WEBVTT - Private Equity’s Big Bet on Logistics Facilities 0:00:00.440 --> 0:00:02.960 This is Bloomberg Business Week. I'm Carol Masser and I'm 0:00:03.040 --> 0:00:05.520 Jason Kelly. We're here every day bringing you the latest 0:00:05.519 --> 0:00:09.800 news from the world's of business and finance, plus technology, politics, economics, 0:00:09.880 --> 0:00:13.480 all harnessing the power of Bloomberg Business Week reporters and editors, 0:00:13.480 --> 0:00:16.759 not to mention our hundred journalists analysts more than a 0:00:16.840 --> 0:00:19.520 hundred and twenty countries. You can download Bloomberg Business Week 0:00:19.560 --> 0:00:22.439 on iTunes, SoundCloud, or Bloomberg dot Com. You can also 0:00:22.480 --> 0:00:24.919 listen to our radio show weekdays at two pm Eastern 0:00:25.000 --> 0:00:29.520 only on Bloomberg Radio. Let's set the Business week agenda. 0:00:29.560 --> 0:00:32.080 We're gonna start with Dave Wilson. He is our stocks editor, 0:00:32.200 --> 0:00:35.279 of course, also the author and the chart of the day. 0:00:35.320 --> 0:00:37.160 And in a minute we're gonna hear from Gina Martin Adams, 0:00:37.159 --> 0:00:40.080 our chief equity strategist. Dave, I want to start with you, 0:00:40.400 --> 0:00:43.519 help us understand the tone in the market today. Oh, 0:00:43.680 --> 0:00:46.760 it's just a broad based advance here. You've got energy 0:00:46.800 --> 0:00:51.440 stocks at the forefront, given that oil prices are holding 0:00:51.560 --> 0:00:54.160 up at least after the clients we've seen the last 0:00:54.160 --> 0:00:57.240 few weeks. I mean, you're seeing some pretty substantial gains 0:00:57.240 --> 0:00:59.720 to it. A lot of stocks that have been beaten 0:00:59.800 --> 0:01:02.000 up over the past a few weeks. You think about 0:01:02.040 --> 0:01:06.360 Norwegian Cruise Lines or American Airlines or MGM Resorts. I mean, 0:01:06.400 --> 0:01:08.680 there are plenty of stocks like that, and if you 0:01:08.760 --> 0:01:11.280 look at what's down in the SP there aren't that 0:01:11.319 --> 0:01:14.679 many stocks, only thirty three at this point. What's notable, though, 0:01:15.240 --> 0:01:18.720 is that we're seeing weakness among real estate investment trusts 0:01:18.720 --> 0:01:23.360 and that looks like a real area of concern for investors. 0:01:23.600 --> 0:01:26.919 UH specifically when you look at mortgage reads, the ones 0:01:27.000 --> 0:01:32.280 that invest in mortgage backed securities that you know, lend 0:01:32.319 --> 0:01:35.520 money for properties. I mean, we're seeing some companies in 0:01:35.520 --> 0:01:39.440 that area, smaller ones, certainly not SMP five level, that 0:01:39.640 --> 0:01:43.759 are having trouble keeping up with all their demands for money. 0:01:44.319 --> 0:01:48.240 A couple of them, specifically invest Go Mortgage Capital ticker 0:01:48.560 --> 0:01:51.640 i DR and New York Mortgage Trust ticker n y 0:01:51.800 --> 0:01:54.240 m T, have actually come out and said we can't 0:01:54.320 --> 0:01:56.920 meet margin calls at this point, and their shares are 0:01:56.960 --> 0:01:59.720 taking a beating because of that, and it's resulted in 0:01:59.800 --> 0:02:02.880 some week this across real estate at this point. Yeah, 0:02:02.920 --> 0:02:05.279 and we've certainly seen that play out in the mortgage market, 0:02:05.320 --> 0:02:08.000 and that is one of the you know, bond markets, 0:02:08.639 --> 0:02:11.400 the mortgage bond market in particular, that has not seen 0:02:11.680 --> 0:02:14.480 the bounce back or or at least you know, ease 0:02:14.520 --> 0:02:17.320 of concerns that we've seen in other aspects of the 0:02:17.320 --> 0:02:21.280 financial markets. UM, you know. So, yeah, that makes sense 0:02:21.280 --> 0:02:23.480 that that we're seeing some of an impact. Gina, come 0:02:23.520 --> 0:02:25.919 on in. I was listening to you this morning, UM, 0:02:25.960 --> 0:02:29.200 listening to you on Bloomberg Radio. So where are we 0:02:29.320 --> 0:02:31.280 can we assume that once we get through this, that 0:02:31.560 --> 0:02:33.520 you know, everything's going to kind of get back to 0:02:33.600 --> 0:02:35.880 normal for companies and that we bounce back. What are 0:02:35.919 --> 0:02:39.000 your projections here? Well, I think that's a that's a 0:02:39.040 --> 0:02:41.280 tough question. I don't know that we get back to 0:02:41.440 --> 0:02:44.120 normal precisely, because I think we are in the process 0:02:44.160 --> 0:02:48.280 of kind of trying to figure out what normal looks like. UM, 0:02:48.320 --> 0:02:51.280 as we address the crisis, the crisis, as we address 0:02:51.360 --> 0:02:54.320 the health concerns, as we address our infrastructure and our 0:02:54.360 --> 0:02:57.960 capabilities of dealing with this, I think we will continuously 0:02:58.040 --> 0:03:01.080 kind of reassessed how businesses will fund shin over the 0:03:01.080 --> 0:03:03.840 course of the next six twelve maybe even longer that 0:03:04.000 --> 0:03:06.160 six twelve months or maybe even longer. What I will 0:03:06.200 --> 0:03:09.760 say in terms of the equity market, but I think 0:03:09.840 --> 0:03:13.760 is very relevant right now. What you do find almost 0:03:13.800 --> 0:03:16.799 every period is the equity markets from the bottom before 0:03:16.800 --> 0:03:20.560 the fundamentals bottom, we bottom on average about two fifty 0:03:20.600 --> 0:03:24.000 days two hunt five to be precise, before we reach 0:03:24.040 --> 0:03:27.440 our earnings bottom. We average in most cases about a 0:03:27.520 --> 0:03:31.680 year before we make our economics economic bottom, we find 0:03:31.680 --> 0:03:35.560 a bottom in equity prices. So when you ask the 0:03:35.680 --> 0:03:39.080 questions sort of where do we go from here, the 0:03:39.120 --> 0:03:41.680 relevant equity market question is what have we already priced in? 0:03:42.440 --> 0:03:44.280 And how much more do we really need to price? 0:03:45.040 --> 0:03:47.440 When we look at what we've priced in, we've already 0:03:47.440 --> 0:03:51.480 priced for much deeper than average recession experience in the 0:03:51.520 --> 0:03:54.360 earning satlook. So now it's a question of timing. How 0:03:54.400 --> 0:03:57.240 long does it last? How deep does it get? Does 0:03:57.240 --> 0:03:59.720 it last beyond September, because that seems to be about 0:03:59.720 --> 0:04:02.400 what we price. Does it go to December? Does it 0:04:02.440 --> 0:04:04.920 go to next March? Those are the questions investors have 0:04:04.960 --> 0:04:08.640 to ask themselves at this point. And so, Gina, what 0:04:08.760 --> 0:04:12.400 about this divergence as it were, between the health crisis 0:04:12.960 --> 0:04:17.599 and investor for lack of it, a term enthusiasm. I mean, 0:04:18.120 --> 0:04:22.400 is the market still paying attention to mortality rates and 0:04:22.480 --> 0:04:25.919 spread in all of those things? I think so, I 0:04:25.920 --> 0:04:28.440 think the market is definitely paying attention to those. You know, 0:04:28.680 --> 0:04:30.480 if you look at where we are today, we've had 0:04:30.480 --> 0:04:32.680 a tremendous bounce back all but all we've done has 0:04:32.720 --> 0:04:36.440 gone back to Friday's levels. Um, so we're, you know, 0:04:36.720 --> 0:04:38.560 back to where we were a couple of days ago. 0:04:38.720 --> 0:04:41.279 I think that the market is also trying to price 0:04:41.320 --> 0:04:45.440 in what has been an extraordinary effort on the fun 0:04:45.600 --> 0:04:48.000 the part of policymakers. You know, yesterday we've just had 0:04:48.040 --> 0:04:52.360 an absolute bazooka of fed stonelists announced in many ways, 0:04:52.400 --> 0:04:54.320 and now we're starting to price in a potential for 0:04:54.400 --> 0:04:58.080 fiscal stimulus, which that's the game changer too. So well, 0:04:58.120 --> 0:05:02.920 we're absolutely trying to plot the path of virus contagion, 0:05:03.160 --> 0:05:06.600 figure out how to slow that pace of increase. At 0:05:06.600 --> 0:05:10.039 the same time, we are getting the supports necessary to 0:05:10.080 --> 0:05:12.600 try to stabilize the equity market and certainly try to 0:05:12.640 --> 0:05:17.000 provide the economy some shelter from the inevitable fallout, right right, 0:05:17.040 --> 0:05:18.640 And I do wonder about you know, I've heard a 0:05:18.640 --> 0:05:20.800 lot of conversations about you know, getting money into the 0:05:20.800 --> 0:05:23.680 hands of people, but you know, right now, they've got 0:05:23.680 --> 0:05:25.720 to have some security that they're going to be what's 0:05:25.880 --> 0:05:27.520 really more on everybody's mind is that they're going to 0:05:27.600 --> 0:05:29.760 have a job that they certainly come back to her, 0:05:29.760 --> 0:05:32.839 that companies hold them onto and that's crucial for companies 0:05:33.640 --> 0:05:36.400 keeping going. Um, Gina, thank you so much. Gina. Martin Adams, 0:05:36.480 --> 0:05:39.000 chief equity strategist at Bloomberg Intelligence, on the phone from 0:05:39.000 --> 0:05:41.760 New Jersey. Dave Wilson also with us, our stocks editor 0:05:41.800 --> 0:05:45.719 at Bloomberg News, on the phone from New Jersey. You're 0:05:45.800 --> 0:05:49.520 listening to Bloomberg Business Week with Carol Messer and Jason 0:05:49.600 --> 0:05:53.560 Kelly on Bloomberg Radio. We have been very fortunate to 0:05:53.560 --> 0:05:56.480 talk to a number of medical experts, usually this time 0:05:56.839 --> 0:05:58.919 of our show to get an update on where we 0:05:59.000 --> 0:06:01.080 are when it comes to the outbreak. We talk a 0:06:01.120 --> 0:06:03.640 lot throughout the course of the show about the markets. 0:06:04.080 --> 0:06:07.200 Let's understand it from the perspective of Dr Penny Wheeler, 0:06:07.240 --> 0:06:10.320 she is president CEO of a Line of Health, joining 0:06:10.400 --> 0:06:12.520 us on the phone from Minnesota to give you some 0:06:12.560 --> 0:06:14.960 size and scope, as we say, at Bloomberg owns and 0:06:15.440 --> 0:06:18.320 or operates thirteen hospitals more than ninety clinics throughout Minnesota 0:06:18.360 --> 0:06:21.200 and western Wisconsin. Dr Wheeler, thank you so much for 0:06:21.279 --> 0:06:25.880 joining us. Thanks for having me on so help us 0:06:25.960 --> 0:06:29.760 understand what before we talk nationally, what does this look 0:06:29.839 --> 0:06:33.479 like for you in your backyard right now in Minnesota 0:06:33.480 --> 0:06:37.279 and Wisconsin. Yeah, in Minnesota, Wisconsin. I think what we're 0:06:37.279 --> 0:06:41.160 seeing is uh something other geographies have seen sooner than 0:06:41.240 --> 0:06:44.400 we have. We are just on the ramp phase up 0:06:45.080 --> 0:06:49.120 of seeing a more disease burden in our communities. We're 0:06:49.120 --> 0:06:51.960 hoping it's a slower ramp because of some of the 0:06:52.040 --> 0:06:56.520 hygiene and isolation UM protections that have been in but 0:06:56.960 --> 0:07:02.320 that we're at right now downsizing our elective surgery compacy 0:07:02.400 --> 0:07:06.520 so we can support care needs needed in our community. 0:07:06.720 --> 0:07:08.919 I am curious what you think about when we have 0:07:09.000 --> 0:07:13.520 conversations about kind of reopening up the US economy, Um, 0:07:13.560 --> 0:07:15.600 how do you feel about that from a healthcare perspective? 0:07:15.640 --> 0:07:18.760 Or what are you seeing? Because um, you know, certainly 0:07:18.800 --> 0:07:22.680 there are hot spots unfortunately on the coasts, certainly in 0:07:22.720 --> 0:07:24.600 New York City where you know, the New York metro 0:07:24.680 --> 0:07:27.360 area where Jason and I are coming from, and our team, Um, 0:07:27.360 --> 0:07:30.640 but how do you see that? Yeah, Well, first and foremost, 0:07:30.680 --> 0:07:34.240 we think that our ability to actually have the capacity 0:07:34.280 --> 0:07:37.120 and the resources and the protective equipment for our staff 0:07:37.680 --> 0:07:43.480 relies on the social distancing necessary to reduce the burden 0:07:43.560 --> 0:07:46.320 in the community over time so we can actually have 0:07:46.360 --> 0:07:49.520 the resources to care. So priority number one is do 0:07:49.560 --> 0:07:52.280 we we have the right capacity and resources to care 0:07:52.320 --> 0:07:54.720 and can we care well for those who are deal 0:07:55.280 --> 0:07:57.920 So we would say and promote at this time that 0:07:58.000 --> 0:08:01.960 that social distancing is actually vehicle to help out being 0:08:02.000 --> 0:08:04.720 able to be there for our community. So we feel 0:08:04.760 --> 0:08:09.920 strongly about that at this point. Um. We totally understand 0:08:10.440 --> 0:08:14.720 that the economic consequences even right now our significant for people, 0:08:14.760 --> 0:08:18.040 including healthcare organizations, and we have to look at the 0:08:18.080 --> 0:08:22.800 long term consequences of that as well, um, and to 0:08:22.920 --> 0:08:26.280 that balancing act. But right now that is so needed 0:08:26.320 --> 0:08:28.280 for us to make sure that we have the adequate 0:08:28.320 --> 0:08:32.520 resources to care, prayer our communities and for our herosis 0:08:33.040 --> 0:08:37.800 occurring for them. And Dr Wheeler, just briefly, you know, 0:08:38.240 --> 0:08:40.240 what do you think happens next in terms of the 0:08:40.360 --> 0:08:44.120 national outbreak. I'm guessing you're talking to your counterparts across 0:08:44.160 --> 0:08:48.760 the country in terms of the numbers, the predictions, the modeling, 0:08:49.200 --> 0:08:52.640 what's your best guess or your best information at this point. 0:08:53.760 --> 0:08:56.880 I think the challenge has been that that because of 0:08:56.920 --> 0:09:01.240 our um the scarcity of resources around testing, either getting 0:09:01.280 --> 0:09:05.400 adequate testing vehicles, for the ingredients to do testing that 0:09:05.440 --> 0:09:08.360 we haven't had white testing, we need to do very 0:09:08.440 --> 0:09:13.559 detailed monitoring from an epidemiological standpoint, that's not quite difficult. 0:09:13.920 --> 0:09:15.760 So that's why I think our modeling is kind of 0:09:15.840 --> 0:09:18.640 probably the map right now, and we're not really sure. 0:09:18.640 --> 0:09:21.440 We're getting an update from our states but later today 0:09:21.520 --> 0:09:25.040 on what that modeling shows. But it's been very challenging 0:09:25.160 --> 0:09:31.720 because of the pousity of testing resources available at the frontier. Yeah, no, 0:09:32.000 --> 0:09:35.000 I know, right exactly, and in terms of getting access 0:09:35.040 --> 0:09:38.480 to the necessary equipment that is needed. You know, what 0:09:38.679 --> 0:09:40.840 is you know, it's interesting we are obviously covering the 0:09:40.880 --> 0:09:43.520 story so closely, but I'm just curious from your perspective, 0:09:44.200 --> 0:09:47.080 you know, what is it that maybe we are we 0:09:47.160 --> 0:09:50.000 are not telling in the clearest way that maybe we 0:09:50.040 --> 0:09:53.600 need to be. I think that, first of all, I 0:09:53.800 --> 0:09:57.240 really appreciate the news media and getting out that for 0:09:57.360 --> 0:10:00.120 us to be able to talk about how this it 0:10:00.200 --> 0:10:03.319 seem really helps us as healthcare workers do our job 0:10:03.400 --> 0:10:07.280 invest in service of the community really important. I think 0:10:07.320 --> 0:10:11.320 that sometimes things that get lost is like you know, uh, 0:10:11.440 --> 0:10:14.040 we still don't know what the trajectory of this curve 0:10:14.200 --> 0:10:16.920 is and many of our community and until we know, 0:10:17.040 --> 0:10:20.840 we're at a place where its plateaung somewhat to actually 0:10:20.920 --> 0:10:25.520 release restrictions uh um, done in a perilous way, even 0:10:25.559 --> 0:10:29.760 though even though totally understand the economics of this have 0:10:29.920 --> 0:10:32.520 to be balanced of the long economics that the short 0:10:32.640 --> 0:10:36.320 term resource needs. So understand that, and I would say that, 0:10:36.559 --> 0:10:39.559 you know, gosh, in some base I just heard one 0:10:39.640 --> 0:10:41.720 cleaning products were down to a day of supply. I 0:10:41.800 --> 0:10:45.800 protected equipment. Many are down stays of supply to testing 0:10:45.880 --> 0:10:49.040 has been a challenge for for everybody. So those things 0:10:49.080 --> 0:10:52.240 are real. Well, there's more release that is proposedly on 0:10:52.360 --> 0:10:54.400 the way. I'd say that at the front here, those 0:10:54.440 --> 0:10:58.520 are still real constraints. All right, Well, we really appreciate 0:10:58.559 --> 0:11:00.920 the time in some great perspective of Dr Penny Wheeler, 0:11:01.000 --> 0:11:03.560 president CEO of a Line of Health, joining us on 0:11:03.600 --> 0:11:06.920 the phone from Minnesota. You're listening to Bloomberg Business Week 0:11:07.120 --> 0:11:11.319 with Carol Masser and Jason Kelly on Bloomberg Radio, Carol, 0:11:11.400 --> 0:11:15.520 You'll probably remember, uh, last year, more than a year ago, 0:11:15.600 --> 0:11:18.839 I think John, the president of Blackstone, was talking with 0:11:19.080 --> 0:11:23.040 us about where they were making big bets and one 0:11:23.080 --> 0:11:28.160 of those places was warehouses. And man, is that bet 0:11:28.240 --> 0:11:30.280 looking like it's going to pay off? John Gray, of course, 0:11:30.320 --> 0:11:33.960 president of black Stone. Blackstone is one of the subjects 0:11:34.040 --> 0:11:36.080 of the story that is in the upcoming issue of 0:11:36.080 --> 0:11:38.800 Bloomberg business Week. It's on the terminal and online today. 0:11:38.840 --> 0:11:41.800 Noah bou Hire wrote it finance reporter for Bloomberg. He 0:11:41.880 --> 0:11:44.520 joins us on the phone from Seattle along with Joel Webber, 0:11:44.559 --> 0:11:46.840 the editor of Bloomberg business Week. He's on the phone 0:11:47.200 --> 0:11:52.679 from Brooklyn. Noah got us say, great, great story, and man, 0:11:52.720 --> 0:11:55.720 these guys are right in the midst of it. Give 0:11:55.800 --> 0:12:00.079 us the size and scope here. Yeah, so, um, I 0:12:00.120 --> 0:12:01.840 mean you put your finger on it. They made it. 0:12:02.160 --> 0:12:05.800 They've been making an enormous set on warehouses. Last year alone, 0:12:05.840 --> 0:12:10.440 they bought more than um twenty billion dollars worth of 0:12:10.640 --> 0:12:15.840 industrial properties and that that includes warehouses, logistics facilities. Um. 0:12:16.000 --> 0:12:19.040 And you know, as as as we all know, uh, 0:12:19.440 --> 0:12:21.200 you know, I'm the only way you can get stuff 0:12:21.240 --> 0:12:26.000 these days safely is to have it delivered. And um, 0:12:26.200 --> 0:12:29.880 the um just demand for these properties had already been 0:12:30.720 --> 0:12:36.360 extremely high before before the coronavirus came around. Vacancies were 0:12:36.400 --> 0:12:40.960 below five in a lot of places. UM, you know, 0:12:41.040 --> 0:12:44.280 getting those sort of close to city in sale properties 0:12:44.320 --> 0:12:47.800 that that enable last mile delivery and and and for 0:12:47.840 --> 0:12:51.240 people to do online ordering. Uh, it was just really hard. 0:12:51.320 --> 0:12:53.760 So the fundamentals were there, and and now we're seeing 0:12:53.800 --> 0:12:57.600 in a pretty dramatic way, um uh, just the need 0:12:57.679 --> 0:13:00.640 for these properties. So so Noah side and scope, this 0:13:00.679 --> 0:13:02.800 is what we love right here at Bloomberg. UM talk 0:13:02.840 --> 0:13:05.480 to us about Blackstone, and I think there's another firm 0:13:05.480 --> 0:13:08.200 that you mentioned in your story. How much have they 0:13:08.559 --> 0:13:12.680 bought into or invested in a lot a lot? So 0:13:12.760 --> 0:13:15.640 the other firm is a is a real estate read 0:13:15.760 --> 0:13:18.400 called for logists. They're actually the biggest in the US. 0:13:18.440 --> 0:13:21.400 Between the two of them, they have about a billion 0:13:21.480 --> 0:13:25.720 square feet, which is more UM than their next ten 0:13:26.559 --> 0:13:31.240 largest competitors combined. So you're really um, it's it's an 0:13:31.280 --> 0:13:36.239 industry that it's rapidly consolidating and has these two enormous 0:13:36.720 --> 0:13:42.079 players um and uh and and and you know I 0:13:42.120 --> 0:13:46.679 think the important thing to note here, um is that, uh, 0:13:46.880 --> 0:13:50.440 the um sort of the scale has been important in 0:13:50.440 --> 0:13:54.560 in in consolidation in this industry. It's the bigger just 0:13:54.600 --> 0:13:58.080 getting bigger. So Joel, come on in here, because this 0:13:58.120 --> 0:14:01.280 echoes back to a story, a series of stories that 0:14:02.080 --> 0:14:03.880 you and I and a number of people worked on, 0:14:04.200 --> 0:14:06.960 uh towards the end of last year. I think it 0:14:07.040 --> 0:14:08.800 was I don't know, it's all blending together here man 0:14:09.160 --> 0:14:13.000 um related to private equity put it in some context 0:14:13.120 --> 0:14:16.280 for us, well, I think it just shows, um, one 0:14:16.320 --> 0:14:19.720 of the ways that private equity has been able to 0:14:19.920 --> 0:14:23.000 work into all these different hidden facets of our lives, 0:14:23.000 --> 0:14:25.880 and like, this is a really present bet to say, look, 0:14:25.920 --> 0:14:29.000 we know that delivery services above all, are are going 0:14:29.040 --> 0:14:31.640 to be a thing that only increases in demand, and 0:14:31.720 --> 0:14:36.280 that you know proves especially true right right now during 0:14:36.320 --> 0:14:39.120 the coronavirus. UM. So so I think it's just another 0:14:39.160 --> 0:14:41.960 example when when you have as much capital as these 0:14:42.000 --> 0:14:45.640 guys can deploy and you sort of look through um 0:14:45.680 --> 0:14:50.280 America's sort of supply chain, Um, where can they insert 0:14:50.320 --> 0:14:53.480 themselves and add value? And that's clearly what's coming to 0:14:53.520 --> 0:14:55.920 bear here. UM. No, my question for you is sort 0:14:55.920 --> 0:14:58.600 of you know, how lucrative is if it's like you know, 0:14:58.760 --> 0:15:01.600 you think about warehouse and these are just big empty 0:15:01.640 --> 0:15:03.920 spaces you probably don't even need to heat them in 0:15:04.000 --> 0:15:08.920 a lot of different places. What how how lucrative is this? Well, 0:15:08.960 --> 0:15:11.120 I think a lot of it's gonna come down to 0:15:11.520 --> 0:15:15.760 the exact property mix and the financing that was deployed 0:15:16.040 --> 0:15:18.280 um to to get these places that you know, one 0:15:18.280 --> 0:15:21.160 of the dynamics that that has been at playing in 0:15:21.200 --> 0:15:23.440 this this part of the real estate world is it's 0:15:23.440 --> 0:15:26.480 just complete scarcity of properties. The landlords have had a 0:15:26.480 --> 0:15:29.600 lot of pricing power over the last stretch. UM. One 0:15:29.640 --> 0:15:32.640 of the big risks and and and the clouds hanging 0:15:32.680 --> 0:15:35.160 over this real estate and all other real estate right 0:15:35.160 --> 0:15:39.640 now is is just what's demand gonna be. Um. There 0:15:39.760 --> 0:15:43.600 is a lot of industrial wear industrial space across the 0:15:43.680 --> 0:15:47.280 US that's that's not used by e commerce, that's you know, 0:15:47.880 --> 0:15:52.520 helping like auto manufacturers for parts. UM, it's used by 0:15:52.520 --> 0:15:54.120 the oil and gas industry. There are a lot of 0:15:54.120 --> 0:15:56.240 sectors of the economy that are really going to get 0:15:56.320 --> 0:15:59.520 hurt and may not have as much need for this space. 0:15:59.560 --> 0:16:02.080 So one of the big question marks right now is 0:16:02.200 --> 0:16:05.720 what the demand picture is going to look like for um, 0:16:05.760 --> 0:16:08.960 for these properties. Uh, the one thing they do have 0:16:09.080 --> 0:16:10.960 going for them in a big way is just that 0:16:11.280 --> 0:16:14.480 e commerce is is a big piece of the pie, 0:16:14.560 --> 0:16:16.280 and it's a growing piece of the pie, and it's 0:16:16.320 --> 0:16:20.400 an in demand piece of the pie. So I am curious, 0:16:20.520 --> 0:16:23.920 you know, so in terms of you know, Amazon and 0:16:23.960 --> 0:16:26.480 how they fit into this whole picture, I mean, are 0:16:26.520 --> 0:16:29.760 they beholden to them at all or they're a competitor 0:16:29.800 --> 0:16:34.000 when it comes to this space. Um, Amazon leases a 0:16:34.000 --> 0:16:35.840 lot of space, they're want, They're one of lodges this 0:16:36.160 --> 0:16:41.520 big tenants. Um. So uh, it's it's uh, They're They're 0:16:41.560 --> 0:16:43.840 definitely part of the equation here. But you need to 0:16:43.840 --> 0:16:45.720 we need to think more broadly than that. I mean, 0:16:46.040 --> 0:16:49.640 you know grocery stores, you know, Walmart has big hiring 0:16:49.720 --> 0:16:52.520 plans around this. I mean, these are facilities that help 0:16:52.640 --> 0:17:00.720 facilitate um delivery of goods to stores and to people's doorsteps. 0:17:00.720 --> 0:17:02.960 So so when you think about sort of all the 0:17:03.000 --> 0:17:05.560 other companies that are sort of in this space or 0:17:05.640 --> 0:17:09.520 partnering to service sort of the warehouse business, like how 0:17:09.560 --> 0:17:13.960 big an economy does this start to look like? Oh? 0:17:14.040 --> 0:17:16.240 I don't I don't know if I have exact debts 0:17:16.320 --> 0:17:20.840 on that, but um, but you know, there's there's a 0:17:20.840 --> 0:17:28.000 lot of this UM property out there. Um the uh 0:17:28.040 --> 0:17:30.320 you know, to to the point I was saying earlier, 0:17:30.680 --> 0:17:32.040 you know, a lot of this is going to come 0:17:32.080 --> 0:17:34.520 down to how prescient this stuff looks. It's it's really 0:17:34.520 --> 0:17:37.879 going to come down to like the prices that investors paid. 0:17:38.480 --> 0:17:40.200 I mean, I think there's a case to be made 0:17:40.200 --> 0:17:43.879 that you know, black Stone and and prologists that have 0:17:43.960 --> 0:17:46.640 been expanding a lot recently. I mean they they they 0:17:47.119 --> 0:17:50.600 bought these at a time when these assets were extremely 0:17:51.119 --> 0:17:55.679 high priced and um, certainly in the short term amid 0:17:55.680 --> 0:17:58.000 all this uncertainty. It's it's it's hard to see how 0:17:58.040 --> 0:18:01.400 those valuations are going to hold up. UM. And then 0:18:01.400 --> 0:18:04.080 the question becomes is this is this an opportunity for 0:18:04.119 --> 0:18:06.720 the big guys to get even bigger and pick up 0:18:06.920 --> 0:18:10.600 you know, take up you know, buy more of these 0:18:10.600 --> 0:18:14.560 warehouses at lower prices. Right, Yeah, what's the what's the 0:18:14.600 --> 0:18:17.359 calculus like to buy to buying a place? Is it 0:18:17.440 --> 0:18:21.920 like procrimular freeway and population density or what like, what's 0:18:21.960 --> 0:18:24.520 the what's the spreadsheet looks like when they're when they're 0:18:24.560 --> 0:18:28.560 dreaming about these exquisitions only about thirty seconds here. Now, Yeah, 0:18:28.560 --> 0:18:31.160 all of those things, all of those things matter, um. 0:18:31.200 --> 0:18:32.840 But at the end of the day, what they're looking 0:18:32.880 --> 0:18:36.560 at is what sort of rent increases that they're going 0:18:36.600 --> 0:18:40.320 to get over time. That's that's the key, um uh 0:18:40.480 --> 0:18:42.760 for sure. And so all of this uncertainty about the 0:18:42.760 --> 0:18:48.560 economy is is throws those calculations uh into disarray. Alright, 0:18:48.600 --> 0:18:51.600 great stuff, really really nice stories in the upcoming edition 0:18:51.600 --> 0:18:53.560 of Bloomberg bis Week online and on the terminal. Now, 0:18:53.600 --> 0:18:56.320 Noah bu Higher wrote it about private eculeist Big Bet 0:18:56.359 --> 0:18:59.720 on logistics. He joins us from seattlele Webber, Theater of 0:18:59.760 --> 0:19:03.199 this sweet joining us from Brooklyn. You're listening to Bloomberg 0:19:03.240 --> 0:19:07.639 Business Week with Carol Masser and Jason Kelly on Bloomberg Radio. 0:19:07.960 --> 0:19:11.000 And a story that just crossed the Bloomberg talks about 0:19:11.160 --> 0:19:14.960 banks here in New York being blindsided. Uh. And it 0:19:15.000 --> 0:19:17.920 all has to do with um New York virus relief, 0:19:18.200 --> 0:19:21.199 specifically some an executive order that was signed by New 0:19:21.240 --> 0:19:24.080 York Governor Andrew Cuomo. Let's get the details from our 0:19:24.119 --> 0:19:27.960 own Eric Shatsker. He's joining us on the phone from Brooklyn. So, Eric, 0:19:28.000 --> 0:19:31.080 what's going on here? Well, Carol, I don't think anybody 0:19:31.080 --> 0:19:33.800 would accuse Andrew Cuomo of not moving quickly and trying 0:19:33.800 --> 0:19:37.240 to do as much as possible to provide relief to 0:19:37.359 --> 0:19:42.119 his constituents here in New York surrounding. The danger is 0:19:42.160 --> 0:19:46.280 posed by the coronavirus and the economic shutdown it has caused. 0:19:46.280 --> 0:19:49.440 But sometimes when you move quickly, uh, you end up, 0:19:49.880 --> 0:19:52.720 you know, running into some unintended consequences. And that's what 0:19:52.840 --> 0:19:55.960 happened with this executive order that Cuomo signed on Saturday. 0:19:56.640 --> 0:20:00.400 The order is intended to provide relief to New York 0:20:00.440 --> 0:20:03.560 State homeowners into small businesses, many of which are struggling 0:20:03.600 --> 0:20:07.000 because their incomes and the revenues have vanished, UM. And 0:20:07.040 --> 0:20:08.439 they know that they are gonna be able to make 0:20:08.440 --> 0:20:12.000 mortgage payments or loan payments. And so the executive order 0:20:12.680 --> 0:20:16.800 UM requires directs, if you will, New York State supervised 0:20:16.840 --> 0:20:20.320 banks to give ninety days of forbearance to anybody who's 0:20:20.400 --> 0:20:25.080 running into trouble financial trouble because of the coronavirus. But 0:20:25.240 --> 0:20:28.119 there's the unintended consequence that I refer to has to 0:20:28.160 --> 0:20:30.760 do with the scope of the order. The Department of 0:20:30.760 --> 0:20:35.399 Financials um UH Services, which is the regulatory body for 0:20:35.440 --> 0:20:39.680 banks here in New York State, also supervises a bunch 0:20:39.680 --> 0:20:44.000 of foreign banks, and it also has regulatory authority for 0:20:44.720 --> 0:20:49.000 many contracts that are important and elemental to the way 0:20:49.000 --> 0:20:52.919 Wall Street functions, and this order appears to apply to 0:20:53.000 --> 0:20:55.639 those banks into those contracts as well. So while it 0:20:55.640 --> 0:20:59.199 gives ninety days of forbearance on mortgage payments, it also 0:20:59.320 --> 0:21:02.080 gives let's a a hedge fund, you know, that's in 0:21:02.119 --> 0:21:06.200 the midst of a trade surrounding some commercial mortgage backed securities, 0:21:06.200 --> 0:21:09.119 the right to say to say it's the right to 0:21:09.160 --> 0:21:12.640 say to a bank that maybe the counterparty in that trade, sorry, 0:21:12.760 --> 0:21:16.679 I'm not paying for ninety days, even though the value 0:21:16.720 --> 0:21:19.159 of that trade may have collapsed, and and by all 0:21:19.280 --> 0:21:21.040 rights the banks should be able to close out that 0:21:21.080 --> 0:21:24.920 trade or demand collateral. It's it's really quite a crazy situation. Well, 0:21:24.960 --> 0:21:26.879 and it is something and you play this out nicely 0:21:26.920 --> 0:21:28.919 in your story and you talk to some folks, you 0:21:28.960 --> 0:21:31.760 sort of play it out logically that, I mean, this 0:21:31.800 --> 0:21:35.240 is the sort of thing that could have the I mean, 0:21:35.240 --> 0:21:39.359 the huge unintended consequence of really like locking up at 0:21:39.440 --> 0:21:42.800 least parts of the system right here. Yes, that's right. 0:21:43.040 --> 0:21:46.440 So think about it this way. There are potentially hundreds 0:21:46.440 --> 0:21:49.840 of billions of dollars of notional value in these trades. Now, 0:21:49.840 --> 0:21:52.640 the notional value doesn't mean that that we're talking about 0:21:52.720 --> 0:21:55.320 hundreds of billion dollars of potential losses, but it gives 0:21:55.320 --> 0:21:58.440 you a sense of the scale. And if these banks 0:21:59.160 --> 0:22:03.359 are forced to effectively stand off for ninety days, the 0:22:03.560 --> 0:22:08.640 value of these contracts changes can change dramatically. It can 0:22:08.680 --> 0:22:11.719 saddle them with losses that they're not able to collect on. 0:22:12.320 --> 0:22:16.479 It can impair their regulatory capital. It can inhibit their 0:22:16.520 --> 0:22:21.919 ability to function as counterparties in the financial system. It 0:22:22.040 --> 0:22:26.439 may allow other banks that aren't regulated by New York States, 0:22:26.440 --> 0:22:29.119 such as JP Morgan and City Group and Bank of America, 0:22:29.160 --> 0:22:31.520 which are federally chartered, to make give them an unfair 0:22:31.560 --> 0:22:34.840 advantage over these foreign banks such as Barclays or Deutsche Bank. 0:22:34.960 --> 0:22:39.000