Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business Week,
Speaker 1: insight from the reporters and editors that bring you America's
Speaker 1: most trusted business magazine, plus global business, finance and tech
Speaker 1: news as it happens. Bloomberg Business Week with Carol Masser
Speaker 1: and Tim Steneveek on Bloomberg Radio.
Speaker 2: All right, everybody, we're going to get into some more
Speaker 2: conversations about the market trade and the sell off that
Speaker 2: we saw in today's session. Do you want to mention though,
Speaker 2: another earnings out after the close, b Riley, the institutional brokerage. Yeah,
Speaker 2: it's up about eleven percent here in the aftermarket. It
Speaker 2: has been, and the company a preliminary fourth quarter EPs
Speaker 2: of a dollar fifty seven to two twenty two. Just
Speaker 2: starting to get some headlines, it looks like, so they're
Speaker 2: releasing the estimates of an unaudited fourth quarter twenty twenty
Speaker 2: for financial.
Speaker 3: Don't worry, Carroll, my microphone is on now, I'll turn
Speaker 3: it on. My comment was they've been getting beat up.
Speaker 3: They have been getting beat up.
Speaker 2: You did, you did stacks up about seventeen percent so
Speaker 2: far here in twenty twenty five. But yeah, we are
Speaker 2: seeing at least some movement in the after US, So
Speaker 2: we'll keep a watch on it and continue to watch
Speaker 2: it into.
Speaker 4: No doubt about it's Tuesday trade.
Speaker 2: It's gonna be a lot on our plate tomorrow.
Speaker 3: Ninety percent from twenty twenty one.
Speaker 2: Yeah, that's pretty ugly. Yeah, yeah, Okay, all right, So
Speaker 2: let's stay with the markets, folks, because we have seen
Speaker 2: some selling in today's session. We did finish off our lows.
Speaker 2: We have seen yields along the US Treasury curve moved
Speaker 2: down a bunch as well.
Speaker 4: Tim.
Speaker 3: Yeah, that sense of caution prevailing as long promise tariffs
Speaker 3: on top US trading partners are scheduled to take effect
Speaker 3: on Tuesday. Meantime, we did hear from TSMC alongside President Trump,
Speaker 3: planning to invest one hundred million dollars in chip plants
Speaker 3: into the US over the next four years. Jeff Proppleman
Speaker 3: is chief investment Strategist, head of Equities at Mariner Wealth Advisors.
Speaker 3: He joins us this afternoon once again from Cincinnati. A
Speaker 3: day like today, Jeff, down on the S and P
Speaker 3: five hundred one point eight percent, the Nasdaq two point
Speaker 3: six percent. Are the clients calling.
Speaker 5: Well, I'm they're not the phones aren't ringing off the hook,
Speaker 5: but I'm sure that they are, you know, in a
Speaker 5: little bit of a a worrisome mood if you will.
Speaker 6: Today.
Speaker 5: You know, our theme and thesis all year has been
Speaker 5: clear air turbulence. That's kind of what we talked about
Speaker 5: going into the year after being you know, very very
Speaker 5: bullish the past couple of years and really expected while
Speaker 5: we see the market advancing higher through the year ten
Speaker 5: to fifteen percent, pullbacks intermittently in some pockets, air pockets
Speaker 5: that we're going to hit kind of through the year.
Speaker 5: And that's exactly what we're getting. And I don't think
Speaker 5: that we should be really surprised about that, given you know,
Speaker 5: what we've seen in the previous UH tariff reddick in announcements,
Speaker 5: what we saw over the weekend with regard to some
Speaker 5: of our you know, political partners throughout the world. So
Speaker 5: this is just where we're going to get. We need
Speaker 5: to buckle up, you know, for this and be prepared.
Speaker 3: Well, is this an buying opportunity then, or do you
Speaker 3: see further downside where people could start you know, picking
Speaker 3: stuff up at I don't want to say a bargain
Speaker 3: given more valuations are right now, But is it a
Speaker 3: buying opportunity.
Speaker 6: You know, I think it.
Speaker 5: It certainly could be a buying opportunity. I would be
Speaker 5: biased to be there. But our message still in this
Speaker 5: environment is hold your ground. And after sixty percent cumulative
Speaker 5: returns over the last two years, we suggested the folks, hey,
Speaker 5: that's probably taken your allocation well above normal. Cut back
Speaker 5: to normal going in you know, to the year, and
Speaker 5: you know, quite frankly, I would hover there now we
Speaker 5: have having said that, we have a base case of
Speaker 5: about sixty six hundred on the S and P five hundred,
Speaker 5: and I don't think any of the news today changes that.
Speaker 5: And we do take our signal from earnings rates, credit spreads, trends,
Speaker 5: and inflation, and those are the things that are going
Speaker 5: to drive the market, and they still the mosaic is positive.
Speaker 5: So I would lean into what you're suggesting here in
Speaker 5: terms of this, this is an opportunity I think to add,
Speaker 5: particularly if you trimmed your allocation back to normal.
Speaker 2: Having said that, it doesn't mean Jeff, that we couldn't
Speaker 2: see some more selling.
Speaker 5: Oh no, no, I think our message kind of Look,
Speaker 5: we're five percent off the February nineteenth high, we're you know,
Speaker 5: just slightly off from you know where we were December first,
Speaker 5: you know, a couple of days after the election, and
Speaker 5: as I said, we were looking for air pockets of
Speaker 5: ten to fifteen percent just on the psychiatry of all this,
Speaker 5: you know, whether it is tariffs, concerned about federal debt, deportation,
Speaker 5: geopolitical discussions and whatnot that moves to dial. When you're
Speaker 5: twenty two times earnings and you've had growth stocks significantly
Speaker 5: outperform and trade at higher PE levels, you're going to.
Speaker 6: Get these moments. And so yeah, I think we could,
Speaker 6: we could go lower.
Speaker 5: I wouldn't rush in, but you know, I think you're
Speaker 5: going to get some price points where you're going to say, okay,
Speaker 5: a lot of the carnages happened. And I also think Carol,
Speaker 5: that you can do some tactical repositioning in here. We've
Speaker 5: we've seen a shift in leadership, and I think what
Speaker 5: you own and how you're positioned in here is important.
Speaker 6: We've made some adjustments to that and may.
Speaker 3: Make some more meaning time to buy outside of the US.
Speaker 5: You know, you know that's that's not a bad point.
Speaker 5: We are kind of domestically biased, but if you don't
Speaker 5: have exposure to international stocks. I certainly would be thinking
Speaker 5: about that this year in an active way. You don't
Speaker 5: need to do that passively. You do it in an
Speaker 5: active manner. And certainly in the international markets have outperformed
Speaker 5: so far US, but also within US and from the
Speaker 5: sector standpoint, you saw extreme outperformance in the gross stocks,
Speaker 5: and the S and P five hundred is really a
Speaker 5: concentrated index right now with seven stocks representing a third
Speaker 5: of the portfolio. The Russell one thousand growth index, those
Speaker 5: gross stocks represent seven stocks more than fifty.
Speaker 6: Percent of the portfolio, So I.
Speaker 5: Think you want exposure there, but not to the same
Speaker 5: level as the index. In healthcare looks good and some
Speaker 5: of these defensive areas are leading this year. We would
Speaker 5: take the foot off the pedal a little bit.
Speaker 2: Hey, And that's what I want to ask you, Jeff,
Speaker 2: about some of the areas that you like, and that
Speaker 2: includes some in consumer discretionary. And one name that you
Speaker 2: shared with our producer Paul Brennan is Kroger, and that
Speaker 2: was in the news today, the CEO resigning following an
Speaker 2: investigation into his personal conduct, the company replacing him. Following
Speaker 2: this investigation, which was deemed inconsistent their words with the
Speaker 2: company's policy on business ethics. This is someone who has
Speaker 2: been in this industry, been in this company for a
Speaker 2: long time.
Speaker 4: What's your take on that news.
Speaker 5: Well, yeah, Carol, I know about as much as you
Speaker 5: do right now at this moment.
Speaker 6: That was kind of breaking news.
Speaker 5: And you know, I think, without learning further, they said
Speaker 5: it was a non business nature. This apparently was personal conduct.
Speaker 5: It's a wonderful business, a wonderful business model if you
Speaker 5: look at the basic fundamentals with regard to same store
Speaker 5: sales growth, trend in profit margins, their private label business,
Speaker 5: their digital marketing strategies. This is the type of stock
Speaker 5: that you want to own an environment when people are
Speaker 5: freaking out.
Speaker 2: And it doesn't matter. I mean, this is a guy
Speaker 2: who basically grew up in the company, go back to
Speaker 2: nineteen seventy eight when he was a stock clerk. I've
Speaker 2: had an opportunity to talk to him and interview him,
Speaker 2: and I'm just you know, this is a business he
Speaker 2: knows so well. It doesn't matter to you in terms
Speaker 2: of an investment play.
Speaker 4: If the CEO has changedpecially.
Speaker 5: I think they have a deep bench and this wouldn't
Speaker 5: get me to actually rethink owning Kroger at this point. Certainly,
Speaker 5: I think, you know, we want to know more. But
Speaker 5: I think they do have a deep bench and a
Speaker 5: wonderful business model. So I think many companies have gone
Speaker 5: through you know, management change like this at the highest
Speaker 5: level and have executed quite well on the other side
Speaker 5: of that. I've seen no reason to think that they
Speaker 5: cannot do that. But certainly it's it's a headwind here
Speaker 5: from a price action standpoint for you know, kind of
Speaker 5: the near term.
Speaker 6: But those are the types of stocks.
Speaker 5: Whether it's Kroger or Jay and Jay or am Jen
Speaker 5: or Vertex or some of the other names that I
Speaker 5: gave you in kind of you know, the more staple
Speaker 5: area of consumer or healthcare, Okay, that I think you
Speaker 5: want to look toward.
Speaker 3: So it's not just Cincinnati bias about why you pick
Speaker 3: Kroger Company in the space there, just making sure, Jeff,
Speaker 3: just making you mention you didn't mention P and G.
Speaker 3: I was waiting for that one.
Speaker 6: I did not do that.
Speaker 3: Always great when you join us, but you know, we
Speaker 3: like it more in the studio when you come and
Speaker 3: visit us here in New York. So hopefully you'll do
Speaker 3: that soon. A big thank you to Jeff Crumpleman at
Speaker 3: Chief investment strategist and head of Equities at Mariner Wealth Advisors,
Speaker 3: Take Carol. Some news in the world of real estate today,
Speaker 3: Apollo Global providing a two hundred and seventy five million
Speaker 3: dollar loan to refi a pair of apartment towers in
Speaker 3: Manhattan's Financial District. It's interesting because lenders, they've been active
Speaker 3: in financing luxury residential products in places such as Manhattan. Yeah,
Speaker 3: South Florida.
Speaker 4: Good market, good market, strong market.
Speaker 3: Yeah, demand for those areas remains high.
Speaker 2: Yeah, they have been active for some context on that demand.
Speaker 2: We bring back Louise Phillips Forbes real estate broker at
Speaker 2: Brown Harris Steve, and she has sold close to six
Speaker 2: billion dollars worth of real estate since she began.
Speaker 4: Back was it in the nineteen ninety nineteen nineties, nineteen
Speaker 4: ninety it's a lot, It's a lot. It's a lot.
Speaker 2: Hey, nice to have you here back in our Bloomberg
Speaker 2: Interactive Broker Studio. I just want to start with something
Speaker 2: that you know, we are looking at a market that
Speaker 2: has had.
Speaker 4: Some nervousness in it.
Speaker 2: Today, we think it's pretty clear that there's concerns about
Speaker 2: tariffs out of the White House, what impact it will
Speaker 2: have on growth in the United States.
Speaker 4: Just all of that.
Speaker 2: Tell me coming into this.
Speaker 4: What would you what do you what would.
Speaker 2: What do you want to tell me about what's going
Speaker 2: on in your world in terms of the market, the
Speaker 2: economy that I'm sure your clients talk to you about,
Speaker 2: the business backdrop, the economic backdrop.
Speaker 4: What are you hearing? So, I think there are a
Speaker 4: couple of things. I would say. You know, everybody thinks
Speaker 4: that the real estate market is going to react in
Speaker 4: the same way in the same time as the stock market,
Speaker 4: and that isn't necessarily the case. It does have cause
Speaker 4: and effects. I mean, you know, I just literally on
Speaker 4: my way over here, I was like, how many deals
Speaker 4: do we have in contract right now? You know? Over
Speaker 4: ten million? It's one hundred and four Wow, ranging from
Speaker 4: ten million and above up to fifty five cents. This
Speaker 4: is just Manhattan, just Manhattan. Sounds like a lot? Is
Speaker 4: it a lot? It's a lot? I mean, listen, is
Speaker 4: that typical? Is that? Where we was like that somebody's
Speaker 4: not reading the news. However, people have been waiting a
Speaker 4: very long time. And I will say in two thousand.
Speaker 4: In March of two thousand, the market dropped six hundred
Speaker 4: points for me, and I was thank goodness, I dropped.
Speaker 4: I bought, I went to contract, and I put six
Speaker 4: hundred thousand dollars into real estate. So I was thinking
Speaker 4: what would that have been worth if I didn't pull
Speaker 4: it out? So you know, you know, there's a lot
Speaker 4: of things that affect our markets. You know, you can
Speaker 4: go from inventory to interest rate. COVID policy policy has
Speaker 4: a big play. It doesn't scessarily affected call you know immediately,
Speaker 4: but immigration and who's going to be in our workforce,
Speaker 4: that's going to be an immediate impact along with tariff.
Speaker 3: So talk a little bit about that. And now you're
Speaker 3: thinking about that As somebody who spies and sells real
Speaker 3: estate in New York City, I.
Speaker 4: Mean I can just speak about a small, little minute example.
Speaker 4: In my own portfolio business, I did a renovation in
Speaker 4: twenty it was actually I think nineteen twenty nineteen. That
Speaker 4: was twenty seven hundred square feet. It cost US four
Speaker 4: hundred and thirty thousand dollars to do this renovation. They
Speaker 4: have their own GC. It's a construction company who also
Speaker 4: owns JC meaning general contractor general contractor, but they also
Speaker 4: own three billion dollars with real estate, so they know
Speaker 4: what they're doing. Fast forward, this past fall, we completed
Speaker 4: the same exact renovation for eight hundred and fifteen thousand dollars.
Speaker 3: I mean that is is that a material story or
Speaker 3: a labor story or yes?
Speaker 4: And yes that is cause and effect of what we've
Speaker 4: all lived through globally. But what does that mean?
Speaker 2: So to Tim's point, is it because the contractors to
Speaker 2: brothers who work in contractor and or contractors, they talk
Speaker 2: about lack of workers, I talk about higher materials costs.
Speaker 2: Is that what it is?
Speaker 4: Yes, I mean it's part of that, but it's also everything.
Speaker 4: I mean, codes and the policies of getting construction done
Speaker 4: in your buildings. You know, since since surf side, you know,
Speaker 4: the policies for safety are much.
Speaker 3: More the building collapse in Florida.
Speaker 4: And much more impacting. What it costs for insurance. My
Speaker 4: own insurance and my own co op went up twice
Speaker 4: thirty eight percent. Yeah, so it's pushed in every angle.
Speaker 4: And then you have this kind of attitude sort of
Speaker 4: politically and policies that are going to have impact, and it's.
Speaker 2: And yet you have more than one hundred contracts waiting
Speaker 2: to be signed, signed signed hard of ten million and above.
Speaker 4: So it'd be interesting to see if any of those
Speaker 4: come out close because they're concerned about this impact. But
Speaker 4: at that luxury price and that level, you're dealing with
Speaker 4: one percent of the one percent of one percent. It's
Speaker 4: not the everyday guy. It's not even the guy that's
Speaker 4: buying buying that renovation that I did for eight hundred
Speaker 4: and thirty thousand dollars. They're thinking, shoo, that would be
Speaker 4: a hot that would be one point four for me. Right,
Speaker 4: So but listen, we.
Speaker 2: Know it's the market we talk about of the wealthy
Speaker 2: in a kind of one class, right, Yeah, and then
Speaker 2: there's a lot of folks who moves, you know.
Speaker 4: Who, who were affected. I mean, yeah, listen, but we're
Speaker 4: having a tough time. You start to see things that
Speaker 4: happen because of that cause and effect. If you think
Speaker 4: about I was reading an article about generational wealth, and
Speaker 4: you know, I'm looking at fifty percent of the first
Speaker 4: time buyer transactions that I've done in the last like
Speaker 4: three to FO since COVID, I would say fifty percent
Speaker 4: of those are gifting or co purchasing by parents, so
Speaker 4: and they're referring to it as the silver tsunami. So
Speaker 4: it's interesting. And when you talk to your your wealth advisors,
Speaker 4: they're like, listen, there's going to be four trillion dollars
Speaker 4: general relation, generational. Hey, it's Monday, Yes, amen, I need
Speaker 4: another cup of copee. But but it's it's it's affecting
Speaker 4: that and it's going to be passed down. And when
Speaker 4: you're also dealing with the we have developers with the
Speaker 4: tariffs that are talking about putting in their contracts contingencies
Speaker 4: and who's going to sign a contract when you're not
Speaker 4: sure what twenty five percent mean? What does that mean?
Speaker 4: So it's going to remain to be interesting.
Speaker 3: Andrew Cuomo jumping into the mayor's race does.
Speaker 4: A feeling you're going to go there?
Speaker 3: Well, I'm just wondering. You know, we talk so much
Speaker 3: when you talk politics, we talk at the national level
Speaker 3: and out of Washington, DC. But your world is so
Speaker 3: focused on New York City. Sure, sure, I mean, does
Speaker 3: does the whose mayor matter?
Speaker 4: Who governor and mayor and how they work together matter?
Speaker 4: But those policies, you know, you you know, when you
Speaker 4: had Bloomberg for twelve years, he you know, rezoned forty
Speaker 4: one percent of the land mass of Manhattan. It was
Speaker 4: tremendous growth and employment, and you know, areas that were unappreciating,
Speaker 4: not appreciating that have now become like, you know, great
Speaker 4: anchors for a whole area. We need strong leadership, no
Speaker 4: matter who it is. We need strong leadership, and it
Speaker 4: also has to be somebody who understands cause and effect
Speaker 4: and is interested in the growth and also the well
Speaker 4: being of our quality of life.
Speaker 3: Are you at all concerned about Governor Hokeel going up
Speaker 3: against President Trump and the way that you know, we
Speaker 3: saw with congestion price see Sean Duffy, the Transportation Secretary,
Speaker 3: essentially saying a couple of weeks ago, we're going after it.
Speaker 3: The Governor of New York saying, no, you're not. It's
Speaker 3: the state fighting the federal government. Does that concern you?
Speaker 4: I think that you know, everybody who has sort of
Speaker 4: witnessed and experienced some of the transactional tone that Trump
Speaker 4: has is a tip for tat that can be concerning.
Speaker 4: But I also believe that, Look, I don't like congestion,
Speaker 4: I don't like that tax. It's costing me three thousand
Speaker 4: dollars a year to go to work. But if it's
Speaker 4: for the good of the people in general, then I'm
Speaker 4: grateful that I can pay for it.
Speaker 2: Louis one thing I want to ask.
Speaker 3: I'm going to tell you about the subway. When we're
Speaker 3: off air. You can talk about using you know, I
Speaker 3: do use.
Speaker 4: It a lot. Okay, I do use a lot. I
Speaker 4: want to ask. It's my mobile office.
Speaker 2: There's policy. There's also rate environment, and mortgage rates in
Speaker 2: the US drop for a six week six.
Speaker 4: Hey, six point four today.
Speaker 2: Right right to the lowest level more than two months. Yeah, exactly,
Speaker 2: So I love it. You knew it right on it.
Speaker 2: And that's one of the things we've been talking just
Speaker 2: looking at the.
Speaker 4: US Treasury curve. It's one day trade. But are you
Speaker 4: seeing our story last.
Speaker 2: Week said, as they say, seeing mortgage traits go down,
Speaker 2: that you're starting to see supply increase because people are
Speaker 2: now willing to maybe let go and maybe are you
Speaker 2: seeing any signs of that?
Speaker 4: Absolutely? I mean I've had more bidding wars, I've been
Speaker 4: outbid more in the last two months. I mean, listen in.
Speaker 2: But people are willing to start to let go of
Speaker 2: homes because.
Speaker 4: Yes, and what they wouldn't do then they will do
Speaker 4: now and I each of those some of them have
Speaker 4: personal circumstances, but I think it's also an attitude in
Speaker 4: a tone like how long are you going to wait? Yeah?
Speaker 4: And what are the policies that are being implemented now
Speaker 4: going to be in six months? We know it usually
Speaker 4: takes six months to see it. In the real estate transactions,
Speaker 4: right right, that cause effect, unlike the stock market today.
Speaker 4: So I think that what's right for one person might
Speaker 4: not be right for another person. But we are absolutely
Speaker 4: seeing a attitude shift for I would say the smart
Speaker 4: bigger picture people.
Speaker 2: So two things, people willing to buy because they're comfortable
Speaker 2: where the rate is and people who are in a
Speaker 2: home who've maybe had a low mortgage willing to let
Speaker 2: go or I.
Speaker 4: That mortgage thing is not a conversation as much as
Speaker 4: the next chapter of their life is a conversation. Okay,
Speaker 4: they're not letting go because there's nothing else to get.
Speaker 4: So if you're going to I don't know, Colorado, wherever
Speaker 4: there's some inventory that's not thirty two people bidding on
Speaker 4: one unit, then you might let go of your place
Speaker 4: in Darien, Connecticut that has like seventeen homes on the market,
Speaker 4: you know, so I think that those are things that
Speaker 4: we're up against. I'll also just say that interesting the
Speaker 4: second week in February, they did forty one transactions transactions
Speaker 4: in one week north of four million, and that is
Speaker 4: the most activity that we have seen in that sector
Speaker 4: since twenty twenty two, since March of twenty twenty two.
Speaker 3: Where's weakness in the market? What price point.
Speaker 4: Priced incorrectly? Homes that are priced incorrectly me too high
Speaker 4: to those look low. I mean, every sector is moving
Speaker 4: if it's priced right. So I mean that's why we
Speaker 4: have one hundred and four units that are in contract
Speaker 4: for north of ten million. They I bet if I
Speaker 4: was to really do the analysis that those are all
Speaker 4: had had multiple price reductions.
Speaker 2: Nothing in here says recession to you. Just quickly just
Speaker 2: got about twenty five seconds.
Speaker 4: Not you hesitating. No, I'm just trying to be thoughtful.
Speaker 4: I feel that people have been just through. People can
Speaker 4: date their rate and you know, marry their home and refinance,
Speaker 4: and I think that's a lot of the attitude for people.
Speaker 4: And that's why you have parents more willing to take
Speaker 4: their inheritance and let them experience it, use it, have
Speaker 4: it than waiting for them to pass away. I hear
Speaker 4: that from a lot a lot of families.
Speaker 2: Nice to check in with you. Thank you, thank you,
Speaker 2: thank you. Louise Phillips Forbes real estate broker at Brown
Speaker 2: Harris Stevens joining us once again. We kind of want
Speaker 2: to stay on real estate for a moment. Just had
Speaker 2: a really interesting conversation.
Speaker 3: With market to market, which is nice, you know, not
Speaker 3: yet every day and every eye when it's on the blockchain,
Speaker 3: it will have like daily values.
Speaker 2: But there was a piece of data that came out
Speaker 2: that kind of struck. US US Census Bureau data on
Speaker 2: office construction spending roads four tens of our percent from last month.
Speaker 4: Why might you care?
Speaker 2: This data generally refers to the value of new construction
Speaker 2: activity of office properties on a seasonally adjusted basis. So
Speaker 2: rising construction spending suggest increased amount of new supply to come,
Speaker 2: which presents a challenge for landlords tasked with leasing new
Speaker 2: and existing space. So this we thought might be a
Speaker 2: good setup for our next guest. We're going to continue
Speaker 2: talking real estate.
Speaker 3: He's a commercial and office investor and developer back with
Speaker 3: us as Michael Chauveau, Founder, chairman and CEO, of the
Speaker 3: luxury real estate company that bears his name. It's got
Speaker 3: a current portfolio of ied at about eight billion dollars.
Speaker 3: It includes properties in New York, San Francisco, Miami Beach,
Speaker 3: and Chicago. He joins us from New York City. Michael,
Speaker 3: it's been a while since we spoke.
Speaker 7: How are you. I'm great.
Speaker 6: How are you guys doing?
Speaker 3: We're doing pretty well. Look, can't ignore the market on
Speaker 3: a day like today the equity market does. Does a
Speaker 3: sell off such as this make you nervous at all?
Speaker 7: I just heard of what you guys said. You know,
Speaker 7: we don't have to mark the market every day. Whatever
Speaker 7: happens in the market is really not doesn't know, it
Speaker 7: doesn't concern us. Real Estate and particularly commercial real estate
Speaker 7: are long term investments.
Speaker 4: You know.
Speaker 7: We buy trophy assets. We're going to own them for
Speaker 7: twenty to thirty years. The bumps in the road, obviously
Speaker 7: are are unpleasant, but they don't really affect the market obviously,
Speaker 7: like like the equity market or any other markets that
Speaker 7: are that are so sensitive to the daily activities.
Speaker 2: No, but a market decline or pullback or if it's
Speaker 2: representative of things to come, an indication of maybe the
Speaker 2: US economy, softening earnings maybe not being as robust it
Speaker 2: will or could lead to companies saying I'm not going
Speaker 2: to expand, I'm not going to take that office space,
Speaker 2: or I'm not going to do this, or I'm not
Speaker 2: going to do that new building, that new office building
Speaker 2: or headquarters. So tell us what's been kind of the
Speaker 2: mood the environment when it comes to movement demand and
Speaker 2: new build that you're seeing in the commercial office space
Speaker 2: right now?
Speaker 7: Sure, I think that when you look at companies. Actually,
Speaker 7: since the election, we've seen a huge spike in office demand.
Speaker 7: We could talk about the San Francisco market. You know,
Speaker 7: we spoke about this multiple times. I've been on your
Speaker 7: shoe and every time it's the same question, what's going
Speaker 7: to happen in San Francisco. Two years ago I came
Speaker 7: to the show, I said San Francisco is going to
Speaker 7: be great when everybody thought it's going to get demised.
Speaker 7: And today San Francisco last quarter has seen the highest
Speaker 7: level of leasing since COVID. So we're seeing a huge
Speaker 7: return as in San Francisco as as a market as
Speaker 7: a whole. We're seeing heightened tours, We're seeing companies expand
Speaker 7: space in San Francisco, which is something we haven't seen
Speaker 7: since before COVID. I think there is an absolute positive
Speaker 7: mood in the market again you're talking about. This is
Speaker 7: obviously the unknowns with the tariffs and things that change
Speaker 7: the market on a daily basis, but companies are making
Speaker 7: longer term plans. We're seeing large companies now engaging again
Speaker 7: to make commitments, if it's law firms, if it's banks.
Speaker 7: Obviously the AI industry in San Francisco is booming, so
Speaker 7: we're quite positive. I mean, we've done at the Pyramid alone,
Speaker 7: We've done quarter millions corporate leasing over the last seven weeks.
Speaker 7: That's the mostly sing we've done over the last eighteen months.
Speaker 7: So we're seeing the reality of kind of the what
Speaker 7: we call the Trump election, and we'll have to see
Speaker 7: how long this lasts. But as of now, things are
Speaker 7: at least on the lease inside, extremely positive.
Speaker 3: You know, I was thinking of you when I saw
Speaker 3: this story today hit at noon, because I knew we
Speaker 3: were speaking to you about San Francisco. But Anthropic has
Speaker 3: raised three point five billion dollars at evaluation of sixty
Speaker 3: one point five billion dollars. The amount of money that
Speaker 3: we've seen go into these AI companies Open AI it's
Speaker 3: currently in tox or and even larger three hundred billion
Speaker 3: dollar valuation. How are you seeing that money ripple throughout
Speaker 3: San Francisco commercial real estate?
Speaker 7: So in twenty twenty four, there were approbably about the
Speaker 7: eighty six new AI leases that were signed right and
Speaker 7: those leases some beyond open AI. A lot of them
Speaker 7: are startups or kind of a little bit later later
Speaker 7: stage companies. Those leases beyond large leases were ten to
Speaker 7: twenty five thousand score foot leases. Q one of this year,
Speaker 7: we're seeing AI companies go to fifty to one hundred
Speaker 7: thousand score foot spaces, which is a huge shift, right.
Speaker 7: It means that there's larger commitment larger space, but it
Speaker 7: really means that companies are getting larger investments because a
Speaker 7: lot of these companies that still are not are not profitable.
Speaker 7: So we're seeing a very fast growth in the II
Speaker 7: business that's driving them to take more space. In San
Speaker 7: Francisco is obviously the hub of AI. So we feel
Speaker 7: very positive about the eye industry. You know, it's been
Speaker 7: it's been booming, it's been growing, I think at the
Speaker 7: fastest industry we've ever seen of a single industry. That's
Speaker 7: driving the real estate market.
Speaker 2: Michael, At what price are people taking new space? Is
Speaker 2: it at a discount to where it was pre pandemic.
Speaker 7: So it depends what type of space, right, So again
Speaker 7: there's there's kind of the trophy space like the Transamerica Pyramid,
Speaker 7: and there is the commodity So the commodity space is
Speaker 7: trading at a discount, and at a big discount I
Speaker 7: would say thirty to forty percent discount than what it
Speaker 7: was pre COVID because it's a tremendous amount of inventory.
Speaker 7: And I think I told you on last time I
Speaker 7: was on that a lot of these buildings, in my opinion,
Speaker 7: should just be demolished because they expired. But the trophy assets,
Speaker 7: if it's a Transamerica Pyramid in San Francisco or some
Speaker 7: of the other assets that we're handling, are are seeing
Speaker 7: record rents. I mean, we've done rents at the Trans
Speaker 7: America Pyramid today that are three times the rent of
Speaker 7: pre COVID because companies at the top of the market
Speaker 7: are continuing to spend, are seeing growth and are willing
Speaker 7: to spend a lot more money on rent because over
Speaker 7: the last twenty years, the company's growth has been a
Speaker 7: lot faster than rent growth. Rent growth normally is three
Speaker 7: percent a year. Companies have grown, obviously if you look
Speaker 7: at the market at a much faster pace. So a
Speaker 7: little bit of a catchup now is what companies are
Speaker 7: paying on rent versus their versus their NI or versus
Speaker 7: kind of the their income.
Speaker 6: Hey, what we have you?
Speaker 3: I want to talk about La. You've got the property,
Speaker 3: the Mandarin Oriental residences in Beverly Hills, climate change, the
Speaker 3: devastating LA fires from a few weeks ago, impacting the market?
Speaker 3: How is that happening? How is impacting construction that's being
Speaker 3: done in the area. Just thirty seconds?
Speaker 7: So, l look, LA has suffered a huge, huge, a
Speaker 7: huge blow. Interestingly enough, it does it did for property
Speaker 7: that's available. It actually spiked demand because people needs to live.
Speaker 7: There's a shortage now of housing in LA. So it's
Speaker 7: an unfortunate thing. But there is right now a shortage
Speaker 7: of housing because there hasn't been real development in LA
Speaker 7: over the last twenty years, like anything of real substance.
Speaker 2: All right, I'm going to leave it on that note.
Speaker 2: Wish we had more time, but look forward to next time. Michael,
Speaker 2: Thank you so much. Michael Schavoe. He's founder, chairman and
Speaker 2: CEO of the luxury real estate company Chevau, joining us
Speaker 2: with another view, if you will, on real estate, this
Speaker 2: time really the office property area. And we know they've
Speaker 2: been in San Francisco, a couple of couple of West
Speaker 2: coast Miami, Florida, so good view on that