WEBVTT - Core PCE Data Cools , Trump Conviction 0:00:02.960 --> 0:00:07.280 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:17.279 weekdays at ten am Eastern on Applecar playing Android Auto 0:00:17.360 --> 0:00:20.279 with the Bloomberg Business App. Listen on demand wherever you 0:00:20.360 --> 0:00:24.520 get your podcasts, or watch us live on YouTube. 0:00:24.960 --> 0:00:26.720 We want to go to Ala Sabos. I've done him 0:00:26.720 --> 0:00:29.960 for a long time. He's CEO of Compass Diversified. He's 0:00:30.000 --> 0:00:33.400 joining us from California and he has a portfolio of 0:00:33.440 --> 0:00:35.199 companies that he invests in a lot of them are 0:00:35.240 --> 0:00:37.280 retail and a lot of them are in other sectors, 0:00:37.280 --> 0:00:38.640 so we can kind of get to all of them. 0:00:38.800 --> 0:00:40.640 And he's a great person to talk about retail but 0:00:40.680 --> 0:00:44.000 also infleetion. That PC data kind of right in line 0:00:44.000 --> 0:00:46.479 with where we were expecting it, So nothing moving the 0:00:46.520 --> 0:00:49.320 needle either way. When it comes to the fed Alias, 0:00:49.360 --> 0:00:51.240 it's great to see you again. It's been a while. 0:00:51.560 --> 0:00:54.400 Let's just start with retail for a second. What is 0:00:54.440 --> 0:00:56.000 your read on the consumer right now? 0:00:57.080 --> 0:00:59.640 Yeah, good morning, Alex. Nice to see you as well. 0:01:00.120 --> 0:01:02.720 You know, we're seeing the consumer and I hate to 0:01:02.920 --> 0:01:04.920 continue to say the same thing, but we're seeing this 0:01:05.000 --> 0:01:09.520 bifurcation where the more affluent consumer continues to spend and 0:01:09.680 --> 0:01:12.760 spend if there's products that they want or services that 0:01:12.800 --> 0:01:17.920 they like. And the you know, more inflation impacted consumer 0:01:18.000 --> 0:01:20.679 on the lower end is having to make real choices, 0:01:20.720 --> 0:01:23.520 and so that trend continues. But what I would say 0:01:23.560 --> 0:01:26.440 we've seen, you know, kind of in the more recent 0:01:26.640 --> 0:01:30.800 few months is just a steady weakening of kind of activity. 0:01:30.840 --> 0:01:33.560 Our industrial business has seen a little bit of a 0:01:33.600 --> 0:01:37.480 step down. The consumer business is growing quite rapidly, but 0:01:37.720 --> 0:01:39.880 is starting to slow a little bit from where it was. 0:01:39.920 --> 0:01:42.319 So I think the consumer is starting to weaken, and 0:01:42.360 --> 0:01:45.040 we saw that with the you know, kind of retail 0:01:45.080 --> 0:01:47.840 sales data which fell on a real basis today. 0:01:48.120 --> 0:01:49.960 So Elias, a lot of folks are saying, when when 0:01:49.960 --> 0:01:52.600 you look at the consumer out there, there's, boy, there's 0:01:52.640 --> 0:01:55.240 at least two types of consumers out there, the ones 0:01:55.280 --> 0:01:57.920 that are maybe asset rich and they're benefiting from the 0:01:58.000 --> 0:02:00.160 rise in the stock market, the bond market, you know, 0:02:00.400 --> 0:02:03.440 real estate, and those that aren't that are really filling 0:02:03.480 --> 0:02:05.240 the brunt of inflation. Do you see that in kind 0:02:05.240 --> 0:02:06.920 of your companies that you invest in. 0:02:08.240 --> 0:02:10.560 Yeah, Paul, we you know, in the companies we invest 0:02:10.600 --> 0:02:14.280 in mostly skew towards the more affluent consumer, and so 0:02:14.360 --> 0:02:17.880 those are more balance sheet rich customers that we have, 0:02:18.120 --> 0:02:22.800 and we've seen just really robust shopping patterns continue with 0:02:23.000 --> 0:02:26.600 that consumer subset. We have a small portion of our 0:02:26.639 --> 0:02:29.720 business that is more at the lower end and goes 0:02:29.760 --> 0:02:32.600 through the mass market, and for the last couple of years, 0:02:32.600 --> 0:02:35.079 that business has really been under pressure and we're seeing 0:02:35.120 --> 0:02:39.120 that consumer you know, have to make choices, and so, yeah, 0:02:39.160 --> 0:02:42.639 there is a real bifurcation. And right now being at 0:02:42.680 --> 0:02:45.480 the affluent end is where the market is holding up. 0:02:45.520 --> 0:02:49.519 Well, all I ask, what's the inflation and the supply 0:02:49.639 --> 0:02:52.600 chain issue when it comes to retail. Where is it 0:02:52.639 --> 0:02:54.480 now versus say, where it was a year ago? 0:02:55.960 --> 0:02:59.720 Yeah, year ago, Alex, our inflation was principally coming from 0:03:00.040 --> 0:03:03.360 well it's coming from multiple places, but principally from labor, 0:03:03.880 --> 0:03:06.880 and there was a terrible imbalance between the demand for 0:03:07.000 --> 0:03:09.880 labor and the supply of labor. You know, fast forward 0:03:09.919 --> 0:03:13.200 to today, we're actually starting to see that reverse. In fact, 0:03:13.680 --> 0:03:15.720 I just came out of all of our board meetings 0:03:15.720 --> 0:03:19.400 about three weeks ago with our ten subsidiary companies. Nobody's 0:03:19.400 --> 0:03:23.880 complaining about labor problems anymore. You know, we're seeing wage pressures, 0:03:24.000 --> 0:03:26.160 you know, kind of elevated a little bit, maybe up 0:03:26.200 --> 0:03:29.640 fifty basis points from historical norms. You know, if you 0:03:29.680 --> 0:03:31.440 went back a year ago, that was two to three 0:03:31.520 --> 0:03:34.520 hundred basis point. So you know, we're seeing those labor 0:03:34.560 --> 0:03:38.760 pressures really subside right now. Where there are some pressures 0:03:38.800 --> 0:03:43.640 on inflation gets more to distribution costs, so warehousing, transportation. 0:03:44.160 --> 0:03:46.720 But in general, Alex, if there's one thing I would say, 0:03:47.200 --> 0:03:50.280 our view on the street is that inflation is probably 0:03:50.320 --> 0:03:53.440 following faster than what we even saw on today's report. 0:03:53.920 --> 0:03:56.440 And I say that because we have customers that are 0:03:56.480 --> 0:04:00.240 asking us now for price to concessions. We're doing the 0:04:00.280 --> 0:04:03.560 same with our suppliers, and we're seeing just easing of 0:04:04.080 --> 0:04:06.520 pressures across the board. So I think the trend in 0:04:06.520 --> 0:04:09.160 inflation is going to be down and down pretty significantly 0:04:09.200 --> 0:04:10.160 as the year up folds. 0:04:10.960 --> 0:04:15.080 So Elias, I know you you're firm, your compass diversified 0:04:15.120 --> 0:04:19.200 focuses on three verticals branded, consumer, niche, industrial, and healthcare. 0:04:19.200 --> 0:04:22.239 Where are you seeing some of the best opportunities these days? 0:04:23.360 --> 0:04:25.640 Yeah, I would say the best opportunities, Paul, are in 0:04:25.720 --> 0:04:29.560 consumer you know, what we've seen is the more defensive sectors, 0:04:29.680 --> 0:04:33.520 especially healthcare and where we invest as critical outsource services. 0:04:33.960 --> 0:04:36.560 Those have really attracted a lot of demand and so 0:04:36.720 --> 0:04:39.279 there's a lot of trades that are happening there, but 0:04:39.320 --> 0:04:43.600 there are very elevated prices in the consumer business inside. 0:04:44.279 --> 0:04:47.600 What we're seeing is the choppiness of consumer earnings coming 0:04:47.640 --> 0:04:50.279 out of the pandemic has led a lot of financing 0:04:50.360 --> 0:04:53.240 partners to exit that part of the market, and we're 0:04:53.240 --> 0:04:56.000 not seeing private equity be as active. So we're seeing 0:04:56.080 --> 0:04:57.720 good deals come in consumer. 0:04:58.080 --> 0:04:58.840 We closed on. 0:04:58.839 --> 0:05:01.599 A great company called the Honey Pot in January of 0:05:01.680 --> 0:05:05.560 this year, and so this is a perfect opportunity and 0:05:05.640 --> 0:05:08.760 market for us because competition is you know, pretty much 0:05:08.800 --> 0:05:12.039 exited the consumer space right now, or it's you know, 0:05:12.240 --> 0:05:14.719 very weak compared to where it's been, and that means 0:05:14.720 --> 0:05:17.440 pricing comes down as supply of deals comes back into 0:05:17.480 --> 0:05:17.880 the market. 0:05:18.360 --> 0:05:21.440 What about industrials, niche industrials, what does that mean for 0:05:21.520 --> 0:05:23.280 Alias Sable right now? 0:05:23.960 --> 0:05:29.960 Yeah, mostly or mostly alex we're working in the industrial 0:05:30.040 --> 0:05:32.600 tech side, so you know, think of things that are 0:05:32.600 --> 0:05:38.280 helping with green energy and you know, other technology enabled 0:05:38.320 --> 0:05:42.880 industrial processes. You know, the industrial business. This pricing is 0:05:42.920 --> 0:05:45.120 actually quite high there too, believe it or not, on 0:05:45.160 --> 0:05:47.760 the M and A side, and we're seeing some weakening 0:05:47.839 --> 0:05:49.800 in some of the order books. So it's a little 0:05:49.800 --> 0:05:53.040 bit confounding to us how pricing could be up as 0:05:53.120 --> 0:05:56.359 high as it is with the economy showing some weakness 0:05:57.040 --> 0:05:59.880 and that directly impacts industrial. But you know, I think 0:06:00.080 --> 0:06:02.880 where we are, which is more in the industrial tech side. 0:06:03.080 --> 0:06:05.279 You know, we think that stays in the United States, 0:06:05.320 --> 0:06:07.440 and that is going to be something that grows, especially 0:06:07.480 --> 0:06:10.800 with government policy changing and you know, a lot of 0:06:10.839 --> 0:06:13.480 the advent of AI in the in the you know, 0:06:13.600 --> 0:06:17.000 computing business. I think that's going to drive more manufacturing 0:06:17.040 --> 0:06:18.160 here and we're going to be able to do it 0:06:18.160 --> 0:06:22.280 pretty efficiently, especially in the higher tech industrial space. 0:06:22.640 --> 0:06:24.159 Well, it's just real quickly, I'd love to get your 0:06:24.200 --> 0:06:27.320 perspective here. What's the financing market the capital markets like 0:06:27.400 --> 0:06:30.320 for a company like you'res looking to make acquisition, can 0:06:30.360 --> 0:06:33.440 you fancy your deals here? Obviously rising interest rates makes 0:06:33.440 --> 0:06:34.200 it a little bit tougher. 0:06:35.320 --> 0:06:37.400 Yeah, So, Paul, we're a little bit different in that 0:06:37.480 --> 0:06:40.040 we are a publicly traded company and when we acquire 0:06:40.080 --> 0:06:43.839 we finance at the holding company, not at our subsidiary levels, 0:06:43.960 --> 0:06:46.559 and so the markets have been, you know, fairly open 0:06:46.600 --> 0:06:48.599 to us and have been, you know for the last 0:06:48.640 --> 0:06:51.560 couple of years. You know, we have bonds that publicly trade, 0:06:51.920 --> 0:06:54.440 and the pricing on those bonds have come down. They're 0:06:54.480 --> 0:06:58.200 still up from where we issued in twenty twenty one, 0:06:58.240 --> 0:07:00.479 but we issued sort of at the peak of the market. 0:07:01.080 --> 0:07:04.360 So the capital markets remain very much open for us. 0:07:04.400 --> 0:07:06.520 We've been able to raise capital both in the debt 0:07:06.600 --> 0:07:10.440 markets and on the equity markets to fund our acquisition programs. 0:07:10.640 --> 0:07:13.080 I would say in terms of the M and A markets, 0:07:13.120 --> 0:07:16.560 where you have single asset LBO financing, we're starting to 0:07:16.600 --> 0:07:19.400 see that market come back as well, but it is 0:07:19.480 --> 0:07:22.280 coming back with higher pricing, and so it creates a 0:07:22.320 --> 0:07:25.880 competitive advantage for us in our financing structure. But we 0:07:25.960 --> 0:07:29.160 are seeing financing come back into the middle market M 0:07:29.200 --> 0:07:29.760 and A space. 0:07:30.200 --> 0:07:32.240 ALIAS thanks a lot. We really appreciate it. I love 0:07:32.240 --> 0:07:33.840 that you can hit on all the different industries and 0:07:33.840 --> 0:07:36.560 have a great window into the capital markets. Liasabos, CEO 0:07:36.960 --> 0:07:40.520 of Compass Diversified. That ticker on the NIC is COODI 0:07:40.880 --> 0:07:45.520 joining us from California. Interesting, right, I mean particularly with 0:07:45.560 --> 0:07:47.640 the industrials, like the order books are a little soft, 0:07:47.640 --> 0:07:50.320 but pricing is still strong, like and dislocations. But interesting 0:07:50.320 --> 0:07:52.200 in the inflation read that we're actually going to see 0:07:52.200 --> 0:07:56.080 inflation continue to come down. That could the FED be right? 0:07:56.320 --> 0:07:58.600 Yeah, maybe the Fed does actually have a soft landing. 0:07:58.920 --> 0:08:00.440 I mean that would be them. 0:08:02.000 --> 0:08:05.880 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:05.960 --> 0:08:09.480 weekdays at ten am Eastern on applecar Play and Android 0:08:09.520 --> 0:08:12.280 Auto with the Bloomberg Business app. You can also listen 0:08:12.400 --> 0:08:15.480 live on Amazon Alexa from our flagship New York station, 0:08:15.880 --> 0:08:18.560 Just say Alexa, play Bloomberg eleven. 0:08:18.360 --> 0:08:22.160 Thirty Alex Steel alongside Paul So we need. This is 0:08:22.200 --> 0:08:24.600 Bloomberg Intelligence Radio. We bring you all the top news 0:08:24.600 --> 0:08:27.720 in business and finance through a lens of our amazing analysts. 0:08:27.760 --> 0:08:29.960 They cover two thousand companies in one hundred and thirty 0:08:29.960 --> 0:08:33.880 industries worldwide. We also tackle the big topics in the 0:08:33.920 --> 0:08:36.440 world that we all have really big questions on, and 0:08:36.480 --> 0:08:39.080 one of them is commercial real estate. We're all waiting 0:08:39.120 --> 0:08:42.160 for that shoe to drop. Some shoes have dropped. We 0:08:42.240 --> 0:08:44.200 get the news over the last week that s read 0:08:44.800 --> 0:08:48.760 Barry Sternlick's reat is going to pause redemptions, very similar 0:08:48.760 --> 0:08:51.840 to what be redid a few years ago. And where 0:08:51.840 --> 0:08:54.040 are we in that cycle and why are we seeing 0:08:54.040 --> 0:08:57.000 that now? Well? Joining us for his insight, which may 0:08:57.000 --> 0:09:00.400 be a little counterintuitive, is Scott Reckler. He is CEO 0:09:00.520 --> 0:09:04.400 and chairman of our x R Commercial real Estate in 0:09:04.440 --> 0:09:06.200 New York. How you doing, Scott, I'm doing well. 0:09:06.240 --> 0:09:07.400 Thanks for having me, Thanks. 0:09:07.200 --> 0:09:09.160 For coming in. We really appreciate it. When I hear 0:09:09.200 --> 0:09:11.800 a headline that s Reed is halting redemptions, that makes 0:09:11.800 --> 0:09:15.360 me think, oh my goodness, Ciri is going to be toast. 0:09:15.440 --> 0:09:16.000 What's happening? 0:09:16.040 --> 0:09:17.000 What do you see? 0:09:17.120 --> 0:09:19.800 So I think you know, and Barry's been very vocal 0:09:19.800 --> 0:09:22.160 about this for a while, right, which is that there's 0:09:22.200 --> 0:09:25.000 been a day of reckoning coming and it's someone been 0:09:25.000 --> 0:09:28.560 delayed last year as the Federal Reserve got a little 0:09:28.559 --> 0:09:30.520 bit more dubbish in their tone that people thought maybe 0:09:30.520 --> 0:09:33.600 interest rates were coming down. But I think the industry 0:09:33.640 --> 0:09:35.800 is now going through it's five stages of grief and 0:09:35.840 --> 0:09:39.240 they've gone past the denial and are now at acceptance 0:09:39.360 --> 0:09:43.160 and so a recognition that rates aren't going to come down, 0:09:43.280 --> 0:09:45.120 and so it's not going to be some saving grace 0:09:45.160 --> 0:09:47.560 and so they have to deal with these challenges. So 0:09:47.600 --> 0:09:51.840 now the banks, the institutions are busy, you know, taking 0:09:51.880 --> 0:09:54.840 the appropriate marks, taking the appropriate reserves, and now we're 0:09:54.840 --> 0:09:56.240 gonna have to start going through the process. 0:09:56.240 --> 0:09:57.000 It's a big problem. 0:09:57.080 --> 0:09:59.440 Right There's a trillion dollars of debt that's coming due 0:10:00.120 --> 0:10:02.400 this year, two trillion dollars over the next three years. 0:10:02.679 --> 0:10:05.480 And most of this debt has been financed that, you know, 0:10:06.000 --> 0:10:10.760 unofficiently interest rates that are not normal interest rates right there, 0:10:10.920 --> 0:10:12.600 interest rates that are much lower for the last ten 0:10:12.640 --> 0:10:14.400 to fifteen years that aren't going to come back. And 0:10:14.440 --> 0:10:16.400 now we're going to have more normal rates. So we 0:10:16.480 --> 0:10:19.200 have to go through a reequitization. Means that there's going 0:10:19.240 --> 0:10:21.040 to be pain on the equity side, pain on. 0:10:21.000 --> 0:10:21.560 The death side. 0:10:21.600 --> 0:10:24.440 You saw today there's announcement about US Pensions having to 0:10:24.440 --> 0:10:27.679 take more write offs on the commercial real estate. We've 0:10:27.720 --> 0:10:30.080 seen you know, more banks having issues. I think that's 0:10:30.080 --> 0:10:32.600 going to happen as well. So we're just in the 0:10:32.640 --> 0:10:35.719 beginning now of facing this challenge and it's gonna be 0:10:35.760 --> 0:10:37.720 something that's going to work its way through through this 0:10:37.800 --> 0:10:38.800 year and into next year. 0:10:39.200 --> 0:10:41.200 All right, So let's just say I've got a building 0:10:41.240 --> 0:10:44.320 in midtown wherever a part of that two point two 0:10:44.320 --> 0:10:48.440 trillion dollars that's coming. I go to my bank, the 0:10:48.480 --> 0:10:51.960 interust rate's much much higher. The value of my property 0:10:52.160 --> 0:10:54.839 is thirty forty fifty percent lower. I don't know something 0:10:54.840 --> 0:10:58.640 along that magnitude. You only loan to value fifty percent. 0:10:59.320 --> 0:11:00.440 Someone's got to get there. 0:11:00.720 --> 0:11:02.280 Right, is exactly right? 0:11:02.320 --> 0:11:05.400 So I mean, I think, and again this is different 0:11:05.440 --> 0:11:07.640 than like the two thousand and eight crisis. Right when 0:11:07.640 --> 0:11:11.960 two thousand and eight came, there was this injection of 0:11:12.120 --> 0:11:15.160 capital that really sort of lifted all values. Right, In 0:11:15.200 --> 0:11:18.280 this case, we have a structural period between the interest rates, 0:11:18.320 --> 0:11:20.960 and then some types of properties aren't going to be competitive. 0:11:21.000 --> 0:11:23.440 So you referenced an office building today, right, and then 0:11:23.480 --> 0:11:27.160 that commentary office not only has the revaluation because of 0:11:27.160 --> 0:11:29.800 interest rates, but people use office buildings differently, and some 0:11:29.840 --> 0:11:32.720 buildings are going to be competitively obsolete. So you have 0:11:32.760 --> 0:11:35.520 to pick the spots correctly, and then you have to 0:11:35.559 --> 0:11:39.040 face that reality. So the bank has to adjust its loan, 0:11:39.559 --> 0:11:42.840 the equity has to write off the equity and inject 0:11:42.880 --> 0:11:45.320 new equity, and you have to pick which buildings are 0:11:45.360 --> 0:11:48.920 going to be successful in this post pandemic world. I think, 0:11:49.160 --> 0:11:51.400 you know, the other piece of this is multifamily, which 0:11:51.440 --> 0:11:53.800 I think to me is more of the Achilles heel 0:11:54.080 --> 0:11:58.119 for the broader regional bank because there's a heavy concentration 0:11:58.200 --> 0:12:01.200 of multifamily in the regional bank around the United States. 0:12:02.120 --> 0:12:04.640 They have something like fifty to sixty percent of their 0:12:05.520 --> 0:12:09.400 book of business as loans, and those loans, even if 0:12:09.440 --> 0:12:11.360 just from an interest rate, even if credit is good, 0:12:11.920 --> 0:12:14.160 is underwater today, right. But now you also have new 0:12:14.160 --> 0:12:16.199 supply coming into the market. So there's going to be 0:12:16.240 --> 0:12:19.000 a couple of years of headwinds on that multi family 0:12:19.320 --> 0:12:20.520 market that I think is gonna put a lot of 0:12:20.559 --> 0:12:23.200 pressure on these regional banks going forward. 0:12:23.559 --> 0:12:25.839 So when there is pressure, are you a buyer? Are 0:12:25.840 --> 0:12:26.319 you a seller? 0:12:26.360 --> 0:12:27.360 What do you do? Yeah? 0:12:27.400 --> 0:12:29.520 It doesn't I think you these are could be a 0:12:29.559 --> 0:12:32.280 generational moment of time to be a buyer, right, and 0:12:32.320 --> 0:12:34.000 so we're active in the market. 0:12:34.280 --> 0:12:35.760 But you need to be very selective. 0:12:35.800 --> 0:12:35.920 Right. 0:12:35.960 --> 0:12:37.240 It's not just about having the capital. 0:12:37.320 --> 0:12:39.800 You have to have the capabilities to choose which are 0:12:39.800 --> 0:12:42.079 the properties that are going to be successful. You need 0:12:42.120 --> 0:12:44.319 to bring down the basis so you're not going to 0:12:44.400 --> 0:12:46.000 do this and think values are going to come back. 0:12:46.000 --> 0:12:48.120 You're not doing this on a bet that interest rates 0:12:48.160 --> 0:12:49.960 are just going to fall and everyone's going to do well. 0:12:49.960 --> 0:12:51.280 So you have to find a way how are you 0:12:51.320 --> 0:12:54.120 going to create value? And you really can't be necessarily 0:12:54.240 --> 0:12:56.040 to try to time the tap or the bottom. 0:12:56.120 --> 0:12:56.280 Right. 0:12:56.360 --> 0:12:58.679 So, we had a company that we sold in January 0:12:58.720 --> 0:13:01.000 of seven, and you know, we didn't know it was 0:13:01.040 --> 0:13:03.160 the top, but it felt frothy, right, so we sold it. 0:13:03.200 --> 0:13:05.360 We came back in the market of August of nine. 0:13:05.520 --> 0:13:07.680 We didn't know where we were in the cycle. It 0:13:07.760 --> 0:13:10.040 just felt like the right time to enter. So moments 0:13:10.200 --> 0:13:12.280 like this is where you want to start entering before 0:13:12.360 --> 0:13:15.319 the all clear signal is sounded. But you have to 0:13:15.360 --> 0:13:18.160 be very selective, but know that there's a lot more 0:13:18.200 --> 0:13:20.360 trouble to come that's going to create more distress in 0:13:20.400 --> 0:13:22.200 the system. 0:13:22.360 --> 0:13:25.840 Scott, do we have a housing shortage in this country? 0:13:25.920 --> 0:13:27.559 And if so, how did we get there? 0:13:28.080 --> 0:13:30.280 Yeah, we definitely have a housing shortage in this country, 0:13:30.280 --> 0:13:33.839 and it really it began to transpire after the last 0:13:34.000 --> 0:13:36.680 financial crisis, right. You ended up being a situation where, 0:13:37.320 --> 0:13:40.600 you know, the ability to build new housing became more challenging. 0:13:41.160 --> 0:13:44.000 People more conservative. So there's you know, estimates about six 0:13:44.040 --> 0:13:48.440 million units of shortages of housing in this country. And 0:13:48.520 --> 0:13:51.520 now you know, because of what the low rates during 0:13:51.559 --> 0:13:55.680 the pandemic, you've had this incredible amount of people buying 0:13:55.720 --> 0:13:59.040 homes financing long so existing home sales aren't trading. 0:13:59.080 --> 0:14:00.400 So we have this weirder nomaly. 0:14:00.760 --> 0:14:04.040 Will interest rates are up, Housing prices have stayed strong, 0:14:04.280 --> 0:14:06.720 and the market it hasn't really weakened in that regard, 0:14:07.440 --> 0:14:09.679 and so you know it's going to exacerbate the problem, 0:14:09.720 --> 0:14:12.280 right because now if you have less construction as we 0:14:12.320 --> 0:14:15.000 get to two twenty twenty six, you're going to have 0:14:15.040 --> 0:14:18.280 less housing today than you have the demand for housing. 0:14:18.400 --> 0:14:21.200 So when you're getting the feeling that you know there's distress, 0:14:21.360 --> 0:14:23.640 it's time to buy, even though they'll be more distressed later. 0:14:24.200 --> 0:14:26.120 How do you get that feeling? Like is there a 0:14:26.240 --> 0:14:29.120 screen that you look through to make sure like okay, 0:14:29.160 --> 0:14:31.440 not that property, but yes this property and if they're 0:14:31.440 --> 0:14:33.280 like right next to each other or something like, how 0:14:33.280 --> 0:14:34.360 does your brain work with that? 0:14:34.440 --> 0:14:38.160 Scott, No, I think you've got to be very concrete 0:14:38.200 --> 0:14:40.760 and have you know then screen is a good word, right. 0:14:40.800 --> 0:14:43.400 We have formulas so like in for office as an example, 0:14:43.880 --> 0:14:46.080 you know, we called we created something called Project Kodak, 0:14:46.120 --> 0:14:47.840 and we said, some buildings are going to be digital 0:14:48.120 --> 0:14:50.720 that are going to be successful in the post pandemic world, 0:14:50.840 --> 0:14:52.840 and some are going to be filmed and they're not going. 0:14:52.760 --> 0:14:55.000 To be successful. And we said, okay, we want to 0:14:55.000 --> 0:14:55.840 invest in digital. 0:14:55.880 --> 0:14:57.920 And we put the whole the other criteria as to 0:14:57.960 --> 0:15:00.880 what is digital and those are the the properties that 0:15:00.920 --> 0:15:01.440 are digital. 0:15:01.600 --> 0:15:02.320 What is digital? 0:15:02.520 --> 0:15:06.360 So digital are buildings like this Bloomberg building right which 0:15:06.400 --> 0:15:09.440 are you know, don't have places where people can collaborate people, 0:15:10.000 --> 0:15:12.000 they don't want to come to work because you can 0:15:12.040 --> 0:15:14.680 engage with people. They're in good communities, they're easy access 0:15:14.680 --> 0:15:18.160 from public transportation, and so that that is something that 0:15:18.240 --> 0:15:22.640 ultimately will be successful of attracting people. And so you 0:15:22.720 --> 0:15:25.640 need digital buildings, but they still may have broken capital structures. 0:15:25.640 --> 0:15:29.480 So our objective on investing is identify the digital buildings 0:15:29.880 --> 0:15:33.440 with the broken capital structures, invest in them, fix the 0:15:33.480 --> 0:15:35.840 broken capital structures. And when you do that, you see 0:15:35.840 --> 0:15:38.280 the leasing. Like last year we least two million square 0:15:38.280 --> 0:15:41.240 feet of space. This year, you know, so far we 0:15:41.320 --> 0:15:42.320 have a million and a half square. 0:15:42.160 --> 0:15:43.360 Feet of the leases out right. 0:15:43.440 --> 0:15:45.440 So if you have the right building with the right 0:15:45.480 --> 0:15:47.760 capital structure, there's a lot of tenants that want to 0:15:47.760 --> 0:15:48.280 be there. 0:15:48.200 --> 0:15:50.080 You know, I keep just stuck in my head from 0:15:50.080 --> 0:15:54.640 maybe eighteen months ago a Bloomberg News article came out 0:15:54.680 --> 0:15:57.880 and looked at Third Avenue, Manhattan between right where we 0:15:57.920 --> 0:16:00.520 are today fifty eighth Street and Grand Central down to 0:16:00.560 --> 0:16:04.480 forty second Street. Virtually you could write that whole part 0:16:04.480 --> 0:16:07.280 of Manhattan off. And that shocked me, because you've got 0:16:07.280 --> 0:16:11.440 some iconic buildings there, the Lipstick Building, just for example, 0:16:12.000 --> 0:16:14.200 what do you those aren't most of them are not 0:16:14.320 --> 0:16:17.560 A buildings. I've learned that term AA plus maybe there're 0:16:17.600 --> 0:16:19.720 be and c. What do you do with something like that? 0:16:19.960 --> 0:16:22.560 Right, So this is really where you need to start 0:16:22.560 --> 0:16:25.520 thinking about adaptive reuse. Right, if a building is going 0:16:25.520 --> 0:16:29.200 to be competitively obsolete and it's an office build and 0:16:29.400 --> 0:16:32.520 what are the alternative uses? And so we as an example, 0:16:32.840 --> 0:16:36.280 we're in the process of converting five office buildings to multifamily. 0:16:36.360 --> 0:16:38.720 Really and I hear that's hard. It's right. 0:16:38.800 --> 0:16:40.880 Some don't work, right, So you need to find ones 0:16:40.920 --> 0:16:43.000 where you have the right type of footprint and the 0:16:43.080 --> 0:16:46.800 right location so you can efficiently you know, adapt those floors, 0:16:46.880 --> 0:16:49.160 and so that's something that is important. 0:16:49.200 --> 0:16:52.040 But there's two caveats of that right. One is the 0:16:52.120 --> 0:16:53.000 value that you. 0:16:52.920 --> 0:16:54.840 Need to be investing in that building needs to be 0:16:54.880 --> 0:16:57.160 almost the equivalent of land value, So you need to 0:16:57.160 --> 0:17:00.880 have the capitulation of value coming down to that in 0:17:00.920 --> 0:17:02.960 that mix there. And then the second you need incentives. 0:17:03.040 --> 0:17:06.240 And so we're fortunate in New York the state just 0:17:06.280 --> 0:17:10.040 passed a tax incentive that about ninety percent of the 0:17:10.680 --> 0:17:14.040 tax that you normally pay is deferred for thirty five years. 0:17:14.040 --> 0:17:16.120 You don't pay it for thirty five years, so if 0:17:16.160 --> 0:17:18.760 you go through that process. So public policy can help 0:17:18.800 --> 0:17:21.320 get that done. And that's something that I think is 0:17:21.320 --> 0:17:23.680 going to be help accelerate this transition. 0:17:24.240 --> 0:17:27.920 That's fascinating stuff. I mean, real estate's always a fascinating business, 0:17:27.960 --> 0:17:29.639 but especially now. I don't know how these guys are 0:17:29.640 --> 0:17:29.800 doing it. 0:17:30.400 --> 0:17:34.000 I love that Kodak one that's might get that use that. 0:17:34.040 --> 0:17:35.760 We're going to use that if we'll give you a 0:17:35.760 --> 0:17:39.359 full attribution. But Scott Reckler, he's a CEO and chairman 0:17:39.440 --> 0:17:42.960 of our XR. We're talking real estate here. Lots of opportunities. 0:17:42.960 --> 0:17:44.679 I'm starting to hear more and more people come in 0:17:44.680 --> 0:17:46.879 here and say, you know, selectively, we think there's some 0:17:47.080 --> 0:17:50.320 time and some opportunities to make some acquisitions. So we 0:17:50.359 --> 0:17:52.240 appreciate checking in with Scott. 0:17:54.880 --> 0:17:58.760 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:17:58.840 --> 0:18:01.960 weekdays at ten am on Affle Car Playing and broun 0:18:01.960 --> 0:18:05.040 Otto with the Bloomberg Business app. Listen on demand wherever 0:18:05.080 --> 0:18:08.920 you get your podcasts, or watch us live on YouTube. 0:18:09.920 --> 0:18:12.280 Ballax Stale, Paul Swiney, We're live here on a Bloomberg 0:18:12.280 --> 0:18:16.000 Interactive Brokers studio. We're streaming live on YouTube each at 0:18:16.080 --> 0:18:18.359 night over YouTube dot com and search Bloomberg Podcast and 0:18:18.359 --> 0:18:21.399 that's where you'll find the video feed. Of course, the 0:18:21.440 --> 0:18:24.160 news of the last twenty four hours, Former President Trump 0:18:24.200 --> 0:18:27.240 found guilty in the hush money case. We've been talking 0:18:27.280 --> 0:18:27.920 about it all day. 0:18:28.200 --> 0:18:30.320 We will bring you more President. 0:18:30.440 --> 0:18:33.600 Former President Trump is scheduled to speak at eleven am 0:18:33.680 --> 0:18:35.680 Wall Street time. We will bring that to you when 0:18:35.720 --> 0:18:38.040 he does speak. The question now, I think for a 0:18:38.040 --> 0:18:41.040 lot of folks is now what happens? And for that 0:18:41.040 --> 0:18:44.159 we're going to check in with Robert Mints, former federal prosecutor. 0:18:44.440 --> 0:18:47.080 He's now a partner at the firm Macarter and English. 0:18:47.119 --> 0:18:49.880 He joins us from beautiful Princeton in New Jersey, home 0:18:49.920 --> 0:18:54.080 of hogy Haven via zoom. So anyway, best Hoby shop 0:18:54.080 --> 0:18:56.320 in the world, hogy Haven, just say laying it out there, 0:18:56.359 --> 0:18:59.440