WEBVTT - Musk Says He Needs Bigger Tesla Stake to Avoid Being Ousted 0:00:01.360 --> 0:00:05.720 This is Bloomberg business Week Inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.640 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:19.920 --> 0:00:21.919 We're keep it a close watch and shares of Tesla. 0:00:21.960 --> 0:00:24.720 Tim It is down about thirteen percent, just off its 0:00:24.720 --> 0:00:27.160 worst session or worst level I should say, of the session. 0:00:27.240 --> 0:00:29.159 Yeah, lots of superlatives to go with here. It's the 0:00:29.160 --> 0:00:31.480 top decliner in the Nasdaq one hundred, it's the biggest 0:00:31.560 --> 0:00:34.160 drag in the S and P five hundred. It's down 0:00:34.159 --> 0:00:36.480 the most in a year to its lowest and wow 0:00:36.640 --> 0:00:39.639 months at this point. Investors loved the stock last year, 0:00:39.680 --> 0:00:42.720 Carol sending it up one hundred and one percent. New 0:00:42.800 --> 0:00:43.720 Year New. 0:00:43.600 --> 0:00:47.440 Tesla, absolutely, and that is really thanks to Elon Musk's 0:00:47.440 --> 0:00:50.040 pitch for investors to look past lower sales growth that 0:00:50.120 --> 0:00:53.640 fell flat Tesla narrowly missing Earning's estimates and warning its 0:00:53.680 --> 0:00:57.480 rate of expansion will be notably lower this year. Their words, 0:00:57.480 --> 0:01:00.000 the company spent all of twenty twenty three cutting prices 0:01:00.040 --> 0:01:02.560 to boost sales, which eight in two profits. So we 0:01:02.640 --> 0:01:04.720 knew in the interview today we wanted to get more 0:01:04.720 --> 0:01:05.200 on Tesla. 0:01:05.360 --> 0:01:07.440 Yeah. For that we bring in Bloomberg business. We call 0:01:07.480 --> 0:01:10.640 him this Max chafkintributor to the Elon Inc. Podcast and 0:01:10.720 --> 0:01:12.959 keep her too, along with a few other Bloomberg colleagues 0:01:13.240 --> 0:01:15.399 of the Elon Musket Bingo card, which, by the way, 0:01:15.760 --> 0:01:17.559 there was no Bingo last night. 0:01:17.600 --> 0:01:19.959 No on for tim. Unfortunately, we did not hit Bingo. 0:01:20.000 --> 0:01:22.800 We came very close, one square away. I believe it 0:01:22.800 --> 0:01:25.400 was in the end column. If he had only said 0:01:25.760 --> 0:01:28.399 production is hard, which he often has used as a 0:01:28.440 --> 0:01:32.039 sort of catchphrase to describe the difficulty manufacturing the cyber truck, 0:01:32.040 --> 0:01:35.200 we would have hit Bingo. But I think, possibly in 0:01:35.200 --> 0:01:37.640 an effort to kind of try to not have told 0:01:37.720 --> 0:01:40.200 tons of bad news, he soft peddled some of those 0:01:40.240 --> 0:01:41.600 difficulties on the earning. 0:01:41.880 --> 0:01:42.880 BINGO card apparently. 0:01:43.120 --> 0:01:45.400 Well, one thing that wasn't on the Bingo card was 0:01:45.800 --> 0:01:48.960 not providing guidance on the number of new vehicles for 0:01:49.120 --> 0:01:51.520 twenty twenty four, which I think surprised a lot of observers. 0:01:51.640 --> 0:01:54.040 You know, and not only that, but you also had 0:01:54.080 --> 0:01:57.000 him saying essentially we're in between two waves of growth. 0:01:57.080 --> 0:01:59.160 I mean in effect saying things that this is not 0:01:59.200 --> 0:02:01.720 going to be a great time. He's saying sort of 0:02:01.760 --> 0:02:04.320 two things going on. One is that they're struggling to 0:02:04.320 --> 0:02:08.960 make cyber trucks. They've they've pursued this incredibly incredibly ambitious design. 0:02:09.360 --> 0:02:11.160 First of all, not clear that anyone wants it, not 0:02:11.200 --> 0:02:12.760 clear that the price is going to be right. And 0:02:12.800 --> 0:02:15.079 even if those things are true, it's going to take 0:02:15.120 --> 0:02:18.560 some time to manufacture, and Tesla is sometime away from 0:02:18.720 --> 0:02:22.919 another car, from this kind of magical, more affordable car 0:02:23.040 --> 0:02:26.000 twenty five thousand dollars sedan rather than a you know, 0:02:26.080 --> 0:02:28.359 thirty five to you know, the Model three can cost 0:02:28.440 --> 0:02:30.040 way more than thirty five thousand dollars. 0:02:30.280 --> 0:02:32.080 But originally it was supposed to do that was the 0:02:32.080 --> 0:02:32.760 original car. 0:02:32.880 --> 0:02:35.400 Yes, yes, don't want to be naive here, but you know, 0:02:36.120 --> 0:02:38.840 so many times he's been counted out, you know, and 0:02:38.840 --> 0:02:40.440 then it just takes a few weeks or a few 0:02:40.480 --> 0:02:42.160 months of sleeping on the factory floor and all of 0:02:42.160 --> 0:02:44.280 a sudden they pull something out. So how do you, 0:02:44.360 --> 0:02:47.600 as someone who has tracked Tesla Elon for a while, 0:02:48.160 --> 0:02:50.480 kind of look at this situation. Are they maybe really 0:02:50.520 --> 0:02:51.720 between two cycles? 0:02:51.880 --> 0:02:53.919 Yeah, well I think, first of all, it's important to 0:02:53.919 --> 0:02:57.200 say that Tesla swings around a lot, and we saw it. 0:02:57.200 --> 0:02:59.880 We saw it drop a lot ahead of the beginning 0:02:59.880 --> 0:03:02.880 of twenty twenty three. It then kind of bounced back. 0:03:02.919 --> 0:03:06.160 It grew in this huge way, largely because as you 0:03:06.160 --> 0:03:09.320 were saying that, you know, they cut prices, sales went up, 0:03:09.320 --> 0:03:11.760 and investors were willing to bet that that wasn't going 0:03:11.800 --> 0:03:13.280 to hurt margins that much. 0:03:13.360 --> 0:03:14.480 And two things have happened. 0:03:14.520 --> 0:03:17.080 Margins have gone down and the demand has not been there, 0:03:17.520 --> 0:03:21.000 And so much of his stock trades on expectations on 0:03:21.000 --> 0:03:22.919 what is Elon going to do next? And we saw 0:03:23.000 --> 0:03:25.320 him yesterday kind of try to do that. He was 0:03:25.320 --> 0:03:28.440 talking about optimists. That's this kind of robot. It feels 0:03:29.080 --> 0:03:31.040 it's hard to say that it's a real product. Although 0:03:31.120 --> 0:03:33.240 Elon Musk was out there saying, hey, this is going 0:03:33.280 --> 0:03:34.880 to change the economics of everything. 0:03:35.160 --> 0:03:37.040 And I think the question is who is going to 0:03:37.080 --> 0:03:37.520 believe him? 0:03:37.520 --> 0:03:39.400 How many people are going to really buy into that 0:03:39.480 --> 0:03:42.360 as a near term possibility. 0:03:41.800 --> 0:03:42.960 And then how do you value that? 0:03:43.120 --> 0:03:47.119 And I think the more Elon Musk promises and when 0:03:47.120 --> 0:03:50.120 he failures to meet those goals, then that hurts his 0:03:50.160 --> 0:03:52.320 ability to spin these fantastical yarns. 0:03:52.600 --> 0:03:54.560 I guess, I guess the question that I have is 0:03:55.280 --> 0:03:59.160 really about control. Because Carol talked about this earlier, and 0:03:59.240 --> 0:04:01.200 it's something that he tweeted about a couple of weeks ago. 0:04:01.200 --> 0:04:03.480 We kind of knew this was was going to come up. 0:04:03.840 --> 0:04:06.840 But this is a guy who has now now wants 0:04:06.960 --> 0:04:09.600 more of his company. He wants you know, it's not 0:04:09.600 --> 0:04:11.920 a dual class share structure, so it's not like he 0:04:11.960 --> 0:04:14.240 controls that like Mark Zuckerberg does, and you know, other 0:04:14.360 --> 0:04:18.520 other leaders of tech put tech and quotes tech companies. 0:04:19.600 --> 0:04:21.800 What did he say about more control? And and just 0:04:21.839 --> 0:04:23.880 a remindered everybody he had a lot of control of 0:04:23.920 --> 0:04:26.279 the company. He sold a lot of equity exactly to 0:04:26.279 --> 0:04:26.760 buy Twitter. 0:04:26.839 --> 0:04:28.479 Yes, so he sold down a bunch of his equity 0:04:28.480 --> 0:04:30.720 to buy Twitter, as you said, and in retrospect looks 0:04:30.760 --> 0:04:33.000 like maybe not the what the best time to buy 0:04:33.040 --> 0:04:36.040 a flailing social media company has lost a lot of value. 0:04:36.360 --> 0:04:39.320 And what he's saying now is that he feels he 0:04:39.360 --> 0:04:43.039 needs to have twenty five percent of equity in Tesla 0:04:43.160 --> 0:04:46.720 in order to to sort of be sufficiently committed to this, 0:04:47.000 --> 0:04:49.520 to this enterprise and not just committed but committed to 0:04:49.560 --> 0:04:51.200 the innovation part of the enterprise. 0:04:51.320 --> 0:04:53.560 Is that a wild thing for an executive to say? 0:04:53.600 --> 0:04:53.680 Like? 0:04:53.720 --> 0:04:54.719 What where? What are I mean? 0:04:54.760 --> 0:04:57.320 Are It would be a wild thing for any executive. 0:04:58.400 --> 0:05:01.240 Look at any executive in the S five hundred, you'd 0:05:01.279 --> 0:05:03.520 be hard pressed to find one that doesn't isn't in 0:05:03.520 --> 0:05:05.800 controlling a family owned company, or does not have dual 0:05:05.839 --> 0:05:08.680 class share structure that own that has that type of contrucy, 0:05:08.720 --> 0:05:08.840 you know. 0:05:08.880 --> 0:05:11.039 And not only that, but things have not gone great 0:05:11.040 --> 0:05:13.040 for Tesla over the past six months. Normally, when you 0:05:13.080 --> 0:05:14.839 ask for a massive pay raise and pay raise that 0:05:14.880 --> 0:05:17.280 could amount to you know, tens or even hundreds of 0:05:17.320 --> 0:05:21.320 billions of dollars in equity, you know, normally, you'd expect 0:05:21.360 --> 0:05:22.800 to do that on a high rather than at a 0:05:22.839 --> 0:05:24.719 time when the stock is kind of has been falling 0:05:24.839 --> 0:05:27.640 and and so on. The thing is Elon Musk has 0:05:27.720 --> 0:05:30.719 so much leverage over this company because so much of 0:05:30.760 --> 0:05:33.200 the company's value is tied up in his own identity. 0:05:33.400 --> 0:05:36.080 It's you know, you have investors from time to time say, 0:05:36.279 --> 0:05:38.640 oh we should you know, we should consider a different CEO, 0:05:38.720 --> 0:05:41.200 But no one ever takes that seriously. No matter what 0:05:41.279 --> 0:05:44.360 Elon tweets no matter, you know, how weird he behaves 0:05:44.360 --> 0:05:47.200 on social media, because it's pretty clear that a lot 0:05:47.240 --> 0:05:49.680 of the value is tied up in investors belief that 0:05:49.800 --> 0:05:52.080 he is going to be able to pull an extrabbit 0:05:52.080 --> 0:05:54.719 out of the hat, whether it's optimists or full self driving, 0:05:54.760 --> 0:05:57.280 you know, Tesla's driverless car thing or something else. 0:05:57.520 --> 0:05:58.880 And he has proved that time and again. 0:05:58.960 --> 0:06:01.400 But but of course, you know, nothing lasts forever, and 0:06:01.720 --> 0:06:03.880 at some point it's not going to work, and we're 0:06:03.880 --> 0:06:06.640 going to see a real test for Elon Muski, you. 0:06:06.560 --> 0:06:07.520 Know, Max. 0:06:07.560 --> 0:06:09.520 It's so interesting though, when we talk about Elon, we 0:06:09.600 --> 0:06:12.200 talk so much, of course, about Tesla. We talk about SpaceX, 0:06:12.200 --> 0:06:14.120 we talk about Twitter, We talked about the boring company. 0:06:14.160 --> 0:06:16.400 We talk about what was it, Neuralink. I'm going through 0:06:16.400 --> 0:06:16.839 my list. 0:06:17.000 --> 0:06:20.040 We're talking about Elon, the person, the disruptor, the provocteur, 0:06:20.640 --> 0:06:22.800 you know, who can say something and shake things up. 0:06:23.560 --> 0:06:25.560 You know, we've got a great chart just to show that, 0:06:25.680 --> 0:06:28.520 you know, it's standing has been kind of weakening. Among 0:06:28.520 --> 0:06:32.560 the world's largest megacaps Apple, Microsoft, way up top. You know, 0:06:32.720 --> 0:06:36.640 Tesla's there, number nine, but it's a lot smaller than 0:06:36.760 --> 0:06:39.440 some of its other tech. I guess, brethren, if you will, 0:06:39.720 --> 0:06:42.279 Having said that, I mean Tesla is really the core 0:06:42.320 --> 0:06:43.680 of his wealth, correct. 0:06:43.480 --> 0:06:45.400 And kind of his power seat. 0:06:45.640 --> 0:06:48.400 Yes, and I do think you know one of the 0:06:48.520 --> 0:06:51.159 big mysteries, you know, what is Elon doing with Twitter? 0:06:51.279 --> 0:06:54.480 Why is he starting an anti woke AI company that's 0:06:54.600 --> 0:06:57.679 that's this thing called Xai and their product is grock. 0:06:57.720 --> 0:07:00.279 It's sort of a chat GBT but supposedly, you know, 0:07:00.400 --> 0:07:03.400 politically incorrect and like one thing he's done here is 0:07:03.480 --> 0:07:06.960 created a reasonable threat that he can make because the 0:07:07.000 --> 0:07:09.480 truth is he can say, yeah, I might, I might 0:07:09.520 --> 0:07:11.400 go and work for a different company, because look he's 0:07:11.440 --> 0:07:14.080 already doing it, and and the board has overlooked that 0:07:14.200 --> 0:07:16.400 before and has has sort of gone along with it. 0:07:16.440 --> 0:07:18.560 But you do wonder, you know, at what point it 0:07:18.560 --> 0:07:20.960 becomes too much or the other thing we should say 0:07:21.000 --> 0:07:23.840 is there is this issue of his old compensation package, 0:07:23.840 --> 0:07:26.400 which is still being over fifty. 0:07:27.680 --> 0:07:31.400 The ev story, though, to be fair, GM struggling, Ford struggling. 0:07:31.440 --> 0:07:34.520 We've talked how many times at nauseum, but for a 0:07:34.560 --> 0:07:37.240 good reason about yep, people are still buying evs, but 0:07:37.280 --> 0:07:39.120 the growth rate is slower, So is he getting kind 0:07:39.120 --> 0:07:41.000 of stuck in that also, well. 0:07:41.040 --> 0:07:42.880 Sure, and not only just getting suck in that, but 0:07:42.880 --> 0:07:45.000 getting something in the fact that that Tesla sells a 0:07:45.000 --> 0:07:46.760 lot of cars now and when you want to have 0:07:47.080 --> 0:07:49.080 you know, he he's they've seem to have backed off 0:07:49.160 --> 0:07:51.000 their growth promises. But if you want to have fifty 0:07:51.040 --> 0:07:54.080 percent annual growth, that gets hard when the numbers get 0:07:54.160 --> 0:07:57.080 big and and investors have sort of come up with 0:07:57.200 --> 0:08:00.320 stories that they've they've told to explain why that would 0:08:00.320 --> 0:08:02.720 be possible. So one option is, hey, these cars are 0:08:02.720 --> 0:08:04.560 all going to become robotaxes are going to be driving 0:08:04.560 --> 0:08:06.440 twenty four to seven, and Tesla is going to get 0:08:06.440 --> 0:08:08.400 a huge chunk not just of the automotive market, but 0:08:08.440 --> 0:08:10.880 of the transportation market at large. You know, none of 0:08:10.880 --> 0:08:13.560 that's happened. It's not clear that it will happen anytime soon. 0:08:13.600 --> 0:08:14.760 It's not clear that you. 0:08:14.680 --> 0:08:17.520 Know, many people outside of the Tesla enthusiast. 0:08:17.120 --> 0:08:21.040 Community buy it. So that's kind of the challenge. You 0:08:21.160 --> 0:08:23.400 got to give credit where it's due, which is in 0:08:23.440 --> 0:08:27.040 some sense, these challenges are a product of Elon Musk's success. 0:08:27.080 --> 0:08:29.760 Because Elon Musk set out to make electric cars mainstream, 0:08:30.000 --> 0:08:31.760 and he has done that. I mean, they are selling 0:08:31.800 --> 0:08:35.040 a lot of Model wise that's the suv version of 0:08:35.040 --> 0:08:36.400 the Model three mentioned earlier. 0:08:36.440 --> 0:08:37.640 Kind of betting against him. 0:08:37.600 --> 0:08:39.720 Yeah, and not only that, but he's but but there 0:08:39.720 --> 0:08:42.360 are many other companies who are also in this market. 0:08:42.400 --> 0:08:45.120 There is a lot of there's consumer demand, but there's 0:08:45.200 --> 0:08:48.200 arguably more companies trying to meet that demand than there 0:08:48.240 --> 0:08:48.640 is demand. 0:08:48.760 --> 0:08:50.959 Hey, Max thirty seconds left byd is one of those 0:08:50.960 --> 0:08:53.040 companies that's not struggling right now, and a big part 0:08:53.040 --> 0:08:55.320 of that is because they're selling cars in China twenty 0:08:55.320 --> 0:08:58.240 five thousand dollars price point for a future less expensive 0:08:58.240 --> 0:09:00.800 Tesla that's still too expensive compete with a lot of 0:09:00.800 --> 0:09:01.679 the companies in China. 0:09:01.760 --> 0:09:03.839 Now, well, yeah, I mean, and and then there's the 0:09:04.200 --> 0:09:06.880 question of how what what China. 0:09:06.880 --> 0:09:08.720 Of course, there are a lot of potential restrictions. 0:09:08.760 --> 0:09:11.880 Elon Musk has had a very i'd say positive relationship 0:09:12.040 --> 0:09:14.920 with Beijing to date, but it does seem like the 0:09:14.960 --> 0:09:17.640 goal of China, of course, is to help its domestic companies, 0:09:17.960 --> 0:09:21.200 and at some point you wonder how how that's going 0:09:21.280 --> 0:09:24.040 to play long term in China. Is there other potential 0:09:24.040 --> 0:09:27.440 restrictions that Elon mushould be worried about you know, he's 0:09:27.480 --> 0:09:31.000 had a really easy time opening up factories. Does that always? 0:09:31.080 --> 0:09:33.040 Is that always the case? So I think there are 0:09:33.080 --> 0:09:35.200 lots of open questions there. I mean, he definitely has to, 0:09:35.640 --> 0:09:37.720 you know, play diplomat in China. 0:09:37.800 --> 0:09:38.080 All right. 0:09:38.120 --> 0:09:40.840 Max Chaffin, colmnist, Bloomberg Business Week, Thank you so much, 0:09:40.880 --> 0:09:44.080 contributor to the Elon Inc. Podcast. The latest episode of 0:09:44.080 --> 0:09:46.400 the podcast on the Bloomberg and at Bloomberg dot com 0:09:46.440 --> 0:09:47.960 slash Elon Inc. 0:09:49.800 --> 0:09:53.320 You're listening to the Bloomberg Business Week podcast. Catch us 0:09:53.400 --> 0:09:56.600 live weekday afternoons from two to five pm Eastern Listen 0:09:56.679 --> 0:09:59.320 on applecar Play and then brought auto with a Bloomberg 0:09:59.360 --> 0:10:02.520 Business app or wanted us live on YouTube. 0:10:03.320 --> 0:10:05.800 So addition to the gdp AT initial job list gams 0:10:05.880 --> 0:10:07.760 data that we got this morning, we also got a 0:10:07.800 --> 0:10:10.120 real estate update. Sales of new homes in the US 0:10:10.200 --> 0:10:13.120 exceeding forecast in December. This is a drop in mortgage 0:10:13.160 --> 0:10:17.000 rates entice prospective buyers. That news shows that some momentum 0:10:17.160 --> 0:10:19.600 heading into twenty twenty four is underscored by the first 0:10:19.640 --> 0:10:22.200 pickup in annual sales when it comes to three years. 0:10:22.240 --> 0:10:23.439 All right, so we knew we wanted to get a 0:10:23.520 --> 0:10:26.080 real estate update for that. Return to Michael Levy. He's 0:10:26.080 --> 0:10:29.720 CEO at Crow Holdings. It's the Dallas based privately owned 0:10:29.720 --> 0:10:32.480 real estate investment and development firm, about thirty one billion 0:10:32.520 --> 0:10:35.880 in assets under management. And Michael kind enough to join 0:10:35.960 --> 0:10:36.920 us here in studio. 0:10:36.960 --> 0:10:38.360 Hello, Hello, welcome here. 0:10:38.600 --> 0:10:39.959 Thanks great to be here. 0:10:40.000 --> 0:10:40.960 You're are New Yorker. 0:10:41.440 --> 0:10:43.600 H I am a lifelong New Yorker and it's nice 0:10:43.640 --> 0:10:45.480 to be in Bloomberg's fabulous studios here. 0:10:45.640 --> 0:10:46.560 Thank you, Thank you. 0:10:47.160 --> 0:10:49.480 We want to talk about your business because you guys 0:10:49.520 --> 0:10:53.520 do it all. You've got multifamily, residential, industrial, office, So 0:10:53.840 --> 0:10:57.280 talk to us about the different verticals of real estate, 0:10:57.320 --> 0:10:59.680 and then geography, what you are seeing in terms of 0:10:59.720 --> 0:11:02.400 trent and sure where the strength is and where there's 0:11:02.400 --> 0:11:03.040 some weaknesses. 0:11:03.120 --> 0:11:05.840 Sure well, let me try and answer in a little 0:11:05.880 --> 0:11:07.920 higher level than what we do. But you know, I'd 0:11:07.920 --> 0:11:09.160 boil down to three things. 0:11:09.240 --> 0:11:09.440 You know. 0:11:09.480 --> 0:11:12.440 The first is the market is highly bifurcated in terms 0:11:12.480 --> 0:11:15.720 of haves and have nots, and today the have nots 0:11:15.720 --> 0:11:18.760 as office buildings, and the have nots is a lot 0:11:18.800 --> 0:11:22.280 of the downtown urban cores that are impacted by the 0:11:22.440 --> 0:11:25.120 flexible workforce and not having as many people there in 0:11:25.160 --> 0:11:28.000 the issues. There's a lot of halves in the business today, 0:11:28.040 --> 0:11:31.280 which is the industrial sector and the residential rental sector, 0:11:32.240 --> 0:11:36.120 the data center sector. So it's a highly bifurcated not 0:11:36.240 --> 0:11:39.000 painting with a single brush across real estate in anyway. 0:11:39.040 --> 0:11:41.880 But you guys have some commercial office we have very little. 0:11:42.120 --> 0:11:46.160 We do have were building a fabulous mass timber building, 0:11:46.160 --> 0:11:49.440 the largest mass timber office building. We have a fabulous 0:11:49.520 --> 0:11:52.080 office campus in Dallas at the very upper end of 0:11:52.120 --> 0:11:55.600 the office sector. Buildings like this, they're very attractive to people, 0:11:55.920 --> 0:11:58.600 they meet the modern needs. They're well leased. So the 0:11:58.640 --> 0:12:02.120 top third of offices great. The bottom third is going 0:12:02.160 --> 0:12:03.400 to be dirt. It just doesn't know it. 0:12:03.640 --> 0:12:04.880 I just want to make sure I get this right. 0:12:04.880 --> 0:12:06.520 You're actually actively building. 0:12:06.720 --> 0:12:07.280 We're active. 0:12:07.320 --> 0:12:08.840 We have a development company. 0:12:09.080 --> 0:12:10.080 But an office building. 0:12:10.160 --> 0:12:10.480 Correct. 0:12:10.800 --> 0:12:12.599 It's the largest Jallas. 0:12:12.400 --> 0:12:15.760 It's in Frisco, which is effectively Dallas Fort Worth metroplex. 0:12:15.880 --> 0:12:17.760 Okay, So when did you start, When did you make 0:12:17.760 --> 0:12:21.080 the plans for that? Versus and right after COVID, right 0:12:21.120 --> 0:12:23.400 after right after So how are you designing that in 0:12:23.440 --> 0:12:25.240 this flexible work environment that you described? 0:12:25.280 --> 0:12:27.160 First of all, the building is not made of steel, 0:12:27.200 --> 0:12:30.240 it's made of timber using a construction technology. So from 0:12:30.280 --> 0:12:34.360 a sustainability perspective, you know, it's a much more sustainable building, 0:12:34.400 --> 0:12:38.160 which appeals to lots of corporations and individuals today. It's 0:12:38.240 --> 0:12:42.280 also physically beautiful because the interiors would so the structure 0:12:42.360 --> 0:12:46.080 is shown and the layout is just big, open, collaborative 0:12:46.080 --> 0:12:48.760 spaces and amenities, and it'll be in a neighborhood with 0:12:49.160 --> 0:12:52.400 a hotel ultimately and other amenities, and people will be 0:12:52.400 --> 0:12:55.959 able to live, work, play in this area and that's 0:12:55.960 --> 0:12:56.560 what people. 0:12:56.360 --> 0:12:57.000 Want, all right. 0:12:57.040 --> 0:12:59.120 So you are in New Yorker, you understand this market 0:12:59.200 --> 0:13:03.040 really really well. I'm assuming you play in the commercial 0:13:03.040 --> 0:13:06.559 real estate space. Would you not want to be someone 0:13:06.640 --> 0:13:08.719 here in New York who owns maybe that's second or 0:13:08.760 --> 0:13:10.800 third to your office property right now. 0:13:11.360 --> 0:13:14.040 Like most things, it's all about what your basis, your cost. 0:13:14.120 --> 0:13:16.800 But yes, as a general rule, let's just call it 0:13:16.800 --> 0:13:18.880 the bottom third of office buildings. A lot of these 0:13:18.880 --> 0:13:21.880 buildings you see, for example, on Third Avenue, for example, 0:13:22.160 --> 0:13:25.280 these are really tough properties that are likely to wind 0:13:25.360 --> 0:13:28.800 up in the hands of people who buy them at 0:13:29.040 --> 0:13:31.520 huge discounts to their value of just a few years 0:13:31.520 --> 0:13:34.640 ago and ultimately look to repurpose them. But this is 0:13:34.679 --> 0:13:38.120 a multi decade problem. This is not going to be 0:13:38.160 --> 0:13:39.680 resolved in the next two or three years. 0:13:39.720 --> 0:13:40.560 So no crisis. 0:13:41.360 --> 0:13:44.920 There's not a broader real estate crisis. There is distress 0:13:44.920 --> 0:13:47.160 in the office space, but if you really look at 0:13:47.160 --> 0:13:50.000 the percentage of disposure that people have to this asset 0:13:50.040 --> 0:13:53.040 class in the totality of the real estate sector, it's 0:13:53.080 --> 0:13:55.920 relatively small. If you talk to the banks and their exposure. 0:13:56.280 --> 0:13:58.959 It's not going to take the financial system down, it's 0:13:59.000 --> 0:14:01.120 not going to take the real estate industry down. But 0:14:01.160 --> 0:14:04.600 those lower third of office buildings across the country, they 0:14:04.679 --> 0:14:07.240 are very difficult assets and people are going to lose them. 0:14:07.320 --> 0:14:08.600 Why do you think it's going to be such a 0:14:08.720 --> 0:14:12.800 multi decade long turnaround or at least experience. 0:14:12.720 --> 0:14:14.880 Well, one, you can look at things that have already happened, 0:14:14.920 --> 0:14:17.360 like the mall sector, which started to get disintermediated in 0:14:17.400 --> 0:14:19.320 the early two thousands, and you can see lots of 0:14:19.360 --> 0:14:22.880 dormant malls all over America. The issue is one it 0:14:22.920 --> 0:14:26.480 needs to from a price perspective, get down to ultimately 0:14:26.560 --> 0:14:28.680 the value of the land so someone can redevelop it 0:14:28.760 --> 0:14:31.800 and it makes sense. And secondly, the entitlement process, you know, 0:14:31.840 --> 0:14:35.200 going from zoning and entitlements. You know, communities and neighborhoods 0:14:35.200 --> 0:14:38.400 don't necessarily want to entitle you for apartments, for example, 0:14:38.400 --> 0:14:41.680 if you were zoned for office and so this takes decades, 0:14:41.680 --> 0:14:43.080 and it's going to take decades. 0:14:43.320 --> 0:14:46.320 Michael, your company's seventy five years years old. Obviously you 0:14:46.320 --> 0:14:47.840 haven't been there the whole time. But you guys have 0:14:47.920 --> 0:14:51.240 seen a lot of different cycles. I mean, if you 0:14:51.320 --> 0:14:54.880 had one word two words to describe the real estate 0:14:54.920 --> 0:14:56.840 cycle right now, how would you And I know that's 0:14:56.840 --> 0:15:01.920 hard because different geographies, but would how would you describe it? 0:15:01.960 --> 0:15:05.560 Sure, I would describe it as we are just beginning 0:15:05.600 --> 0:15:08.800 to merge because of the interest rate cycle and inflation. 0:15:08.880 --> 0:15:12.600 We are just becoming beginning to emerge, literally just beginning 0:15:12.600 --> 0:15:16.120 to emerge from a very contracted, frozen period of time. 0:15:16.880 --> 0:15:19.440 Twenty twenty four, it looks like in terms of the 0:15:19.480 --> 0:15:22.720 capital markets and lending, because of inflation and interest rates, 0:15:23.080 --> 0:15:26.720 the friction that's been in the business is beginning to 0:15:26.720 --> 0:15:30.760 be alleviated. So there's a capital market cycle that's been 0:15:31.440 --> 0:15:35.560 destructive with respective valuation levels and transaction levels. But the 0:15:35.680 --> 0:15:41.000 fundamentals rental growth, occupancy, with the exception of the office sector, 0:15:41.360 --> 0:15:46.120 have been great generally across the country in most major markets. 0:15:46.200 --> 0:15:49.480 You are obviously watching the rate cycle very carefully. Does 0:15:49.480 --> 0:15:52.720 it matter if the FED does two rate cuts, three 0:15:52.800 --> 0:15:55.600 rate cuts, five rate cuts this year in terms of 0:15:55.600 --> 0:15:56.840 what it means for your business? 0:15:57.320 --> 0:16:01.080 I I don't think there's a very direct course. I 0:16:01.120 --> 0:16:04.400 certainly would not speculate the two is bad and five 0:16:04.520 --> 0:16:06.680 is good. I can just say in general, for our 0:16:07.200 --> 0:16:09.640 levered asset class, don't fight the FED. And the FED 0:16:09.720 --> 0:16:12.680 is relaxing rates and they're coming down. That's going to 0:16:12.720 --> 0:16:16.040 be good for our industry in terms of transaction, activity, financing, 0:16:16.120 --> 0:16:19.840 valuation levels, the you know, the grease that allows the 0:16:19.880 --> 0:16:20.840 industry to move forward. 0:16:21.000 --> 0:16:23.200 We recently spoke about a Bloomberg big take by our 0:16:23.200 --> 0:16:25.560 own Sean Donn and about how Americans are moving around, 0:16:25.640 --> 0:16:28.320 especially in swing states, and that could impact the presidential 0:16:28.360 --> 0:16:31.000 election outcome. You have people all over the country, you 0:16:31.000 --> 0:16:33.480 have businesses and properties all over the country. Give us 0:16:33.520 --> 0:16:35.960 some color about the demographic trends that you're seeing. 0:16:36.080 --> 0:16:38.840 Yeah, look, there is no doubt America is moving to 0:16:38.880 --> 0:16:41.480 the southeast and southwest, now at one level, that's a set, 0:16:41.520 --> 0:16:44.680 you know, seventy five year trend when air conditioning started, 0:16:45.080 --> 0:16:50.080 but it is accelerated, it's sustaining itself, and it's it's 0:16:50.080 --> 0:16:53.400 a virtuous cycle. Cities that thirty years ago, as someone 0:16:53.400 --> 0:16:55.200 from New York you may not wanted to have lived 0:16:55.240 --> 0:16:59.120 in today are vibrant and with restaurants and culture and food, 0:16:59.480 --> 0:17:00.960 and so this trend is continuing. 0:17:01.400 --> 0:17:02.840 Does that make you barish on New York? 0:17:03.760 --> 0:17:06.120 I think be careful. There's a lot of New Yorkers right. 0:17:06.119 --> 0:17:09.919 I understand New York has some very significant challenges, not 0:17:09.960 --> 0:17:12.159 as difficult as some other cities such as San Francisco. 0:17:12.600 --> 0:17:16.400 But the reality is our office buildings. This was a 0:17:16.720 --> 0:17:22.240 city that forever has been first work, second play, third live. Well, 0:17:22.280 --> 0:17:24.600 people are coming into the office a lot less. And 0:17:24.640 --> 0:17:26.439 if they come into the office a lot less, that 0:17:26.520 --> 0:17:30.520 means not only the offices occupied less, the retailers have less. 0:17:30.160 --> 0:17:34.840 It's hurting on top of people are not only people, 0:17:34.880 --> 0:17:38.399 but wealth is and business is leaving the city and 0:17:38.440 --> 0:17:42.600 the state. You can look at the data for lower cost, 0:17:43.280 --> 0:17:44.960 higher quality of life markets. 0:17:45.040 --> 0:17:47.760 We got to run really a great perspective. Michael Levy, 0:17:47.840 --> 0:17:50.800