Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Week,
Speaker 1: insight from the reporters and editors that bring you America's
Speaker 1: most trusted business magazine, plus global business, finance and tech
Speaker 1: news as it happens. Bloomberg Business Week with Carol Masser
Speaker 1: and Tim Steneveek on Bloomberg Radio.
Speaker 2: It is Bloomberg BusinessWeek. That's Carol, I'm Tim. Shares of
Speaker 2: Xerox falling today as much as thirteen percent did close
Speaker 2: out the day lower by about five point eight percent.
Speaker 2: The company did report adjustin earnings per share for the
Speaker 2: fourth quarter that missed the average analyst estimate, though revenue
Speaker 2: did beat analyst estimates. We've got with us Steve Bandrzak,
Speaker 2: the CEO of Xerox Holdings Corp. He joins us here
Speaker 2: in the Bloomberg Interactive Brokers Studio.
Speaker 3: Steve, good to see you. How are you great to
Speaker 3: have me? Thank you doing well? Hey?
Speaker 2: So, you said in the earnings release that we continue
Speaker 2: to see steady progress in our reinvention, reflecting the res
Speaker 2: resilience of our team and initiatives taken to date.
Speaker 3: Where are you right now in your reinvention? Yeah? So
Speaker 3: reinvention is a three year journey.
Speaker 4: The three year program that we set up and it's
Speaker 4: all about getting Zerox back to revenue growth and getting
Speaker 4: back to double digit operating profit. And so we're about
Speaker 4: two thirds into that journey. But really the important part
Speaker 4: is we're set the foundation of the overall reinvention strategy.
Speaker 4: The first is getting our core stable and growing again,
Speaker 4: and we put a bunch of different things around what
Speaker 4: we do in our operating model, what we do with
Speaker 4: our sales team, what we're doing with our channels, new
Speaker 4: product introductions, and so forth. Second piece is we have
Speaker 4: to get twenty percent of our revenue that is growing
Speaker 4: faster than the decline in the print industry. So we've
Speaker 4: acquired a company called it Savvy, which is a really
Speaker 4: IT solution. So if you think about a services led
Speaker 4: software enabled business, a tech powerhouse that drives productivity in
Speaker 4: a workplace, that's where we're going.
Speaker 2: And one of the things we're really so diversifying into consulting.
Speaker 4: Diversifying into services and software. So if you think about
Speaker 4: all the different tools that you have in the IT space,
Speaker 4: we have and have the ability to bring it into
Speaker 4: SMB medium and smaller business units, where.
Speaker 2: You have the relationships with the businesses already because they
Speaker 2: have your printer products.
Speaker 4: Being two hundred thousand clients that we have in that space,
Speaker 4: and we talk about relationships. It's not that we ship
Speaker 4: them stuff. We actually people ten thousand service technicians on
Speaker 4: the ground inside of the facilities where we have long
Speaker 4: term relationships and we trust it. So we're now bringing
Speaker 4: other services, things like network as a service, security is
Speaker 4: a service. Many of these companies do not have the
Speaker 4: IT capabilities of very large companies like Bloomberg, where they
Speaker 4: have tremendous IT assets and they can take advantage of
Speaker 4: all these technology trends. If you're a school, you're a university,
Speaker 4: you're a medical center, you're a strip mall, you're a hospital,
Speaker 4: you don't have those capabilities. So you can talk about
Speaker 4: AI all you want, but if you don't have the
Speaker 4: infrastructure and you don't have the ability to orchestrate all
Speaker 4: that data and serve it up into AI, it's completely useless.
Speaker 4: So we're excited about playing in that space.
Speaker 5: So you're two thirds of the way into your plans,
Speaker 5: and I think when it comes to your priorities, your
Speaker 5: reinvention plans deep it is about that it's you know,
Speaker 5: your acquisitions, How do you want investors to measure success
Speaker 5: when they look at your company? Right now? Investors, if
Speaker 5: you look at the reaction today, not so key on
Speaker 5: what they heard. So how should investors measure your success
Speaker 5: at this point?
Speaker 4: A couple of things. First of all, when you think
Speaker 4: about a journey of a reinvention, you've got to get
Speaker 4: your core fundamentals right, and that's what we're doing in
Speaker 4: the first part of it. So you're starting to see
Speaker 4: things like twenty percent sales productivity. We're seeing that, we're
Speaker 4: seeing double digit placement of units in the in the
Speaker 4: Q four where you have that where you place a unit,
Speaker 4: and then you see long term supplies as you go forward,
Speaker 4: So signs of how do we get our core business stable. Second,
Speaker 4: the acquisitions. You think about lexmod acquisition right right when
Speaker 4: we go and make that acquisition, it is immediately a creative.
Speaker 3: You with two.
Speaker 4: Hundred million dollars percentages about a dollar EPs, it's a
Speaker 4: creator will actually lower our debt. So the acquisition strategy
Speaker 4: strengthens our core diversifies our business. The other thing is
Speaker 4: we have digital services, right you talk a lot about
Speaker 4: AI digital services, the ability to take data. You think
Speaker 4: about AI without data is completely useless. Well, we play
Speaker 4: in that space.
Speaker 5: But how much data? I mean, if you listen, we
Speaker 5: talk about this NonStop. In terms of the power of
Speaker 5: AI is based on the data it can acquire. There
Speaker 5: are so many data providers and to be fair, probably
Speaker 5: bigger than you guys. So how do you compete in
Speaker 5: terms of the quantity and clarity and quality of your data?
Speaker 4: Not the data providers, it's the data that our clients own.
Speaker 4: So if you think about hospitals, you.
Speaker 5: Think about managing their data.
Speaker 4: Helping them orchestrate it. It's really important.
Speaker 6: Right.
Speaker 4: You could have it on physical files where it's paper based, right,
Speaker 4: it could be in share points, it could be in
Speaker 4: all over. Think about things like video. Nobody thinks about
Speaker 4: data in terms of video, things like censor data.
Speaker 7: Right.
Speaker 4: We help our clients orchestrate all that and then serve
Speaker 4: it up on top of AI. So we're using the
Speaker 4: data that our clients have, even data that they don't
Speaker 4: realize that they need to drive differentiation use it AI.
Speaker 4: So think about video data, right, and you put AI
Speaker 4: on video data and you send somethings wrong in a campus, Well,
Speaker 4: that doesn't do anything unless you can have it to
Speaker 4: the appropriate alert systems. We do that every day with
Speaker 4: our workflow and our processes.
Speaker 2: You mentioned you want revenue to outpace the decline of
Speaker 2: the actual print and paper business.
Speaker 3: Does that hit a floor.
Speaker 2: Somewhere where Yes, people are using more electronic communications, so
Speaker 2: they're not printing as much.
Speaker 3: But when does that decline stop?
Speaker 4: So two things prison A print is not dead, which
Speaker 4: is really interesting.
Speaker 3: People look at print. It is not dead. A ton
Speaker 3: of print.
Speaker 4: It's a shift right, even the badge coming in right,
Speaker 4: you think about the bridges coming into this bound in print.
Speaker 4: So print even you take a look at ups boxes,
Speaker 4: Amazon boxes, we're printing a ton. So print isn't debt.
Speaker 4: We have to move where print is. When you take
Speaker 4: a look at TAGA decline in print over the next
Speaker 4: couple of years, it's two to three percent decline. So
Speaker 4: we want to decline slower than us who we're actually
Speaker 4: gaining market share. But the other real thing is when
Speaker 4: you think about print, there's a tremendous amount of value
Speaker 4: inside of print value and invoices, valuing contracts value in
Speaker 4: medical records. We can help our clients to unleash that
Speaker 4: that particular data, unleash that power of that data and
Speaker 4: actually turn into something that's actionable. And that's what we're
Speaker 4: working on helping our clients.
Speaker 5: You know, looking at your stock, it's been on a
Speaker 5: somewhat steady, you know, decline. Let me just throw it out.
Speaker 5: It lost fifty four percent last year. It is up
Speaker 5: eight percent a year to date. About seventeen percent though
Speaker 5: of the float is shorted. So there's a real negative
Speaker 5: skew in terms of what investors expect from you guys
Speaker 5: as part of the strategy. Ultimately, is someone buying you
Speaker 5: guys out? I mean, have you had interested suitors? Is
Speaker 5: that it?
Speaker 4: You know, just the opposite. We're going to be the consolidated.
Speaker 5: I know you've been buying, but I'm just curious, have
Speaker 5: you had anybody?
Speaker 4: No, we want to be a tech powerhouse. We want
Speaker 4: to drive productivity in the workplace. We've got an incredible brand.
Speaker 4: Do you think about Xerox. In the history of Xerox,
Speaker 4: We've got ten thousand plus partners. You don't build that
Speaker 4: channel partnership overnight. We have tremendous go to market assets,
Speaker 4: tremendous assets what we do. So No, we're going to
Speaker 4: be the consolidator in our industry?
Speaker 5: Would you implore explore doing something even larger to kind
Speaker 5: of scale does matter in this? Forsture, I don't know
Speaker 5: what to tell you.
Speaker 4: Look, I did the IBM PC spin out as part
Speaker 4: of the team that built Lenovo, so I understand what
Speaker 4: consolidation takes and what it looks like. We will be
Speaker 4: the consolidator in our industry. We're going to be a
Speaker 4: tech powerhouse again.
Speaker 1: How much?
Speaker 5: Because right now you're about a one point one billion
Speaker 5: dollar marketing, Like what's your anticipation of like kind of
Speaker 5: where you go if you think about the market.
Speaker 4: Camp today for the we think we're tremendously on the
Speaker 4: values from a market cap perspective.
Speaker 3: You just take investors short. Yeah, right, But that's okay.
Speaker 4: That's why I talk about the reinvention to three year strategy.
Speaker 4: You know, I'm not trying to build something for tomorrow.
Speaker 4: I'm trying to build something long term, sustainable growth and
Speaker 4: something that puts us back in the tech powerhouse position.
Speaker 4: What I love to see if you take a look
Speaker 4: at it, savvy and you take a look the partners
Speaker 4: that we have in the ecosystem and the reason why
Speaker 4: they're coming to us is because we can reach clients
Speaker 4: they don't read right.
Speaker 3: And so when you.
Speaker 4: Think about the office space, you think about hospitals, you
Speaker 4: think about all the places that we service, we can
Speaker 4: bring tremendous amount of value by bringing us partners into
Speaker 4: that ecosystem.
Speaker 2: I want to talk a little bit about the balance sheet.
Speaker 2: Buybacks have stopped, dividends on the decline, partly due to acquisition. Yes,
Speaker 2: free cash flow now targeted toward debt reduction. How much
Speaker 2: debt do you think you can pay down over the
Speaker 2: next two years and give us an idea of your
Speaker 2: ultimate capital structure goals. And why even keep a dividend
Speaker 2: at this point?
Speaker 3: Yeah, So a couple of things.
Speaker 4: So first of all, we just recently announced that we
Speaker 4: cut the dividend half, trying to get it back to
Speaker 4: a normal ratio in terms of what was what would
Speaker 4: we look like? And so we're really focusing on now
Speaker 4: is how do we lower our debt. And one of
Speaker 4: the things that people don't realize if you take a
Speaker 4: look at out total debt. Inside of that total debt,
Speaker 4: we have we call finance receivables where we have taken
Speaker 4: leases or we've taken manage print services put it on
Speaker 4: our balance sheet.
Speaker 3: We flip that.
Speaker 4: Strategy a couple of years ago and we called forward
Speaker 4: front agreement. So what happens at the end of each quarter,
Speaker 4: we have a company that actually buys those receivables, we
Speaker 4: get that cash back in and so today we started
Speaker 4: that journey and we said we had about one point
Speaker 4: four billion that we can actually put cash back onto
Speaker 4: the balance sheet. We have about two years left of that,
Speaker 4: so that gives us, if we do nothing other than
Speaker 4: continued a strategy, roughly four hundred million dollars for the
Speaker 4: next two years that we put on a balance sheet,
Speaker 4: and we're using that to drive our reinvention. We're using
Speaker 4: that to drive our acquisitions. We're using that to.
Speaker 3: Reduce our debt.
Speaker 4: So we loaded the dividends so that we can help
Speaker 4: pay back our debt when we do. The Lexmann acquisition
Speaker 4: will accelerate that.
Speaker 5: So you paid down how much debt in the of
Speaker 5: the next two years, only got.
Speaker 4: About ten to y Yeah, the goal is to get
Speaker 4: around three to three and a half percent.
Speaker 5: Okay, reduction, reduction, Okay, all right, good to know we've
Speaker 5: ran out of time. We had a million more questions
Speaker 5: come back, Hopefully you'll come back.
Speaker 4: I look forward to so much for having me on.
Speaker 5: Steve, of course, is the CEO of Xerox Holdings Corporation,
Speaker 5: joining us right here in our Bloomberg Business Week studio.
Speaker 5: This is Blueberg.
Speaker 2: Carol, I don't know you. You were listening to Caroline
Speaker 2: Levitt earlier of the UH I almost said to buy
Speaker 2: the Trump and administration.
Speaker 3: She's the White House Press secretary, right, you heard that
Speaker 3: little bit. She was asked, I know we were preparing
Speaker 3: for a show.
Speaker 5: Yeah, to be fair, but we were listening.
Speaker 1: Yeah.
Speaker 2: Yeah, because it.
Speaker 3: Was the first White House Press briefing.
Speaker 2: Yeah, exactly.
Speaker 3: She said that the National.
Speaker 2: Security Council is studying concerns associated with the Chinese AI
Speaker 2: company Deep Seek. That's according to the White House Press Secretary.
Speaker 2: She was asked about it todayt her first press briefing.
Speaker 5: Yeah, it's interesting, right, and we've had Trump's ais are
Speaker 5: David Sachsing and Fox News that there is substantial evidence
Speaker 5: at Deep Seek distilled knowledge from open a Eyes.
Speaker 2: Model, so dust is settling.
Speaker 5: You know, well this listen, We've talked about this with
Speaker 5: our own Rachel Metz. That Open Ai, according to someone
Speaker 5: in the know, a person familiar that they seem to
Speaker 5: be looking into exactly how deep seek did what they
Speaker 5: did and whether or not they tapped into a open
Speaker 5: aies model. So it's interesting and I think this is
Speaker 5: part of what we're trying to figure out in the
Speaker 5: last twenty four to forty eight hours since the story
Speaker 5: hit yesterday about deep Seek's capabilities and being able to
Speaker 5: do what it did in terms of creating a chatbot
Speaker 5: add a much cheaper it seemed like investment input. Uh,
Speaker 5: and so we're trying to understand did it really cost
Speaker 5: that little? Are the capabilities on par with open aies chatchypt.
Speaker 5: I don't know. There's a lot of questions we're trying
Speaker 5: to figure out, and what did they use to do it.
Speaker 2: That was a point that Ian King also made to
Speaker 2: us earlier in the program. He said, well, if they
Speaker 2: indeed were able to use these degraded Nvidia GPUs that
Speaker 2: are not subject to export restrictions, then that would be
Speaker 2: pretty remarkable, right right, because that would show you don't
Speaker 2: need the compute that you thought you needed in order
Speaker 2: to do something to the scale.
Speaker 5: Yeah, exactly. So, I mean, I feel like there's still
Speaker 5: a lot of questions and we're getting more information, so too,
Speaker 5: this is going to be there's going to be more
Speaker 5: to come curate.
Speaker 2: I'm curious what Michelle Geida thinks about it. She's CEO
Speaker 2: of the Croc Institute for Tech Diplomacy at Produce. She's
Speaker 2: also former Assistant Secretary of State for Global Public Affairs.
Speaker 2: She did that in the first Trump administration from twenty
Speaker 2: eighteen to twenty twenty. She joins us from Nashua, New
Speaker 2: Hampshire this afternoon. Michelle, how did you look at the
Speaker 2: news about deep Seek that really we learned last week
Speaker 2: but really came to the fore yesterday.
Speaker 6: Yeah, as you guys were just saying, there are were
Speaker 6: and still are a lot of question marks around deep Seek,
Speaker 6: in particular, how much did it really cost for them
Speaker 6: to develop this new quote unquote cheap model that they've
Speaker 6: self reported. Did they do it without in video chips
Speaker 6: or the advanced in video chips? Did they do it
Speaker 6: without subsidies? So still a lot of question marks. I
Speaker 6: think the most important thing to focus on is what's ahead,
Speaker 6: And regardless of whether this was an effort in which
Speaker 6: a Chinese government had a hand or not, the Chinese
Speaker 6: government will have a hand in it going forward. Because
Speaker 6: if it is as strategic as it sounds, deep Seek
Speaker 6: is a game changer, could be a game changer for
Speaker 6: the overall AI ecosystem and being able to more efficiently
Speaker 6: compute than we've done before. And so we can anticipate
Speaker 6: that the Chinese government is going to co opt this
Speaker 6: and start to use it to its strategic advantage for
Speaker 6: civil military fusion where there are no barriers between a
Speaker 6: consumer app and what China wants to do with a
Speaker 6: military and that has implications for our national security all right.
Speaker 5: But at the same time, you know, most nations would
Speaker 5: say I'm gonna play Devil's advocate a little bit, right,
Speaker 5: the US is trying to be the best as well
Speaker 5: when it comes to AI. Right, this is what just
Speaker 5: goes on around the world. I'm sure Europe wants to
Speaker 5: make sure that they are, you know, in the game
Speaker 5: as well when it comes to AI. I understand not
Speaker 5: all parts of the world collaborate, certainly on advanced technology,
Speaker 5: and there are national security concerns. So what's the right
Speaker 5: policy going forward where a certain amount of collaboration is required,
Speaker 5: especially you know, whether it's you know, nuclear warheads or AI,
Speaker 5: we need a certain amount of collab aberration to make
Speaker 5: sure that the world can survive going forward.
Speaker 6: Yes, you're exactly right, and that's what tech diplomacy is
Speaker 6: all about, is how do we get trusted partners and
Speaker 6: allies that includes the europe and like minded partners who
Speaker 6: ultimately believe in freedom, who ultimately believe in the dignity
Speaker 6: of individuals, who do things like abide by the rule
Speaker 6: of law. So we're looking for those trusted partners. Europe
Speaker 6: is a great example. Indo Pacific partners are a great example.
Speaker 6: The challenge with China is that they have proven time
Speaker 6: again that they are in authoritarian state and they have
Speaker 6: a different value set that they want to advance through
Speaker 6: the use of emerging technology. So you're exactly right. The
Speaker 6: more allies that we can get behind trusted technology that
Speaker 6: advances things like liberty and security, the better.
Speaker 2: Is there a concern that in this administration we could
Speaker 2: potentially alienate some of our allies. We saw what happen
Speaker 2: over the weekend with Columbia. There's a real tit for
Speaker 2: tat going on there Mexico. In sending these planes of
Speaker 2: migrants back, We've i know, ruffled some feathers there to
Speaker 2: the north with potential tariffs on Canada. What about when
Speaker 2: it comes to parts of Europe with discussion of Greenland,
Speaker 2: the Panama Canal as well in the you know, in
Speaker 2: Central America. Is there a chance that we could alienate
Speaker 2: allies who might be important when it comes to tech diplomacy.
Speaker 6: Well, this is what diplomacy is all about. It's the
Speaker 6: art of being able to advance your own national interests
Speaker 6: at the same time, you can do it in collaboration
Speaker 6: with trusted partners and allies who have similar interests. And
Speaker 6: let's not forget in the first Trump administration, the founders
Speaker 6: of the Kroc Institute, Keith Krack and Mung Chang At,
Speaker 6: the president of Purdue University, built the Clean Network to
Speaker 6: secure five G that had sixty countries and two hundred
Speaker 6: telecommunications companies all working together to put trust at the
Speaker 6: center of five G and not use untrusted vendors like Huawei.
Speaker 6: So well, there is a case study on how to
Speaker 6: work together with sixty countries at least to secure critical technology.
Speaker 6: And I think there's a similar opportunity to do that now.
Speaker 5: So Michelle, let me ask you. You have some insight
Speaker 5: having been a member of the Trump administration the first
Speaker 5: first go round. And I'm just curious that the diplomacy
Speaker 5: that we're seeing so far out of the White House
Speaker 5: feels like it can be somewhat combative even to former
Speaker 5: US allies. You sound like you are arguing that we
Speaker 5: should be, you know, if anything, reaching out perhaps to
Speaker 5: our European allies to make sure that we are working together,
Speaker 5: to collaborate on something like AI, to make sure that
Speaker 5: there is supremacy for the United States as well as
Speaker 5: with our allies against maybe other foes. So how does
Speaker 5: the diplomacy that we might get or lack thereof, out
Speaker 5: of this current administration perhaps maybe is problematic, especially when
Speaker 5: it comes to something like AI, development, supremacy, security.
Speaker 6: Well, remember that diplomacy as a means to an end.
Speaker 6: Diplomacy doesn't happen for diplomacy's sake. It's ultimately to advance
Speaker 6: the interests of the United States. And when you think
Speaker 6: about the case study with the clean network in twenty
Speaker 6: twenty in the last the first Trump administration and what
Speaker 6: we stand to do now remember it's also really early
Speaker 6: in the administration. But diplomacy as a means to an end,
Speaker 6: and so the ultimate measure of success is did we
Speaker 6: advance the interests of the United States and ideally our
Speaker 6: partners and allies at the same time, And there's different
Speaker 6: methods for doing that. And when you have trusted partners
Speaker 6: and allies, you can be open and honest and have
Speaker 6: direct conversations around how you achieve these ultimate goals.
Speaker 5: Well, what insight can you give us about having been
Speaker 5: part of the first Trump administration in terms of I
Speaker 5: think it's fair to say I've been talking with a
Speaker 5: lot of CEOs, we have organizations saying it's early days,
Speaker 5: as you said, in the administration, But how do you
Speaker 5: from someone who has some inside knowledge of kind of
Speaker 5: what is maybe just talk are speaking, you know, kind
Speaker 5: of harder, and what is the things that really will
Speaker 5: become actions and policy that will impact businesses and markets
Speaker 5: and relationships.
Speaker 6: Yeah, well, it's always hard to tell them. I'm not
Speaker 6: in government right now, and so the thing to know
Speaker 6: is that there are generally multiple channels of communication, whether
Speaker 6: it's coming from the State Department or other agencies, but
Speaker 6: there are multiple lines of communication, and so all of
Speaker 6: those things happened together to help advance America's interests. What
Speaker 6: I can say is under this administration, what we've seen
Speaker 6: so far when it comes to the leading theme for
Speaker 6: this administration, when they say America First, we've seen that
Speaker 6: it also means innovation first, and when it comes to
Speaker 6: artificial intelligence, that means supporting and advocating for projects like
Speaker 6: the Stargate project that was announced last week. Up to
Speaker 6: half a billion dollars being dedicated toward American leadership and
Speaker 6: artificial intelligence.
Speaker 5: That is, though if the government, that is, if company
Speaker 5: right after that. But that's if companies spend it, right,
Speaker 5: I mean, there isn't any government money, and some taxpayers
Speaker 5: might find that to be a good thing, But I mean,
Speaker 5: having said that, it's there are questions, even Elon Musk's question,
Speaker 5: whether or not the companies have the money to actually
Speaker 5: spend on that. So if we leave it completely in
Speaker 5: the private sector, could that be problematic? And if so,
Speaker 5: what role should the government have in supporting something like AI?
Speaker 6: But I think you hit the nail on the head,
Speaker 6: and the point there is that the government is unleashing
Speaker 6: the private sector and laying out the vision and the
Speaker 6: mandate for American innovators, not American regulators, American innovators to
Speaker 6: make sure that we're leading an artificial intelligence, and we
Speaker 6: know through the course of our history that is how
Speaker 6: we lead, and that is how we win and compete.
Speaker 6: We will not regulate our way to becoming the world
Speaker 6: capital of AI together with our partners in ally so
Speaker 6: unleashing the private sector and launching the next few stargate
Speaker 6: projects would be the most effective thing the government can
Speaker 6: help catalyze right now.
Speaker 2: Michelle, you mentioned you're not currently in government. You're a
Speaker 2: former Assistant Secretary of State for Global Public Affairs from
Speaker 2: twenty eighteen to twenty twenty in the first Trump administration.
Speaker 2: We haven't spoken since the new president. The president has
Speaker 2: been sworn in again, would you go back and work
Speaker 2: in his administration again?
Speaker 6: You know, it was an honor to serve the first time.
Speaker 6: My family came here from Vietnam. My father served in
Speaker 6: the Vietnam War, and so I believe fully that it
Speaker 6: is an honor to serve your country at any time.
Speaker 6: But look, the work that we're doing the CROC Institute
Speaker 6: for Tech Diplomacy at Purdue is really vital. We are
Speaker 6: making sure that we're working with partners and allies in
Speaker 6: the private sector and as well as with government to
Speaker 6: make sure technology advances freedom, Perdue is doing extraordinary work
Speaker 6: graduating more engineers than any other top university in the
Speaker 6: country in order to advance national security. So I'm honored
Speaker 6: to be doing this work right now.
Speaker 5: All right, we're going to leave it on that note. Michelle,
Speaker 5: thank you so much, really appreciate it. Michelle Gaide she
Speaker 5: CEO of the Kroc Institute for Tech Diplomacy at Purdue and,
Speaker 5: as we said earlier, former Assistant Secretary of State for
Speaker 5: Global Public Affairs from twenty eighteen to twenty twenty. So
Speaker 5: that was during the first Trump administration. Joining us from
Speaker 5: New Hampshire.
Speaker 3: You know, we haven't talked a lot about Eco data
Speaker 3: every since. It's kind of it's been wild.
Speaker 5: I was thinking about getting ready for this segment. I'm like,
Speaker 5: oh yeah, Eco Data fed me like it's just.
Speaker 3: Always saw Mike m Key earlier today. Yeah, he's on
Speaker 3: his way to DC right now for tomorrow. Right, that's
Speaker 3: how he rolls.
Speaker 2: Yeah, maybe he's listening or watching right breaking down that Mike.
Speaker 2: US home price gains picked up pace in November as
Speaker 2: buyers remained on the hunt for properties even in the face.
Speaker 3: Of higher borrowing costs.
Speaker 2: We're talking about the national gauge of prices the SMP
Speaker 2: core Logic Case Schiller, rising three point eight percent from
Speaker 2: a year earlier. It was larger than three point six
Speaker 2: percent annual increase back in October.
Speaker 5: All right, so we want to talk about housing. And
Speaker 5: this is a favorite guest. Katie Hubbard watches all of
Speaker 5: this closely. She's executive vice president of Capital markets over
Speaker 5: at Walton globally Walton Global, excuse me. They are a
Speaker 5: privately owned asset and real estate investment company. They've got
Speaker 5: nearly four point four billion dollars worth of land under management,
Speaker 5: nearly ninety thousand eight under management across the United States,
Speaker 5: and they operate in the retail, industrial, and commercial sectors.
Speaker 5: But it's a great read on housing in particular. Katie
Speaker 5: joining us from Denver. Katie, good to have you back
Speaker 5: with us. We talked to you periodically. How would you
Speaker 5: describe the housing market and the market for development and
Speaker 5: building of homes right now?
Speaker 7: Yeah, So the year ended high, Carolyn, Tim, thank you
Speaker 7: so much for having me. I mean, all of all
Speaker 7: of the sentiments were up. Homebuilders sentiment is up, a
Speaker 7: new home sales are up, prices and also resale is up,
Speaker 7: and so that's trickling as you see into the Case
Speaker 7: Shiller numbers. The reason the prices are up on Case
Speaker 7: Shiller is because there is a supply issue. So as
Speaker 7: we've talked about before, it's definitely regional and its seasonal.
Speaker 7: So New York posted high the highest games is seven
Speaker 7: point two percent your over year, Chicago coming in second,
Speaker 7: just over six percent, in Washington behind that just under
Speaker 7: six percent. However, Tampa came in at negative zero point
Speaker 7: four percent you and that's just because of the supply
Speaker 7: in those markets. We're Chicago's just over two months, just
Speaker 7: two months of supply, New York at historical low supply,
Speaker 7: and Tampa's hovering over nine months of supply. And so
Speaker 7: that's that's feeding into the price. The price is that
Speaker 7: you see there.
Speaker 2: How are you seeing this play out in your world?
Speaker 2: Because you're you're very far from the world of single
Speaker 2: family homes. You're from the world of you know, large
Speaker 2: tracts of land that are sold then to the folks
Speaker 2: who build those developments that have those single family and
Speaker 2: multi family homes. How does the data that we get
Speaker 2: on a month to month basis affect the decisions that
Speaker 2: you make at Walton.
Speaker 7: Global yeah, Tim, So we are feeding land to the
Speaker 7: public homebuilders. That's what we do a Walton. We have
Speaker 7: over one point eight billion dollars currently under contract for
Speaker 7: over sixty thousand lots, so we're very close to what
Speaker 7: the home builder sentiment is and they need more land.
Speaker 7: And as you know we've talked about before, there's an
Speaker 7: affordability issue and unless rates drop dramatically, which we know
Speaker 7: that's not going to be happening anytime soon, or prices
Speaker 7: drop and with low inventory, prices aren't going to drop.
Speaker 7: We just we need more homes, We need more home supplied.
Speaker 7: We need builders to build more homes to keep the
Speaker 7: affordability in check. And so our largest client is the
Speaker 7: our hoard in the number one home builder and they're
Speaker 7: really closing that affordability gap where twenty eight percent of
Speaker 7: new homes sold last year were sold at the three
Speaker 7: hundred to three hundred and ninety nine thousand dollars price range,
Speaker 7: So you can see people targeting that affordable house and
Speaker 7: that's that's up in that category to twenty eight percent
Speaker 7: of all home sold, which is a big jump since
Speaker 7: twenty twenty one.
Speaker 5: How cautious, Katie, are builders when it comes to building.
Speaker 5: They never want to overbuild, right because that's going to
Speaker 5: hurt them. So how cautious? Because I feel like we
Speaker 5: have been talking about the lack of supply, the lack
Speaker 5: of affordable housing forever. So how careful are they? I
Speaker 5: understand permitting in regional variations, but to be fair, how careful?
Speaker 5: And I understand they have to be when publicly held,
Speaker 5: but how careful are they to make sure that they
Speaker 5: don't overbuild and so that maybe holds back supply?
Speaker 7: It does. I mean, our builders are the largest, our
Speaker 7: clients are the largest builders, and they're definitely bullish on
Speaker 7: what's happening because in order for people to get that home,
Speaker 7: they're buying down mortgage rates and they need land to
Speaker 7: be able to build the homes they're going to. I mean,
Speaker 7: deer Horn's gonna build over ninety thousand homes this year
Speaker 7: and sell ninety thousand homes. Where smaller builders are absolutely
Speaker 7: more cautious. They don't have the ability to finance land
Speaker 7: off balance sheet. They have to really build and sell
Speaker 7: as they go, and so they can't get caught with
Speaker 7: too much inventory or the public builders they can go
Speaker 7: to a private equity firm investors and say hey, we've
Speaker 7: got too much inventory, and sell chunks of homes at
Speaker 7: a time if needed, so that they don't go into
Speaker 7: spring season having too much inventory on their books. So
Speaker 7: they're watching it closely, but they have levers to pull
Speaker 7: because they've got very strong margins, and so they've got
Speaker 7: just different ways the big builders in order to be
Speaker 7: able to manage that supply and control the land to
Speaker 7: keep building homes and keep that supply.
Speaker 5: So in New York, you mentioned numbers in New York
Speaker 5: in terms of housing supply and what's going on. Your
Speaker 5: governor Kathy Hochel has proposed restrictions on large financial firms
Speaker 5: buying homes. State legislators of Virginia and Nebraska have had
Speaker 5: similar ideas. The ideas that you know, investors are buying out,
Speaker 5: reducing the supply. What is your take and what you
Speaker 5: are seeing? Do homebuilders want to make sure that private
Speaker 5: equity is still in that market so that if they
Speaker 5: have over supply, they're in there to pick up.
Speaker 7: The homes, not necessarily in those urban infill locations where
Speaker 7: they're constrained. I'm talking about, you know, building large master
Speaker 7: planned communities more on the outskirts of you know of
Speaker 7: the outskirts of the core, but as far as New
Speaker 7: York goes, I would say one thing that is keeping
Speaker 7: the prices high in supply low is that only nineteen
Speaker 7: percent of the entire state have mortgages over six percent,
Speaker 7: so you're really seeing a lock in rate effect in
Speaker 7: that market.
Speaker 2: Kidding the price, Katie, I want to talk a little
Speaker 2: bit about what the federal government could do to increase
Speaker 2: housing supply in this country. We heard Jdvans bring it
Speaker 2: up actually at one of the the only vice presidential debate,
Speaker 2: talking about the idea of selling federal fund for federal
Speaker 2: lands rather or building homes on federal lands. Are you
Speaker 2: thinking about that realistically as a way that the federal
Speaker 2: government increases housing supply in this country.
Speaker 7: Well, you know, we heard President Trump at Davo say
Speaker 7: that he's just going to demand that interest rates come down,
Speaker 7: So it's definitely top of mind for them of how
Speaker 7: they can increase the affordability. We're really to wait and
Speaker 7: see with what the government policies are going to do,
Speaker 7: whether it's tariffs that could cause the material prices to
Speaker 7: go up and then that would cause inflation, and inflation
Speaker 7: comes in, then mortgage rates will increase. Obviously they're talking
Speaker 7: about mass deportation, which there's already a labor shortage. We
Speaker 7: already can't build enough homes, I mean, building a million
Speaker 7: homes a year now is difficult because of labor. I mean,
Speaker 7: so if there's an even further labor shortage, that could
Speaker 7: drive prices up. And then on the flip side of that,
Speaker 7: talking about you know, government spending, tax cuts, deregulation, so
Speaker 7: making building easier. Those are all things where our clients
Speaker 7: are at a wait and see. We're going to see
Speaker 7: what happens with those policies, and they'll have to report
Speaker 7: back on the government selling their land.
Speaker 5: All right, good stuff, A big overview and such an
Speaker 5: important part certainly of the US economy. Katie Hubbard is
Speaker 5: executive VP of Capital Markets over at Walton Global, joining
Speaker 5: us on this Tuesday from Denver, Colorado. Katie, thanks again