1 00:00:18,360 --> 00:00:21,240 Speaker 1: Hello, Welcome to The Credit Edge, a weekly markets podcast. 2 00:00:21,560 --> 00:00:24,120 Speaker 1: My name is James Crumbie. I'm a senior editor at Bloomberg. 3 00:00:24,720 --> 00:00:27,360 Speaker 1: This week, we're very pleased to welcome Josh Pack, co 4 00:00:27,480 --> 00:00:30,240 Speaker 1: CEO and managing partner at Fortress Investment Group. 5 00:00:30,440 --> 00:00:33,040 Speaker 2: How are you, Josh? 6 00:00:33,159 --> 00:00:35,280 Speaker 1: Very good, Thank you, Thanks so much for joining us today. 7 00:00:35,280 --> 00:00:38,120 Speaker 1: We're excited to dig into your credit market views. We're 8 00:00:38,120 --> 00:00:40,800 Speaker 1: also delighted to welcome back Lisa Lee, who covers credit 9 00:00:40,840 --> 00:00:43,360 Speaker 1: markets from London for Bloomberg News. Thanks for coming on 10 00:00:43,400 --> 00:00:43,720 Speaker 1: the show. 11 00:00:44,040 --> 00:00:45,720 Speaker 3: Delighted to be here, James. 12 00:00:45,880 --> 00:00:49,280 Speaker 1: And from Bloomberg Intelligence. Excellent to see Tollu Ala Mutu, 13 00:00:49,320 --> 00:00:50,880 Speaker 1: also in London. Welcome back Tollu. 14 00:00:51,280 --> 00:00:52,920 Speaker 4: Thank you, James. Great to be here. 15 00:00:53,360 --> 00:00:55,240 Speaker 1: So let's start with you, Josh. Great to have you 16 00:00:55,280 --> 00:00:57,640 Speaker 1: on the Credit Edge. We're going to get into the 17 00:00:57,680 --> 00:01:00,000 Speaker 1: specifics of your portfolio and where you see the big 18 00:01:00,040 --> 00:01:03,600 Speaker 1: opportunities in global credit. But first let's get your macro view. 19 00:01:04,440 --> 00:01:07,039 Speaker 1: Inflation is back on the agenda. It hasn't yet gone away, 20 00:01:07,080 --> 00:01:10,120 Speaker 1: and that will determine how far and how fast central 21 00:01:10,120 --> 00:01:13,440 Speaker 1: banks can cut rates. Corporate debt rallied very strong at 22 00:01:13,480 --> 00:01:15,760 Speaker 1: the end of last year and as a significant amount 23 00:01:15,760 --> 00:01:18,920 Speaker 1: of twenty twenty four easing got priced in starting as 24 00:01:18,959 --> 00:01:22,320 Speaker 1: soon as March, which seems seemed very likely a done 25 00:01:22,360 --> 00:01:26,839 Speaker 1: deal until very very recently, that's all being hastily revised 26 00:01:26,880 --> 00:01:29,679 Speaker 1: and markets are selling off just as we're seeing corporate 27 00:01:29,720 --> 00:01:32,880 Speaker 1: supply really ramping up. So where do we go from here? 28 00:01:32,959 --> 00:01:35,120 Speaker 1: Josh guests on this show keep telling us this is 29 00:01:35,160 --> 00:01:37,720 Speaker 1: a great credit market, tons of opportunity out there. What's 30 00:01:37,720 --> 00:01:38,160 Speaker 1: your view? 31 00:01:38,600 --> 00:01:42,679 Speaker 5: Well, I, you know, I'm not the greatest macroeconomist in 32 00:01:42,680 --> 00:01:45,680 Speaker 5: the world, but we've been right, I think so far 33 00:01:45,880 --> 00:01:50,240 Speaker 5: as we've been thinking about rates, and you know, basically 34 00:01:50,360 --> 00:01:53,560 Speaker 5: just listening to what the FED has been saying. The 35 00:01:53,560 --> 00:01:56,000 Speaker 5: Fed's been very clear that, you know, they were going 36 00:01:56,040 --> 00:01:58,360 Speaker 5: to raise rates and they were going to do it 37 00:01:58,440 --> 00:02:01,720 Speaker 5: quickly to stamp out inflation. And I think as long 38 00:02:01,760 --> 00:02:06,200 Speaker 5: as we saw the labor markets continue to hold together, 39 00:02:06,480 --> 00:02:08,160 Speaker 5: you know, we we kind of believe that they were 40 00:02:08,160 --> 00:02:11,040 Speaker 5: going to continue along that path. And at the beginning 41 00:02:11,040 --> 00:02:12,919 Speaker 5: of this year, when you know, we saw a lot 42 00:02:12,960 --> 00:02:16,799 Speaker 5: of optimism priced into the forward curve with all these 43 00:02:16,840 --> 00:02:20,280 Speaker 5: you know, rate reductions that people are expecting down the road. 44 00:02:20,320 --> 00:02:22,400 Speaker 5: I just don't think they're going to materialize. 45 00:02:22,800 --> 00:02:23,000 Speaker 2: You know. 46 00:02:23,000 --> 00:02:25,960 Speaker 5: I told one of my co workers that when we 47 00:02:26,000 --> 00:02:28,120 Speaker 5: got back to work after the holidays that and we 48 00:02:28,160 --> 00:02:30,320 Speaker 5: saw a four percent ten year, I said, that's the 49 00:02:30,480 --> 00:02:32,320 Speaker 5: that's the low tick for the year. We're going to 50 00:02:32,360 --> 00:02:34,960 Speaker 5: end up higher at the end of the year. Whether 51 00:02:35,000 --> 00:02:37,040 Speaker 5: that's four and a half or five percent. 52 00:02:36,760 --> 00:02:37,200 Speaker 2: I don't know. 53 00:02:38,280 --> 00:02:41,480 Speaker 5: But our view is we're we're going to be in 54 00:02:41,480 --> 00:02:45,600 Speaker 5: an elevated interest rate environment for a long period of time, 55 00:02:46,160 --> 00:02:50,040 Speaker 5: and that the you know, one percent free money environment 56 00:02:50,240 --> 00:02:51,800 Speaker 5: is a thing of the past and we're not going 57 00:02:51,840 --> 00:02:52,600 Speaker 5: to see that again. 58 00:02:53,040 --> 00:02:55,600 Speaker 1: So you're definitely into in a minority that I just 59 00:02:55,639 --> 00:02:59,040 Speaker 1: wanted to get straight into one sector that everyone is 60 00:02:59,240 --> 00:03:02,400 Speaker 1: talking about quite worried about the moment. Real estate, Josh, 61 00:03:02,440 --> 00:03:04,520 Speaker 1: that seems to be a big worry, especially on the 62 00:03:04,520 --> 00:03:07,880 Speaker 1: commercial side. Loans are starting to trade, valuations of dropping, 63 00:03:08,000 --> 00:03:08,919 Speaker 1: banks are taking a hit. 64 00:03:09,000 --> 00:03:12,360 Speaker 5: What happens next, Well, I mean, real estate is a 65 00:03:12,440 --> 00:03:15,240 Speaker 5: concern because it needs to be a concern, and there 66 00:03:15,320 --> 00:03:21,519 Speaker 5: is a there is an interconnectivity between real estate and banks. 67 00:03:22,200 --> 00:03:27,280 Speaker 5: And you know, frankly, you're seeing that kind of unwind. 68 00:03:28,080 --> 00:03:31,200 Speaker 5: You've been seeing that app that unwind over the past, 69 00:03:31,320 --> 00:03:34,400 Speaker 5: you know, twelve months with the mini bank crisis last spring, 70 00:03:34,840 --> 00:03:37,400 Speaker 5: and then of course we were reminded the banks aren't 71 00:03:37,400 --> 00:03:39,400 Speaker 5: in great shape from when we saw a New York 72 00:03:39,440 --> 00:03:42,160 Speaker 5: Community Bank you know, start. 73 00:03:41,880 --> 00:03:43,000 Speaker 2: To fall apart as well. 74 00:03:43,040 --> 00:03:45,040 Speaker 5: And that was actually one of the rescue banks that 75 00:03:45,160 --> 00:03:48,240 Speaker 5: you know, the fd I see, you know, put together 76 00:03:48,280 --> 00:03:52,560 Speaker 5: in a shotgun ready shotgun wedding with Signature Bank to 77 00:03:52,640 --> 00:03:55,400 Speaker 5: take over all of their troubled assets. So I think 78 00:03:55,440 --> 00:03:59,800 Speaker 5: it's really interesting that you know, they kind of mispriced 79 00:03:59,800 --> 00:04:03,320 Speaker 5: the assets that they were acquiring. The fdi C may 80 00:04:03,320 --> 00:04:06,120 Speaker 5: have mispriced the assets that they are acquiring. And you know, 81 00:04:06,200 --> 00:04:08,280 Speaker 5: the folks like us that we're also putting bids in 82 00:04:08,320 --> 00:04:12,000 Speaker 5: on those portfolios that we're you know, pricing that stuff 83 00:04:12,000 --> 00:04:14,640 Speaker 5: at fifty and sixty cents on the dollar, I think, 84 00:04:14,840 --> 00:04:17,560 Speaker 5: you know, are looking to be more correct in today's environment. 85 00:04:19,200 --> 00:04:21,760 Speaker 5: But when we think about real estate, it's kind of 86 00:04:22,120 --> 00:04:25,799 Speaker 5: it's kind of falling into kind of three main buckets 87 00:04:25,800 --> 00:04:30,640 Speaker 5: of opportunity, and it is a it is a massive opportunity. 88 00:04:30,640 --> 00:04:35,960 Speaker 5: I think for folks that are investors in troubled assets, 89 00:04:36,680 --> 00:04:39,160 Speaker 5: you know, this is going to be a trillion dollar opportunity. 90 00:04:39,200 --> 00:04:41,560 Speaker 5: That's going to exist over the next few years, and 91 00:04:41,600 --> 00:04:44,440 Speaker 5: it's going to take a lot of time and money 92 00:04:45,000 --> 00:04:49,440 Speaker 5: to work out. If you think about this asset class 93 00:04:50,080 --> 00:04:55,120 Speaker 5: as just a massive restructuring, you know, it's going to 94 00:04:55,200 --> 00:04:57,120 Speaker 5: take a lot of new capital and it's going to 95 00:04:57,160 --> 00:04:59,400 Speaker 5: take a lot of write downs of existing positions. 96 00:05:00,600 --> 00:05:01,360 Speaker 2: So when we look. 97 00:05:01,240 --> 00:05:03,440 Speaker 5: At it, on the one hand, we kind of have, 98 00:05:03,720 --> 00:05:07,800 Speaker 5: you know, buying existing debt, and we're typically buying that 99 00:05:07,960 --> 00:05:10,599 Speaker 5: debt from banks, and that could be whole loans, it 100 00:05:10,600 --> 00:05:13,919 Speaker 5: could be performing loans, it could be you know, portfolios 101 00:05:13,960 --> 00:05:17,919 Speaker 5: of office office loans that are you know, currently paying today, 102 00:05:18,360 --> 00:05:21,640 Speaker 5: but the banks you know, may not want to have 103 00:05:21,680 --> 00:05:23,719 Speaker 5: to deal with them when they hit their maturity date 104 00:05:23,760 --> 00:05:27,520 Speaker 5: because they think they're underwater, so they'll shed those assets 105 00:05:27,560 --> 00:05:32,000 Speaker 5: today at a discount to par. We're also very active 106 00:05:32,040 --> 00:05:35,200 Speaker 5: buyers of m p ls or non performing loans, which 107 00:05:35,200 --> 00:05:37,719 Speaker 5: are kind of all of the other types of non 108 00:05:38,480 --> 00:05:42,240 Speaker 5: non commercial real estate types of loans that banks might hold. 109 00:05:43,400 --> 00:05:47,799 Speaker 5: We're seeing opportunities as well in securities, though we haven't 110 00:05:47,800 --> 00:05:52,560 Speaker 5: really seen it manifest itself yet in the CNBS securities. 111 00:05:53,080 --> 00:05:56,640 Speaker 5: We have seen some opportunity in in what what's called Sasby's, 112 00:05:56,680 --> 00:06:01,600 Speaker 5: which are single assets, single borrow or securitization. And then 113 00:06:01,600 --> 00:06:05,280 Speaker 5: of course there's there's great opportunities in the market today 114 00:06:05,400 --> 00:06:09,960 Speaker 5: because you've had this massive retraction in lending from from 115 00:06:10,200 --> 00:06:14,039 Speaker 5: the primary sources of liquidity to real estate, which was 116 00:06:14,480 --> 00:06:19,360 Speaker 5: small and regional sized banks. There's this vacuum now and 117 00:06:19,400 --> 00:06:21,880 Speaker 5: we can provide new money, we can provide new loans, 118 00:06:21,920 --> 00:06:26,200 Speaker 5: we can recapitalize you know, good assets that have bad 119 00:06:26,240 --> 00:06:28,080 Speaker 5: balance sheets at the end of the day, because not 120 00:06:28,240 --> 00:06:31,520 Speaker 5: all you know, not all assets in the real estate 121 00:06:31,560 --> 00:06:34,440 Speaker 5: world at least today are on fire, but a good 122 00:06:34,480 --> 00:06:35,160 Speaker 5: chunk of them are. 123 00:06:35,600 --> 00:06:39,400 Speaker 3: So Josh, CNBS is looking pretty wide as it is, 124 00:06:39,720 --> 00:06:43,080 Speaker 3: but you don't think it's correctly priced yet. When do 125 00:06:43,160 --> 00:06:46,600 Speaker 3: you think when will you dive into that MRK piece 126 00:06:46,640 --> 00:06:49,520 Speaker 3: of the market, And what is your take on why 127 00:06:49,600 --> 00:06:51,039 Speaker 3: things might be mispriced? 128 00:06:51,920 --> 00:06:57,960 Speaker 5: Well, you know, the the CNBS market. Well, first of all, 129 00:06:58,000 --> 00:07:00,440 Speaker 5: there's been a pretty strong rally in credit just over 130 00:07:00,480 --> 00:07:04,000 Speaker 5: the past month, and I think I think CNBS prices 131 00:07:04,040 --> 00:07:08,760 Speaker 5: have been kind of bid up, uh And I think 132 00:07:09,360 --> 00:07:12,920 Speaker 5: that you in the CNBS market, it's really about the 133 00:07:13,000 --> 00:07:15,880 Speaker 5: haves and the have nots. You really have high quality 134 00:07:15,920 --> 00:07:19,640 Speaker 5: assets with good sponsors that are gonna, like, you know, 135 00:07:19,800 --> 00:07:24,240 Speaker 5: maintain their value, that are going to maintain their their payments. 136 00:07:24,800 --> 00:07:26,360 Speaker 2: And then you have this kind of. 137 00:07:26,280 --> 00:07:30,640 Speaker 5: Other, you know, grouping of of properties that don't fall 138 00:07:30,680 --> 00:07:33,720 Speaker 5: into that category, which are really at risk. I think 139 00:07:33,760 --> 00:07:39,200 Speaker 5: the market has identified those kind of two classes of 140 00:07:39,240 --> 00:07:43,600 Speaker 5: assets that exist within c nbs and are pricing it 141 00:07:45,520 --> 00:07:49,080 Speaker 5: based on on on that. Where I think you're going 142 00:07:49,160 --> 00:07:52,280 Speaker 5: to have a change of the mindset is when you 143 00:07:52,360 --> 00:07:56,120 Speaker 5: start seeing some of those quote unquote high quality assets 144 00:07:56,200 --> 00:08:00,280 Speaker 5: or people or or properties that folks thought they would 145 00:08:00,280 --> 00:08:02,760 Speaker 5: never get back, or that the special service ser would 146 00:08:02,800 --> 00:08:06,680 Speaker 5: never have to extend or do some you know, egregious 147 00:08:06,720 --> 00:08:10,720 Speaker 5: modification on When they start seeing those higher quality properties 148 00:08:10,920 --> 00:08:13,800 Speaker 5: get into trouble and they start seeing sponsors handback the 149 00:08:13,880 --> 00:08:16,040 Speaker 5: keys on them, that's when I think you'll see a 150 00:08:16,040 --> 00:08:18,920 Speaker 5: real kind of shift in how people are underwriting and 151 00:08:18,960 --> 00:08:21,080 Speaker 5: approaching the CNBS market. 152 00:08:21,600 --> 00:08:24,720 Speaker 1: There's also an impact we're hearing Josh on collateralized loan 153 00:08:24,760 --> 00:08:29,200 Speaker 1: obligations clos, the floating rate bridge loans being repackaged into 154 00:08:29,320 --> 00:08:32,520 Speaker 1: what they're calling cre clos. It's a bit of a mouthful, 155 00:08:33,040 --> 00:08:35,400 Speaker 1: but with interest rates still very high borrowers who took 156 00:08:35,440 --> 00:08:38,920 Speaker 1: out these loans in twenty twenty one twenty two are struggling, 157 00:08:38,960 --> 00:08:42,120 Speaker 1: and so the lenders who package them into creclos. We've 158 00:08:42,120 --> 00:08:44,920 Speaker 1: heard from a lot of people that your firm is 159 00:08:44,960 --> 00:08:48,960 Speaker 1: among those providing rescue lines of credit to issuers of creclos, 160 00:08:49,200 --> 00:08:52,360 Speaker 1: especially with banks retreating and closing warehouse lines. Is that 161 00:08:52,440 --> 00:08:55,080 Speaker 1: the case? How bad are things for cre clos? 162 00:08:55,600 --> 00:08:59,800 Speaker 5: I mean, it's it's definitely a tough market for them, 163 00:09:00,720 --> 00:09:01,520 Speaker 5: is you know? 164 00:09:02,000 --> 00:09:04,720 Speaker 2: I think I think we've been looking at it kind. 165 00:09:04,559 --> 00:09:08,640 Speaker 5: Of stepping in where banks have been stepping out of 166 00:09:08,679 --> 00:09:11,480 Speaker 5: certain situations, not only in the real estate space, but 167 00:09:11,480 --> 00:09:16,240 Speaker 5: we've seen kind of other forward flow opportunities. So these 168 00:09:16,320 --> 00:09:20,760 Speaker 5: might be consumer finance companies or mortgage originators where they 169 00:09:20,800 --> 00:09:25,280 Speaker 5: may have kind of originated product and then directly securitized 170 00:09:25,320 --> 00:09:30,199 Speaker 5: it into the market. Now, since that that exit isn't available, 171 00:09:30,280 --> 00:09:32,880 Speaker 5: we're able to kind of step in between and become 172 00:09:32,880 --> 00:09:35,719 Speaker 5: an aggregator of those assets and then you know, we'll 173 00:09:35,720 --> 00:09:38,360 Speaker 5: put on a little bit of livered leverage today, generate 174 00:09:38,400 --> 00:09:40,720 Speaker 5: a nice return, and then when the markets do return, 175 00:09:41,080 --> 00:09:43,080 Speaker 5: you know, to normal, whether that's two or three years 176 00:09:43,080 --> 00:09:47,400 Speaker 5: from now, we'll exit those those properties. But with respect 177 00:09:47,480 --> 00:09:52,600 Speaker 5: to the cre kind of COLO and CDO market, there's 178 00:09:52,679 --> 00:09:56,480 Speaker 5: definitely issues with the bridge lending that's occurred there, and 179 00:09:56,559 --> 00:10:00,719 Speaker 5: I think that it will provide opportunities for like us 180 00:10:00,760 --> 00:10:05,560 Speaker 5: to come in and recapitalize those underlying assets and end 181 00:10:05,679 --> 00:10:07,599 Speaker 5: up taking kind of more of the upside. At the 182 00:10:07,679 --> 00:10:11,960 Speaker 5: end of the day, you'll have the barrowers that will 183 00:10:12,000 --> 00:10:15,200 Speaker 5: ultimately end up hanging on for a hope note or 184 00:10:15,280 --> 00:10:18,480 Speaker 5: want to continue to operate the asset for some sort 185 00:10:18,480 --> 00:10:21,720 Speaker 5: of economic excentive, but the bulk of the kind of 186 00:10:21,800 --> 00:10:24,240 Speaker 5: upside that they may have had in a particular project 187 00:10:24,280 --> 00:10:27,600 Speaker 5: will be transferred to the lenders of the new new 188 00:10:27,640 --> 00:10:29,080 Speaker 5: capital partner that comes in. 189 00:10:29,320 --> 00:10:32,560 Speaker 3: Josh. Moving over to Europe, the real estate mark is 190 00:10:32,600 --> 00:10:35,720 Speaker 3: not looking great here either, and especially lately Germany has 191 00:10:35,760 --> 00:10:38,839 Speaker 3: been making a lot of headlines. What is your take 192 00:10:38,920 --> 00:10:42,120 Speaker 3: on the situation in Europe, in particular Germany. 193 00:10:42,960 --> 00:10:45,840 Speaker 5: We've just started, I think kind of seeing some one 194 00:10:45,880 --> 00:10:50,559 Speaker 5: off opportunities in Germany. What I can talk about is 195 00:10:50,559 --> 00:10:53,120 Speaker 5: is kind of the activity that we've seen in the 196 00:10:53,240 --> 00:10:58,120 Speaker 5: NPL space, the non performing loan space, especially around kind 197 00:10:58,120 --> 00:11:04,760 Speaker 5: of the mediterrane countries there, so Portugal, Spain, Italy, Greece, 198 00:11:05,000 --> 00:11:09,079 Speaker 5: those markets we've we've been in those markets as a 199 00:11:09,080 --> 00:11:13,480 Speaker 5: as a buyer of mpls for two decades. We have 200 00:11:13,520 --> 00:11:17,120 Speaker 5: a great team over there, headed by Francesco Colesanti that 201 00:11:17,120 --> 00:11:21,400 Speaker 5: that runs that business. And you know, to give you 202 00:11:21,440 --> 00:11:25,920 Speaker 5: a sense, last year or I think two years ago, sorry, 203 00:11:25,920 --> 00:11:29,440 Speaker 5: three years ago, we originated call it seventy five million 204 00:11:29,520 --> 00:11:33,560 Speaker 5: euro of product in mpls. 205 00:11:33,800 --> 00:11:35,199 Speaker 2: The year before last we. 206 00:11:35,200 --> 00:11:39,760 Speaker 5: Did kind of eighty eight million euros, and then last 207 00:11:39,800 --> 00:11:44,119 Speaker 5: year we did north of five hundred and fifty million euros. 208 00:11:44,679 --> 00:11:47,880 Speaker 5: For twenty twenty three, and for twenty twenty four, we're 209 00:11:47,880 --> 00:11:52,319 Speaker 5: already looking at kind of sourcing north of three hundred million. 210 00:11:52,520 --> 00:11:57,240 Speaker 5: So the the amount of mpls that banks are shedding 211 00:11:58,559 --> 00:12:01,360 Speaker 5: and the volume in that market has just you know, 212 00:12:01,800 --> 00:12:04,960 Speaker 5: picked up ten x and I think that's a sign 213 00:12:05,040 --> 00:12:07,640 Speaker 5: of kind of the underlying stress that many of them 214 00:12:07,840 --> 00:12:10,560 Speaker 5: are facing and need to get rid of these you know, 215 00:12:10,640 --> 00:12:12,640 Speaker 5: these bad assets as quickly as they can. 216 00:12:13,120 --> 00:12:17,960 Speaker 4: Josh, earlier, you mentioned the sort of trillion dollar opportunity 217 00:12:17,960 --> 00:12:20,720 Speaker 4: in real estate, which I was ecstatic to hear, obviously 218 00:12:20,760 --> 00:12:22,959 Speaker 4: as a real estate analyst, but then you talked about 219 00:12:23,000 --> 00:12:25,760 Speaker 4: the massive restructuring and clearly not so happy to hear 220 00:12:25,800 --> 00:12:29,000 Speaker 4: that as in my position, But I just wanted to 221 00:12:29,320 --> 00:12:33,040 Speaker 4: ask whether you could maybe shed like on what sectors 222 00:12:33,120 --> 00:12:36,400 Speaker 4: you think within real estate are most stressed. You've already 223 00:12:36,400 --> 00:12:39,600 Speaker 4: talked a lot about officers. Are there other areas that 224 00:12:39,679 --> 00:12:42,320 Speaker 4: you think maybe we could see more pain? 225 00:12:42,840 --> 00:12:43,120 Speaker 2: Yeah? 226 00:12:43,160 --> 00:12:46,079 Speaker 5: I mean, so you know, when we look at kind 227 00:12:46,120 --> 00:12:51,480 Speaker 5: of real estate valuations overall, I mean since twenty twenty two, 228 00:12:52,000 --> 00:12:54,800 Speaker 5: I think overall real estate values have come down like 229 00:12:54,880 --> 00:12:58,600 Speaker 5: twenty twenty five percent. You know, when you look at 230 00:12:59,520 --> 00:13:02,800 Speaker 5: kind of blick markets, it's maybe come down thirty percent. 231 00:13:03,840 --> 00:13:06,000 Speaker 5: And then within there you have you know, you have 232 00:13:06,160 --> 00:13:08,240 Speaker 5: some good assets and you have bad assets. You know, 233 00:13:08,400 --> 00:13:12,640 Speaker 5: office is facing this, you know, this headwind of people 234 00:13:12,960 --> 00:13:16,360 Speaker 5: you know, officing less, you know, working remotely, working from 235 00:13:16,440 --> 00:13:21,199 Speaker 5: alternative spaces. So that's definitely going to put pressure on rent. 236 00:13:21,280 --> 00:13:26,240 Speaker 5: And we've seen you know, office assets priced down, you know, 237 00:13:26,280 --> 00:13:29,360 Speaker 5: as much as fifty percent, and some of the you know, 238 00:13:29,559 --> 00:13:33,240 Speaker 5: B and C class suburban might be worth land value 239 00:13:33,280 --> 00:13:33,880 Speaker 5: at this point. 240 00:13:34,720 --> 00:13:37,000 Speaker 2: It's it's it's pretty bad in that sector. 241 00:13:37,120 --> 00:13:40,080 Speaker 5: But you know, it won't stop us from investing in 242 00:13:40,120 --> 00:13:42,360 Speaker 5: it because there's a price for everything. And if I 243 00:13:42,400 --> 00:13:46,559 Speaker 5: can you know, buy a performing office loan that may 244 00:13:46,640 --> 00:13:50,600 Speaker 5: have three or four years of duration for fifty or 245 00:13:50,640 --> 00:13:53,360 Speaker 5: sixty or seventy cents on the dollar, collect a coupon, 246 00:13:53,720 --> 00:13:55,480 Speaker 5: you know, for the next three or four years, and 247 00:13:55,520 --> 00:13:58,360 Speaker 5: sink my basis and even further, you know, I might 248 00:13:58,480 --> 00:14:01,240 Speaker 5: be close to land value the time I actually have to, 249 00:14:01,720 --> 00:14:05,199 Speaker 5: you know, redo that loan. Now, the banks don't want 250 00:14:05,200 --> 00:14:08,479 Speaker 5: to do that. They don't necessarily have the the infrastructure, 251 00:14:08,559 --> 00:14:12,199 Speaker 5: or the asset management or just the experience of restructuring 252 00:14:12,400 --> 00:14:16,880 Speaker 5: you know, large amounts of real estate portfolios. But in Fortress, 253 00:14:16,920 --> 00:14:19,200 Speaker 5: you know, this is kind of what we do and 254 00:14:19,240 --> 00:14:21,440 Speaker 5: what we've been doing for the past you know, twenty 255 00:14:21,440 --> 00:14:25,400 Speaker 5: two years, and we have that infrastructure and know how 256 00:14:25,440 --> 00:14:28,800 Speaker 5: in place, and it's not rocket science, but it does 257 00:14:28,880 --> 00:14:32,120 Speaker 5: take a lot of you know, investing in personnel, and 258 00:14:32,160 --> 00:14:36,000 Speaker 5: it does take a lot of technology and and and 259 00:14:36,080 --> 00:14:40,040 Speaker 5: infrastructure and expense. At the end of the day, I 260 00:14:40,080 --> 00:14:44,320 Speaker 5: think when you look at when you look at real 261 00:14:44,400 --> 00:14:48,320 Speaker 5: estate securities in the CNBS market, you have like a 262 00:14:48,440 --> 00:14:53,080 Speaker 5: trillion dollars that's coming due by twenty twenty five we 263 00:14:53,200 --> 00:14:56,520 Speaker 5: think half of those are troubled. And when I say 264 00:14:56,560 --> 00:15:00,280 Speaker 5: they're troubled, it means that kind of you know, as 265 00:15:00,320 --> 00:15:03,560 Speaker 5: of a year ago, those loans may have been at 266 00:15:03,600 --> 00:15:07,800 Speaker 5: like eighty percent loan to value just by the decrease 267 00:15:07,880 --> 00:15:11,240 Speaker 5: in value that was already realized. And so now with 268 00:15:11,280 --> 00:15:13,840 Speaker 5: the additional passage of time, you might be looking at 269 00:15:13,920 --> 00:15:16,200 Speaker 5: loans that are one hundred or even one hundred and 270 00:15:16,400 --> 00:15:20,920 Speaker 5: ten percent of the value. So you know, those those 271 00:15:20,960 --> 00:15:22,880 Speaker 5: issues can be dealt with. They're just not going to 272 00:15:22,920 --> 00:15:26,200 Speaker 5: be dealt with the par It's going to require somebody else, 273 00:15:26,440 --> 00:15:29,440 Speaker 5: you know, like us, to come in and buy those 274 00:15:29,480 --> 00:15:30,320 Speaker 5: at a discount. 275 00:15:30,680 --> 00:15:32,680 Speaker 4: You talked about this sort of being your bread and 276 00:15:33,200 --> 00:15:38,800 Speaker 4: butter business. You've looked at the working these things out 277 00:15:38,840 --> 00:15:40,520 Speaker 4: over three or four years, and maybe the banks are 278 00:15:40,600 --> 00:15:42,720 Speaker 4: not able to do that, and we I guess we'll 279 00:15:42,720 --> 00:15:44,680 Speaker 4: come to the banks in a minute. But one of 280 00:15:44,720 --> 00:15:47,120 Speaker 4: the other issues I guess we've been facing is the 281 00:15:47,160 --> 00:15:50,760 Speaker 4: difference between so called prime or Class A type assets 282 00:15:50,880 --> 00:15:57,000 Speaker 4: and the not so prime assets. So in your view, 283 00:15:57,120 --> 00:16:01,000 Speaker 4: is there enough of an opportunity within the prime subsect 284 00:16:01,560 --> 00:16:05,080 Speaker 4: for you to is that the subject that you're looking 285 00:16:05,120 --> 00:16:07,720 Speaker 4: at or do you think that you need to look 286 00:16:07,760 --> 00:16:10,440 Speaker 4: at some of the non prime stuff to really get 287 00:16:10,440 --> 00:16:11,640 Speaker 4: the returns that you would like. 288 00:16:12,000 --> 00:16:15,440 Speaker 5: Well, in the security space, we're definitely looking more towards 289 00:16:15,480 --> 00:16:20,360 Speaker 5: the prime. So we're looking at you know, attractive yields 290 00:16:20,400 --> 00:16:23,280 Speaker 5: i'd say kind of mid teen yields. But in assets, 291 00:16:23,400 --> 00:16:25,880 Speaker 5: you know that are you know, it could be the 292 00:16:25,920 --> 00:16:28,640 Speaker 5: best office building in San Francisco. I mean, you know, 293 00:16:28,760 --> 00:16:31,720 Speaker 5: it's got a great sponsor, it has a great rent role. 294 00:16:31,800 --> 00:16:32,800 Speaker 2: They've got you know a. 295 00:16:32,720 --> 00:16:35,720 Speaker 5: Lot of tenants that have signed up for good term. 296 00:16:36,360 --> 00:16:38,640 Speaker 5: You can buy some of the junior tranches in that. 297 00:16:38,840 --> 00:16:44,000 Speaker 5: It's pretty attractive yields, especially if you're looking at a 298 00:16:44,160 --> 00:16:45,800 Speaker 5: yield to maturity. And then even if you get a 299 00:16:45,840 --> 00:16:48,680 Speaker 5: couple of extensions built in there from the servicer, it's 300 00:16:48,680 --> 00:16:52,760 Speaker 5: still it's still a relatively kind of attractive risk and reward. 301 00:16:53,360 --> 00:16:55,680 Speaker 5: So we're looking at that on the security side, and 302 00:16:56,080 --> 00:17:02,480 Speaker 5: again that's primarily through Sasby's we're doing that, and then 303 00:17:02,560 --> 00:17:05,920 Speaker 5: on the whole loan side it will get a little murkier. 304 00:17:06,119 --> 00:17:09,280 Speaker 5: You know, we're we're going to buy you know, we 305 00:17:09,280 --> 00:17:12,200 Speaker 5: we have bought you know, probably a billion and a 306 00:17:12,280 --> 00:17:20,000 Speaker 5: half of performing office loans from financial institutions, and these 307 00:17:20,080 --> 00:17:23,720 Speaker 5: have you know, ranged anywhere from kind of fifty cents 308 00:17:23,760 --> 00:17:26,280 Speaker 5: on the dollar to sixty nine cents on the dollar. 309 00:17:26,880 --> 00:17:29,560 Speaker 5: But as I mentioned before, these are all performing today, 310 00:17:29,840 --> 00:17:34,200 Speaker 5: so you're clipping coupons on them today and sinking your 311 00:17:34,240 --> 00:17:35,399 Speaker 5: basis even further. 312 00:17:36,040 --> 00:17:39,240 Speaker 2: And then when we buy these, you know. 313 00:17:39,240 --> 00:17:42,640 Speaker 5: You might have a portfolio of twenty five or thirty loans. 314 00:17:43,800 --> 00:17:46,600 Speaker 5: You're coming up with an asset management and workout plan 315 00:17:46,720 --> 00:17:49,360 Speaker 5: for each one. And some of them, you know, may 316 00:17:49,400 --> 00:17:51,760 Speaker 5: have a good sponsor attached to it, so you know 317 00:17:51,840 --> 00:17:55,000 Speaker 5: that they're going to protect the asset. Some of them 318 00:17:55,200 --> 00:17:58,880 Speaker 5: may just be a you know, a single shingle kind 319 00:17:58,880 --> 00:18:02,280 Speaker 5: of owner or a family office, and you might not 320 00:18:02,440 --> 00:18:05,520 Speaker 5: have that ability to tap in. And so you're pricing 321 00:18:05,600 --> 00:18:08,200 Speaker 5: each one of those assets differently. You know, we might 322 00:18:08,320 --> 00:18:12,199 Speaker 5: price one property at twenty five cent recovery and we 323 00:18:12,280 --> 00:18:16,000 Speaker 5: might price another property at eighty cent recovery. 324 00:18:16,200 --> 00:18:17,640 Speaker 2: But blended together. 325 00:18:17,440 --> 00:18:20,159 Speaker 5: You know, we're getting like fifty five cents on the 326 00:18:20,200 --> 00:18:24,000 Speaker 5: dollar and our bid. You know, before we weren't getting 327 00:18:24,040 --> 00:18:28,600 Speaker 5: any traction on having banks transact at these levels, but 328 00:18:28,760 --> 00:18:32,520 Speaker 5: now I think you know, reality has sent set in 329 00:18:33,119 --> 00:18:37,639 Speaker 5: and you're you're seeing those opportunities come forward because the 330 00:18:37,680 --> 00:18:41,959 Speaker 5: banks fear that they're going to decline further and just 331 00:18:42,000 --> 00:18:43,480 Speaker 5: want to kind of take the hit. 332 00:18:44,000 --> 00:18:45,359 Speaker 2: They built up the reserves. 333 00:18:45,440 --> 00:18:48,680 Speaker 5: They're not lending any more money, right, so any any 334 00:18:48,720 --> 00:18:52,320 Speaker 5: excess spread they're generating, they're putting towards their balance sheet, 335 00:18:54,040 --> 00:18:57,520 Speaker 5: and once they hit that point, they're able to dispose 336 00:18:57,560 --> 00:19:01,399 Speaker 5: of the assets. I think, as I mentioned before, I 337 00:19:01,400 --> 00:19:05,680 Speaker 5: think that the the interconnectivity between banks and the real 338 00:19:05,800 --> 00:19:11,760 Speaker 5: estate market is going to continue for the next couple 339 00:19:11,720 --> 00:19:15,480 Speaker 5: of years, and you're going to see more of you know, 340 00:19:15,600 --> 00:19:22,320 Speaker 5: this consolidation and or liquidation of US banks. 341 00:19:22,480 --> 00:19:24,159 Speaker 2: You know, in during the. 342 00:19:25,800 --> 00:19:28,840 Speaker 5: Savings and loans crisis and the the RTC days, which 343 00:19:28,920 --> 00:19:31,719 Speaker 5: which I came into at the very beginning of my career, 344 00:19:32,280 --> 00:19:35,040 Speaker 5: you had almost seven hundred and fifty banks fail in 345 00:19:35,080 --> 00:19:38,520 Speaker 5: the US. During the Global Financial Crisis, you had four 346 00:19:38,600 --> 00:19:42,439 Speaker 5: hundred banks fail in the US. We've had five so 347 00:19:42,560 --> 00:19:45,560 Speaker 5: far with this one, and it was the quickest and 348 00:19:45,720 --> 00:19:49,399 Speaker 5: largest interest rate move that we've had in forty five years. 349 00:19:50,680 --> 00:19:52,359 Speaker 5: I just think a lot more eggs are going to 350 00:19:52,359 --> 00:19:54,159 Speaker 5: get broken at the end of the day, and I 351 00:19:54,200 --> 00:19:57,280 Speaker 5: think some of those situations are going to be resolved 352 00:19:57,280 --> 00:20:02,160 Speaker 5: by the FDIC by doing these shotgun weddings where they're 353 00:20:02,160 --> 00:20:05,040 Speaker 5: putting two institutions together and they're coming up with a 354 00:20:05,119 --> 00:20:09,440 Speaker 5: loss sharing structure, and others are going to be resolved 355 00:20:10,520 --> 00:20:12,520 Speaker 5: by fully just liquidating the banks. 356 00:20:12,720 --> 00:20:14,359 Speaker 2: And you're starting to see that. 357 00:20:14,440 --> 00:20:16,920 Speaker 5: I mean, there's you know, the FDIC is holding auctions 358 00:20:16,960 --> 00:20:19,560 Speaker 5: all the times of different loan pools that they've effectively 359 00:20:19,640 --> 00:20:23,320 Speaker 5: kind of repossessed, and and you know, if you were 360 00:20:23,359 --> 00:20:26,880 Speaker 5: to bid on those assets without underlying support or some 361 00:20:27,320 --> 00:20:30,240 Speaker 5: back end lost sharing agreement from the FDICE, I think 362 00:20:30,320 --> 00:20:33,560 Speaker 5: they would price much much cheaper than they have been. 363 00:20:34,800 --> 00:20:36,480 Speaker 1: The banks that are affected, though, Josh, when we talked 364 00:20:36,480 --> 00:20:38,359 Speaker 1: to the optimists about this, they say, it's just this 365 00:20:38,560 --> 00:20:42,120 Speaker 1: very small community banks. It's nothing systemic, it's nothing that important, 366 00:20:42,160 --> 00:20:44,440 Speaker 1: and these things will all this will all blow over 367 00:20:44,520 --> 00:20:47,120 Speaker 1: without a widespread crisis. Do you think it's bigger than that. 368 00:20:48,600 --> 00:20:52,400 Speaker 5: I mean, I don't think there's a systemic risk at 369 00:20:52,400 --> 00:20:54,000 Speaker 5: the end of the day. But to say it's just 370 00:20:54,040 --> 00:20:56,840 Speaker 5: going to be limited to small banks in today's world, 371 00:20:57,400 --> 00:21:00,480 Speaker 5: where you can have a run on a bank up 372 00:21:01,040 --> 00:21:06,080 Speaker 5: and kind of manifest itself over you know, over two 373 00:21:06,160 --> 00:21:09,439 Speaker 5: or three days, because people are taking money out with 374 00:21:09,520 --> 00:21:11,800 Speaker 5: their with their cell phones. I mean, that's just a 375 00:21:11,880 --> 00:21:16,240 Speaker 5: new dynamic and the stress that's involved with that on 376 00:21:16,359 --> 00:21:20,240 Speaker 5: these banks, I think can can produce outcomes that people 377 00:21:20,400 --> 00:21:24,520 Speaker 5: can't necessarily predict. But I mean, look at the banks 378 00:21:24,520 --> 00:21:27,119 Speaker 5: that have already gone down. I mean they were big, 379 00:21:27,280 --> 00:21:30,400 Speaker 5: mult you know, two hundred and fifty billion dollar institutions. 380 00:21:30,440 --> 00:21:33,920 Speaker 5: These are not small banks. Now, they had other issues, 381 00:21:34,000 --> 00:21:36,879 Speaker 5: you know, they they they went long, you know, on 382 00:21:37,040 --> 00:21:39,760 Speaker 5: the wrong side of a rate trade, and they were 383 00:21:39,840 --> 00:21:43,800 Speaker 5: exposed to you know, huge amounts of uninsured deposits. But 384 00:21:44,680 --> 00:21:49,320 Speaker 5: I think the underlying restructuring that's going to occur within 385 00:21:49,400 --> 00:21:52,760 Speaker 5: the real estate market is going to continually drag on 386 00:21:53,000 --> 00:21:56,800 Speaker 5: small and regional banks for many years, and it's going 387 00:21:56,880 --> 00:21:57,720 Speaker 5: to be a process. 388 00:21:57,760 --> 00:21:59,400 Speaker 2: It's going to be a churning process. 389 00:21:59,480 --> 00:22:02,480 Speaker 5: And every now and then you're going to have a 390 00:22:02,560 --> 00:22:06,040 Speaker 5: you know, New York community bank pop up where where 391 00:22:06,040 --> 00:22:08,600 Speaker 5: people were like, gosh, you know, we we took a 392 00:22:08,680 --> 00:22:12,159 Speaker 5: you know, a fifty million dollar reserve one quarter, and 393 00:22:12,200 --> 00:22:15,080 Speaker 5: now we're increasing that by ten x the next quarter. 394 00:22:15,480 --> 00:22:17,960 Speaker 3: Josh Fortress is one of the few firms that have 395 00:22:18,080 --> 00:22:21,680 Speaker 3: tried to buy a bank out of liquidation through in 396 00:22:21,720 --> 00:22:26,720 Speaker 3: this new era the last few years, and the FDIC 397 00:22:26,960 --> 00:22:31,120 Speaker 3: and bank regulators don't seem too keen on private equity 398 00:22:31,200 --> 00:22:34,800 Speaker 3: hedge funds getting How have you found that process? What 399 00:22:34,960 --> 00:22:38,000 Speaker 3: is your thought on on non banks? 400 00:22:38,359 --> 00:22:41,320 Speaker 5: Yeah, I mean, Lisa, I think I think you're exactly right. 401 00:22:41,400 --> 00:22:46,520 Speaker 5: I don't think the government regulators liked the idea of 402 00:22:46,600 --> 00:22:50,879 Speaker 5: private capital making profit off of you know, kind of 403 00:22:50,920 --> 00:22:55,360 Speaker 5: the woes of these these banks, especially when they were 404 00:22:55,400 --> 00:23:00,760 Speaker 5: supposed to be regulated very efficiently and closely by government entities. 405 00:23:02,359 --> 00:23:03,640 Speaker 2: So I would say that. 406 00:23:05,400 --> 00:23:08,560 Speaker 5: At least to date, there's been a lot of reticence 407 00:23:08,680 --> 00:23:11,240 Speaker 5: to to deal with folks like US and and other 408 00:23:11,280 --> 00:23:16,960 Speaker 5: private equity firms. And I think the the processes that 409 00:23:17,000 --> 00:23:21,720 Speaker 5: they've employed have been fairly schizophrenic as far as how 410 00:23:21,760 --> 00:23:23,520 Speaker 5: they've approached these situations. 411 00:23:23,560 --> 00:23:25,439 Speaker 2: You know, you've you. 412 00:23:25,520 --> 00:23:28,480 Speaker 5: Had them make announcements, you know, on a on a Friday, 413 00:23:28,520 --> 00:23:31,800 Speaker 5: that they were guaranteeing all the deposits, not just the minimums, 414 00:23:31,800 --> 00:23:35,080 Speaker 5: and you had you know, you know, these these these 415 00:23:35,119 --> 00:23:40,600 Speaker 5: mergers between different institutions occurring over a weekend. But I 416 00:23:40,640 --> 00:23:45,200 Speaker 5: think that the underlying stress here is just so big, 417 00:23:45,280 --> 00:23:48,760 Speaker 5: as I said, you know, a multi trillion dollar problem 418 00:23:49,400 --> 00:23:52,480 Speaker 5: that they'll eventually get to a point where where I 419 00:23:52,480 --> 00:23:56,120 Speaker 5: think they're just going to have to utilize private capital 420 00:23:56,200 --> 00:23:59,119 Speaker 5: to help clean up the mess and to help recapitalize 421 00:23:59,119 --> 00:23:59,640 Speaker 5: the system. 422 00:24:00,160 --> 00:24:01,560 Speaker 3: What are you doing to get ready for that? 423 00:24:02,320 --> 00:24:04,879 Speaker 5: I mean, you know, we we we are you know, 424 00:24:05,280 --> 00:24:08,239 Speaker 5: like like I said, we're kind of we're interacting with 425 00:24:08,280 --> 00:24:11,679 Speaker 5: those banks that have built up enough capital reserves that 426 00:24:11,720 --> 00:24:15,439 Speaker 5: they can start selling assets at distress prices. So you know, 427 00:24:15,480 --> 00:24:18,480 Speaker 5: we're going to continue to engage on those kind of 428 00:24:18,520 --> 00:24:23,280 Speaker 5: bilateral conversations, and we'll continue to buy assets, uh, directly 429 00:24:23,359 --> 00:24:27,160 Speaker 5: from financial institutions before they get you know, taken over 430 00:24:27,200 --> 00:24:29,680 Speaker 5: by the FD I see. But you know, the next 431 00:24:29,760 --> 00:24:32,760 Speaker 5: the next bank blow up or the next liquidation you 432 00:24:32,760 --> 00:24:34,920 Speaker 5: see out there will be one of the bidders again. 433 00:24:35,000 --> 00:24:37,639 Speaker 5: And you know, we might we might take on a 434 00:24:37,640 --> 00:24:41,159 Speaker 5: bank charter at some point and and uh and uh 435 00:24:41,280 --> 00:24:43,240 Speaker 5: you know, or team up with a bank. You know 436 00:24:43,600 --> 00:24:46,960 Speaker 5: that we could invest in on a minority basis to 437 00:24:46,960 --> 00:24:47,840 Speaker 5: help accomplish that. 438 00:24:49,200 --> 00:24:51,720 Speaker 2: But you know, we'll just have to see how the 439 00:24:51,760 --> 00:24:52,640 Speaker 2: process works out. 440 00:24:53,440 --> 00:24:55,439 Speaker 4: Given what you're saying about the risks in the banking 441 00:24:55,480 --> 00:24:58,160 Speaker 4: sector and the times that we will have many more 442 00:24:58,720 --> 00:25:00,920 Speaker 4: failures and so on. Is there are also then a 443 00:25:01,040 --> 00:25:03,199 Speaker 4: risk that we may not have seen the bottom in 444 00:25:03,280 --> 00:25:06,960 Speaker 4: terms of real estate prices, or that the workouts that 445 00:25:07,000 --> 00:25:09,160 Speaker 4: you talked about taking to three or four years might 446 00:25:09,200 --> 00:25:12,480 Speaker 4: actually take much much longer. And what would your appetite 447 00:25:12,520 --> 00:25:15,520 Speaker 4: then be if those workouts were to be extended or 448 00:25:15,560 --> 00:25:18,840 Speaker 4: if we haven't seen the bottom in terms of valuations. 449 00:25:19,280 --> 00:25:21,600 Speaker 2: Well, that's that's how we're kind of approaching it. 450 00:25:21,640 --> 00:25:25,520 Speaker 5: I mean, you know, going going back to the the FDA, 451 00:25:26,040 --> 00:25:28,080 Speaker 5: going back to the savings and loans crisis, in the 452 00:25:28,200 --> 00:25:32,399 Speaker 5: RTC days, you know, you had commercial real estate prices 453 00:25:32,560 --> 00:25:35,800 Speaker 5: not increase for five or six years. You know, they 454 00:25:36,280 --> 00:25:38,880 Speaker 5: didn't go down, and they crashed down, and then they 455 00:25:38,960 --> 00:25:42,640 Speaker 5: just stayed there and were stuck there for an extended 456 00:25:42,680 --> 00:25:43,399 Speaker 5: period of time. 457 00:25:43,520 --> 00:25:45,200 Speaker 2: So I think, you know, I think. 458 00:25:45,160 --> 00:25:47,880 Speaker 5: We need to assume that you could have a very 459 00:25:47,880 --> 00:25:51,560 Speaker 5: similar situation where, you know, when you do hit the 460 00:25:51,600 --> 00:25:54,159 Speaker 5: bottom and I'm not saying, you know, to your point 461 00:25:54,320 --> 00:25:57,760 Speaker 5: that we are at the bottom today, that you could have, 462 00:25:58,119 --> 00:26:01,440 Speaker 5: you know, this extended kind of dignated period of time 463 00:26:01,480 --> 00:26:04,560 Speaker 5: where you just don't see increases in values, which frankly 464 00:26:04,600 --> 00:26:07,480 Speaker 5: people have enjoyed for the last twenty years because interest 465 00:26:07,560 --> 00:26:10,160 Speaker 5: rates have been kept so low and you know, been 466 00:26:10,200 --> 00:26:14,960 Speaker 5: reduced from much more moderate levels. So you know, when 467 00:26:14,960 --> 00:26:17,760 Speaker 5: we're buying an asset and we're pricing an asset, we're 468 00:26:17,800 --> 00:26:20,080 Speaker 5: making those assumptions that there's not going to be an. 469 00:26:20,000 --> 00:26:21,320 Speaker 2: Easy exit for us. 470 00:26:21,960 --> 00:26:26,440 Speaker 5: You know, i'd say the last you know, two distress cycles, 471 00:26:26,560 --> 00:26:29,560 Speaker 5: you know, whether it's COVID or it's the global financial crisis, 472 00:26:29,600 --> 00:26:33,520 Speaker 5: for you know, for operators like US, it's it was 473 00:26:34,040 --> 00:26:39,080 Speaker 5: very unusual because we were underwriting and assessing assets assuming 474 00:26:39,119 --> 00:26:41,439 Speaker 5: you were going to have this long duration, you know, 475 00:26:41,560 --> 00:26:43,639 Speaker 5: five year recession and prices. 476 00:26:43,280 --> 00:26:44,119 Speaker 2: Were going to crash. 477 00:26:44,200 --> 00:26:48,200 Speaker 5: And then in both those cases, you know, they weren't 478 00:26:48,200 --> 00:26:51,320 Speaker 5: true distress cycles because the central bank, you know, blew 479 00:26:51,359 --> 00:26:53,679 Speaker 5: their horn and they came running to the rescue and 480 00:26:54,119 --> 00:26:57,720 Speaker 5: flooded the world with liquidity and low interest rates. You know, 481 00:26:57,760 --> 00:27:00,760 Speaker 5: they can't do that this time around. So I would 482 00:27:00,880 --> 00:27:03,359 Speaker 5: argue that what you're going to see for the next 483 00:27:03,400 --> 00:27:07,480 Speaker 5: couple of years is a traditional distress cycle, and those 484 00:27:07,480 --> 00:27:10,560 Speaker 5: are as we know our multi year cycles where it 485 00:27:10,640 --> 00:27:14,080 Speaker 5: takes a long time to work through. You know, you 486 00:27:14,160 --> 00:27:16,359 Speaker 5: might not have crashes, but you're certainly going to have 487 00:27:16,400 --> 00:27:18,800 Speaker 5: bumps along the way, and and it's going to take 488 00:27:18,920 --> 00:27:23,240 Speaker 5: time and and and a lot of capital and a 489 00:27:23,280 --> 00:27:25,240 Speaker 5: lot of kind of losses to be realized. 490 00:27:26,160 --> 00:27:29,240 Speaker 4: There's one of the things that you mentioned was potentially 491 00:27:29,320 --> 00:27:33,440 Speaker 4: being a minority investor in a bank of some sort 492 00:27:33,560 --> 00:27:37,680 Speaker 4: at some point. But can I rather chiefly take liberty 493 00:27:37,760 --> 00:27:42,200 Speaker 4: to ask, could we see a Fortress bank in twelve 494 00:27:42,280 --> 00:27:43,840 Speaker 4: to twenty four months. 495 00:27:44,240 --> 00:27:47,800 Speaker 2: No, I don't think so, we don't. 496 00:27:48,840 --> 00:27:52,879 Speaker 5: I mean, there's there's there's I think other ways that 497 00:27:52,920 --> 00:27:56,960 Speaker 5: we can make great returns for investors on a risk 498 00:27:56,960 --> 00:28:00,520 Speaker 5: adjusted basis by investing in the underlying as it's then 499 00:28:00,600 --> 00:28:04,159 Speaker 5: having to take on the burden of you know, holding 500 00:28:04,200 --> 00:28:07,560 Speaker 5: deposits in a true regulatory system that it surrounds that. 501 00:28:08,560 --> 00:28:10,959 Speaker 5: You know, we're active lenders in the market through our 502 00:28:11,000 --> 00:28:14,600 Speaker 5: private credit business, in our direct lending business, and you 503 00:28:14,600 --> 00:28:18,880 Speaker 5: know that business has grown tremendously, just like the overall 504 00:28:18,960 --> 00:28:23,240 Speaker 5: market has. And you know it's it's not because you know, 505 00:28:24,200 --> 00:28:27,160 Speaker 5: everybody's just pushing dollars out the door. It's because there's 506 00:28:27,200 --> 00:28:29,639 Speaker 5: a need for it. There's the demand for it because 507 00:28:30,040 --> 00:28:32,760 Speaker 5: traditional sources of lending have closed up a shop. 508 00:28:33,560 --> 00:28:36,760 Speaker 1: So when we look at Fortress on the terminal, Josh, 509 00:28:36,840 --> 00:28:40,120 Speaker 1: We've seen everywhere, you know, from the guided networks in 510 00:28:40,160 --> 00:28:44,120 Speaker 1: distress corporates to a twelve billion dollar high speed rail 511 00:28:44,160 --> 00:28:47,760 Speaker 1: project connecting Las Vegas to southern California. You're also in 512 00:28:47,960 --> 00:28:51,680 Speaker 1: a joint venture in Greece buying debt managed by the 513 00:28:51,720 --> 00:28:55,360 Speaker 1: country's credit servicing firms at a discount. There are all 514 00:28:55,400 --> 00:28:58,720 Speaker 1: sorts of things that are happening. What's the best relative 515 00:28:58,800 --> 00:29:00,960 Speaker 1: value for you? Where's the opportune TV you have to 516 00:29:00,960 --> 00:29:01,560 Speaker 1: pick one thing? 517 00:29:02,280 --> 00:29:05,520 Speaker 5: Well, you know, I think, I think what we what 518 00:29:05,600 --> 00:29:07,760 Speaker 5: we think is one of our strengths at the end 519 00:29:07,800 --> 00:29:10,920 Speaker 5: of the day is our ability to to listen to 520 00:29:10,920 --> 00:29:14,640 Speaker 5: what the market's ultimately telling us. You know, the the 521 00:29:14,720 --> 00:29:18,800 Speaker 5: opportunity sets that exist out there move around over time. 522 00:29:18,960 --> 00:29:21,640 Speaker 5: You know, if we ever get stuck in a lane 523 00:29:21,680 --> 00:29:24,880 Speaker 5: and we're just investing in you know, corporate distress debt 524 00:29:25,280 --> 00:29:28,120 Speaker 5: and all of a sudden, you know, you know, credit 525 00:29:28,200 --> 00:29:31,640 Speaker 5: rallies and and we have nothing to buy, it's not 526 00:29:31,720 --> 00:29:35,240 Speaker 5: a great business model for us. So we pick careful 527 00:29:35,240 --> 00:29:38,040 Speaker 5: attention to kind of listening to what the market's telling 528 00:29:38,120 --> 00:29:41,160 Speaker 5: us and trying to find those opportunities that do. 529 00:29:41,280 --> 00:29:43,160 Speaker 2: Provide that best risk of reward. 530 00:29:43,800 --> 00:29:47,240 Speaker 5: And sometimes those opportunities exist in the public markets. So 531 00:29:47,320 --> 00:29:52,360 Speaker 5: for example, you know, the three months after the COVID lockdown, 532 00:29:52,520 --> 00:29:55,520 Speaker 5: so like you know, March April, may you know June. 533 00:29:55,680 --> 00:29:57,120 Speaker 2: I mean, we we didn't. 534 00:29:56,960 --> 00:29:59,800 Speaker 5: Do one private investment over that period of time, and 535 00:29:59,840 --> 00:30:02,960 Speaker 5: we pushed billions of dollars out the door to buy 536 00:30:03,280 --> 00:30:07,240 Speaker 5: lots of great you know correct, you know, cheaply priced 537 00:30:08,280 --> 00:30:12,120 Speaker 5: liquid assets. And as the market's recovered, then we kind 538 00:30:12,120 --> 00:30:14,600 Speaker 5: of get more of a balance between private investing and 539 00:30:14,640 --> 00:30:18,120 Speaker 5: public investing, and then we move around between. 540 00:30:17,840 --> 00:30:18,960 Speaker 2: Different asset classes. 541 00:30:19,000 --> 00:30:22,520 Speaker 5: Some of those are are generated by the market, for example, 542 00:30:22,600 --> 00:30:26,400 Speaker 5: the real estate opportunity that exists out there, or the 543 00:30:26,480 --> 00:30:29,960 Speaker 5: lending opportunity through our private credit business, or you know, 544 00:30:30,360 --> 00:30:37,360 Speaker 5: certain may perhaps distress pe opportunities. And at the same time, 545 00:30:37,480 --> 00:30:41,720 Speaker 5: we have the ability to kind of generate non market 546 00:30:41,800 --> 00:30:46,080 Speaker 5: correlated returns through kind of businesses that we've that we've 547 00:30:47,120 --> 00:30:50,600 Speaker 5: put together and grown up within Fortress, and those might 548 00:30:50,640 --> 00:30:53,440 Speaker 5: be things like our legal assets business or our I 549 00:30:53,560 --> 00:30:57,200 Speaker 5: P business, which you know, for the most part aren't 550 00:30:57,200 --> 00:31:00,440 Speaker 5: affected by interest rates or the overall market. So you 551 00:31:00,520 --> 00:31:02,640 Speaker 5: kind of take all that together and bundle it together, 552 00:31:02,680 --> 00:31:04,760 Speaker 5: and you can come up with, you know, pretty resilient 553 00:31:04,840 --> 00:31:07,400 Speaker 5: funds at the end of the day that have terrific 554 00:31:07,440 --> 00:31:11,400 Speaker 5: downside protection, but also you know, can be very opportunistic 555 00:31:11,440 --> 00:31:14,080 Speaker 5: when the market you know, shows us that fat pitch. 556 00:31:15,000 --> 00:31:17,280 Speaker 1: But at the beginning you mentioned that you kind of 557 00:31:17,320 --> 00:31:19,520 Speaker 1: got the rates call right when everyone else is wrong. 558 00:31:19,520 --> 00:31:21,960 Speaker 1: Are there any other big contrarian calls you've got right 559 00:31:22,000 --> 00:31:23,400 Speaker 1: now that you think everyone else is wrong on? 560 00:31:25,000 --> 00:31:28,120 Speaker 5: Well, you know, making calls is always a bad idea, 561 00:31:28,840 --> 00:31:31,520 Speaker 5: at least I found that to be my experience. But 562 00:31:33,240 --> 00:31:37,240 Speaker 5: I you know, I think I think the FED has 563 00:31:37,320 --> 00:31:38,280 Speaker 5: done a pretty. 564 00:31:38,040 --> 00:31:40,600 Speaker 2: Good job of managing. 565 00:31:41,680 --> 00:31:46,200 Speaker 5: Managing this economy over the past eighteen months. I think 566 00:31:46,240 --> 00:31:49,040 Speaker 5: if you listen to them and the worst they were 567 00:31:49,040 --> 00:31:52,240 Speaker 5: coming out of their mouths, you knew exactly what was 568 00:31:52,280 --> 00:31:54,240 Speaker 5: going to happen and what was going on. 569 00:31:55,920 --> 00:31:57,160 Speaker 2: You know, there were a lot. 570 00:31:57,000 --> 00:32:01,280 Speaker 5: Of naysayers a year ago about you know, recession was coming, 571 00:32:01,400 --> 00:32:04,000 Speaker 5: and you know we're going to fall off a cliff 572 00:32:04,040 --> 00:32:06,280 Speaker 5: and we're going to have the greatest storm and the 573 00:32:06,280 --> 00:32:09,920 Speaker 5: century of of of financial conditions, and you know, all 574 00:32:09,920 --> 00:32:12,280 Speaker 5: these all these bad things. But when we when we 575 00:32:12,400 --> 00:32:15,120 Speaker 5: turned inside and we looked at our portfolios and we 576 00:32:15,120 --> 00:32:17,320 Speaker 5: looked at the companies that we were lending to, and 577 00:32:17,400 --> 00:32:20,160 Speaker 5: we looked at the things that we owned, you know, 578 00:32:20,200 --> 00:32:22,080 Speaker 5: we we didn't see that, you know, I mean, we 579 00:32:22,200 --> 00:32:26,520 Speaker 5: have thousands of borrowers that that existed Fortress and even 580 00:32:26,600 --> 00:32:30,480 Speaker 5: thousands more that we serviced through you know, other servicing 581 00:32:30,560 --> 00:32:33,240 Speaker 5: arrangements that we may have on a global basis, and 582 00:32:33,280 --> 00:32:39,640 Speaker 5: we just weren't seeing that that potential. So you know, 583 00:32:39,880 --> 00:32:44,040 Speaker 5: I've I hear the calls again for another recession, you know, 584 00:32:44,240 --> 00:32:47,440 Speaker 5: but again we're not necessarily seeing it and our our 585 00:32:47,520 --> 00:32:52,440 Speaker 5: underlying loans and businesses. I'm keeping a very close eye 586 00:32:52,480 --> 00:32:54,760 Speaker 5: on the labor market, and I think as long as 587 00:32:54,840 --> 00:32:57,640 Speaker 5: the labor market holds together, I think as long as 588 00:32:57,680 --> 00:33:01,840 Speaker 5: you have unemployment at this level, I think inflation is 589 00:33:01,960 --> 00:33:06,160 Speaker 5: going to be stubborn, and I think the chance of 590 00:33:06,440 --> 00:33:10,080 Speaker 5: you know, falling into a recession is going to be lower. 591 00:33:11,520 --> 00:33:14,640 Speaker 5: Now that said, you know, we underwrite every loan, we 592 00:33:14,720 --> 00:33:18,800 Speaker 5: underwrite every asset we we buy on a pretty draconian 593 00:33:19,080 --> 00:33:20,080 Speaker 5: set of assumptions. 594 00:33:20,200 --> 00:33:22,040 Speaker 2: Like we were were geared to. 595 00:33:22,040 --> 00:33:25,440 Speaker 5: Only assume the worst and if something good happens, then 596 00:33:25,600 --> 00:33:29,680 Speaker 5: that's gravy on top for us. So we uh, you know, 597 00:33:29,760 --> 00:33:32,960 Speaker 5: we we have a view towards the downside, but I 598 00:33:33,000 --> 00:33:36,840 Speaker 5: don't think things are, you know, necessarily as dire as 599 00:33:37,080 --> 00:33:38,920 Speaker 5: as perhaps folks say. 600 00:33:38,960 --> 00:33:42,400 Speaker 1: It is great stuff. Josh pack Co, CEO and managing 601 00:33:42,400 --> 00:33:44,720 Speaker 1: partner at Fortress Investment Group. Many thanks for coming on 602 00:33:44,720 --> 00:33:45,320 Speaker 1: the credit edge. 603 00:33:45,400 --> 00:33:46,800 Speaker 2: Cheers, thanks for having me. 604 00:33:47,400 --> 00:33:50,000 Speaker 1: Also big thanks Lisa Leeve Bloomberg News in London. We'lliant 605 00:33:50,000 --> 00:33:50,520 Speaker 1: to see you again. 606 00:33:50,520 --> 00:33:50,800 Speaker 2: Thanks. 607 00:33:51,560 --> 00:33:54,720 Speaker 1: You read all of Lisa's great scoops on the Bloomberg 608 00:33:54,800 --> 00:33:58,320 Speaker 1: terminal and of course at Bloomberg dot com. So tolu 609 00:33:58,440 --> 00:34:01,479 Speaker 1: alamutu at Bloomberg Intelligence. There's a ton of worry right 610 00:34:01,520 --> 00:34:04,440 Speaker 1: now about commercial real estate, as we just discussed with Josh. 611 00:34:04,520 --> 00:34:07,080 Speaker 1: But where are the pain points? What are we most concerned? 612 00:34:07,600 --> 00:34:09,600 Speaker 1: How can we see this crisis on folding. 613 00:34:10,719 --> 00:34:11,560 Speaker 2: I think that. 614 00:34:13,000 --> 00:34:17,600 Speaker 4: We have in some ways seen the crisis unfolding in 615 00:34:17,640 --> 00:34:21,399 Speaker 4: some parts of the real estate bond market and also 616 00:34:21,440 --> 00:34:23,920 Speaker 4: the equity market. So if you look at where some 617 00:34:23,960 --> 00:34:28,400 Speaker 4: of the real estate securities trade now, they are the 618 00:34:28,480 --> 00:34:31,960 Speaker 4: highest yielding in the investment grade universe, and they have 619 00:34:32,120 --> 00:34:35,239 Speaker 4: been that way for some time now, which I guess 620 00:34:35,280 --> 00:34:38,799 Speaker 4: tells you that people are not yet as comfortable with 621 00:34:38,880 --> 00:34:41,600 Speaker 4: real estate issuer as they are with many of the 622 00:34:41,640 --> 00:34:45,120 Speaker 4: others within the investment grade universe. So in general, real 623 00:34:45,200 --> 00:34:48,000 Speaker 4: estate names trade quite wide, so I think there is 624 00:34:48,320 --> 00:34:52,000 Speaker 4: pain all around in terms of where securities are trading, 625 00:34:52,440 --> 00:34:56,799 Speaker 4: whether you're looking at debt or at equity, in terms 626 00:34:56,840 --> 00:35:00,960 Speaker 4: of the sectors. So the that always comes up, and 627 00:35:00,960 --> 00:35:05,480 Speaker 4: obviously also came up in the conversation with Fortress is 628 00:35:05,640 --> 00:35:10,880 Speaker 4: the office sector, which is under particular pressure because of 629 00:35:11,000 --> 00:35:15,400 Speaker 4: sustained work from home practices. So you know, vacancies in 630 00:35:15,440 --> 00:35:17,960 Speaker 4: some areas are still high, but there is definitely a 631 00:35:18,000 --> 00:35:22,160 Speaker 4: difference between you know, the so called prime and sort 632 00:35:22,160 --> 00:35:26,560 Speaker 4: of not prime sectors within office itself, but offices. I 633 00:35:26,560 --> 00:35:30,000 Speaker 4: think where the office sector is where people I think 634 00:35:30,080 --> 00:35:32,480 Speaker 4: are most worried still, and. 635 00:35:32,440 --> 00:35:35,440 Speaker 1: That's obviously great for Fortress. I mean, Josh Pack was just, 636 00:35:35,480 --> 00:35:38,399 Speaker 1: you know, really very excited about the opportunity, but it's 637 00:35:38,400 --> 00:35:42,120 Speaker 1: going to hurt somebody. He mentions the banks as big 638 00:35:42,200 --> 00:35:45,440 Speaker 1: loser essentially from this. Are there any other potential casualties 639 00:35:45,520 --> 00:35:48,279 Speaker 1: when other investors involved. Are there other areas that you 640 00:35:48,320 --> 00:35:50,200 Speaker 1: know there might be some fallout in terms of losses. 641 00:35:50,760 --> 00:35:54,000 Speaker 4: So I think we've already seen some losses in terms 642 00:35:54,000 --> 00:35:58,839 Speaker 4: of the holders of the office and other real estate 643 00:35:58,880 --> 00:36:01,520 Speaker 4: security like the and so on. And yes, he is 644 00:36:01,600 --> 00:36:06,000 Speaker 4: right that some banks will have to raise provisions, have 645 00:36:06,120 --> 00:36:09,520 Speaker 4: to take losses against the exposures that they have, but 646 00:36:10,640 --> 00:36:14,560 Speaker 4: it's all across the financial services sector. So whether that 647 00:36:15,680 --> 00:36:20,080 Speaker 4: ensurer as managed and so on, you might see pain there. 648 00:36:20,160 --> 00:36:22,279 Speaker 4: But I think the focus right now is really on 649 00:36:22,320 --> 00:36:25,480 Speaker 4: what is going on in the banking sector, primarily because 650 00:36:26,400 --> 00:36:30,840 Speaker 4: the regulators all around the world basically are taking a 651 00:36:30,880 --> 00:36:33,320 Speaker 4: closer look or seem to have been taking a closer 652 00:36:33,320 --> 00:36:36,359 Speaker 4: look at banks exposures to real estate, and in some 653 00:36:36,400 --> 00:36:40,840 Speaker 4: cases that's meaning that those lenders have to increase privinance 654 00:36:40,920 --> 00:36:44,680 Speaker 4: quite significantly against the exposures that they have, and that's 655 00:36:44,760 --> 00:36:47,440 Speaker 4: leading to losses and to the headlines that we have 656 00:36:47,560 --> 00:36:48,360 Speaker 4: been talking about. 657 00:36:48,960 --> 00:36:51,160 Speaker 1: And the last time we spoke to we talked a 658 00:36:51,200 --> 00:36:53,440 Speaker 1: lot about Sweden and Germany is kind of hot spots. 659 00:36:53,440 --> 00:36:56,759 Speaker 1: Are those still the places that in Europe least things 660 00:36:56,760 --> 00:36:59,040 Speaker 1: are kicking off most definitely? 661 00:36:59,040 --> 00:37:03,319 Speaker 4: So we we have continued to monitor what's going on 662 00:37:03,520 --> 00:37:07,040 Speaker 4: in both those countries, but also Austria has come up 663 00:37:07,040 --> 00:37:10,400 Speaker 4: because of a name called Signa, For Signa is a 664 00:37:10,600 --> 00:37:15,600 Speaker 4: very complex real estate group with multiple entities within it 665 00:37:15,920 --> 00:37:19,319 Speaker 4: that have cross shareholdings. In some cases they act as 666 00:37:19,400 --> 00:37:22,560 Speaker 4: land ords, some cases a developer, some cases even as tenants. 667 00:37:22,600 --> 00:37:26,560 Speaker 4: So that entity or various parts of that NC are 668 00:37:26,600 --> 00:37:31,080 Speaker 4: going through various types of restructuring right now. So that's 669 00:37:31,160 --> 00:37:33,440 Speaker 4: one that has received a lot of focus. But definitely 670 00:37:34,360 --> 00:37:40,320 Speaker 4: Germany still a focus for people. We had one issuer 671 00:37:40,640 --> 00:37:45,280 Speaker 4: recently say that they believe that residential real estate prices 672 00:37:45,440 --> 00:37:47,959 Speaker 4: could fall as much as thirty percent or could be 673 00:37:48,000 --> 00:37:50,680 Speaker 4: down as much as thirty percent from the peaks, which 674 00:37:50,760 --> 00:37:55,920 Speaker 4: is clearly a lot And there's still worries about the 675 00:37:55,920 --> 00:37:59,400 Speaker 4: office sector there. And definitely Sweden, but I'd say in 676 00:37:59,440 --> 00:38:01,960 Speaker 4: Sweden the focus is still on a few issuers, not 677 00:38:02,000 --> 00:38:05,239 Speaker 4: necessarily be the whole sector. So SBB is one that 678 00:38:05,320 --> 00:38:12,880 Speaker 4: always comes up and in some conversations on Sweden. 679 00:38:13,239 --> 00:38:15,600 Speaker 1: Thank you Tolo Alama two at Bloomberg Intelligence, thank you 680 00:38:15,640 --> 00:38:18,839 Speaker 1: so much for joining us. Thank you James, and check 681 00:38:18,880 --> 00:38:21,359 Speaker 1: out all of Tolly's research on the Bloomberg Terminal. It's 682 00:38:21,400 --> 00:38:23,000 Speaker 1: great stuff. I'm just going to spell your name so 683 00:38:23,040 --> 00:38:25,680 Speaker 1: people can can absolutely find it. T O l U 684 00:38:26,640 --> 00:38:29,879 Speaker 1: A l A m U t U you must must 685 00:38:29,960 --> 00:38:33,000 Speaker 1: read it. It's really must read stuff. And also check 686 00:38:33,000 --> 00:38:36,279 Speaker 1: out her webinars. They're also great, and thanks thanks again 687 00:38:36,280 --> 00:38:38,879 Speaker 1: for coming on the show. Thank you, and thanks again 688 00:38:38,920 --> 00:38:41,800 Speaker 1: to Josh Peck at Fortress and Lisa Lee from Bloomberg News. 689 00:38:41,920 --> 00:38:44,200 Speaker 1: Read all of Lisa's great scoops on The Terminal and 690 00:38:44,280 --> 00:38:47,400 Speaker 1: at Bloomberg dot com, and please do subscribe wherever you 691 00:38:47,440 --> 00:38:50,160 Speaker 1: get your podcasts. We're on Apple, Spotify and all good 692 00:38:50,239 --> 00:38:53,160 Speaker 1: podcast providers. Give us a review, tell your friends, or 693 00:38:53,160 --> 00:38:56,719 Speaker 1: email me directly at Jcrumby eight at Bloomberg dot net. 694 00:38:57,640 --> 00:38:59,600 Speaker 1: I'm James Crumby. It's been a pleasure having you join 695 00:38:59,680 --> 00:39:06,720 Speaker 1: us again next week on the Credit Edge.