Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim
Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
Speaker 1: we bring you the most important, noteworthy, and useful interviews
Speaker 1: for you and your money, whether you're at the grocery
Speaker 1: store or the trading floor. Find the Bloomberg p m
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Speaker 1: It's shira Ov day of Bloomberg Gadfly columnists joining us
Speaker 1: in the studio about the Amazon purchase of Whole Foods.
Speaker 1: Go ahead, give us your take on on this. Well,
Speaker 1: first of all, I was surprised. Seems to be everybody. Yes,
Speaker 1: it seems to everybody. I mean, we should say that.
Speaker 1: Our colleagues at Bloomberg News wrote a story in April
Speaker 1: that essentially said Amazon looked it talked internally about buying
Speaker 1: Whole Foods last fall, and they decided not to pursue it.
Speaker 1: But it shows you that this has been something that's
Speaker 1: been on Amazon's mind for a while. And the really
Speaker 1: interesting thing here is that grocery shopping is one of
Speaker 1: the biggest categories of consumer spending, but it has been
Speaker 1: very resistant to e commerce. Only about two or three
Speaker 1: percent of all grocery shopping happens online, and you know,
Speaker 1: that's the kind of thing that Amazon loves to attack.
Speaker 1: Here is a humongous market with eight hundred billion dollars
Speaker 1: in annual spending in the US alone, but it needs
Speaker 1: a kind of Amazon e commerce touch, and so that's
Speaker 1: what we're seeing here. What is that touch? To be honest,
Speaker 1: I do not know I have, because I mean they
Speaker 1: talks about that, but a lot of people have been
Speaker 1: trying to give it this touch, this online, including Amazon.
Speaker 1: It should be said that Amazon has a something called
Speaker 1: Amazon Fresh, which is an online grocery delivery service that
Speaker 1: it started rolling out ten years ago now um and
Speaker 1: starting in its hometown of Seattle, and since expanded to
Speaker 1: a number of markets. But even by Amazon's own admission,
Speaker 1: Fresh has not gonne extremely well. And Amazon more recently
Speaker 1: has tried some other grocery ideas. It just opened some
Speaker 1: pick up kiosks in Seattle again where you order online
Speaker 1: and then you drive up to these windows to kind
Speaker 1: of pick up your groceries. You know, it's opening a
Speaker 1: convenience store for food and other merchandise also in Seattle.
Speaker 1: So it's clear that Amazon has been very interested in grocery,
Speaker 1: but maybe not exactly sure how to do it. And
Speaker 1: to be honest, I don't know what their plans are
Speaker 1: for Whole Foods. Do they think the future of shopping
Speaker 1: is stores, Do they think it's online? Do they think
Speaker 1: it's a mix of both. This is exactly what I
Speaker 1: was wondering. I mean, is this going to change the
Speaker 1: Whole Foods experience dramatically? Are they going to leave it
Speaker 1: as is and sort of uh, you know, jump off
Speaker 1: of that. I would bet, and this is sort of
Speaker 1: a semi educated guess to be fair, I would bet
Speaker 1: that they would for now leave Whole Foods, you know,
Speaker 1: as a grocery chain, but they would use it as
Speaker 1: a kind of a test bed for new ideas. And
Speaker 1: I don't think that they're spending thirteen point seven billion
Speaker 1: dollars simply to buy a grocery chain. They're buying it
Speaker 1: because they want to figure out what the grocery shopping
Speaker 1: of the future is and then they want to control
Speaker 1: that and use Whole Foods as a way to kind
Speaker 1: of get them there. They also access all of this
Speaker 1: incredible data, correct, I mean, everything that gets scanned, whether
Speaker 1: it's a stock keeping unit, that's being put on the
Speaker 1: shelf or something that's being put into a bag as
Speaker 1: you check out. You may not even have a human cashier. Yeah,
Speaker 1: that's right. I think the data piece is is huge
Speaker 1: that they're suddenly going to get all this information not
Speaker 1: just about shopping behavior, but also about the kind of
Speaker 1: mechanics of running a grocery chain with distribution and dealing
Speaker 1: with suppliers and things like that. Again, our our Bloomberg
Speaker 1: News colleagues wrote this big piece about Amazon's kind of
Speaker 1: grocery ambitions a while ago, and one of the revelations
Speaker 1: there was Amazon had a problem with the kind of
Speaker 1: inventory and distribution in groceries that you know, bananas would
Speaker 1: go bad and things like that. So it's also getting
Speaker 1: some expertise on the back end of running food delivery
Speaker 1: food operations. I mean, it's interesting though that they chose
Speaker 1: Whole Foods of all places, because Whole Foods hasn't exactly
Speaker 1: been a seller example of distribution, and they've struggled with
Speaker 1: overpriced items and this has not been a grocery store
Speaker 1: chain that has done phenomenally well in the past few years.
Speaker 1: Is it because the valuation what made more sense for Amazon?
Speaker 1: Or was it because uh, they saw something else. Well,
Speaker 1: Whole Foods has some serious advantages. One is it it
Speaker 1: has a very good brand and that's certainly something that
Speaker 1: is valuable for Amazon. And also Whole Foods was uniquely
Speaker 1: vulnerable right that it's been attacked by johnah Partners, an
Speaker 1: activist investor recently, and so you know, it was in
Speaker 1: the position where Whole Foods needed a white Knight, and
Speaker 1: Jeff Bezos, I guess, was more then happy to swoop
Speaker 1: in and be that white night. The Amazon web services
Speaker 1: business is always cited as being this growing conglomerate inside
Speaker 1: of Amazon. Just give you twenty seconds to connect that
Speaker 1: with this purchase. Um. So, one thing that has been
Speaker 1: speculated is could Amazon Amazon's grocery ambitions be the next
Speaker 1: aws that it's if they manage to get the distribution
Speaker 1: of food right and the in store experience right, can
Speaker 1: they then sell that as software to other grocery companies.
Speaker 1: That's fascinating, Shara Ovida, always fabulous speaking with you Bloomberg
Speaker 1: Gadfly columnists. You put it so nicely, and it really
Speaker 1: gives us a sense of what could be at stake
Speaker 1: here and why this is being treated as such an
Speaker 1: industry disruptor Shara Ovida. Her columns are awesome, go read them.
Speaker 1: They have a new executive, but it has a very
Speaker 1: big problem that is coming to the new executive, John
Speaker 1: Flannery from Jeff Immult who just stepped down. And Katherine Klinsky,
Speaker 1: a bloom BERGNESE reporter, highlighted this in a recent story
Speaker 1: looking at how g E has a thirty one billion
Speaker 1: dollar deficit and its pension, which is the biggest among
Speaker 1: SMP five companies and this even more shockingly fifty percent
Speaker 1: greater than any other corporation in the US. Katherine, how
Speaker 1: did we get to this point? How is ge so
Speaker 1: desperately underfunded in its pension? Yeah, definitely, John Flannery has
Speaker 1: this big hole to feel. Um, Like most corporate pensions,
Speaker 1: the financial christ really wrecked them. That was when they
Speaker 1: fell underfunded, and it's it's been a hard time trying
Speaker 1: to recoup those losses over the years. I mean, interest
Speaker 1: rates have been really poor, and even if you've invested
Speaker 1: in other assets, you know, it's been a volatile market
Speaker 1: and it's hard to always kind of recoup those losses. Um.
Speaker 1: A lot of companies have instead and putting cash to
Speaker 1: their plans, or they've been offloading them to ensures, they've
Speaker 1: looked for kind of other solutions to try and shore
Speaker 1: up these pensions. UM. But with GE, it's just steadily
Speaker 1: trended down in terms of their shortfall. Now G has
Speaker 1: a lot of company, doesn't it. I mean it's not
Speaker 1: as if gees alone in not having a completely funded
Speaker 1: pension plan. Some of the most recognized and largest companies
Speaker 1: in the United States General Electric is writing about but
Speaker 1: General Motors, Boeing, ex On Mobile, A, T and T,
Speaker 1: Lockheed Martin. Is there no downside legally or financially to
Speaker 1: underfunding your pension plans? So they just go ahead and
Speaker 1: don't worry about it. Yeah. So, actually, if you hold
Speaker 1: an underfunded pension plan, you have to pay more fees
Speaker 1: to the PPGC, which is kind of the government agency
Speaker 1: that backstops these UM. So there is an immediate kind
Speaker 1: of financial cost to these plans. You know, it is
Speaker 1: important to recognize that these obligations are decades long. So
Speaker 1: if markets start to ali, yes, that might really help them, UM,
Speaker 1: as long as they're invested in the asset that actually
Speaker 1: rallies compared to the bonds that they have been buying.
Speaker 1: Because they were afraid to buy stocks. Definitely, So they
Speaker 1: I mean, they they're pretty well diverse. They have equity,
Speaker 1: they have debt, real estate, private equity. They actually own
Speaker 1: thirty million dollars or thirty million shares of g in
Speaker 1: fact um. But it's hard to always bet on that.
Speaker 1: And a lot of companies now are starting to say,
Speaker 1: you know, we're not going to wait for markets to
Speaker 1: kind of help us. A lot of companies are taking
Speaker 1: these actions. And you have big public pensions that have
Speaker 1: just come out out right and said, look, are long
Speaker 1: time assumption that we're gonna get seven and a half
Speaker 1: returns each year on our assets is going out the window.
Speaker 1: We're gonna have to lower that to six and a
Speaker 1: half to six point to five percent, whatever it is,
Speaker 1: which means more contributions in the part of both employees
Speaker 1: as well as possibly, uh, you know, the actual organization, right,
Speaker 1: I mean, but what strikes me about g E is
Speaker 1: that g E opted not to do what others were doing,
Speaker 1: not to make contributions, instead to give out forty five
Speaker 1: billion dollars basically two shareholders with buy backs instead, basically
Speaker 1: because of this activist pressure. I mean, at some point
Speaker 1: this is going to come back to bite them, because
Speaker 1: you have to wonder, are they just investing in risk
Speaker 1: your assets with the money from the pension in order
Speaker 1: to make up for the shortfall and crossing their fingers. Yeah,
Speaker 1: So they have been making some contributions about over the
Speaker 1: past two years, it's been about two billion dollars to
Speaker 1: their pension plan. But that's paltry compared to the forty
Speaker 1: five billion they've been spending on share repurchases. And while
Speaker 1: it's you know, while the pension plan could receive a
Speaker 1: great boost from interest rates, while it might be fine
Speaker 1: in the end, we argue that, you know, it's kind
Speaker 1: of this this uh, this tension between those short term
Speaker 1: effects of hey, let's appease these activist shareholders, make sure
Speaker 1: our investors are happy with this kind of growing hole
Speaker 1: that they have on their on their balance sheet, and
Speaker 1: it's hard to recoepe those losses. I was looks going
Speaker 1: to say, just to add to this idea that you're
Speaker 1: talking about, what these assets, what they're invested in, the
Speaker 1: various assets, because when you have interest rates that are
Speaker 1: as low as you describe, and we're all living through
Speaker 1: this um, there is no way that you're going to
Speaker 1: meet your benchmark, your target. Right, You're and that hasn't
Speaker 1: even been a sort of reality moment for many pension
Speaker 1: fund managers. Correct, correct, and um so G has lowered.
Speaker 1: They went from about nine percent in the early two
Speaker 1: thousand's to now seven point five, but it's still that's
Speaker 1: kind of a higher assumption for the way markets are doing.
Speaker 1: We've seen a lot of pension plans um either lower
Speaker 1: those even further or take steps to kind of better
Speaker 1: match their assets and their liabilities, kind of taking a
Speaker 1: traditional insurance view of it. Um and that has also
Speaker 1: helped at least mitigate the volatility, because sometimes you're just
Speaker 1: never going to make up those returns, but at least
Speaker 1: you don't want to. And they have to keep cashing, right,
Speaker 1: I mean, the Arissa rules say that you have to
Speaker 1: keep a certain amount of cash on hand in order
Speaker 1: to pay out current beneficiaries. Yeah, they definitely need UM
Speaker 1: cash to be able because some of these beneficiaries are
Speaker 1: already taking payments and but a lot of those obligations
Speaker 1: are decades long, so they'll still have, you know, a
Speaker 1: bunch of assets to kind of play with for a
Speaker 1: little bit. Is she the biggest pension or a company
Speaker 1: with a pension out there, they do. I mean they
Speaker 1: have a very sizable pension. So ninety four billion dollars
Speaker 1: in obligations and about sixty three and assets right now,
Speaker 1: what are the comparable kinds of what are the other
Speaker 1: companies with comparable pensions? Yeah, I mean it kind of
Speaker 1: sizes up with many industrial companies. Those tends to be
Speaker 1: kind of the larger pensions that we see. It's kind
Speaker 1: of those legacies of decades of kind of blue collar workers. UM,
Speaker 1: they're about sixty seven percent funded. That's kind of an
Speaker 1: important number to recognize, is UM. You know, their their
Speaker 1: obligations to kind of their assets that they have now.
Speaker 1: UM generally pension experts say eighty percent is where you
Speaker 1: tend to want to be UM and higher if you can,
Speaker 1: but is kind of a one to shoot for. Well,
Speaker 1: I was gonna say, if you guys also get a chance.
Speaker 1: Has a great uh piece of corporate research by Bob
Speaker 1: Coley over at Russell Investments. It's it's about this year's
Speaker 1: earlier this year, but it talks about the twenty billion
Speaker 1: dollar club, meaning you know, do you have liabilities that
Speaker 1: you're unmet by more than twenty billion and UM, well,
Speaker 1: you know you've got the General Electric as I said,
Speaker 1: General Motors, but just add to the list a T
Speaker 1: and T Dow Chemical. Well, we know what's happening there.
Speaker 1: Johnson and Johnson, thank you very much for bringing this
Speaker 1: to our attention. Really well done and uh look forward
Speaker 1: to more. Katherine Chiglinsky, US insurance reporter for a Bloomberg
Speaker 1: Well Insulin. Insulin is one of those drugs that is
Speaker 1: life sustaining and it is sold throughout the United States
Speaker 1: at races that have increased dramatically over the last decade.
Speaker 1: Here to tell us more about drug pricing is Michael Ray.
Speaker 1: He is the founder and the chief executive of our
Speaker 1: ex Savings Solutions and he joins us from Overland Park, Kansas. Michael,
Speaker 1: thanks for being with us. Can you comment on some
Speaker 1: moves in the state of Nevada, specifically with the Governor
Speaker 1: Brian Sandoval signing a law that is now the really
Speaker 1: the most strict requirement for the revelation of drug prices,
Speaker 1: which we strangely don't have. Yeah, it's great to be
Speaker 1: with you, Jim. I think that the legislation really shows
Speaker 1: the frustration and the desperation people feel. We've seen this
Speaker 1: public outcry about drug prices and you know, some recent
Speaker 1: examples really focused on influence. Um. I think it just
Speaker 1: demonstrates the pain people feel, um, financially, I think that
Speaker 1: it it's something that's a threat too, you know, just
Speaker 1: common health health care for the those diabetics, and it's
Speaker 1: it's a it's a really important topic. I think that
Speaker 1: the legislation, um, you know, is a is a great
Speaker 1: first step. I think that there there's much more and
Speaker 1: it's a much more complex issue that needs to be
Speaker 1: dealt with. Well, let's just talk certainly, let's let's clarify
Speaker 1: what this legislation actually said. The law required drug makers
Speaker 1: to annually disclose the list prices they set, profits they make,
Speaker 1: and adjustments to any kind of pricing due to inflation
Speaker 1: or otherwise, basically giving more transparency to how they set prices. Correct. Yeah,
Speaker 1: that's right, and I think from a macro approach it
Speaker 1: makes sense. But you know, the what the patient pays
Speaker 1: that the counter, coupled with what they're other therapetic options are,
Speaker 1: and what's going to be most impactful. Basically, what I'm
Speaker 1: saying is the data you know at years N is
Speaker 1: really going to have a little impact on what consumer
Speaker 1: experiences when they go to try to buy their influence.
Speaker 1: Is this law constitutional? Again, I'm sorry, is this law constitutional?
Speaker 1: Because I can imagine and and and just reading up
Speaker 1: on it, it it seems like some pharmaceutical companies are saying,
Speaker 1: you know, this might actually raise some some legal issues
Speaker 1: about whether whether the state can basically voiced this kind
Speaker 1: of requirement upon them. Yeah, I mean, I think it's
Speaker 1: it's uh, you know, it's kind of like bringing one
Speaker 1: stand back to a flood. Um. There's you know, it's
Speaker 1: going to have a limited effect because of the complexity
Speaker 1: of the system. You know, we're not just talking about manufacturers,
Speaker 1: but we're talking about an entire supply chain that's disrupted
Speaker 1: or um, you know, may adjust other parameters um. And
Speaker 1: I think that even if you look at the find
Speaker 1: the five thousand dollars a day that adds up to
Speaker 1: two million bucks um, that's really not not that much
Speaker 1: money in the grand scheme of things, even if they
Speaker 1: decided not to disclosed its state. But other states have
Speaker 1: also taken this up correct Vermont, for example, asking drug
Speaker 1: makers to justify certain price increases of fifteen percent or more. Uh,
Speaker 1: is there any reason to doubt that other states will
Speaker 1: look at this and say, gee, we want the same
Speaker 1: benefits for our UH citizens. Yeah, I think, Um, I
Speaker 1: think that's certainly possible. And again kind of back to
Speaker 1: the original point of this is on one drug or
Speaker 1: one set of drugs, Um, it's certainly important and impactful, um,
Speaker 1: But there's a much bigger system here. And you know,
Speaker 1: even if even if every state requires them to disclose
Speaker 1: the pricing, again, it's after the fact, um, And what
Speaker 1: is it going to mean ultimately to the individual consumer
Speaker 1: at the pharmacy counter There there's a lack of information,
Speaker 1: But from a therapy standpoint and a price standpoint, that's
Speaker 1: the ultimate problem that needs to be solved, um, so
Speaker 1: that the market forces can take over. Michael, you started
Speaker 1: out by saying that this move on the part of
Speaker 1: Nevada legislators shows this desperation of people to get pharmaceutical
Speaker 1: costs under control, and how desperate people UH feel throughout
Speaker 1: the coun treat How much is this an effort to
Speaker 1: put pressure on Washington to perhaps inject a little bit
Speaker 1: more of a collective bargating power when deciding or negotiating
Speaker 1: with pharmaceutical companies from Medicare and medicaid. Well, I think
Speaker 1: I think that this certainly is uh, that that's part
Speaker 1: of it. You know, everyone agrees that drug prices need
Speaker 1: to go down. Everyone agrees that, you know, people should
Speaker 1: have the right to to an access to this type
Speaker 1: of care. Uh. The question is what are the dollars
Speaker 1: and cents and who does it affect and how um
Speaker 1: in it? Again, it's a very complex. You've got a
Speaker 1: supply chain that includes not just pharma but wholesalers, TBMs,
Speaker 1: pharmacies themselves. Um, And so you've got to look at
Speaker 1: the entire system. UM. But I do think that there's
Speaker 1: you know, it's a it's a move to put further
Speaker 1: pressure on whether it's legal. I know is one question,
Speaker 1: um that I've heard said, it's you know, is this
Speaker 1: type of is this a precedent that can even be brought? Um?
Speaker 1: So I'm not sure to lead legally how that would
Speaker 1: play out. I'm sure there will be challenges to this, Michael,
Speaker 1: just quickly. I'm also as part of this move in Nevada, UH,
Speaker 1: nonprofit organizations that are working on behalf of either patients
Speaker 1: or funding medical research, they're going to have to reveal
Speaker 1: and disclose the donations that they received from pharmaceutical companies
Speaker 1: as well as insurance providers and benefit pharmacy benefit companies.
Speaker 1: Why isn't that something that already happens. That's a great question. Again,
Speaker 1: back to the complexity. It's a it's a very very
Speaker 1: deep web of of how money changes hands and who's
Speaker 1: changing hands from. You know, that's not a piece that
Speaker 1: I cited, but that's a fantastic example, um of of
Speaker 1: some of the you know, economic mechanics um and you know,
Speaker 1: if you're gonna have transparency, you can't have transparency just
Speaker 1: in one part. You need to have it everywhere. Thank
Speaker 1: you so much for joining us. Michael Ray, founder and
Speaker 1: CEO of r X Savings Solutions, which is based in
Speaker 1: Overland Park, Kansas, Thank you so much for joining us.
Speaker 1: Recent data shows that the housing market recovery in the
Speaker 1: US has been incredibly uneven. Big metropolitan areas like New
Speaker 1: York City, Miami, uh San Francisco have gained disproportionately, while
Speaker 1: other smaller municipalities have lagged behind. So what does a
Speaker 1: real estate investor do with this information? Terrell Gates joins
Speaker 1: US now. He's chief executive officer and founder of Virtues
Speaker 1: Real Estate Capital, which over sees about three billion dollars
Speaker 1: in real estate assets from Austin, Texas. Terrell, I'd love
Speaker 1: to get your take on this. When you see this
Speaker 1: bifurcated market that appears to be slowing down right now,
Speaker 1: do you avoid those municipalities that have gained the most,
Speaker 1: like the New York's of the world and the San
Speaker 1: Francisco's or do you think that those are the areas
Speaker 1: that are most resilient if there is another downturn in
Speaker 1: the near future. Yeah, that's a good question. I mean, certainly,
Speaker 1: entrance prising are cost to buy today is a major
Speaker 1: factor and where you're going to invest and where you're
Speaker 1: not going to invest. But you also have to think
Speaker 1: about sustainability of that income stream, and you have to
Speaker 1: think about the growth potential. And so one of the
Speaker 1: things that's been occurring over the last twenty to thirty
Speaker 1: years is this great urbanization movement of people coming back
Speaker 1: into the cities looking for more info locations, and that's
Speaker 1: driving up those valuations that you're talking about. Let's talk
Speaker 1: of if we can about some of the areas in
Speaker 1: which you have expertise. I want to start with student
Speaker 1: housing and I'm wondering if you could maybe use an example.
Speaker 1: I know this one at Rutgers University, Rockoff Hall. Uh,
Speaker 1: maybe you could use that as an example. How did
Speaker 1: you find that property and what attracts you to the
Speaker 1: student housing market, what makes it attractive? Well, our overall
Speaker 1: thesis here at Vertices we don't invest in aditional commercial
Speaker 1: real estate. We invest in property types that we believe
Speaker 1: our recession resilient. In other words, property types that can
Speaker 1: continue to perform even when there is an economic cycle
Speaker 1: downturn or a cappa market cycle um retreat. And we
Speaker 1: think student housing is one good example of that because
Speaker 1: when we go into recessionary period, university enrollments actually increase.
Speaker 1: Not surprising, right, because what that typically means is unemployment
Speaker 1: goes up, more people go back to school, and there's
Speaker 1: a greater need for housing. So the Rutgers University example,
Speaker 1: that's a property that's walking distance to the main campus
Speaker 1: of Rutgers University, which is one of the largest universities
Speaker 1: in the country. There's about sixty five enrollment at all
Speaker 1: of its campuses. And for that particular property, we did
Speaker 1: buy that one off market. It is the only private,
Speaker 1: lead built, purpose built student housing property in that particular market,
Speaker 1: and so we found it compelling because we felt like
Speaker 1: we could increase the performance of that secular property, driving
Speaker 1: revenue from that property and ultimately driving income evaluation. Terrell,
Speaker 1: if you're going to get into student housing, though, don't
Speaker 1: you have to consider a little bit more the whole
Speaker 1: backdrop of student debt and the fact that there is
Speaker 1: this growing concern that all of these students who are
Speaker 1: borrowing all this money are going to be able to
Speaker 1: pay it back. Does it matter to the real estate investors?
Speaker 1: It absolutely does, And you're hitting on a very important
Speaker 1: point there, because there is a very different experience and
Speaker 1: investing at different types of universities. So this backdrop of
Speaker 1: the student housing bubble, as well as online technology driving
Speaker 1: more lower cost education, is very much a factor. But
Speaker 1: what you will see is at the major tier one
Speaker 1: public flagship universities like a Rutgers or here in Texas
Speaker 1: where I'm from, into University of Texas at Austin and
Speaker 1: texasan m university, enrollment and demand for that quality education
Speaker 1: continue to increase, and so there just isn't enough housing.
Speaker 1: And what's happened really over the last twenty years, and
Speaker 1: I would say, over the last ten years at an
Speaker 1: even greater clip is many of these universities have said,
Speaker 1: number one, we don't have the capital because we have
Speaker 1: less state support today than we did in the past
Speaker 1: to build the housing that we need to meet meet
Speaker 1: the demand from our kids. And number two, we're not
Speaker 1: good at it. That's not what our job is. Our
Speaker 1: core competency as the university is education and research, it's
Speaker 1: not real estate services. So they've been outsourcing that need
Speaker 1: at a much greater clip to the private sector, to
Speaker 1: groups like ours. Speak if you can about senior living properties.
Speaker 1: I know you've got some Detroit, Orlando as well as Burlington, Vermont,
Speaker 1: and then maybe just quickly on your medical office and
Speaker 1: self storage, because each of those sort of tackles uses
Speaker 1: the same strategy but tackles a different market. That's exactly right,
Speaker 1: So senior living, same thing. Everybody knows about the graying
Speaker 1: of of America. UM, we have an even gotten even
Speaker 1: close to the peak of what we're going to see
Speaker 1: from the boomer generation, which that actually doesn't peak until
Speaker 1: about two thousand thirty three. But what we've seen is
Speaker 1: is um for particularly needs based senior living. In other words,
Speaker 1: when you gotta go, you gotta go. It's not really
Speaker 1: a question because the level of care required means somebody
Speaker 1: can't be living completely independently. So for us, we think
Speaker 1: senior living is extraordinarily compelling because we think it is
Speaker 1: a very sustainable income stream. Because the reality is is,
Speaker 1: even if you lose your job or you have to
Speaker 1: take a lower cost job, probably the last thing you're
Speaker 1: gonna do is take your eighty six year old mom
Speaker 1: out of a senior living community that's providing a high
Speaker 1: level of care that she really needs and provides her
Speaker 1: better quality of life than she could get at home.
Speaker 1: So for us, we think the space is uh compelling
Speaker 1: from a number of different perspectives, not only the sustainability
Speaker 1: of that income stream, but also the ability to grow
Speaker 1: it providing higher quality operations and hospitality. Tarrell, I have
Speaker 1: to think with all the money that's been going into
Speaker 1: real estate assets and the amount of cash looking for
Speaker 1: some kind of bond substitute with higher yields, I have
Speaker 1: to wonder, have you seen competition to your strategy just
Speaker 1: balloon and have valuations dramatically? Yeah, So you know this
Speaker 1: is an interesting point, right, and and a lot of
Speaker 1: our investors asked the same question right there, saying, well,
Speaker 1: wait a minute, all these people are getting into your
Speaker 1: property types, because everybody looks over and they say, these
Speaker 1: property types, these quote unquote alternative property types, many of
Speaker 1: which are becoming more mainstream. They have higher yields, higher
Speaker 1: total returns, historically, their recession resilient I want to get into.
Speaker 1: But what they don't quite understand about these property types
Speaker 1: is they are also more operationally intensive, and so what
Speaker 1: that means is there's more idiosyncratic risk. In other words,
Speaker 1: running a student housing property or running a senior living
Speaker 1: property is not like running a multi family property. Similarly,
Speaker 1: running a medical office building is not like running an
Speaker 1: off buildings. So you have to have a lot of
Speaker 1: the main expertise in these particular categories. So what's happened
Speaker 1: is is a lot of these new investors, whether it's
Speaker 1: big institutions like star Wood Capital or Carlisle or black Stone,
Speaker 1: or the sovereign wealth funds like g I C or
Speaker 1: the large pension funds, as they've come into the space,
Speaker 1: they're typically buying large portfolios, and usually there are premiums
Speaker 1: being paid for those large portfolios because they're making a
Speaker 1: macro bet on the space that it's going to continue
Speaker 1: to perform well. We, on the other hand, we generally
Speaker 1: buy one off properties where valuations are usually a little
Speaker 1: more compelling, that also have upside potential by improving the
Speaker 1: quality of the real estate or improving the quality of
Speaker 1: the operations, and then we ultimately end up selling to
Speaker 1: a lot of these big financial groups or the reads
Speaker 1: in larger portfolios and hopefully garnering the premium. Thanks very
Speaker 1: much for sharing all this information with this Terrell Gates,
Speaker 1: chief executive officer, founder of Vertas Real Estate Capital based
Speaker 1: in Austin, Texas. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
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Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio.