WEBVTT - Bloomberg Wall Street Week - December 9th, 2022 0:00:00.560 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.880 --> 0:00:07.600 to the markets this week. Us CPI nevers reinforcing concerns 0:00:07.600 --> 0:00:10.800 about inflation. The financial stories that chief are worth a 0:00:10.840 --> 0:00:13.760 really different reaction to Mark. It's more indications of just 0:00:13.960 --> 0:00:16.360 how hot the U. S economy really is through the 0:00:16.400 --> 0:00:19.799 eyes of the most influential voices Larry Summers, the former 0:00:19.800 --> 0:00:22.880 Treachery Secretary, Katherine Keening, CEO of the n Y Mollins 0:00:22.960 --> 0:00:26.239 Sam's l Sharman, and founder of Equatic Group Investment. In 0:00:26.320 --> 0:00:30.280 Bloomberg Wall Street Week with David Weston from Bloomberg Radio, 0:00:31.440 --> 0:00:36.599 China blinks, Russia threatens, and Democrats sealed the deal in Georgia. 0:00:36.960 --> 0:00:40.199 This is Bloomberg Wall Street Week. I'm David Weston. This 0:00:40.240 --> 0:00:43.320 week special contributor Larry Summers on the search for growth 0:00:43.520 --> 0:00:46.400 in China and in the United States. But we're going 0:00:46.479 --> 0:00:52.720 to be seeing probably the biggest set of policy experiments 0:00:52.720 --> 0:00:55.680 that we've seen in China in decades. And Jeff blau 0:00:55.960 --> 0:00:59.720 related on why the market for upscale office space is hot. 0:01:00.200 --> 0:01:03.480 You look at new modern buildings with the right features, 0:01:03.480 --> 0:01:07.400 the right amenities, and the demand for those buildings is tremendous. 0:01:20.240 --> 0:01:23.840 Global Wall Street saw a week of confrontation as Democrat 0:01:23.920 --> 0:01:28.200 Raphael Warnex facedown Republican herschel Walker and yet another runoff 0:01:28.240 --> 0:01:31.679 election in Georgia and came out the winner. It is 0:01:33.520 --> 0:01:38.520 out of the four most powerful words ever spoken in 0:01:38.600 --> 0:01:45.480 a democracy, The people have spoken. Ukraine continued it's bloody 0:01:45.520 --> 0:01:50.000 confrontation with Russia using drones to strike bases inside of Russia. 0:01:50.480 --> 0:01:53.520 A third air field has come under attack by drones. 0:01:54.080 --> 0:01:57.640 State run Task news service purported that an oil shortage 0:01:57.640 --> 0:02:01.440 tank caught fire attacks where the furthest penetration yet on 0:02:01.520 --> 0:02:05.919 Russian soil since the invasion began, provoking Russian President Putin 0:02:06.080 --> 0:02:10.320 to raise once again the specter of nuclear war. Putin, however, 0:02:10.440 --> 0:02:13.880 I think has used this nuclear card an awful lot 0:02:14.720 --> 0:02:17.920 during the last few months of the war, and what 0:02:18.000 --> 0:02:21.560 he found out from President she of China is a 0:02:21.600 --> 0:02:25.080 warning not to do that. And China took a hard 0:02:25.160 --> 0:02:28.320 look at the pushback from citizens over its zero COVID 0:02:28.360 --> 0:02:31.919 policy and decided to back down at least a bit. 0:02:32.280 --> 0:02:35.079 It includes measures such as allowing people who get sick 0:02:35.120 --> 0:02:37.959 to quarantine at home instead of a government facility. They're 0:02:37.960 --> 0:02:41.080 easing up on testing to get into public spaces, for example. 0:02:41.320 --> 0:02:44.000 So it's a whole series of micro measures that are 0:02:44.000 --> 0:02:47.760 being interpreted as another step away from COVID zero by 0:02:47.880 --> 0:02:50.760 the authorities. Though it may have been encouraged by the 0:02:50.840 --> 0:02:53.640 dismal trade numbers, even as the United States kept up 0:02:53.680 --> 0:02:57.320 the pressure on semiconductors by breaking ground for a new 0:02:57.360 --> 0:03:01.440 plant in Phoenix. These investments happen. It's built on strengthen 0:03:01.480 --> 0:03:05.040 the supply chain here in America. I want to be clear. 0:03:05.680 --> 0:03:08.080 As we build a stronger supply chain, our allies and 0:03:08.160 --> 0:03:13.119 partners are building alongside us as well. I'm not sure 0:03:13.120 --> 0:03:15.240 whether it was all that conflict and confrontation. It may 0:03:15.320 --> 0:03:17.520 just have been growing concerns over a session. But the 0:03:17.560 --> 0:03:20.440 markets were not in a risky mood this week, as 0:03:20.440 --> 0:03:22.960 the SMP five hundred lost three point four percent over 0:03:22.960 --> 0:03:25.680 the week and the NASTAC was off almost four percent, 0:03:25.960 --> 0:03:28.959 while the yield yield on the tenure dipped under three 0:03:28.960 --> 0:03:30.760 point five in the middle of a week, but ended 0:03:30.840 --> 0:03:33.040 up at three point five eight percent at the end 0:03:33.040 --> 0:03:35.280 of the week. Let's bring in now Lazen Saunders, chief 0:03:35.320 --> 0:03:37.800 Investment Strategies for Charles Swab for her view on what 0:03:37.880 --> 0:03:39.640 we saw this week, Lisen, great to have you here 0:03:39.640 --> 0:03:41.440 in New York with us. I am so thrilled to 0:03:41.440 --> 0:03:43.640 be here, first time back in studio in a couple 0:03:43.640 --> 0:03:46.440 of YEARSS A real treat for So give us your 0:03:46.440 --> 0:03:48.120 take on what we saw this week, because, as I say, 0:03:48.160 --> 0:03:50.400 there were some indications the markets were getting a little 0:03:50.400 --> 0:03:54.920 nervous about risk. So I think the economic data was 0:03:55.200 --> 0:03:57.480 at least on the margin weeker than expected. P p 0:03:57.600 --> 0:04:01.680 I obviously came out a bit hotter than expected, and 0:04:01.880 --> 0:04:05.160 I think that there's just more realization that the path 0:04:05.320 --> 0:04:09.440 from here is too slower growth. Whether we ultimately find 0:04:09.480 --> 0:04:12.120 it's declared an official recession, as you and I have 0:04:12.160 --> 0:04:15.120 talked about, I think we're in already a form of recession. 0:04:15.240 --> 0:04:18.640 It's just of a rolling variety. We've seen the hit 0:04:18.760 --> 0:04:21.840 areas like housing to certain segments within the good side 0:04:21.839 --> 0:04:25.440 of the economy, the areas that had the big surge 0:04:25.640 --> 0:04:27.640 in the early stage of the pandemic that was also 0:04:27.680 --> 0:04:30.200 the breeding ground for the inflation problem we're still dealing with. 0:04:30.800 --> 0:04:34.800 That then went into recession type conditions. Disinflation in the 0:04:34.800 --> 0:04:37.920 good side of the economy housing related, but we've got 0:04:37.960 --> 0:04:41.040 the offsetting lift on the services side which services is 0:04:41.080 --> 0:04:44.479 a larger employer, so that has kept the labor market 0:04:44.480 --> 0:04:46.120 to flow. But I think we're going to continue to 0:04:46.200 --> 0:04:50.440 see weakness roll through the economy, and I think whether 0:04:50.480 --> 0:04:54.200 it's ultimately declared an official recession is almost an academic 0:04:54.800 --> 0:04:57.120 exercise at this point, and looking back on it, I 0:04:57.160 --> 0:04:59.560 think it's fair to say we had asset inflation before 0:04:59.560 --> 0:05:02.640 we had real price inflation for consumers. Has the FED 0:05:02.760 --> 0:05:05.120 been successful in pricking the bubble on some of the 0:05:05.240 --> 0:05:08.520 station you mentioned housing? For example, we have cryptocurrency certainly 0:05:08.560 --> 0:05:10.760 taken a hit. For that matter, big tech has come down. 0:05:11.000 --> 0:05:13.080 Are we starting to see some of those asset bubbles 0:05:13.160 --> 0:05:17.520 at least deflate a bit? Crypto specs and f T 0:05:17.839 --> 0:05:22.880 s um certain, if not most pockets of the housing market. 0:05:22.920 --> 0:05:27.320 To your point, big tech, other narrative driven, speculation driven 0:05:27.360 --> 0:05:32.560 areas like heavily shorted stocks, nonprofitable, All of those what 0:05:32.560 --> 0:05:37.279 what we've been calling micro bubbles undoubtedly have gotten not 0:05:37.440 --> 0:05:41.479 just pricked, but they sort of popped in spectacular fashion. 0:05:41.600 --> 0:05:44.360 You know. The good news is is a lot of 0:05:44.400 --> 0:05:49.120 that speculative excess, even when we were in the heights 0:05:49.160 --> 0:05:53.840 of those bubbles, had not fully filtered over into the 0:05:53.920 --> 0:05:57.400 traditional market areas. And that's what we were always saying 0:05:57.480 --> 0:06:01.039 was very distinct from the current ironment or the most 0:06:01.160 --> 0:06:07.000 the recent environment and where the speculative excess was concentrated 0:06:07.560 --> 0:06:10.960 in the major averages. It's been just a little bit 0:06:11.000 --> 0:06:15.159 outside that mainstream, say for some of the the big 0:06:15.240 --> 0:06:18.440 cap tech names. And I think it's just evaluation compression 0:06:18.600 --> 0:06:22.039 that was necessary in in large part due to the 0:06:22.080 --> 0:06:24.359 inflation backdrop. And we are joined now by Peter Crests 0:06:24.360 --> 0:06:26.640 of Aperture Investors. Welcome Peter. Great to have you here 0:06:26.680 --> 0:06:29.160 with us, could be here. So once again we're seeing 0:06:29.240 --> 0:06:31.800 rachel ries, although not full points every three weeks, but 0:06:31.880 --> 0:06:33.480 still they're going up, probably going to go up and 0:06:33.480 --> 0:06:35.960 again next week. What does that mean in a broader 0:06:36.000 --> 0:06:37.480 sense for an investor, I mean, this is a different 0:06:37.480 --> 0:06:40.360 world than we've seen for several years now. Yeah. Well, look, 0:06:40.440 --> 0:06:43.479 I think for if you look at the longer time period, 0:06:44.120 --> 0:06:46.120 think of it from a strategic point of view, investors 0:06:46.160 --> 0:06:49.919 have been investing really inequities and very little and fixed 0:06:49.920 --> 0:06:53.040 income for fifteen years, and people have moved away from 0:06:53.080 --> 0:06:57.240 negative interest rates. They've blood private credit, they've bloy private assets, 0:06:57.279 --> 0:07:00.320 they've blood equities, you know, assuming that that's where return 0:07:00.440 --> 0:07:02.559 was going to be. So now you have a paradigm shift, 0:07:02.920 --> 0:07:05.520 and you know you can't say, well, this is what 0:07:05.560 --> 0:07:08.360 I'm gonna do with my money tomorrow. But over the 0:07:08.400 --> 0:07:11.480 next eighteen months you're going to see significant shifts of 0:07:11.640 --> 0:07:15.000 capital into the fixed income complex. That will include longer 0:07:15.080 --> 0:07:18.920 duration securities, that will include high yield securities, that will 0:07:18.920 --> 0:07:21.280 include invest in grade securities, which for the first time 0:07:21.280 --> 0:07:24.120 will actually be attractive, and will include the short duration 0:07:24.480 --> 0:07:27.920 complex as well. I also think interesting enough, emerging markets 0:07:27.920 --> 0:07:29.600 has got to be a place where you look, and 0:07:29.640 --> 0:07:35.320 emerging markets are down. The MBI's down twenty percent, maybe sixteenth, 0:07:35.360 --> 0:07:38.240 and it's probably got a yield of eight percent. Uh. 0:07:38.280 --> 0:07:42.160 And you know, next year, if everybody's predictions are wrong 0:07:42.320 --> 0:07:45.200 and the Fed doesn't rage rage by much, everybody thinks 0:07:45.240 --> 0:07:48.040 fight you're gonna go down, then more than likely you're 0:07:48.080 --> 0:07:51.480 gonna see some recovery and emerging market debt and that 0:07:51.520 --> 0:07:54.480 could yield eight percent plus some price appreciation see ten. 0:07:55.160 --> 0:07:57.480 So frankly, you know, that's a place where I don't 0:07:57.520 --> 0:07:59.760 think people are looking, and I think probably there are 0:07:59.800 --> 0:08:04.040 some If you take what Peter said Lausanne. Ultimately does 0:08:04.040 --> 0:08:07.080 that end up in cash because that's the shortest term investment. 0:08:07.120 --> 0:08:08.680 You can move that around quickly, and maybe you have 0:08:08.720 --> 0:08:10.880 to get ready for a bounce back in eighteen months. 0:08:11.000 --> 0:08:13.440 So I think it depends on who the investor is. 0:08:13.480 --> 0:08:18.040 I think for investors that are much less risk tolerant, 0:08:18.440 --> 0:08:20.680 that if there and I'm talking from the respect of 0:08:20.720 --> 0:08:23.680 an individual investors, if they're older, if they're in retirement, 0:08:24.120 --> 0:08:26.880 they were forced way out the risk spectrum in a 0:08:26.960 --> 0:08:30.960 zero interest rate environment. And for anybody that doesn't have 0:08:30.960 --> 0:08:35.000 a high risk tolerance, that have those liquidity needs, that 0:08:35.080 --> 0:08:38.400 have the need to live off of income getting a 0:08:38.480 --> 0:08:42.440 real yield on a cash like or a very short 0:08:42.559 --> 0:08:45.640 term security, that's the first time they've experienced that in 0:08:45.640 --> 0:08:48.240 in quite some time. But I also agree with with Peter. 0:08:48.320 --> 0:08:51.160 I think there are paradigm shifts that happen when you 0:08:51.200 --> 0:08:53.320 go through cycles, particularly when you go through a full 0:08:53.320 --> 0:08:56.000 cycle where you have an economic contraction and you go 0:08:56.120 --> 0:08:58.240 from a bull market to a bear market into a 0:08:58.240 --> 0:09:00.839 new bull market. There's always that recency bias. There's always 0:09:00.880 --> 0:09:03.680 that obsession with looking at what had been the leadership 0:09:03.720 --> 0:09:06.160 and feeling that there's not going to be momentum and 0:09:06.200 --> 0:09:09.160 asset class. One should go back to that leadership, leadership changes. 0:09:09.240 --> 0:09:12.600 I think there is opportunity in fixing. There is opportunity international. 0:09:13.240 --> 0:09:15.480 We've got to look through the windshield, not the review Marreor. 0:09:15.559 --> 0:09:17.640 It's interesting. I just saw a note from Rock Creek 0:09:17.880 --> 0:09:21.320 outside in Best Losses note that said something I hadn't 0:09:21.320 --> 0:09:23.240 focused on, which is actually one of the winners this 0:09:23.280 --> 0:09:25.880 year has been Latin America. The Latin America has done 0:09:25.880 --> 0:09:27.920 surprisingly well. I've not been paying any attention to Latin 0:09:27.960 --> 0:09:31.280 American at all. I must say mostly commodity driven, oil driven. 0:09:31.480 --> 0:09:34.360 You know that that's what's driving that. But look, I 0:09:35.120 --> 0:09:37.640 I don't think that we're saying don't invest in equities. 0:09:37.920 --> 0:09:40.199 I just think that the when you look at the 0:09:40.360 --> 0:09:42.679 where your money is allocated, you're going to start to 0:09:42.720 --> 0:09:47.720 allocate more money to the fixed income complex and pretty 0:09:47.800 --> 0:09:50.000 much you're gonna go through a period of volatility here 0:09:50.200 --> 0:09:54.120 where private assets are probably going to have some challenges. Uh, 0:09:54.200 --> 0:09:55.800 you won't be able to get any liquidity. They're just 0:09:55.840 --> 0:09:57.679 gonna have to hold them. So you're gonna have opportunity 0:09:57.800 --> 0:10:01.520 losses there. You've seen some that already in these large 0:10:02.320 --> 0:10:05.640 pools of private assets that have cash with rows or 0:10:05.679 --> 0:10:08.199 cash requirements, and I think you're going to continue to 0:10:08.240 --> 0:10:10.559 see that as people try to take their liquidity and 0:10:10.640 --> 0:10:12.559 get eight to nine percent, which they haven't seen for 0:10:12.640 --> 0:10:14.679 fifteen years. Thank you so much to Peter Cross of 0:10:14.720 --> 0:10:17.120 Apature Investors and liz Ane Saunders of Charles Schwapp for 0:10:17.240 --> 0:10:19.280 being with us on Wall Street Week. Coming up, we're 0:10:19.280 --> 0:10:21.320 gonna take a look at the mood on Wall Street 0:10:21.480 --> 0:10:23.880 as we head into a bumpy patch. That's next on 0:10:23.960 --> 0:10:35.000 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:10:35.040 --> 0:10:40.640 Week with David Weston from Bloomberg Radio. Real Estate. It's 0:10:40.640 --> 0:10:43.439 the investment people turned to in times of inflation. The 0:10:43.600 --> 0:10:46.360 real estate market is probably the best major markets investing 0:10:46.440 --> 0:10:49.040 right now. Inflation in general is good for real estate 0:10:49.360 --> 0:10:52.600 and rock creeks. Asani Beschelis says, they are seeing portfolios 0:10:52.760 --> 0:10:56.079 shift to real estate as investors turned to private investments 0:10:56.400 --> 0:10:59.440 in an uncertain time. The big thing that is happening 0:10:59.480 --> 0:11:02.040 in the ports and as we're looking at is obviously 0:11:02.040 --> 0:11:05.520 a lot of investors, institution investors have been also investing 0:11:05.720 --> 0:11:09.760 in venture, private equity, real estate in private form, and 0:11:09.880 --> 0:11:12.520 I think that is going to some sort of transformation too, 0:11:12.720 --> 0:11:15.800 but with interest rates climbing, real estate is becoming trickier. 0:11:16.240 --> 0:11:18.800 Tom Shapiro of g T I S says the housing 0:11:18.840 --> 0:11:21.839 market is taking a real hit. The housing market is 0:11:21.920 --> 0:11:25.800 tremendously decelerating at this point sales or optomendastin. Famed investor 0:11:26.000 --> 0:11:28.480 Sam Zell says it may be worth less than the 0:11:28.559 --> 0:11:31.880 market thinks. I felt that the real estate market generally 0:11:31.960 --> 0:11:36.640 has been overpriced, particularly in on the private sector. And 0:11:36.800 --> 0:11:40.199 now Blackstone has limited withdrawals from its massive real estate 0:11:40.280 --> 0:11:43.280 investment fund because too many people were taking their money 0:11:43.320 --> 0:11:47.079 out too fast, which Larry Summers sees as a potentially 0:11:47.200 --> 0:11:52.720 ominous sign. When you see prominent financial institutions telling people 0:11:52.840 --> 0:11:56.280 that they can't take their money out, that's never a 0:11:56.360 --> 0:12:04.559 happy thing. Makes me wonder about what's head And we 0:12:04.679 --> 0:12:06.640 welcome back to Wall Street Week. Now somebody who knows 0:12:06.720 --> 0:12:09.200 real estate terribly well. He's Jeff Blau. He's the CEO 0:12:09.360 --> 0:12:11.599 of Related and that is, of course one of the 0:12:11.720 --> 0:12:14.679 largest real estate developers around the country. They have properties 0:12:14.800 --> 0:12:16.839 throughout the countries and our unlast time I checked the 0:12:16.920 --> 0:12:19.920 largest landlord in New York City. I think Jeff one Off. 0:12:19.960 --> 0:12:21.480 I don't know if all of the largest, but who 0:12:21.480 --> 0:12:24.160 are up there, so welcome back. Great, So tell us 0:12:24.160 --> 0:12:27.240 about real estate right now. It has been a good 0:12:27.360 --> 0:12:29.480 hedge against inflation. Inflation is a problem. At the same 0:12:29.559 --> 0:12:32.000 time interest rates are going up. At this end, we 0:12:32.080 --> 0:12:35.360 have some real problems with some office occupancy. So you've 0:12:35.360 --> 0:12:38.240 got a lot of topics in there. Uh. First, if 0:12:38.280 --> 0:12:40.319 you think about what's happened over the last year, we've 0:12:40.360 --> 0:12:43.720 had the fastest rise in interest rates in in probably 0:12:43.760 --> 0:12:46.679 twenty plus years, and the impact on real estate is 0:12:46.679 --> 0:12:49.920 pretty significant. Now you break down different parts of real 0:12:50.000 --> 0:12:54.000 estate because real estates broad so unstabilized assets buildings that 0:12:54.080 --> 0:12:57.199 people own, whether it's apartment buildings or office buildings. In 0:12:57.280 --> 0:12:59.480 a in a way, inflation is good for those assets, right, 0:12:59.559 --> 0:13:02.400 rents eyes they go up, and if you did a 0:13:02.440 --> 0:13:04.640 good job managing your assets, you might have fixed rate 0:13:04.760 --> 0:13:07.719 long term debt, so cash flows increase. So in the 0:13:07.920 --> 0:13:12.840 in that bucket of real estate, inflation is a great head. Uh. 0:13:13.000 --> 0:13:16.520 Inflation is great for for real estate assets. Um, if 0:13:16.559 --> 0:13:19.360 you're in the funds business, whether they're credit funds or 0:13:19.440 --> 0:13:21.920 equity funds, this is a great time for that business. 0:13:22.200 --> 0:13:24.599 The banks, as you know, have stopped lending or have 0:13:24.760 --> 0:13:28.880 certainly pulled back um significantly, and so the private credit 0:13:29.280 --> 0:13:33.319 markets are are booming because where they were competing with 0:13:33.440 --> 0:13:35.440 the banks in the past, the in effect could make 0:13:35.520 --> 0:13:39.040 bank type loans at two times the rate. So that's 0:13:39.040 --> 0:13:42.680 a great opportunity for credit funds equity funds. We haven't 0:13:42.760 --> 0:13:45.400 yet seen real distress. We might start seeing that in 0:13:45.480 --> 0:13:47.040 the in the next couple of months, So I think 0:13:47.080 --> 0:13:49.719 the funds management business in real estate is going to 0:13:49.800 --> 0:13:52.959 be very strong going into twenty three. The difficult part 0:13:53.000 --> 0:13:55.199 for real estate is is anything you want to do 0:13:55.360 --> 0:13:57.720 new new development is difficult if there's not a lot 0:13:57.720 --> 0:14:00.400 of financing. There's not a lot of construction loans. Costs 0:14:00.440 --> 0:14:04.280 have gone up, UM, so it makes harder to build UM. 0:14:04.400 --> 0:14:06.160 So it's it depends where you are in the real 0:14:06.280 --> 0:14:09.760 estate markets. UM. As to what you know, the impact 0:14:09.920 --> 0:14:13.559 is the office sector. As you mentioned, that's that's a 0:14:13.640 --> 0:14:17.280 whole topic into itself, UM. And I think really people 0:14:17.440 --> 0:14:19.400 people ask me all the time tell me about what 0:14:19.480 --> 0:14:23.440 the office market, and really the office market is very bifurcated, 0:14:23.480 --> 0:14:26.640 and I don't think there's one answer. Again, UM, what 0:14:26.800 --> 0:14:30.000 we have seen is is a real dispersion in values 0:14:30.120 --> 0:14:34.920 between older buildings and and brand new buildings. Um. And 0:14:35.000 --> 0:14:37.360 it's not just new, it's new with the right features, 0:14:37.400 --> 0:14:40.400 the right amenities that tenants are looking for today. UM. 0:14:40.720 --> 0:14:44.880 So we're seeing more and more corporations thinking about how 0:14:44.960 --> 0:14:47.360 do they get people back to their office and thinking 0:14:47.400 --> 0:14:51.440 about using the physical space as the attraction to bring 0:14:51.560 --> 0:14:54.400 people back. But truthfully, people don't want to go back 0:14:54.480 --> 0:14:57.720 to old kind of quiet offices that are dark and 0:14:57.840 --> 0:15:00.480 have bad air circulation and long waits in the elevators 0:15:00.520 --> 0:15:04.080 and no amenities. So what corporations are doing is investing 0:15:04.800 --> 0:15:08.000 in their office space not for occupancy but for talent 0:15:08.120 --> 0:15:12.440 attraction and retention. And I think that's where you're really seeing, uh, 0:15:12.800 --> 0:15:15.520 the A buildings and the new buildings that are focused 0:15:15.560 --> 0:15:17.240 on this, that have the right amenities, that have the 0:15:17.360 --> 0:15:21.320 right h v A C circulation, that have hospitality type services, 0:15:21.440 --> 0:15:24.120 that have great air and light, um and the right 0:15:24.160 --> 0:15:27.280 type of build out. The build out in office space 0:15:27.400 --> 0:15:30.400 is changing tremendously. Where we used to see kind of 0:15:30.480 --> 0:15:32.840 the old mad Max version of a build out with 0:15:33.280 --> 0:15:37.560 you know, private offices on the exterior wall and assistance 0:15:37.600 --> 0:15:41.520 offices or cubes inside. That's really not the way office 0:15:41.560 --> 0:15:46.640 is built today. We're seeing well much more collaboration space, 0:15:46.760 --> 0:15:50.880 teeming space, meeting space, food service tables around food where 0:15:50.920 --> 0:15:53.840 people are using for gathering and working as opposed to 0:15:53.920 --> 0:15:57.560 private offices. So this type of office of the future 0:15:57.920 --> 0:16:01.000 UM we think can be successful and is successful. The 0:16:01.120 --> 0:16:04.240 data is there today, UM for these new buildings. So 0:16:04.800 --> 0:16:10.320 we compared brand new buildings across markets in the United States, UM, 0:16:10.400 --> 0:16:12.400 not just here in New York. And you look at 0:16:12.920 --> 0:16:15.920 new modern buildings with the right features, the right amenities, 0:16:16.240 --> 0:16:19.640 and the demand for those buildings is tremendous. And at 0:16:19.680 --> 0:16:22.680 the very same time, you can go a couple of blocks, 0:16:22.720 --> 0:16:24.360 like if you take huts in Yards for example, we 0:16:24.480 --> 0:16:27.960 just opened last last week. Actually a first tenant moved 0:16:28.000 --> 0:16:30.600 in at fifty Huts and Yards. Fifty Huts and Yards 0:16:30.720 --> 0:16:33.640 is a three million square foot building. It costs US 0:16:33.720 --> 0:16:36.840 over four billion dollars to build this building, and and 0:16:36.880 --> 0:16:39.800 it's essentially ninety plus percent at least at this point, 0:16:40.280 --> 0:16:43.080 we're getting the highest rents in New York City in 0:16:43.200 --> 0:16:46.320 that building, over two hundred dollars a foot in that building. 0:16:46.960 --> 0:16:50.160 And because it is it has all those features and amenities. 0:16:50.280 --> 0:16:52.240 It is new, it has all those things that we're 0:16:52.280 --> 0:16:56.280 talking about. You can go three blocks away and find 0:16:56.440 --> 0:16:59.040 as much space as you want in B buildings that's 0:16:59.080 --> 0:17:01.280 probably listed for six exteen dollars and they can't at 0:17:01.320 --> 0:17:04.080 least even with everything you say about the A. Are 0:17:04.160 --> 0:17:06.560 people needing a little less A space? I mean we 0:17:06.640 --> 0:17:08.879 had the Meta situation actually hunts in yards where they 0:17:08.880 --> 0:17:11.359 gave back two or fift square feet. Are you seeing 0:17:11.400 --> 0:17:13.399 that more broadly where people saying, yes, I really like 0:17:13.560 --> 0:17:15.680 A but I don't need as much of it? So 0:17:15.920 --> 0:17:18.760 not really. So there's a couple of different situations. So Meta. 0:17:19.480 --> 0:17:22.320 Actually what Meta did is when we made the deal 0:17:22.400 --> 0:17:24.840 with them, they are anchored one of the anchor tenants 0:17:25.160 --> 0:17:27.600 along with Black Rock in in fifty Huts and Yards. 0:17:28.080 --> 0:17:30.040 When we made the deal for them to move into 0:17:30.119 --> 0:17:33.600 fifty huts and yards, that was three plus years ago, 0:17:33.680 --> 0:17:36.560 four years ago UM, and they needed space immediately, so 0:17:36.680 --> 0:17:39.960 they took some swing space in thirty UM with the 0:17:40.000 --> 0:17:42.399 intent to move into fifty So that's the space that 0:17:42.520 --> 0:17:45.200 they are not staying in today. Everyone thinks there was 0:17:45.240 --> 0:17:47.720 this big announcement, but that was that's that was the plan. 0:17:48.560 --> 0:17:51.080 So they are moving the employees that they have in 0:17:51.440 --> 0:17:53.680 thirty huts and yards, which was which were in swing 0:17:53.800 --> 0:17:58.200 space into fifty And answer your question, there are companies 0:17:58.280 --> 0:18:01.760 like Meta today that are back on office space in general, 0:18:02.359 --> 0:18:04.760 but that has nothing to do with their build out 0:18:04.840 --> 0:18:07.320 of the space. That's you know, the tech sector is 0:18:07.359 --> 0:18:10.720 pulling back, they're cutting costs. That's based on their business. 0:18:10.800 --> 0:18:13.600 That's based on kind of what's happening in the broader economy. 0:18:14.119 --> 0:18:18.160 If you if you ask Meta about their office space 0:18:18.280 --> 0:18:21.080 per employee in their new types of buildouts, and so 0:18:21.240 --> 0:18:25.200 they have actually stepped back rethought about the office space 0:18:25.280 --> 0:18:27.520 of the future, and it's all the things that I 0:18:27.600 --> 0:18:32.359 talked about. Much fewer private offices, much more gathering and 0:18:32.440 --> 0:18:35.840 meeting spaces. And when you when you take the same 0:18:36.080 --> 0:18:38.320 when you take the the same number of employees and 0:18:38.440 --> 0:18:41.160 compared the old build out and the new build out, 0:18:41.520 --> 0:18:45.200 the mix of public space and private space is completely different. 0:18:45.480 --> 0:18:47.760 But the total square footage per employee is the same. 0:18:48.000 --> 0:18:49.760 Now if they have if they're pulling back because of 0:18:49.840 --> 0:18:52.879 general economic issues, that's not a real estate issue, right, 0:18:52.920 --> 0:18:54.639 It's not an office space issue. Let's come back to 0:18:54.680 --> 0:18:57.480 the BNC buildings as we call them. I've read about 0:18:57.480 --> 0:18:59.960 so called zombie office buildings now in New York City 0:19:00.000 --> 0:19:02.920 they're really empty. How bad a problem is that? What 0:19:03.040 --> 0:19:04.520 are we going to see? What's the followup? And by 0:19:04.520 --> 0:19:07.080 the way, does that also create some opportunities and bargains 0:19:07.119 --> 0:19:09.800 to pick things up cheap? Right? So I think it 0:19:09.960 --> 0:19:13.040 is a pretty significant issue for New York City. You've 0:19:13.080 --> 0:19:15.920 had some companies leave New York. Um, You've had some 0:19:16.080 --> 0:19:19.879 companies suffer through the economic downturn and COVID and supply 0:19:20.040 --> 0:19:22.119 chain and all the things that have happened, UM, and 0:19:22.240 --> 0:19:25.800 have vacated space in those B buildings. UM. The problem 0:19:25.960 --> 0:19:27.960 is there's not there's not a lot of tenants that 0:19:28.000 --> 0:19:32.840 want to release those spaces. So we're seeing vacancy in 0:19:32.920 --> 0:19:37.040 the B buildings increased significantly. We're seeing the vacancy in 0:19:37.200 --> 0:19:41.680 the not just A buildings, but in new product A buildings. Jeff, 0:19:41.720 --> 0:19:46.840 thank you so much, Jeff Bloggy, CEO of Related Coming up, 0:19:46.880 --> 0:19:49.240 we'll wrap up the week with our special contributor Larry 0:19:49.280 --> 0:19:53.639 Summers of Harvard. This is Wall Street Week on Bloomberg. 0:20:00.960 --> 0:20:03.000 This is Wall Street Week. I'm David Weston, and we 0:20:03.080 --> 0:20:05.640 welcome back now our special contributor in Wall Street Week. 0:20:05.720 --> 0:20:08.240 He is Larry Summers of Harvard, So Larry, normally we 0:20:08.359 --> 0:20:10.440 talked about what's happened during the week, particularly what the 0:20:10.520 --> 0:20:12.400 FED might make of it, what might happen with rates, 0:20:12.800 --> 0:20:14.560 But it strikes me there isn't a lot of that 0:20:14.720 --> 0:20:17.760 this week. Let's talk about larger issues that really you 0:20:17.920 --> 0:20:21.800 are focused on. David. I think it's important for us 0:20:21.800 --> 0:20:27.600 always to remember that ultimately, trends are more important than events, 0:20:28.560 --> 0:20:32.400 and trends most of the time are positive, and events 0:20:32.800 --> 0:20:35.480 most of the time are negative. So we have to 0:20:35.640 --> 0:20:39.320 step back and look at things that may be markers 0:20:39.520 --> 0:20:43.720 of trends. And I saw too such things this week, 0:20:44.680 --> 0:20:50.159 China's huge evolution away from the zero COVID strategy, and 0:20:50.359 --> 0:20:55.520 what happened with chat GPT from open Ai, which may 0:20:56.200 --> 0:20:59.879 be a marker of a profound change in what it 0:21:00.080 --> 0:21:02.080 means to be a machine and what it means to 0:21:02.160 --> 0:21:04.840 be human. So let's take each of those up in turn, 0:21:04.880 --> 0:21:07.240 if we could. Let's start with China, because as you say, 0:21:07.280 --> 0:21:09.639 they really are backing off of their strict policy on 0:21:09.840 --> 0:21:13.200 COVID and the isolation and that they've been pursuing, and 0:21:13.240 --> 0:21:14.920 also up a lot of the testing. But do we 0:21:15.040 --> 0:21:16.879 know yet, well, that's gonna be positive or negative. It 0:21:16.920 --> 0:21:19.439 could be positively for the economy. But now and if 0:21:19.440 --> 0:21:22.440 they have a real spike in cases and really overload 0:21:22.480 --> 0:21:25.800 their medical system, we may have a problem. Look, I 0:21:26.119 --> 0:21:30.640 think we know two things. We know that a big 0:21:30.880 --> 0:21:35.640 change in China happened because of an expression of popular 0:21:35.760 --> 0:21:42.240 will and protests. That's a profound thing for the governance 0:21:42.600 --> 0:21:48.600 of that superpower with one point four billion people. You're 0:21:48.720 --> 0:21:52.040 quite right, we don't yet know how this is going 0:21:52.200 --> 0:21:55.879 to work out. Is this going to be a successful 0:21:56.119 --> 0:21:59.040 rejoining of the reality of the rest of the world, 0:21:59.840 --> 0:22:05.240 or or is this going to lead to catastrophic delegitimizing 0:22:06.200 --> 0:22:11.399 performance of the Chinese healthcare system? And we don't know. 0:22:12.280 --> 0:22:16.280 But either way, there's a big chance that China is 0:22:16.280 --> 0:22:19.400 going to be a quite different country six months from 0:22:19.480 --> 0:22:23.160