what's the opportunity here with this

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Speaker 2: type of environment. Well, I think first it starts with credit,

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Speaker 2: because it's higher for longer narrative, higher for now, and

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Speaker 2: then when even they cut higher for longer later too.

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Speaker 2: And that's really amazing because we are like, you know,

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Speaker 2: so for five point thirty plus five six seven hundred

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Speaker 2: base points, a lot of our private credit investments, these

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Speaker 2: are double digit returns. We've never had a good all

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Speaker 2: of us private credit lenders. And then in the credit

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Speaker 2: markets as well, high uld leverage loans, emerging markets, structure credit,

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Speaker 2: we're earning some really nice cash flow rates returning. So

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Speaker 2: we love that. And i'd start with that.

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Speaker 3: What about those certain pockets of that area right now?

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Speaker 3: Because we talk about it from an umbrella basis, and

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Speaker 3: the return or the potential returns are certainly there. I

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Speaker 3: don't know if the real estate crisis, if you want

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Speaker 3: to put it out in quotation marks, was ever resolved,

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Speaker 3: but we do know there is still a bit of

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Speaker 3: a refinancing cliff coming up for a lot of commercial tenant,

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Speaker 3: commercial landlords, i should say, and particularly in the office space.

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Speaker 2: So let's break it down for you. So there's about

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Speaker 2: twenty one trillion dollars of value in commercial real estate,

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Speaker 2: twenty one trillion throughout the country. Okay, but there's a

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Speaker 2: huge debt problem. But you know something, there's only five

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Speaker 2: point six trillion dollars of debt. So when you think

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Speaker 2: about it, there's two worlds. There's a world of thirteen

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Speaker 2: trillion dollars of commercial real estate that doesn't have any

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Speaker 2: debt on it, and they're laughing. Their evaluations are down

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Speaker 2: a little bit, but they have no strain, no stress,

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Speaker 2: not losing any sleepless nights, nothing. Then there's eight trillion

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Speaker 2: dollars of real estate if it's ivered up with five

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Speaker 2: point six trillion dollars of debt that's been provided to

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Speaker 2: by various sources, and those folks are having a real

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Speaker 2: problem because they bought in. These are the financial folks

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Speaker 2: at the big brilliant fund managers and real estate on

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Speaker 2: our operators that use leverage to buy real estate. We

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Speaker 2: all know who they are, and that's the world we

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Speaker 2: all live in, Okay, And those folks are sweating it

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Speaker 2: out because valuations are down twenty percent in some cases

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Speaker 2: for office thirty forty percent or more. Right, valuations are down,

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Speaker 2: financing costs are up, and the cash flowers aren't there

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Speaker 2: the support the amount of debt they have outstanding, and

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Speaker 2: so there's multiple things that then that banks. Number one

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Speaker 2: is the banks. So you have all these banks, and

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Speaker 2: like the top banks in this country, you know, the

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Speaker 2: top thirty banks don't have a problem. The big banks

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Speaker 2: that really matter don't have a problem. They only have

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Speaker 2: ten percent real estate exposure. But it's the other banks.

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Speaker 2: And there's a few hundred of these other banks, the

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Speaker 2: smaller and regional banks that have like forty percent real

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Speaker 2: estate exposure and in debt, and they're the ones that

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Speaker 2: you're going to see have the problems. And they're the

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Speaker 2: ones that the FDI see silent in a night. We

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Speaker 2: are going to come in and resolve those banks.

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Speaker 3: So based on that scenario, do you embrace this sector

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Speaker 3: from an investment perspective a little bit more or just

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Speaker 3: kind of stay on the sideline to see.

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Speaker 2: Way, Oh, absolutely embraced. There's you know, one thousand and

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Speaker 2: five hundred different cm waiting for this moment. You're right again,

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Speaker 2: one thousand, five hundred and sixty one CMBs transactions, nine

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Speaker 2: thousand different tranches. We have them all modeled, and we've

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Speaker 2: been in buying the tranches that are dislocated. Number one.

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Speaker 2: Number two, we're buying loans from banks and from you know,

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Speaker 2: the rates and providing some liquidity at discounts, of course

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Speaker 2: on some of their best assets because they sell the

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Speaker 2: best assets. First. Number three of these capital relief trades

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Speaker 2: the banks need because of bossle free endgame coming. And finally,

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Speaker 2: we're a lender, maybe last resort, but a lender at

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Speaker 2: these higher rates on unviable commercial estate projects, whether it's development,

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Speaker 2: whether it's refinancing, whether it's new acquisition. And we're making

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Speaker 2: really really high rates returns on these loans relative to

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Speaker 2: what one made before because a lot of the folks

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Speaker 2: that are out there are impaired, buried under some of

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Speaker 2: their portfolio, the workouts, and not in a position to

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Speaker 2: be able to be a lender. So remain to your question.

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Speaker 2: We love this environment. It's going to be tough for

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Speaker 2: a lot of owner operators, but we're going to help

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Speaker 2: through a lot of you know a lot of projects

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Speaker 2: that need, you know, that extra capital to make it through.

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Speaker 2: And we're very comfortable in that position.

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Speaker 1: Before I let you go to that point, didn't we

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Speaker 1: just see the article where someone sold an office tower

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Speaker 1: for like a dollar?

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Speaker 2: Yeah, so three sixty you guys heard about that, Yeah, exactly,

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Speaker 2: So three sixty Park Avenue South twenty two. I think

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Speaker 2: it's twenty two story building, half a million square feet roughly,

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Speaker 2: and the sponsors bought it for three hundred and make

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Speaker 2: sure I got my math right, three hundred million dollars

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Speaker 2: of equity. They put one hundred million dollars of CAPEX

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Speaker 2: into it, the completely referbs and rebuild out all the floors.

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Speaker 2: So now they're in for four hundred and they've put

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Speaker 2: fifteen million dollars in debt service and for four hundred

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Speaker 2: and fifteen million, and they have two hundred million dollars

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Speaker 2: a debt against that four fifteen. The sponsor, the lead

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Speaker 2: sponsor that owns this building just flipped it to his

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Speaker 2: JV partner four dollar just so it doesn't have to

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Speaker 2: fund additional capitol calls because it's burning cash to keep

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Speaker 2: it going. And so yeah, that's not one story. That's

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Speaker 2: one of one thousand stories you're going to play out

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Speaker 2: these next couple of years. Because to your point earlier, Romain,

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Speaker 2: we can. And here's a big point that no one's

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Speaker 2: talking about is we came into this year thinking two

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Speaker 2: thy and twenty four would have about five hundred and

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Speaker 2: forty billion dollars of refinancings maturity wolves and the NBA,

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Speaker 2: the Mortge Bankers Association just print the number of nine

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Speaker 2: hundred billion. How do you go from five hundred and

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Speaker 2: forty billion to nine hundred billion, because it means a

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Speaker 2: lot of the loans from last year didn't get refinanced,

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Speaker 2: just got extended, amended, extended, or as you'd like to say, Alex,

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Speaker 2: amend and pretend. Yeah you say that, where I say that, Okay,

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Speaker 2: you say that, I say that and amended and pretending

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Speaker 2: to this year. So now the maturity wall is even

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Speaker 2: bigger and more daunting than it's ever been.

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Speaker 1: And that's why Bruce is so excited. Bruce Kate, thanks

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Speaker 1: for coming in. We really appreciate it. Coming back next time.

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Speaker 1: Bruce Richards, Marathon Asset Management CEO and Chairman,