Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. USCPI nevers reinforcing concerns about inflation,
Speaker 1: the financial stories that chief our world, a really different
Speaker 1: reaction to mark its more indications of just how hot
Speaker 1: the US economy really is. Through the eyes of the
Speaker 1: most influential voices Larry Summers, the former Treater Secretary, Katherine Keating,
Speaker 1: CEO of BNY, Mellen Sam's l Sherman N, founder of
Speaker 1: Equatic Group Investment in Bloomberg wool Street Week with David
Speaker 1: Weston from Bloomberg Radio. A whole lot of drama from
Speaker 1: a former US president indicted to a one hundred and
Speaker 1: sixty six year old Swiss bank, saying goodbye to professional
Speaker 1: wrestling officially becoming part of Lala Land. This is Bloomberg
Speaker 1: Wall Street Week. I'm David Weston. This week's special contributor
Speaker 1: Larry Summers on picking up the pieces of banking regulation.
Speaker 1: Owen Thomas of BXP on whether commercial real estate could
Speaker 1: be the next shoe to drop. Challenges in real estate
Speaker 1: are going to be tied to the economy and kept
Speaker 1: the beer of Ari's management on what all of this
Speaker 1: means for the credit world. The immediate effect is it's
Speaker 1: actually taken the banks out of our businesses in a
Speaker 1: lot of ways. There was a lot for Global Wall
Speaker 1: Street to watch this week, not all of it was
Speaker 1: in the markets. We saw a former president of the
Speaker 1: United States or reigned on criminal charges, so the first
Speaker 1: time ever, and as usual, the former president, mister Trump
Speaker 1: did not let it pass without comment. This fake case
Speaker 1: was brought only to interfere with the upcoming twenty twenty
Speaker 1: four election. The same day that mister Trump was facing
Speaker 1: the music in court, the leadership of Credit Suite was
Speaker 1: facing its own music had what was likely the last
Speaker 1: shareholders meeting ever for Credit Suie. It's a bits of
Speaker 1: reality to see the she didn't have time to bear fruit.
Speaker 1: And if all that weren't enough drama, Global Wall Street
Speaker 1: witnessed the combination of Hollywood powerhouse Endeavor with World Wrestling
Speaker 1: Entertainment will combine with Endeva's Ultimate Fighting Championship to form
Speaker 1: a new company that's going to be listed on the
Speaker 1: New York Stock Exchange. When we weren't distracted by the
Speaker 1: theater of it all, we had plenty to keep us
Speaker 1: busy in the real economy and in the market as
Speaker 1: OPEC plus caught everyone out by cutting oil production by
Speaker 1: a million barrels a day. It's either going to be
Speaker 1: seen as a precautionary master stroke or it's going to
Speaker 1: be seen as an unintentional Bober tightness. JP Morgan CEO
Speaker 1: Jamie Diamond issue his annual letters shareholders and to the
Speaker 1: world warning that the crisis of the bank's quote is
Speaker 1: not yet over and even when it is behind this,
Speaker 1: there will be repercussions from it for years to come.
Speaker 1: And then we ended the week with those US jobs numbers,
Speaker 1: adding another two hundred and thirty six thousand in March.
Speaker 1: That's down from three hundred thousand plus in February, but
Speaker 1: still enough to take the unemployment rate down to three
Speaker 1: point five percent. The equity markets didn't get a chance
Speaker 1: to react and given the good Friday holiday, but before
Speaker 1: that we had the SMP five hundred down just a
Speaker 1: tenth of a percent, while the NAZAC was off just
Speaker 1: over one percent. The bond market was open half of
Speaker 1: the day on Friday, and the initial action was the
Speaker 1: anticipation of higher rates, with a yield on both the
Speaker 1: ten year and the two year spiking up take US
Speaker 1: through all this shortened trading week. Were welcome now Chris Alman,
Speaker 1: chief investment officer at Calcer's and Julian Tet Financial Times,
Speaker 1: Chair of the editorial board and editor at Large for
Speaker 1: the US, So welcome back to Walster to both of you.
Speaker 1: Thank you for being here. Crystally, start with you. We
Speaker 1: had a series of economic data this week that seemed tommunicated,
Speaker 1: We're really getting softer, maybe we're winning the war against inflation,
Speaker 1: and then the jobs numbers came in and said, maybe
Speaker 1: not so fast. What did you make of it. It's
Speaker 1: a conundrum, you know, David, and has continued to be
Speaker 1: a conundrum the FEDS data dress, so we know they're
Speaker 1: going to pay attention to these numbers. They're going to
Speaker 1: look at the CPI next week is a real key indicator.
Speaker 1: The bond market, the stock market have been telling us
Speaker 1: that the Fed is going to pull off a soft landing.
Speaker 1: I mean, it's amazing to say. It's hard to believe though,
Speaker 1: so we'll see. I think the next week and two
Speaker 1: weeks are going to be really challenging CPI and then
Speaker 1: earnings reports, and that really is going to weigh on
Speaker 1: the market. Because I'm expecting negative comments from CEOs, so
Speaker 1: Jennie as I said, the initial reaction to the bond
Speaker 1: market was maybe higher rates, somewhat higher rates, rather than
Speaker 1: the lower rates. What does this tell the feed about
Speaker 1: that may meeting in these jobs numbers? Is this a
Speaker 1: further indication maybe it's too soon to start pausing. Well,
Speaker 1: I think one way to summarize what's happened in the
Speaker 1: last twenty four hours is a bond markets to remembered
Speaker 1: the message don't fight the Fed, because after the March
Speaker 1: madness of collapsing banks, there was a tremendous amount of
Speaker 1: wishful thinking months investors that the Federal Reserve would then
Speaker 1: go for wooden stock cutting rates said itself in terms
Speaker 1: of official statements, has been really clear over and over
Speaker 1: again that they are not looking for rate cuts. If anything,
Speaker 1: they are expecting to continue to hike. And it's worth
Speaker 1: stepping back for a second and saying that any other situation,
Speaker 1: if you had a three point five percent unemployment rate
Speaker 1: and a four point two percent annual wage growth rate,
Speaker 1: there's no way you'd be talking about cutting rates. So
Speaker 1: I think what's going on right now as a market
Speaker 1: of playing catch up and actually listening to what the
Speaker 1: Federal Reserve is saying instead of just hoping or dreaming
Speaker 1: that it might be something different. And Chris, I'm curious
Speaker 1: you're along term investor. Obviously with calsters you have to
Speaker 1: worry about all those pensions you have to pay off.
Speaker 1: One from your point of view, are we better off
Speaker 1: getting this behind us more quickly than we are right now?
Speaker 1: Because this is a slow process here of getting inflation
Speaker 1: ut of control. It has been a very painful process,
Speaker 1: but that's the nature of inflation. The Fed's only tool
Speaker 1: is to raise rates, and that's an ineffective tool to
Speaker 1: compete against wage and what was starting commodity inflation. So
Speaker 1: I would like it to get over fast, but I
Speaker 1: don't think it will, David, because as Julian said, the
Speaker 1: markets are expecting a soft landing. But it's just really
Speaker 1: hard to believe that Powell can pull that off. I
Speaker 1: hope he can. But the numbers tell us that unemployment
Speaker 1: should start to increase pretty sizably. And if you talk
Speaker 1: to CEOs, they're worried about a heavy recession coming up
Speaker 1: in the future. Well, Chris, what about that? Because the
Speaker 1: more we keep anticipating possibly a breakage if I can
Speaker 1: put it that way in the labor market, and yet
Speaker 1: it doesn't happen. Does j Powell need to be a
Speaker 1: spike up an unemployment in order to get where he
Speaker 1: wants to go? I don't know that he needs it.
Speaker 1: You know, the wages were only up four percent. That's
Speaker 1: still higher than he wants, but that's not bad. These
Speaker 1: numbers just are quite a conundrum, and I think that
Speaker 1: Powell's only tools to raise rates. He will continue at
Speaker 1: some point pause and as Julian pointed, the markets are
Speaker 1: expecting a pivot as early as the third Quarder. I
Speaker 1: just don't see that. But we're going to find out
Speaker 1: which is right, the FED or the markets. Jillian, Does
Speaker 1: the FED have a problem right now? They got the
Speaker 1: inflation issue wrong? I think everyone, including the Fed even
Speaker 1: admits that they got it wrong, the so called transitory inflation,
Speaker 1: and then we had that banking problem that developed starting
Speaker 1: with Silicon Valley Bank. Will come back and talk about
Speaker 1: that more detail. But is the FED got a problem
Speaker 1: here of credibility? They've made a couple of big mistakes,
Speaker 1: have they not? Jillian? Well, I think they certainly have
Speaker 1: made a couple of big mistakes. I mean, I've been
Speaker 1: one of those who've been really critical about the superlis
Speaker 1: monetary policy going on for far too long in the past.
Speaker 1: You know what they're trying to do right now, and
Speaker 1: I think the market has forgotten this is they are scrambling.
Speaker 1: They're racing to re establish their credibility because frankly, for
Speaker 1: a central banker, there's nothing worse than thinking they've lost credibility. So,
Speaker 1: you know, they have made it really clear that they
Speaker 1: are not going to be bullied by the markets into
Speaker 1: cutting prematurely. They're also, though this is really important point,
Speaker 1: they're trying very hard to signal to the markets, but
Speaker 1: they are separating out monetary policy measures that are helped
Speaker 1: to the design to target the economy from financial stability measures.
Speaker 1: They're trying to deal with the financial stability issue through
Speaker 1: all kinds of macropredential tools, and they're trying to indicate
Speaker 1: that they're not going to lose some policy just for
Speaker 1: the financial stability reasons. Now, I think in many ways
Speaker 1: that is the right decision. I think there's very clear
Speaker 1: to signal for their credibility that they are committed to
Speaker 1: trying to tackle inflation. And it's also very very important
Speaker 1: for the FED to signal that they have the credibility
Speaker 1: given that we have this little thing called a potential
Speaker 1: death ceiling crisis coming down the tracks. You know, there's
Speaker 1: never a good time for the FED. To lose credibility.
Speaker 1: Right now would be dreadful. So I think there's a
Speaker 1: lot to play for. As chrisss in terms of the
Speaker 1: market catching up to where the FED is from your
Speaker 1: mouth to Guard's ears that that's a little problem with
Speaker 1: death ceiling. I hope that that's true. I think all
Speaker 1: wallstry hopes that that's true. So Julian Ted and Chris Elmont,
Speaker 1: Julian Ted and Chris Elmer will be staying with us
Speaker 1: as we turned from what we saw this week to
Speaker 1: the aftermath of the banking disruption that's gonna have next
Speaker 1: on Walter Week on Bloomberg, Frank Cappiello, let's pursue that
Speaker 1: if we can, does the stock market really have to
Speaker 1: be affected in the long run by Watergate? It could
Speaker 1: be over the next couple of years if all of
Speaker 1: the energies of the administration are spent in these investigations
Speaker 1: or warding off investigations, depending on your point of view,
Speaker 1: And if he loses the confidence of Congress and the
Speaker 1: confidence of a large part of the electorate. The loss
Speaker 1: of confidence could freeze the administration from moving forward. And
Speaker 1: I think what you had this week was can be
Speaker 1: summed up in one, well two words, really Watergate and Oil.
Speaker 1: That was Lewis Register back in May nineteen seventy three
Speaker 1: went in another US president was having some difficulties with
Speaker 1: the law, and as they did this week, the new
Speaker 1: Oil was very much in the news. The number one
Speaker 1: movie back then was The Poseidon Adventure and the number
Speaker 1: one song was Tie a Yellow Ribbon Around the Old
Speaker 1: Oak Tree by Tony Orlando and Dawn Jillian ted As
Speaker 1: the Financial Times and Chris Ailment of councilors are so
Speaker 1: with us. So in the last one we were talking
Speaker 1: about the aftermath or what we saw in the banking system,
Speaker 1: both here in the United States and in Switzerland. Jelian
Speaker 1: want to turn to you because, as you wrote in
Speaker 1: the Financial Times this week, you covered two financial banking
Speaker 1: crisis in the past. How was this different from those? Well,
Speaker 1: it was very striking this current crisis because in some
Speaker 1: ways it was similar. Bank crisis are always about a
Speaker 1: collapse of credit, meaning trust in the banking system. Fractional
Speaker 1: banking doesn't work without trust, and that's what Sparks Bank runs.
Speaker 1: And that's true of the saucy bubble, it's true of
Speaker 1: today everything in between. But what was really different this
Speaker 1: time around was the speed of response and the virality
Speaker 1: because so much of it was conducted on social media
Speaker 1: and through mobile banking channels. And what we discovered is
Speaker 1: that they've fed system for trying to cool a banking
Speaker 1: crisis just are not in the twenty first century when
Speaker 1: it comes to trying to contain a panic. We also
Speaker 1: found out that the contagion risks associated with small to
Speaker 1: medium sized banks are significant in their world of social
Speaker 1: media and mobile banking. You go back to the savings
Speaker 1: and loans crisis, and no one really cared if small
Speaker 1: banks collapse because they didn't really create great such a
Speaker 1: chain reaction. In the current hyper connected world of digital
Speaker 1: finance and digital social media, it really matters if panic thrupt,
Speaker 1: if trust is lost. The good news is, of course,
Speaker 1: that we actually had fairly small overall losses from this crisis.
Speaker 1: I mean, twenty two point five billion if you look
Speaker 1: at what the FDUIC says, and that's pretty small compared
Speaker 1: to the history of banking crisis. The bad news is though,
Speaker 1: that what SVP was was very much a symptom, not
Speaker 1: a cause. It was a symptom the fact that the
Speaker 1: financial system has had way too much, too cheap money
Speaker 1: for too long many financial institutions, that investors have been
Speaker 1: taking really dumb bets with that cheap money, engaging in
Speaker 1: a version of a carriage trade, and eventually those chickens
Speaker 1: are going to come home to roost. So I think
Speaker 1: the best way to see what happened in much is
Speaker 1: a symptom, not a cause, of a financial system that
Speaker 1: is seriously displicated. Chris. We've heard from Jamie Diamond, the
Speaker 1: head of JP Morgan, this week saying he thinks we're
Speaker 1: past the worst of it. There may be another failure
Speaker 1: too long the way, but it's not really fundamentally going
Speaker 1: to continue to be a banking crisis. From your point
Speaker 1: of view as an investor, where might the next shoe drop?
Speaker 1: Because one of the problems here, as I understand it
Speaker 1: was unrealized losses on balance sheets. I'm not sure that's
Speaker 1: only at the banks. No, I agree, David, and I
Speaker 1: don't know. I don't disagree with Jamie Diamond. We may
Speaker 1: be over the worst. I don't expect a lot of failures,
Speaker 1: but there's going to be a lot of pain. First off,
Speaker 1: when the FED raises rates from zero to five hundred
Speaker 1: in nine months, commercial real estate, particularly office real estate,
Speaker 1: is going to be hurt by that. Cap rates have risen,
Speaker 1: and while they haven't reappraised, those properties are down probably
Speaker 1: twenty percent in value, and the people that loan the
Speaker 1: money on those buildings are usually the regional banks. So
Speaker 1: we'll probably enter a period again this fall of extend
Speaker 1: and pertend where building owners have wiped out their equity
Speaker 1: and they throw the keys back at the bank, and
Speaker 1: the bank doesn't want to pull back that loan. They
Speaker 1: don't want the commercial real estate. So I think we're
Speaker 1: gonna have a long hangover period of pain, just simply
Speaker 1: because the FED raised rates so quickly. Julie, I also
Speaker 1: wanted about in another area, and that's private equity, which
Speaker 1: is just exploded. As you know, I'm not sure how
Speaker 1: transparent some of the losses might be in private equity.
Speaker 1: The valuations certainly must have come down on some of
Speaker 1: those companies. Well, David, that sounds like a mostly British understatement,
Speaker 1: because the reality is that private equity is private, and
Speaker 1: we just don't know. And what is really striking about
Speaker 1: the last few years the gigantic credit bubble, and I
Speaker 1: do call it a bubble because of the cheap money,
Speaker 1: was that more of it happened through private capital markets
Speaker 1: than we've ever seen before in history. And the problem
Speaker 1: with that, and the good news about that is when
Speaker 1: it starts to implode, it doesn't necessarily immediately hit the
Speaker 1: regulated banks, and of course the regulated banks are at
Speaker 1: the core of credit transmission and the economy. But the
Speaker 1: bad news is that private equity can't be seen quite
Speaker 1: so easy. What's happening inside it is private, and the
Speaker 1: marks tend to take a very long time to come down.
Speaker 1: So you are going to see more of a hissing sound,
Speaker 1: if you like, as the bubble the flates, not the
Speaker 1: dramatic pop. And one of the downsides of that is
Speaker 1: that there's going to be a lot of quite unpredictable
Speaker 1: chain reactions because we just don't know the complications of
Speaker 1: where these losses will end up being felt. One area
Speaker 1: I'm very curious about right now is a universe endowments,
Speaker 1: because endowments have to produce a certain amount of income
Speaker 1: each year to pay the bills to qualify the charitable status.
Speaker 1: In some areas of the world, they're not like sovereign
Speaker 1: wealth funds that can just swallow losses for a few years.
Speaker 1: And a lot of university endowments have dashed into the
Speaker 1: private equity in VC markets in recent years, and they
Speaker 1: could start to see the outlook looking pretty nasty in
Speaker 1: the next few years. As I recall, Chris, in the past,
Speaker 1: you have expressed some skeptics as a private equity. I
Speaker 1: think you pulled back, didn't you, A counselers, What about
Speaker 1: pension plants and their investments in private is there vulnerability there? Well, David,
Speaker 1: We've actually been a steady state investor. I'm skeptical of evaluations,
Speaker 1: just as Jillian said. But you know a lot of
Speaker 1: private equity. You can read it from the employment numbers.
Speaker 1: They're still kind of steady, so they're not writing it down.
Speaker 1: But they are also a fundraising so they're not motivated
Speaker 1: to write it down. And I think really that when
Speaker 1: you look at private equity, particularly as Julian said, at
Speaker 1: the endowment level, there's no distribution. We're not seeing any
Speaker 1: transactions merger Monday has disappeared, so it is putting a strain.
Speaker 1: I think there's a very serious liquidity crunch going on
Speaker 1: around the world, not just in the USA. We can
Speaker 1: survive it, but it's very tough. People with cash are
Speaker 1: hoarding it and right now we're not getting any money
Speaker 1: back from private equity or real estate, and that's putting
Speaker 1: a pinch on everybody's balance sheet. So people with negative
Speaker 1: cash flows are going to find it harder and harder
Speaker 1: to keep looking at new opportunities. That just as a long,
Speaker 1: slow grind. I don't think it's going to lead to
Speaker 1: an immediate liquidation where somebody sells a good asset on
Speaker 1: a fire sale, because there are other people, like she
Speaker 1: mentioned sovereign wealth funds willing to buy that up. So
Speaker 1: it's a tough, tough period. Many things to Chris Alement
Speaker 1: of Calister's and Jillian Tett of The Financial Times. Coming up,
Speaker 1: we're gonna turn from credit over the subject of commercial
Speaker 1: real estate with Owen Thomas of The XP and this
Speaker 1: is Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio, looking for
Speaker 1: cracks when Silicon Valley Bank went down. It sent tremors
Speaker 1: through the banking sector. Yeah, it's amazing. I mean, we
Speaker 1: continue to get new news on banking. Now we've got
Speaker 1: the SVB takeover. We've also got news that First Republic
Speaker 1: will continue to be supported by the government. With fear
Speaker 1: of contagion triggering an immediate and massive government intervention, Treasury
Speaker 1: worked with the fit nif BIC to protect depositors in
Speaker 1: the resolution of SVB. Our intervention was necessary to mitigate
Speaker 1: systemic risks and protect the broader US banking system. Now
Speaker 1: that we may be past the worst of the bank failures,
Speaker 1: investors are looking around for what comes next, with realist
Speaker 1: day being a prime suspect. Some like Bruce Flatt of
Speaker 1: Brookfield say there's a big difference between top line properties
Speaker 1: and the others. There's a real talty. It's the best
Speaker 1: of the best and the worst of the worst. The
Speaker 1: best of the best today is really really good. High
Speaker 1: quality space is very sought after by companies because they
Speaker 1: want to bring them people back and have new, engaging space,
Speaker 1: while others like Joshua Friedman of Kenyon Partners say even
Speaker 1: the top of the food chain could get hit. In
Speaker 1: real estate, we don't know whether the market clearing prices
Speaker 1: or cap rate, leaving people like former FDIC chairman Bill
Speaker 1: Isaac to think hard about where real estate investments are heading.
Speaker 1: You always have to fear a commercial real estate. It's
Speaker 1: one of the risky activities in which banks engage, and
Speaker 1: every now and again it gets over built and out
Speaker 1: of control and people take losses. So that's always an
Speaker 1: area of a bank that you should have under type control.
Speaker 1: And to give us his thoughts on where real estate
Speaker 1: is headed, welcome now a true expert in the area.
Speaker 1: He is Owen Thomas, the chairman and CEO of BXP
Speaker 1: formerly known as Boston Properties. So welcome. Great to have
Speaker 1: you back in Wall Street week. Great David, great to
Speaker 1: be here. Thank you. So the twenty four thousand and
Speaker 1: sixty four thousand and sixty four billion dollar question is
Speaker 1: at real estate the next shooter drop and the aftermath
Speaker 1: of what we saw with the banks. The challenges in
Speaker 1: real estate are going to be tied to the economy.
Speaker 1: So it all depends on do we have a recession,
Speaker 1: how deep will the recession be, how long will interest
Speaker 1: rates be high? And the answer to that question will
Speaker 1: determine you know, the challenges that the real estate industry
Speaker 1: will face in the quarters ahead. We had a Bluebird
Speaker 1: report saying that vacancy rates for office properties in Manhattan
Speaker 1: where a record high right now. I think something like
Speaker 1: fifteen percent something like that. How much of that is
Speaker 1: because the economic downturn and how much of it's because
Speaker 1: people just aren't coming back to the office they're working
Speaker 1: from home. Yes, I think that's a big misperception in
Speaker 1: the market today. The office business faces two significant headwinds.
Speaker 1: One is a slowdown in economic conditions and the other
Speaker 1: is work from home. When you have a slowdown in
Speaker 1: the economy, businesses are more challenged in terms of their
Speaker 1: P and L and they do things to cut costs.
Speaker 1: And you see layoffs going on almost every day right now.
Speaker 1: And as you have layoffs, companies take less space or
Speaker 1: they put subble space back on the market. And by
Speaker 1: the way, this is no different than any other downturn
Speaker 1: that we've ever experienced. Office in many forms of real
Speaker 1: estate are economically sensitive. So I think in the premium
Speaker 1: end of the market, what's impacting our leasing activity today
Speaker 1: is much more the economic conditions than work from home.
Speaker 1: And the evidence of that that I would give you
Speaker 1: is in twenty twenty two, last year, our company leased
Speaker 1: nearly six million square feet of space, which is basically
Speaker 1: at ninety five percent of our long term averages if
Speaker 1: you think about it. Last year interest rates that started
Speaker 1: to go up, but the economy was much more solid
Speaker 1: and there were a lot fewer people in the office.
Speaker 1: Now you've moved to twenty three, office leasing is slowing
Speaker 1: down the economies worse than there are actually more people
Speaker 1: working in the office. So what is your experience of BIS,
Speaker 1: particularly in the tech area, because we've heard about a
Speaker 1: lot of layoffs in tech, downsizing in tech. Are you
Speaker 1: seeing that in your office situation? Yes, well, that has
Speaker 1: an impact. The technology firms, particularly the larger ones, were
Speaker 1: important net absorbers of office space since the global financial crisis,
Speaker 1: and as you know, over the last six months, many
Speaker 1: of those companies their growth has slowed and they're focused
Speaker 1: very much on their profitability and they many of them
Speaker 1: have done layoffs and many of them have put subly
Speaker 1: spaced on the market. And by the way, they've all
Speaker 1: announced some form of return to the office as a
Speaker 1: result of this as well. One hundreds of valuations because
Speaker 1: we have I guess net cree F it's called which
Speaker 1: gives us appraisal valuations, and saying we've got a Bloomberg
Speaker 1: b Read index of office property index, which is which
Speaker 1: is down a lot more than the appraisals. So how
Speaker 1: can you get your arms around exactly what's happening with
Speaker 1: valuations in real estate? Yeah, so let's divide it between
Speaker 1: the private market and the public market. On the private market,
Speaker 1: it's hard to determine value because there are very few
Speaker 1: transactions going on right now. Interest rates have come up,
Speaker 1: bids are lower, and sellers are so far unprepared to
Speaker 1: accept those bids. So where is real estate trading. It's
Speaker 1: trading in the public market the reats as you mentioned,
Speaker 1: And if you compare these two areas, you know, office
Speaker 1: rates today are off fifty plus or minus percent from
Speaker 1: peaks in March of last year. But the NYCREEF index,
Speaker 1: which is appraisal based that dictates where private market values are,
Speaker 1: it's only down about five to six percent from peak.
Speaker 1: Higher interest rates obviously affect the economy. Slow the economy down,
Speaker 1: may affect vacancy levels. It also affects financing for these properties.
Speaker 1: How is that playing out right now? For example, if
Speaker 1: you're putting up a new building. I understand you have
Speaker 1: construction financing that's short term. You got to turn it
Speaker 1: into longer term at sometime. Are you in the process
Speaker 1: right now of refinancing and how does how does that work? Yes? Well,
Speaker 1: financing is harder to get today because of concerns about
Speaker 1: real estate, and also buildings have to have strong cash
Speaker 1: flows to support the higher interest rates that are associated
Speaker 1: with financing. From our company standpoint, most of the financing
Speaker 1: we do is in the bond market, so we're an
Speaker 1: investment grade issuer of unsecured bonds and that market is
Speaker 1: open to us, albeit at higher spreads. We do have
Speaker 1: some mortgage financing, and I do think mortgages are available
Speaker 1: to office real estate. But the building has to be
Speaker 1: well leased, it's got to be of high quality, and
Speaker 1: it has to be owned by a strong sponsor. What
Speaker 1: about the high quality you just mentioned, because I've heard
Speaker 1: inflicting things that there's a huge difference between a buildings
Speaker 1: and bees and ces or some people say basically it
Speaker 1: applies across the board. Yes, Now, this is very important
Speaker 1: issue when you think about office real estate. Last year
Speaker 1: I mentioned all the leasing success that we had yet
Speaker 1: we saw all these reports showing many of our cities
Speaker 1: being fifteen, twenty, twenty five percent vacant. And then an
Speaker 1: important measure in office real estate is net absorption. This
Speaker 1: is how much the occupied space goes up and down
Speaker 1: in those segments. And if you look at the premiere
Speaker 1: workplaces for the last two years ended the year in
Speaker 1: twenty twenty two, the premier workplaces had a positive seven
Speaker 1: million square feet of net absorption, where everything else was
Speaker 1: down twenty five million square feet. So there's a very
Speaker 1: all the years that I've been doing this, this is
Speaker 1: one of the strongest moves towards quality office and real
Speaker 1: estate that I've seen. What about prime cities, if I
Speaker 1: can put it that way, Yeah, what's the geographic dispersion?
Speaker 1: We hear reports for example, San Francisco really ugling, New
Speaker 1: York maybe not doing so well, and there's a big
Speaker 1: move into Austin to Miami, places like that. Yeah, Well,
Speaker 1: there is some migration out of the coastal cities into
Speaker 1: lower tax states and cities like in Florida and in Texas,
Speaker 1: but there's also in migration from employees in New York
Speaker 1: and San Francisco as well. So I do think I
Speaker 1: believe in the long term vibrancy of cities like New
Speaker 1: York and Boston and San Francisco, And what about the
Speaker 1: ecosystem more broadly at this point, are places like b
Speaker 1: XP and others pulling back on future development of properties,
Speaker 1: which can affect things like construction construction workers employment. Yeah, well,
Speaker 1: with the slowdown in demand, clearly there's going to be
Speaker 1: a slowdown in development, and that's one thing that'll help
Speaker 1: owners like ourselves because they're going to be less supply
Speaker 1: in the future because constructions being pulled back. We do
Speaker 1: have sites and we would consider future development, but it
Speaker 1: has to be de risked and for us, that means released.
Speaker 1: What's the biggest opportunity for b XP right now? And
Speaker 1: is it, in fact part because of the valuation question.
Speaker 1: Maybe some bargains out there at the moment. No, I
Speaker 1: think that will come. I maybe a couple of things
Speaker 1: I would mention. We have also been in addition to
Speaker 1: our premier workplace business, we've also been developing life science assets.
Speaker 1: We're building a large lab building for Astra's Anaca and Cambridge.
Speaker 1: We're converting a large building in Cambridge for the Broad Institute.
Speaker 1: So that's an area of growth for us. Another area
Speaker 1: of growth for us is simply leasing our portfolio, increasing
Speaker 1: the occupancy, because we're at about eighty eight or eighty
Speaker 1: nine percent occupied today, and that will grow our income stream.
Speaker 1: And then I agree with you. I think as this
Speaker 1: downturn unfolds, I think additional investment opportunities will present themselves
Speaker 1: to strong players like ourselves. Oh and thank you so
Speaker 1: much for being his own Thomas. He is the chairman
Speaker 1: and CEO of BXP. Coming up, we wrap up the
Speaker 1: week with our special computer, Larry Summers of Harvard. That's
Speaker 1: next on Wall Street week on Bloomberg. This is Wall Street.
Speaker 1: I'm David West and we are joined once again by
Speaker 1: our very special contributor, Larry Summers of Harvard. So, Larry,
Speaker 1: at the very end of the week, on Good Friday,
Speaker 1: we would say, was of that persuasion. We got the
Speaker 1: jobs numbers two hundred and thirty six thousand, pretty much
Speaker 1: right on expectations. Although the bottomark was a little disappointed.
Speaker 1: They were hoping something softer. What do you make of them?
Speaker 1: I think this was not a very newsworthy bit of news.
Speaker 1: Things came in pretty much as people expected. The numbers
Speaker 1: reflected the strength that we certainly saw in the early
Speaker 1: part of the first quarter. I don't think this bears
Speaker 1: on very much on interpreting the economy because the numbers
Speaker 1: are a few weeks old when we get them, and
Speaker 1: more importantly, because those numbers employment and unemployment are lagging
Speaker 1: indicators of what's happening in the real economy. So the
Speaker 1: real question is still how much of a credit crunch
Speaker 1: is coming in the wake of all the banking problems,
Speaker 1: in the wake of all the disturbances in the banking sector.
Speaker 1: And that's a very hard thing to know. Well, that's
Speaker 1: interally credit crunch. I mean, some people refer to that
Speaker 1: as saying the credit is just not available as supposed,
Speaker 1: that it's more expensive. Is that what you mean by it?
Speaker 1: And again, when do you think we might have a
Speaker 1: sense of whether that comes to pass. I think it's
Speaker 1: a combination of you know, something's available at any price,
Speaker 1: but if the price is too high, it doesn't really
Speaker 1: matter that it is available. I think we're getting a
Speaker 1: sense that there is some substantial amount of constriction in credit.
Speaker 1: If you looked at the forward looking numbers this week
Speaker 1: from the PMI survey, those numbers were really quite weak.
Speaker 1: If you look at the UI claims with the new
Speaker 1: seasonal adjustment, they're suggesting much less strength than they had
Speaker 1: been earlier. When you looked at vacancies, they seem to
Speaker 1: be coming down. So I think you have to say
Speaker 1: that recession probabilities are going up at this point, and
Speaker 1: I think the Fed's got very very difficult decisions ahead
Speaker 1: of it with very much two sided risk. That's a
Speaker 1: consequence of where we sort of found ourselves with an
Speaker 1: overheated economy. And finally, Larry, you said the magic words
Speaker 1: to borrow from growtual marks there if I may, it's
Speaker 1: had GPT. You brought those words originally to Wall Street Week.
Speaker 1: I know eve been following it closely. Now as you
Speaker 1: talk to people about chat GPT and its potential, where
Speaker 1: do you think we are headed. Here's the thing I'm
Speaker 1: seeing more and more. I think it's coming for the
Speaker 1: cognitive class. Chat EPT is going to replace what doctors
Speaker 1: do hearing symptoms and making diagnoses. Before it changes what
Speaker 1: nurses do helping patients get up and handle themselves in
Speaker 1: the hospital. It's gonna change what traders do going in
Speaker 1: and out of financial markets before it changes what salespeople do,
Speaker 1: making relations making relationships with potential clients. It's gonna change
Speaker 1: what authors and editors do before it changes what people
Speaker 1: in bookstores do. And so I think this is going
Speaker 1: to be an enormous change over time in our society.
Speaker 1: It's fascinating coming through the cognitive class. Thank you so much, Larry,
Speaker 1: really appreciate it. Once again, that's a special contributor on
Speaker 1: Wall Street Week. He's Larry Summers of Harvard. That doesn't
Speaker 1: for this episode of Wall Street Week. I'm David Weston.
Speaker 1: This is Bloomberg. See you next week.