1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim 2 00:00:08,400 --> 00:00:11,440 Speaker 1: Fox along with my co host Lisa Bramowitz. Each day 3 00:00:11,480 --> 00:00:15,000 Speaker 1: we bring you the most important, noteworthy, and useful interviews 4 00:00:15,040 --> 00:00:17,520 Speaker 1: for you and your money, whether you're at the grocery 5 00:00:17,560 --> 00:00:20,560 Speaker 1: store or the trading floor. Find the Bloomberg p m 6 00:00:20,680 --> 00:00:31,920 Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. 7 00:00:31,960 --> 00:00:35,479 Speaker 1: It's shira Ov day of Bloomberg Gadfly columnists joining us 8 00:00:35,479 --> 00:00:39,000 Speaker 1: in the studio about the Amazon purchase of Whole Foods. 9 00:00:39,600 --> 00:00:42,239 Speaker 1: Go ahead, give us your take on on this. Well, 10 00:00:42,240 --> 00:00:45,159 Speaker 1: first of all, I was surprised. Seems to be everybody. Yes, 11 00:00:45,159 --> 00:00:46,879 Speaker 1: it seems to everybody. I mean, we should say that. 12 00:00:46,880 --> 00:00:49,559 Speaker 1: Our colleagues at Bloomberg News wrote a story in April 13 00:00:50,080 --> 00:00:54,640 Speaker 1: that essentially said Amazon looked it talked internally about buying 14 00:00:54,640 --> 00:00:57,840 Speaker 1: Whole Foods last fall, and they decided not to pursue it. 15 00:00:57,880 --> 00:01:00,120 Speaker 1: But it shows you that this has been something that's 16 00:01:00,120 --> 00:01:02,800 Speaker 1: been on Amazon's mind for a while. And the really 17 00:01:02,840 --> 00:01:06,679 Speaker 1: interesting thing here is that grocery shopping is one of 18 00:01:06,720 --> 00:01:10,440 Speaker 1: the biggest categories of consumer spending, but it has been 19 00:01:10,560 --> 00:01:13,360 Speaker 1: very resistant to e commerce. Only about two or three 20 00:01:13,400 --> 00:01:17,560 Speaker 1: percent of all grocery shopping happens online, and you know, 21 00:01:17,680 --> 00:01:20,120 Speaker 1: that's the kind of thing that Amazon loves to attack. 22 00:01:20,160 --> 00:01:23,959 Speaker 1: Here is a humongous market with eight hundred billion dollars 23 00:01:23,959 --> 00:01:28,120 Speaker 1: in annual spending in the US alone, but it needs 24 00:01:28,160 --> 00:01:31,000 Speaker 1: a kind of Amazon e commerce touch, and so that's 25 00:01:31,040 --> 00:01:34,479 Speaker 1: what we're seeing here. What is that touch? To be honest, 26 00:01:34,600 --> 00:01:36,920 Speaker 1: I do not know I have, because I mean they 27 00:01:37,240 --> 00:01:39,399 Speaker 1: talks about that, but a lot of people have been 28 00:01:39,400 --> 00:01:42,600 Speaker 1: trying to give it this touch, this online, including Amazon. 29 00:01:42,640 --> 00:01:45,520 Speaker 1: It should be said that Amazon has a something called 30 00:01:45,560 --> 00:01:48,560 Speaker 1: Amazon Fresh, which is an online grocery delivery service that 31 00:01:48,640 --> 00:01:52,040 Speaker 1: it started rolling out ten years ago now um and 32 00:01:52,280 --> 00:01:55,160 Speaker 1: starting in its hometown of Seattle, and since expanded to 33 00:01:55,200 --> 00:01:58,440 Speaker 1: a number of markets. But even by Amazon's own admission, 34 00:01:58,600 --> 00:02:02,160 Speaker 1: Fresh has not gonne extremely well. And Amazon more recently 35 00:02:02,200 --> 00:02:06,520 Speaker 1: has tried some other grocery ideas. It just opened some 36 00:02:07,280 --> 00:02:10,959 Speaker 1: pick up kiosks in Seattle again where you order online 37 00:02:11,240 --> 00:02:13,240 Speaker 1: and then you drive up to these windows to kind 38 00:02:13,240 --> 00:02:15,800 Speaker 1: of pick up your groceries. You know, it's opening a 39 00:02:15,800 --> 00:02:19,720 Speaker 1: convenience store for food and other merchandise also in Seattle. 40 00:02:19,919 --> 00:02:22,720 Speaker 1: So it's clear that Amazon has been very interested in grocery, 41 00:02:22,760 --> 00:02:25,720 Speaker 1: but maybe not exactly sure how to do it. And 42 00:02:25,960 --> 00:02:28,200 Speaker 1: to be honest, I don't know what their plans are 43 00:02:28,200 --> 00:02:30,639 Speaker 1: for Whole Foods. Do they think the future of shopping 44 00:02:31,120 --> 00:02:33,840 Speaker 1: is stores, Do they think it's online? Do they think 45 00:02:33,840 --> 00:02:35,840 Speaker 1: it's a mix of both. This is exactly what I 46 00:02:35,880 --> 00:02:37,480 Speaker 1: was wondering. I mean, is this going to change the 47 00:02:37,480 --> 00:02:39,840 Speaker 1: Whole Foods experience dramatically? Are they going to leave it 48 00:02:39,880 --> 00:02:42,880 Speaker 1: as is and sort of uh, you know, jump off 49 00:02:42,919 --> 00:02:45,640 Speaker 1: of that. I would bet, and this is sort of 50 00:02:45,639 --> 00:02:48,959 Speaker 1: a semi educated guess to be fair, I would bet 51 00:02:49,000 --> 00:02:51,600 Speaker 1: that they would for now leave Whole Foods, you know, 52 00:02:51,639 --> 00:02:53,760 Speaker 1: as a grocery chain, but they would use it as 53 00:02:53,960 --> 00:02:56,200 Speaker 1: a kind of a test bed for new ideas. And 54 00:02:56,320 --> 00:02:59,799 Speaker 1: I don't think that they're spending thirteen point seven billion 55 00:02:59,800 --> 00:03:03,080 Speaker 1: dollars simply to buy a grocery chain. They're buying it 56 00:03:03,120 --> 00:03:08,040 Speaker 1: because they want to figure out what the grocery shopping 57 00:03:08,080 --> 00:03:10,800 Speaker 1: of the future is and then they want to control 58 00:03:10,919 --> 00:03:14,679 Speaker 1: that and use Whole Foods as a way to kind 59 00:03:14,680 --> 00:03:19,200 Speaker 1: of get them there. They also access all of this 60 00:03:19,360 --> 00:03:24,880 Speaker 1: incredible data, correct, I mean, everything that gets scanned, whether 61 00:03:24,960 --> 00:03:27,200 Speaker 1: it's a stock keeping unit, that's being put on the 62 00:03:27,200 --> 00:03:29,720 Speaker 1: shelf or something that's being put into a bag as 63 00:03:29,760 --> 00:03:34,440 Speaker 1: you check out. You may not even have a human cashier. Yeah, 64 00:03:34,440 --> 00:03:37,880 Speaker 1: that's right. I think the data piece is is huge 65 00:03:37,920 --> 00:03:40,360 Speaker 1: that they're suddenly going to get all this information not 66 00:03:40,560 --> 00:03:43,760 Speaker 1: just about shopping behavior, but also about the kind of 67 00:03:43,840 --> 00:03:48,360 Speaker 1: mechanics of running a grocery chain with distribution and dealing 68 00:03:48,400 --> 00:03:51,960 Speaker 1: with suppliers and things like that. Again, our our Bloomberg 69 00:03:52,000 --> 00:03:54,680 Speaker 1: News colleagues wrote this big piece about Amazon's kind of 70 00:03:54,720 --> 00:03:58,000 Speaker 1: grocery ambitions a while ago, and one of the revelations 71 00:03:58,040 --> 00:04:00,560 Speaker 1: there was Amazon had a problem with the kind of 72 00:04:00,600 --> 00:04:04,920 Speaker 1: inventory and distribution in groceries that you know, bananas would 73 00:04:04,960 --> 00:04:07,400 Speaker 1: go bad and things like that. So it's also getting 74 00:04:07,440 --> 00:04:10,800 Speaker 1: some expertise on the back end of running food delivery 75 00:04:10,880 --> 00:04:13,920 Speaker 1: food operations. I mean, it's interesting though that they chose 76 00:04:13,960 --> 00:04:17,520 Speaker 1: Whole Foods of all places, because Whole Foods hasn't exactly 77 00:04:17,560 --> 00:04:21,400 Speaker 1: been a seller example of distribution, and they've struggled with 78 00:04:21,520 --> 00:04:25,520 Speaker 1: overpriced items and this has not been a grocery store 79 00:04:25,600 --> 00:04:28,840 Speaker 1: chain that has done phenomenally well in the past few years. 80 00:04:29,400 --> 00:04:33,080 Speaker 1: Is it because the valuation what made more sense for Amazon? 81 00:04:33,200 --> 00:04:37,119 Speaker 1: Or was it because uh, they saw something else. Well, 82 00:04:37,360 --> 00:04:40,599 Speaker 1: Whole Foods has some serious advantages. One is it it 83 00:04:40,680 --> 00:04:43,960 Speaker 1: has a very good brand and that's certainly something that 84 00:04:44,080 --> 00:04:47,600 Speaker 1: is valuable for Amazon. And also Whole Foods was uniquely 85 00:04:47,800 --> 00:04:51,400 Speaker 1: vulnerable right that it's been attacked by johnah Partners, an 86 00:04:51,440 --> 00:04:55,560 Speaker 1: activist investor recently, and so you know, it was in 87 00:04:55,560 --> 00:04:58,320 Speaker 1: the position where Whole Foods needed a white Knight, and 88 00:04:58,440 --> 00:05:00,920 Speaker 1: Jeff Bezos, I guess, was more then happy to swoop 89 00:05:00,920 --> 00:05:05,400 Speaker 1: in and be that white night. The Amazon web services 90 00:05:05,440 --> 00:05:10,400 Speaker 1: business is always cited as being this growing conglomerate inside 91 00:05:10,520 --> 00:05:13,640 Speaker 1: of Amazon. Just give you twenty seconds to connect that 92 00:05:13,839 --> 00:05:17,760 Speaker 1: with this purchase. Um. So, one thing that has been 93 00:05:17,800 --> 00:05:23,119 Speaker 1: speculated is could Amazon Amazon's grocery ambitions be the next 94 00:05:23,240 --> 00:05:26,960 Speaker 1: aws that it's if they manage to get the distribution 95 00:05:27,080 --> 00:05:30,040 Speaker 1: of food right and the in store experience right, can 96 00:05:30,040 --> 00:05:33,640 Speaker 1: they then sell that as software to other grocery companies. 97 00:05:34,279 --> 00:05:38,160 Speaker 1: That's fascinating, Shara Ovida, always fabulous speaking with you Bloomberg 98 00:05:38,160 --> 00:05:41,920 Speaker 1: Gadfly columnists. You put it so nicely, and it really 99 00:05:41,960 --> 00:05:43,880 Speaker 1: gives us a sense of what could be at stake 100 00:05:43,920 --> 00:05:46,280 Speaker 1: here and why this is being treated as such an 101 00:05:46,320 --> 00:06:02,040 Speaker 1: industry disruptor Shara Ovida. Her columns are awesome, go read them. 102 00:06:02,080 --> 00:06:04,599 Speaker 1: They have a new executive, but it has a very 103 00:06:04,720 --> 00:06:08,400 Speaker 1: big problem that is coming to the new executive, John 104 00:06:08,400 --> 00:06:12,880 Speaker 1: Flannery from Jeff Immult who just stepped down. And Katherine Klinsky, 105 00:06:13,440 --> 00:06:16,080 Speaker 1: a bloom BERGNESE reporter, highlighted this in a recent story 106 00:06:16,160 --> 00:06:19,400 Speaker 1: looking at how g E has a thirty one billion 107 00:06:19,440 --> 00:06:21,960 Speaker 1: dollar deficit and its pension, which is the biggest among 108 00:06:22,120 --> 00:06:25,640 Speaker 1: SMP five companies and this even more shockingly fifty percent 109 00:06:25,880 --> 00:06:30,560 Speaker 1: greater than any other corporation in the US. Katherine, how 110 00:06:30,560 --> 00:06:32,960 Speaker 1: did we get to this point? How is ge so 111 00:06:33,360 --> 00:06:37,880 Speaker 1: desperately underfunded in its pension? Yeah, definitely, John Flannery has 112 00:06:37,920 --> 00:06:40,960 Speaker 1: this big hole to feel. Um, Like most corporate pensions, 113 00:06:41,000 --> 00:06:43,520 Speaker 1: the financial christ really wrecked them. That was when they 114 00:06:43,640 --> 00:06:47,039 Speaker 1: fell underfunded, and it's it's been a hard time trying 115 00:06:47,080 --> 00:06:49,599 Speaker 1: to recoup those losses over the years. I mean, interest 116 00:06:49,680 --> 00:06:52,560 Speaker 1: rates have been really poor, and even if you've invested 117 00:06:52,560 --> 00:06:55,520 Speaker 1: in other assets, you know, it's been a volatile market 118 00:06:55,560 --> 00:06:58,520 Speaker 1: and it's hard to always kind of recoup those losses. Um. 119 00:06:58,520 --> 00:07:00,960 Speaker 1: A lot of companies have instead and putting cash to 120 00:07:01,000 --> 00:07:03,920 Speaker 1: their plans, or they've been offloading them to ensures, they've 121 00:07:03,960 --> 00:07:06,559 Speaker 1: looked for kind of other solutions to try and shore 122 00:07:06,640 --> 00:07:10,120 Speaker 1: up these pensions. UM. But with GE, it's just steadily 123 00:07:10,240 --> 00:07:14,680 Speaker 1: trended down in terms of their shortfall. Now G has 124 00:07:14,680 --> 00:07:16,560 Speaker 1: a lot of company, doesn't it. I mean it's not 125 00:07:16,640 --> 00:07:20,400 Speaker 1: as if gees alone in not having a completely funded 126 00:07:20,400 --> 00:07:24,560 Speaker 1: pension plan. Some of the most recognized and largest companies 127 00:07:24,600 --> 00:07:28,040 Speaker 1: in the United States General Electric is writing about but 128 00:07:28,160 --> 00:07:31,000 Speaker 1: General Motors, Boeing, ex On Mobile, A, T and T, 129 00:07:31,240 --> 00:07:37,520 Speaker 1: Lockheed Martin. Is there no downside legally or financially to 130 00:07:37,720 --> 00:07:40,160 Speaker 1: underfunding your pension plans? So they just go ahead and 131 00:07:40,480 --> 00:07:44,520 Speaker 1: don't worry about it. Yeah. So, actually, if you hold 132 00:07:44,560 --> 00:07:47,000 Speaker 1: an underfunded pension plan, you have to pay more fees 133 00:07:47,080 --> 00:07:49,680 Speaker 1: to the PPGC, which is kind of the government agency 134 00:07:49,800 --> 00:07:53,040 Speaker 1: that backstops these UM. So there is an immediate kind 135 00:07:53,040 --> 00:07:55,640 Speaker 1: of financial cost to these plans. You know, it is 136 00:07:55,680 --> 00:07:58,920 Speaker 1: important to recognize that these obligations are decades long. So 137 00:07:59,000 --> 00:08:02,840 Speaker 1: if markets start to ali, yes, that might really help them, UM, 138 00:08:02,880 --> 00:08:05,320 Speaker 1: as long as they're invested in the asset that actually 139 00:08:05,400 --> 00:08:08,480 Speaker 1: rallies compared to the bonds that they have been buying. 140 00:08:08,520 --> 00:08:11,360 Speaker 1: Because they were afraid to buy stocks. Definitely, So they 141 00:08:11,440 --> 00:08:13,600 Speaker 1: I mean, they they're pretty well diverse. They have equity, 142 00:08:13,640 --> 00:08:16,840 Speaker 1: they have debt, real estate, private equity. They actually own 143 00:08:17,200 --> 00:08:20,240 Speaker 1: thirty million dollars or thirty million shares of g in 144 00:08:20,280 --> 00:08:23,080 Speaker 1: fact um. But it's hard to always bet on that. 145 00:08:23,240 --> 00:08:26,200 Speaker 1: And a lot of companies now are starting to say, 146 00:08:26,400 --> 00:08:28,360 Speaker 1: you know, we're not going to wait for markets to 147 00:08:28,440 --> 00:08:30,400 Speaker 1: kind of help us. A lot of companies are taking 148 00:08:30,440 --> 00:08:33,080 Speaker 1: these actions. And you have big public pensions that have 149 00:08:33,200 --> 00:08:36,160 Speaker 1: just come out out right and said, look, are long 150 00:08:36,200 --> 00:08:38,080 Speaker 1: time assumption that we're gonna get seven and a half 151 00:08:38,080 --> 00:08:41,440 Speaker 1: returns each year on our assets is going out the window. 152 00:08:41,440 --> 00:08:43,120 Speaker 1: We're gonna have to lower that to six and a 153 00:08:43,160 --> 00:08:45,760 Speaker 1: half to six point to five percent, whatever it is, 154 00:08:46,040 --> 00:08:50,520 Speaker 1: which means more contributions in the part of both employees 155 00:08:50,559 --> 00:08:55,679 Speaker 1: as well as possibly, uh, you know, the actual organization, right, 156 00:08:55,720 --> 00:08:58,240 Speaker 1: I mean, but what strikes me about g E is 157 00:08:58,280 --> 00:09:01,520 Speaker 1: that g E opted not to do what others were doing, 158 00:09:01,559 --> 00:09:04,760 Speaker 1: not to make contributions, instead to give out forty five 159 00:09:04,840 --> 00:09:10,240 Speaker 1: billion dollars basically two shareholders with buy backs instead, basically 160 00:09:10,280 --> 00:09:13,040 Speaker 1: because of this activist pressure. I mean, at some point 161 00:09:13,360 --> 00:09:15,360 Speaker 1: this is going to come back to bite them, because 162 00:09:15,400 --> 00:09:17,520 Speaker 1: you have to wonder, are they just investing in risk 163 00:09:17,600 --> 00:09:20,560 Speaker 1: your assets with the money from the pension in order 164 00:09:20,559 --> 00:09:23,320 Speaker 1: to make up for the shortfall and crossing their fingers. Yeah, 165 00:09:23,360 --> 00:09:26,319 Speaker 1: So they have been making some contributions about over the 166 00:09:26,360 --> 00:09:28,600 Speaker 1: past two years, it's been about two billion dollars to 167 00:09:28,600 --> 00:09:31,559 Speaker 1: their pension plan. But that's paltry compared to the forty 168 00:09:31,559 --> 00:09:34,679 Speaker 1: five billion they've been spending on share repurchases. And while 169 00:09:34,679 --> 00:09:38,080 Speaker 1: it's you know, while the pension plan could receive a 170 00:09:38,120 --> 00:09:40,520 Speaker 1: great boost from interest rates, while it might be fine 171 00:09:40,640 --> 00:09:42,920 Speaker 1: in the end, we argue that, you know, it's kind 172 00:09:42,920 --> 00:09:46,280 Speaker 1: of this this uh, this tension between those short term 173 00:09:46,280 --> 00:09:50,120 Speaker 1: effects of hey, let's appease these activist shareholders, make sure 174 00:09:50,160 --> 00:09:53,760 Speaker 1: our investors are happy with this kind of growing hole 175 00:09:53,840 --> 00:09:56,080 Speaker 1: that they have on their on their balance sheet, and 176 00:09:56,120 --> 00:10:00,240 Speaker 1: it's hard to recoepe those losses. I was looks going 177 00:10:00,280 --> 00:10:02,040 Speaker 1: to say, just to add to this idea that you're 178 00:10:02,040 --> 00:10:05,559 Speaker 1: talking about, what these assets, what they're invested in, the 179 00:10:06,080 --> 00:10:08,880 Speaker 1: various assets, because when you have interest rates that are 180 00:10:08,920 --> 00:10:12,000 Speaker 1: as low as you describe, and we're all living through 181 00:10:12,040 --> 00:10:15,679 Speaker 1: this um, there is no way that you're going to 182 00:10:15,840 --> 00:10:19,440 Speaker 1: meet your benchmark, your target. Right, You're and that hasn't 183 00:10:19,480 --> 00:10:23,080 Speaker 1: even been a sort of reality moment for many pension 184 00:10:23,120 --> 00:10:27,240 Speaker 1: fund managers. Correct, correct, and um so G has lowered. 185 00:10:27,280 --> 00:10:29,760 Speaker 1: They went from about nine percent in the early two 186 00:10:29,840 --> 00:10:32,920 Speaker 1: thousand's to now seven point five, but it's still that's 187 00:10:33,040 --> 00:10:35,960 Speaker 1: kind of a higher assumption for the way markets are doing. 188 00:10:36,240 --> 00:10:39,679 Speaker 1: We've seen a lot of pension plans um either lower 189 00:10:39,720 --> 00:10:42,920 Speaker 1: those even further or take steps to kind of better 190 00:10:42,960 --> 00:10:45,679 Speaker 1: match their assets and their liabilities, kind of taking a 191 00:10:45,720 --> 00:10:48,959 Speaker 1: traditional insurance view of it. Um and that has also 192 00:10:49,040 --> 00:10:52,400 Speaker 1: helped at least mitigate the volatility, because sometimes you're just 193 00:10:52,480 --> 00:10:54,880 Speaker 1: never going to make up those returns, but at least 194 00:10:55,040 --> 00:10:57,600 Speaker 1: you don't want to. And they have to keep cashing, right, 195 00:10:57,640 --> 00:10:59,480 Speaker 1: I mean, the Arissa rules say that you have to 196 00:10:59,520 --> 00:11:01,400 Speaker 1: keep a certain amount of cash on hand in order 197 00:11:01,440 --> 00:11:04,920 Speaker 1: to pay out current beneficiaries. Yeah, they definitely need UM 198 00:11:05,080 --> 00:11:07,280 Speaker 1: cash to be able because some of these beneficiaries are 199 00:11:07,280 --> 00:11:10,160 Speaker 1: already taking payments and but a lot of those obligations 200 00:11:10,240 --> 00:11:12,640 Speaker 1: are decades long, so they'll still have, you know, a 201 00:11:12,640 --> 00:11:14,240 Speaker 1: bunch of assets to kind of play with for a 202 00:11:14,320 --> 00:11:18,160 Speaker 1: little bit. Is she the biggest pension or a company 203 00:11:18,160 --> 00:11:20,760 Speaker 1: with a pension out there, they do. I mean they 204 00:11:20,760 --> 00:11:24,320 Speaker 1: have a very sizable pension. So ninety four billion dollars 205 00:11:24,320 --> 00:11:27,840 Speaker 1: in obligations and about sixty three and assets right now, 206 00:11:27,880 --> 00:11:30,120 Speaker 1: what are the comparable kinds of what are the other 207 00:11:30,120 --> 00:11:33,160 Speaker 1: companies with comparable pensions? Yeah, I mean it kind of 208 00:11:33,200 --> 00:11:36,160 Speaker 1: sizes up with many industrial companies. Those tends to be 209 00:11:36,240 --> 00:11:38,520 Speaker 1: kind of the larger pensions that we see. It's kind 210 00:11:38,520 --> 00:11:41,959 Speaker 1: of those legacies of decades of kind of blue collar workers. UM, 211 00:11:42,000 --> 00:11:44,920 Speaker 1: they're about sixty seven percent funded. That's kind of an 212 00:11:44,920 --> 00:11:48,439 Speaker 1: important number to recognize, is UM. You know, their their 213 00:11:48,480 --> 00:11:51,280 Speaker 1: obligations to kind of their assets that they have now. 214 00:11:51,840 --> 00:11:55,480 Speaker 1: UM generally pension experts say eighty percent is where you 215 00:11:55,520 --> 00:11:58,240 Speaker 1: tend to want to be UM and higher if you can, 216 00:11:58,360 --> 00:12:01,920 Speaker 1: but is kind of a one to shoot for. Well, 217 00:12:01,960 --> 00:12:03,520 Speaker 1: I was gonna say, if you guys also get a chance. 218 00:12:03,559 --> 00:12:07,480 Speaker 1: Has a great uh piece of corporate research by Bob 219 00:12:07,880 --> 00:12:13,080 Speaker 1: Coley over at Russell Investments. It's it's about this year's 220 00:12:13,120 --> 00:12:15,559 Speaker 1: earlier this year, but it talks about the twenty billion 221 00:12:15,600 --> 00:12:18,920 Speaker 1: dollar club, meaning you know, do you have liabilities that 222 00:12:18,960 --> 00:12:22,679 Speaker 1: you're unmet by more than twenty billion and UM, well, 223 00:12:22,720 --> 00:12:24,800 Speaker 1: you know you've got the General Electric as I said, 224 00:12:24,800 --> 00:12:26,559 Speaker 1: General Motors, but just add to the list a T 225 00:12:26,720 --> 00:12:29,320 Speaker 1: and T Dow Chemical. Well, we know what's happening there. 226 00:12:29,400 --> 00:12:32,440 Speaker 1: Johnson and Johnson, thank you very much for bringing this 227 00:12:32,520 --> 00:12:35,240 Speaker 1: to our attention. Really well done and uh look forward 228 00:12:35,280 --> 00:12:40,360 Speaker 1: to more. Katherine Chiglinsky, US insurance reporter for a Bloomberg 229 00:12:51,800 --> 00:12:56,280 Speaker 1: Well Insulin. Insulin is one of those drugs that is 230 00:12:56,360 --> 00:12:59,560 Speaker 1: life sustaining and it is sold throughout the United States 231 00:12:59,559 --> 00:13:03,560 Speaker 1: at races that have increased dramatically over the last decade. 232 00:13:03,640 --> 00:13:06,360 Speaker 1: Here to tell us more about drug pricing is Michael Ray. 233 00:13:06,679 --> 00:13:08,920 Speaker 1: He is the founder and the chief executive of our 234 00:13:09,080 --> 00:13:14,040 Speaker 1: ex Savings Solutions and he joins us from Overland Park, Kansas. Michael, 235 00:13:14,040 --> 00:13:17,600 Speaker 1: thanks for being with us. Can you comment on some 236 00:13:17,679 --> 00:13:21,360 Speaker 1: moves in the state of Nevada, specifically with the Governor 237 00:13:21,400 --> 00:13:27,240 Speaker 1: Brian Sandoval signing a law that is now the really 238 00:13:27,280 --> 00:13:32,079 Speaker 1: the most strict requirement for the revelation of drug prices, 239 00:13:32,120 --> 00:13:36,360 Speaker 1: which we strangely don't have. Yeah, it's great to be 240 00:13:36,400 --> 00:13:39,560 Speaker 1: with you, Jim. I think that the legislation really shows 241 00:13:39,600 --> 00:13:42,959 Speaker 1: the frustration and the desperation people feel. We've seen this 242 00:13:43,040 --> 00:13:47,520 Speaker 1: public outcry about drug prices and you know, some recent 243 00:13:47,559 --> 00:13:50,360 Speaker 1: examples really focused on influence. Um. I think it just 244 00:13:50,400 --> 00:13:54,080 Speaker 1: demonstrates the pain people feel, um, financially, I think that 245 00:13:54,160 --> 00:13:57,760 Speaker 1: it it's something that's a threat too, you know, just 246 00:13:57,920 --> 00:14:01,520 Speaker 1: common health health care for the those diabetics, and it's 247 00:14:01,520 --> 00:14:03,800 Speaker 1: it's a it's a really important topic. I think that 248 00:14:03,880 --> 00:14:07,200 Speaker 1: the legislation, um, you know, is a is a great 249 00:14:07,840 --> 00:14:10,160 Speaker 1: first step. I think that there there's much more and 250 00:14:10,160 --> 00:14:12,040 Speaker 1: it's a much more complex issue that needs to be 251 00:14:12,040 --> 00:14:14,800 Speaker 1: dealt with. Well, let's just talk certainly, let's let's clarify 252 00:14:14,840 --> 00:14:18,520 Speaker 1: what this legislation actually said. The law required drug makers 253 00:14:18,559 --> 00:14:22,800 Speaker 1: to annually disclose the list prices they set, profits they make, 254 00:14:22,960 --> 00:14:27,920 Speaker 1: and adjustments to any kind of pricing due to inflation 255 00:14:28,040 --> 00:14:34,640 Speaker 1: or otherwise, basically giving more transparency to how they set prices. Correct. Yeah, 256 00:14:34,680 --> 00:14:36,720 Speaker 1: that's right, and I think from a macro approach it 257 00:14:36,800 --> 00:14:40,520 Speaker 1: makes sense. But you know, the what the patient pays 258 00:14:40,520 --> 00:14:43,640 Speaker 1: that the counter, coupled with what they're other therapetic options are, 259 00:14:43,640 --> 00:14:45,600 Speaker 1: and what's going to be most impactful. Basically, what I'm 260 00:14:45,600 --> 00:14:48,560 Speaker 1: saying is the data you know at years N is 261 00:14:48,600 --> 00:14:51,440 Speaker 1: really going to have a little impact on what consumer 262 00:14:51,440 --> 00:14:53,440 Speaker 1: experiences when they go to try to buy their influence. 263 00:14:53,640 --> 00:14:58,600 Speaker 1: Is this law constitutional? Again, I'm sorry, is this law constitutional? 264 00:14:58,640 --> 00:15:01,840 Speaker 1: Because I can imagine and and and just reading up 265 00:15:01,840 --> 00:15:04,640 Speaker 1: on it, it it seems like some pharmaceutical companies are saying, 266 00:15:04,680 --> 00:15:08,880 Speaker 1: you know, this might actually raise some some legal issues 267 00:15:09,000 --> 00:15:13,880 Speaker 1: about whether whether the state can basically voiced this kind 268 00:15:13,920 --> 00:15:16,840 Speaker 1: of requirement upon them. Yeah, I mean, I think it's 269 00:15:16,920 --> 00:15:19,200 Speaker 1: it's uh, you know, it's kind of like bringing one 270 00:15:19,240 --> 00:15:22,080 Speaker 1: stand back to a flood. Um. There's you know, it's 271 00:15:22,080 --> 00:15:24,880 Speaker 1: going to have a limited effect because of the complexity 272 00:15:24,920 --> 00:15:27,200 Speaker 1: of the system. You know, we're not just talking about manufacturers, 273 00:15:27,200 --> 00:15:30,360 Speaker 1: but we're talking about an entire supply chain that's disrupted 274 00:15:30,840 --> 00:15:34,800 Speaker 1: or um, you know, may adjust other parameters um. And 275 00:15:35,120 --> 00:15:37,440 Speaker 1: I think that even if you look at the find 276 00:15:37,600 --> 00:15:40,040 Speaker 1: the five thousand dollars a day that adds up to 277 00:15:40,040 --> 00:15:43,240 Speaker 1: two million bucks um, that's really not not that much 278 00:15:43,280 --> 00:15:45,160 Speaker 1: money in the grand scheme of things, even if they 279 00:15:45,160 --> 00:15:48,320 Speaker 1: decided not to disclosed its state. But other states have 280 00:15:48,440 --> 00:15:53,880 Speaker 1: also taken this up correct Vermont, for example, asking drug 281 00:15:53,920 --> 00:16:00,000 Speaker 1: makers to justify certain price increases of fifteen percent or more. Uh, 282 00:16:00,240 --> 00:16:03,160 Speaker 1: is there any reason to doubt that other states will 283 00:16:03,280 --> 00:16:05,800 Speaker 1: look at this and say, gee, we want the same 284 00:16:05,840 --> 00:16:11,640 Speaker 1: benefits for our UH citizens. Yeah, I think, Um, I 285 00:16:11,640 --> 00:16:14,240 Speaker 1: think that's certainly possible. And again kind of back to 286 00:16:14,280 --> 00:16:17,400 Speaker 1: the original point of this is on one drug or 287 00:16:17,520 --> 00:16:21,200 Speaker 1: one set of drugs, Um, it's certainly important and impactful, um, 288 00:16:21,240 --> 00:16:24,400 Speaker 1: But there's a much bigger system here. And you know, 289 00:16:24,480 --> 00:16:27,680 Speaker 1: even if even if every state requires them to disclose 290 00:16:27,720 --> 00:16:31,720 Speaker 1: the pricing, again, it's after the fact, um, And what 291 00:16:31,880 --> 00:16:35,080 Speaker 1: is it going to mean ultimately to the individual consumer 292 00:16:35,120 --> 00:16:37,800 Speaker 1: at the pharmacy counter There there's a lack of information, 293 00:16:37,840 --> 00:16:40,800 Speaker 1: But from a therapy standpoint and a price standpoint, that's 294 00:16:40,840 --> 00:16:43,680 Speaker 1: the ultimate problem that needs to be solved, um, so 295 00:16:43,800 --> 00:16:47,200 Speaker 1: that the market forces can take over. Michael, you started 296 00:16:47,200 --> 00:16:49,880 Speaker 1: out by saying that this move on the part of 297 00:16:50,000 --> 00:16:55,160 Speaker 1: Nevada legislators shows this desperation of people to get pharmaceutical 298 00:16:55,240 --> 00:16:59,440 Speaker 1: costs under control, and how desperate people UH feel throughout 299 00:16:59,520 --> 00:17:02,000 Speaker 1: the coun treat How much is this an effort to 300 00:17:02,000 --> 00:17:06,520 Speaker 1: put pressure on Washington to perhaps inject a little bit 301 00:17:06,560 --> 00:17:11,520 Speaker 1: more of a collective bargating power when deciding or negotiating 302 00:17:11,760 --> 00:17:16,480 Speaker 1: with pharmaceutical companies from Medicare and medicaid. Well, I think 303 00:17:16,640 --> 00:17:18,960 Speaker 1: I think that this certainly is uh, that that's part 304 00:17:19,040 --> 00:17:21,439 Speaker 1: of it. You know, everyone agrees that drug prices need 305 00:17:21,480 --> 00:17:23,960 Speaker 1: to go down. Everyone agrees that, you know, people should 306 00:17:24,000 --> 00:17:26,800 Speaker 1: have the right to to an access to this type 307 00:17:26,840 --> 00:17:29,520 Speaker 1: of care. Uh. The question is what are the dollars 308 00:17:29,520 --> 00:17:32,639 Speaker 1: and cents and who does it affect and how um 309 00:17:32,840 --> 00:17:34,720 Speaker 1: in it? Again, it's a very complex. You've got a 310 00:17:34,760 --> 00:17:38,560 Speaker 1: supply chain that includes not just pharma but wholesalers, TBMs, 311 00:17:38,560 --> 00:17:42,199 Speaker 1: pharmacies themselves. Um, And so you've got to look at 312 00:17:42,240 --> 00:17:45,760 Speaker 1: the entire system. UM. But I do think that there's 313 00:17:45,960 --> 00:17:48,200 Speaker 1: you know, it's a it's a move to put further 314 00:17:48,240 --> 00:17:51,040 Speaker 1: pressure on whether it's legal. I know is one question, 315 00:17:51,280 --> 00:17:53,520 Speaker 1: um that I've heard said, it's you know, is this 316 00:17:53,600 --> 00:17:56,920 Speaker 1: type of is this a precedent that can even be brought? Um? 317 00:17:56,960 --> 00:17:59,600 Speaker 1: So I'm not sure to lead legally how that would 318 00:17:59,640 --> 00:18:02,919 Speaker 1: play out. I'm sure there will be challenges to this, Michael, 319 00:18:03,240 --> 00:18:06,960 Speaker 1: just quickly. I'm also as part of this move in Nevada, UH, 320 00:18:07,240 --> 00:18:12,520 Speaker 1: nonprofit organizations that are working on behalf of either patients 321 00:18:12,600 --> 00:18:16,680 Speaker 1: or funding medical research, they're going to have to reveal 322 00:18:16,880 --> 00:18:20,920 Speaker 1: and disclose the donations that they received from pharmaceutical companies 323 00:18:21,160 --> 00:18:25,200 Speaker 1: as well as insurance providers and benefit pharmacy benefit companies. 324 00:18:25,680 --> 00:18:30,359 Speaker 1: Why isn't that something that already happens. That's a great question. Again, 325 00:18:30,400 --> 00:18:33,280 Speaker 1: back to the complexity. It's a it's a very very 326 00:18:33,320 --> 00:18:37,200 Speaker 1: deep web of of how money changes hands and who's 327 00:18:37,280 --> 00:18:39,680 Speaker 1: changing hands from. You know, that's not a piece that 328 00:18:39,720 --> 00:18:43,240 Speaker 1: I cited, but that's a fantastic example, um of of 329 00:18:43,320 --> 00:18:47,040 Speaker 1: some of the you know, economic mechanics um and you know, 330 00:18:47,280 --> 00:18:49,760 Speaker 1: if you're gonna have transparency, you can't have transparency just 331 00:18:49,800 --> 00:18:53,720 Speaker 1: in one part. You need to have it everywhere. Thank 332 00:18:53,760 --> 00:18:56,159 Speaker 1: you so much for joining us. Michael Ray, founder and 333 00:18:56,240 --> 00:18:59,240 Speaker 1: CEO of r X Savings Solutions, which is based in 334 00:18:59,320 --> 00:19:02,680 Speaker 1: Overland Park, Kansas, Thank you so much for joining us. 335 00:19:13,960 --> 00:19:17,040 Speaker 1: Recent data shows that the housing market recovery in the 336 00:19:17,160 --> 00:19:21,400 Speaker 1: US has been incredibly uneven. Big metropolitan areas like New 337 00:19:21,480 --> 00:19:27,280 Speaker 1: York City, Miami, uh San Francisco have gained disproportionately, while 338 00:19:27,400 --> 00:19:31,240 Speaker 1: other smaller municipalities have lagged behind. So what does a 339 00:19:31,320 --> 00:19:35,280 Speaker 1: real estate investor do with this information? Terrell Gates joins 340 00:19:35,359 --> 00:19:38,240 Speaker 1: US now. He's chief executive officer and founder of Virtues 341 00:19:38,800 --> 00:19:42,280 Speaker 1: Real Estate Capital, which over sees about three billion dollars 342 00:19:42,280 --> 00:19:45,439 Speaker 1: in real estate assets from Austin, Texas. Terrell, I'd love 343 00:19:45,480 --> 00:19:47,320 Speaker 1: to get your take on this. When you see this 344 00:19:47,400 --> 00:19:51,200 Speaker 1: bifurcated market that appears to be slowing down right now, 345 00:19:51,840 --> 00:19:54,960 Speaker 1: do you avoid those municipalities that have gained the most, 346 00:19:55,200 --> 00:19:56,840 Speaker 1: like the New York's of the world and the San 347 00:19:56,880 --> 00:19:59,679 Speaker 1: Francisco's or do you think that those are the areas 348 00:19:59,720 --> 00:20:02,320 Speaker 1: that are most resilient if there is another downturn in 349 00:20:02,320 --> 00:20:06,040 Speaker 1: the near future. Yeah, that's a good question. I mean, certainly, 350 00:20:06,480 --> 00:20:10,000 Speaker 1: entrance prising are cost to buy today is a major 351 00:20:10,119 --> 00:20:12,360 Speaker 1: factor and where you're going to invest and where you're 352 00:20:12,359 --> 00:20:14,479 Speaker 1: not going to invest. But you also have to think 353 00:20:14,520 --> 00:20:16,800 Speaker 1: about sustainability of that income stream, and you have to 354 00:20:16,800 --> 00:20:19,560 Speaker 1: think about the growth potential. And so one of the 355 00:20:19,640 --> 00:20:22,640 Speaker 1: things that's been occurring over the last twenty to thirty 356 00:20:22,720 --> 00:20:25,800 Speaker 1: years is this great urbanization movement of people coming back 357 00:20:25,840 --> 00:20:30,120 Speaker 1: into the cities looking for more info locations, and that's 358 00:20:30,200 --> 00:20:33,760 Speaker 1: driving up those valuations that you're talking about. Let's talk 359 00:20:33,800 --> 00:20:36,800 Speaker 1: of if we can about some of the areas in 360 00:20:36,840 --> 00:20:40,120 Speaker 1: which you have expertise. I want to start with student 361 00:20:40,200 --> 00:20:43,320 Speaker 1: housing and I'm wondering if you could maybe use an example. 362 00:20:43,359 --> 00:20:46,720 Speaker 1: I know this one at Rutgers University, Rockoff Hall. Uh, 363 00:20:47,040 --> 00:20:48,800 Speaker 1: maybe you could use that as an example. How did 364 00:20:48,800 --> 00:20:52,800 Speaker 1: you find that property and what attracts you to the 365 00:20:52,840 --> 00:20:56,720 Speaker 1: student housing market, what makes it attractive? Well, our overall 366 00:20:56,760 --> 00:21:00,880 Speaker 1: thesis here at Vertices we don't invest in aditional commercial 367 00:21:00,880 --> 00:21:03,600 Speaker 1: real estate. We invest in property types that we believe 368 00:21:04,000 --> 00:21:06,320 Speaker 1: our recession resilient. In other words, property types that can 369 00:21:06,320 --> 00:21:10,080 Speaker 1: continue to perform even when there is an economic cycle 370 00:21:10,200 --> 00:21:14,639 Speaker 1: downturn or a cappa market cycle um retreat. And we 371 00:21:14,680 --> 00:21:18,080 Speaker 1: think student housing is one good example of that because 372 00:21:18,440 --> 00:21:22,240 Speaker 1: when we go into recessionary period, university enrollments actually increase. 373 00:21:22,560 --> 00:21:26,240 Speaker 1: Not surprising, right, because what that typically means is unemployment 374 00:21:26,240 --> 00:21:29,359 Speaker 1: goes up, more people go back to school, and there's 375 00:21:29,400 --> 00:21:33,879 Speaker 1: a greater need for housing. So the Rutgers University example, 376 00:21:34,240 --> 00:21:37,520 Speaker 1: that's a property that's walking distance to the main campus 377 00:21:37,520 --> 00:21:40,280 Speaker 1: of Rutgers University, which is one of the largest universities 378 00:21:40,280 --> 00:21:43,400 Speaker 1: in the country. There's about sixty five enrollment at all 379 00:21:43,440 --> 00:21:46,480 Speaker 1: of its campuses. And for that particular property, we did 380 00:21:46,480 --> 00:21:50,400 Speaker 1: buy that one off market. It is the only private, 381 00:21:51,000 --> 00:21:55,200 Speaker 1: lead built, purpose built student housing property in that particular market, 382 00:21:55,640 --> 00:21:57,720 Speaker 1: and so we found it compelling because we felt like 383 00:21:57,760 --> 00:22:01,720 Speaker 1: we could increase the performance of that secular property, driving 384 00:22:02,320 --> 00:22:06,280 Speaker 1: revenue from that property and ultimately driving income evaluation. Terrell, 385 00:22:06,320 --> 00:22:08,440 Speaker 1: if you're going to get into student housing, though, don't 386 00:22:08,440 --> 00:22:10,399 Speaker 1: you have to consider a little bit more the whole 387 00:22:10,520 --> 00:22:13,639 Speaker 1: backdrop of student debt and the fact that there is 388 00:22:13,680 --> 00:22:17,399 Speaker 1: this growing concern that all of these students who are 389 00:22:17,440 --> 00:22:19,000 Speaker 1: borrowing all this money are going to be able to 390 00:22:19,000 --> 00:22:21,399 Speaker 1: pay it back. Does it matter to the real estate investors? 391 00:22:22,200 --> 00:22:25,520 Speaker 1: It absolutely does, And you're hitting on a very important 392 00:22:25,520 --> 00:22:29,920 Speaker 1: point there, because there is a very different experience and 393 00:22:30,040 --> 00:22:34,399 Speaker 1: investing at different types of universities. So this backdrop of 394 00:22:34,440 --> 00:22:38,640 Speaker 1: the student housing bubble, as well as online technology driving 395 00:22:38,960 --> 00:22:42,919 Speaker 1: more lower cost education, is very much a factor. But 396 00:22:43,000 --> 00:22:45,520 Speaker 1: what you will see is at the major tier one 397 00:22:46,080 --> 00:22:49,919 Speaker 1: public flagship universities like a Rutgers or here in Texas 398 00:22:49,960 --> 00:22:52,000 Speaker 1: where I'm from, into University of Texas at Austin and 399 00:22:52,040 --> 00:22:57,080 Speaker 1: texasan m university, enrollment and demand for that quality education 400 00:22:57,160 --> 00:23:01,560 Speaker 1: continue to increase, and so there just isn't enough housing. 401 00:23:02,119 --> 00:23:04,800 Speaker 1: And what's happened really over the last twenty years, and 402 00:23:05,160 --> 00:23:07,320 Speaker 1: I would say, over the last ten years at an 403 00:23:07,359 --> 00:23:10,520 Speaker 1: even greater clip is many of these universities have said, 404 00:23:11,000 --> 00:23:14,479 Speaker 1: number one, we don't have the capital because we have 405 00:23:14,560 --> 00:23:17,040 Speaker 1: less state support today than we did in the past 406 00:23:17,400 --> 00:23:20,400 Speaker 1: to build the housing that we need to meet meet 407 00:23:20,400 --> 00:23:23,119 Speaker 1: the demand from our kids. And number two, we're not 408 00:23:23,160 --> 00:23:25,040 Speaker 1: good at it. That's not what our job is. Our 409 00:23:25,080 --> 00:23:28,840 Speaker 1: core competency as the university is education and research, it's 410 00:23:28,880 --> 00:23:32,680 Speaker 1: not real estate services. So they've been outsourcing that need 411 00:23:32,760 --> 00:23:35,000 Speaker 1: at a much greater clip to the private sector, to 412 00:23:35,119 --> 00:23:39,760 Speaker 1: groups like ours. Speak if you can about senior living properties. 413 00:23:39,760 --> 00:23:44,240 Speaker 1: I know you've got some Detroit, Orlando as well as Burlington, Vermont, 414 00:23:44,280 --> 00:23:46,280 Speaker 1: and then maybe just quickly on your medical office and 415 00:23:46,320 --> 00:23:49,920 Speaker 1: self storage, because each of those sort of tackles uses 416 00:23:50,000 --> 00:23:53,360 Speaker 1: the same strategy but tackles a different market. That's exactly right, 417 00:23:53,800 --> 00:23:56,960 Speaker 1: So senior living, same thing. Everybody knows about the graying 418 00:23:57,240 --> 00:24:01,040 Speaker 1: of of America. UM, we have an even gotten even 419 00:24:01,040 --> 00:24:02,520 Speaker 1: close to the peak of what we're going to see 420 00:24:02,520 --> 00:24:05,560 Speaker 1: from the boomer generation, which that actually doesn't peak until 421 00:24:05,560 --> 00:24:09,840 Speaker 1: about two thousand thirty three. But what we've seen is 422 00:24:09,840 --> 00:24:13,879 Speaker 1: is um for particularly needs based senior living. In other words, 423 00:24:14,320 --> 00:24:16,400 Speaker 1: when you gotta go, you gotta go. It's not really 424 00:24:16,440 --> 00:24:19,879 Speaker 1: a question because the level of care required means somebody 425 00:24:19,920 --> 00:24:24,320 Speaker 1: can't be living completely independently. So for us, we think 426 00:24:24,359 --> 00:24:27,800 Speaker 1: senior living is extraordinarily compelling because we think it is 427 00:24:27,840 --> 00:24:30,840 Speaker 1: a very sustainable income stream. Because the reality is is, 428 00:24:30,960 --> 00:24:33,359 Speaker 1: even if you lose your job or you have to 429 00:24:33,400 --> 00:24:36,480 Speaker 1: take a lower cost job, probably the last thing you're 430 00:24:36,480 --> 00:24:38,720 Speaker 1: gonna do is take your eighty six year old mom 431 00:24:38,760 --> 00:24:41,080 Speaker 1: out of a senior living community that's providing a high 432 00:24:41,160 --> 00:24:43,359 Speaker 1: level of care that she really needs and provides her 433 00:24:43,440 --> 00:24:45,280 Speaker 1: better quality of life than she could get at home. 434 00:24:46,000 --> 00:24:50,280 Speaker 1: So for us, we think the space is uh compelling 435 00:24:50,359 --> 00:24:53,760 Speaker 1: from a number of different perspectives, not only the sustainability 436 00:24:53,800 --> 00:24:56,400 Speaker 1: of that income stream, but also the ability to grow 437 00:24:56,440 --> 00:25:00,560 Speaker 1: it providing higher quality operations and hospitality. Tarrell, I have 438 00:25:00,680 --> 00:25:02,720 Speaker 1: to think with all the money that's been going into 439 00:25:02,760 --> 00:25:06,040 Speaker 1: real estate assets and the amount of cash looking for 440 00:25:06,119 --> 00:25:09,800 Speaker 1: some kind of bond substitute with higher yields, I have 441 00:25:09,960 --> 00:25:13,959 Speaker 1: to wonder, have you seen competition to your strategy just 442 00:25:14,200 --> 00:25:18,719 Speaker 1: balloon and have valuations dramatically? Yeah, So you know this 443 00:25:18,760 --> 00:25:21,520 Speaker 1: is an interesting point, right, and and a lot of 444 00:25:21,520 --> 00:25:24,320 Speaker 1: our investors asked the same question right there, saying, well, 445 00:25:24,359 --> 00:25:26,399 Speaker 1: wait a minute, all these people are getting into your 446 00:25:26,440 --> 00:25:29,440 Speaker 1: property types, because everybody looks over and they say, these 447 00:25:29,440 --> 00:25:32,000 Speaker 1: property types, these quote unquote alternative property types, many of 448 00:25:32,080 --> 00:25:36,200 Speaker 1: which are becoming more mainstream. They have higher yields, higher 449 00:25:36,240 --> 00:25:40,800 Speaker 1: total returns, historically, their recession resilient I want to get into. 450 00:25:41,320 --> 00:25:43,960 Speaker 1: But what they don't quite understand about these property types 451 00:25:44,080 --> 00:25:47,679 Speaker 1: is they are also more operationally intensive, and so what 452 00:25:47,840 --> 00:25:51,560 Speaker 1: that means is there's more idiosyncratic risk. In other words, 453 00:25:51,640 --> 00:25:54,080 Speaker 1: running a student housing property or running a senior living 454 00:25:54,080 --> 00:25:57,600 Speaker 1: property is not like running a multi family property. Similarly, 455 00:25:57,680 --> 00:25:59,800 Speaker 1: running a medical office building is not like running an 456 00:25:59,800 --> 00:26:01,800 Speaker 1: off buildings. So you have to have a lot of 457 00:26:01,840 --> 00:26:05,320 Speaker 1: the main expertise in these particular categories. So what's happened 458 00:26:05,359 --> 00:26:07,800 Speaker 1: is is a lot of these new investors, whether it's 459 00:26:08,040 --> 00:26:12,800 Speaker 1: big institutions like star Wood Capital or Carlisle or black Stone, 460 00:26:12,960 --> 00:26:15,399 Speaker 1: or the sovereign wealth funds like g I C or 461 00:26:15,440 --> 00:26:18,280 Speaker 1: the large pension funds, as they've come into the space, 462 00:26:18,880 --> 00:26:23,680 Speaker 1: they're typically buying large portfolios, and usually there are premiums 463 00:26:23,720 --> 00:26:27,360 Speaker 1: being paid for those large portfolios because they're making a 464 00:26:27,400 --> 00:26:29,840 Speaker 1: macro bet on the space that it's going to continue 465 00:26:29,840 --> 00:26:32,840 Speaker 1: to perform well. We, on the other hand, we generally 466 00:26:32,880 --> 00:26:36,560 Speaker 1: buy one off properties where valuations are usually a little 467 00:26:36,600 --> 00:26:40,760 Speaker 1: more compelling, that also have upside potential by improving the 468 00:26:40,840 --> 00:26:42,800 Speaker 1: quality of the real estate or improving the quality of 469 00:26:42,800 --> 00:26:46,240 Speaker 1: the operations, and then we ultimately end up selling to 470 00:26:46,280 --> 00:26:48,760 Speaker 1: a lot of these big financial groups or the reads 471 00:26:49,160 --> 00:26:52,360 Speaker 1: in larger portfolios and hopefully garnering the premium. Thanks very 472 00:26:52,440 --> 00:26:55,320 Speaker 1: much for sharing all this information with this Terrell Gates, 473 00:26:55,400 --> 00:26:59,440 Speaker 1: chief executive officer, founder of Vertas Real Estate Capital based 474 00:26:59,520 --> 00:27:06,240 Speaker 1: in Austin, Texas. Thanks for listening to the Bloomberg P 475 00:27:06,359 --> 00:27:09,360 Speaker 1: and L podcast. You can subscribe and listen to interviews 476 00:27:09,359 --> 00:27:13,439 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 477 00:27:13,840 --> 00:27:17,400 Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm 478 00:27:17,440 --> 00:27:20,720 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 479 00:27:20,760 --> 00:27:23,359 Speaker 1: You can always catch us worldwide on Bloomberg Radio.