WEBVTT - Ackman IPO, Meta Earnings 0:00:02.920 --> 0:00:10.840 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.840 --> 0:00:15.000 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:15.040 --> 0:00:17.520 Eastern on Affo card Playing and broud Otto with the 0:00:17.520 --> 0:00:21.400 Bloomberg Business App. Listen on demand wherever you get your podcasts, 0:00:21.640 --> 0:00:24.000 or watch us live on YouTube. 0:00:24.960 --> 0:00:26.680 Let's get a look at where the action is in 0:00:26.760 --> 0:00:27.840 the equity markets with. 0:00:29.800 --> 0:00:32.279 Billy Billy Lipschotz. Thank you're sitting right next to. 0:00:32.200 --> 0:00:34.960 Me, Billy Lipschotz. You can talk all you want about stocks. 0:00:34.960 --> 0:00:37.760 I only have one question. Few Can you explain to 0:00:37.800 --> 0:00:40.920 me what our good friend Bill Akerman is doing here? 0:00:41.320 --> 0:00:44.400 Nothing now, nothing as of now? Walk us through this 0:00:44.440 --> 0:00:47.360 story here. So earlier in the month, well, I guess 0:00:47.360 --> 0:00:51.360 now in August. So in July he filed to launch 0:00:51.400 --> 0:00:53.840 and price a closed end fund that would trade in 0:00:53.840 --> 0:00:56.560 the US. It would be similar, in his words, essentially 0:00:56.640 --> 0:01:02.080 mirror their European offering, which currently trades under the ticker PSH. 0:01:02.160 --> 0:01:04.920 Space NA trades at a twenty percent discount to what 0:01:05.000 --> 0:01:08.839 it actual the assets that it owns it's invested in, Alphabet, Chapotle, 0:01:08.959 --> 0:01:13.160 Howard Hughes, Universal Music, a handful of stocks beating the drum. 0:01:13.240 --> 0:01:14.800 He kind of said, you know, we see this as 0:01:14.840 --> 0:01:18.080 a potential twenty five billion dollar offering going to court retail. 0:01:18.120 --> 0:01:20.600 We're going to court institutions. Basically, I have a lot 0:01:20.600 --> 0:01:22.800 of very wealthy friends. They're going to give us money. 0:01:22.800 --> 0:01:24.560 It's going to be awesome. It's only going to be 0:01:24.560 --> 0:01:26.440 a two percent fee. We won't charge that for a year. 0:01:27.400 --> 0:01:30.679 Then a couple days later, he wrote a letter to 0:01:30.920 --> 0:01:33.840 investors in the hedge fund saying, hey, demand's not as 0:01:33.840 --> 0:01:36.640 strong as we would have expected. Initially. We're thinking that 0:01:36.800 --> 0:01:39.120 maybe we'll raise between two and a half billion and 0:01:39.160 --> 0:01:41.480 four billion dollars, so a sharp drop off from the 0:01:41.480 --> 0:01:44.720 twenty five billion dollar number. He actually name dropped Seth 0:01:44.760 --> 0:01:47.880 Clarmen's bow post. He named dropped Putnam among others, kind 0:01:47.880 --> 0:01:50.240 of alluding to people who are already in for the book, saying, 0:01:50.280 --> 0:01:52.640 get yours in soon. It's going to help us build 0:01:52.640 --> 0:01:55.800 this out. Didn't realize that that had to be filed publicly. 0:01:55.840 --> 0:01:57.880 So the next day we see that in a public filing, 0:01:58.160 --> 0:02:00.680 or at least that's what we're told through the filings. 0:02:01.160 --> 0:02:04.320 Seth Carmon and Bloomberg is reported isn't super happy about that. 0:02:04.440 --> 0:02:07.320 They withdraw their order, they opt out. We see just 0:02:07.360 --> 0:02:11.240 a few days later the fun coming back saying, you know, 0:02:11.360 --> 0:02:13.040 we thought two and a half to four billion, now 0:02:13.080 --> 0:02:14.919 we're actually gonna go after two billion, but don't worry, 0:02:14.960 --> 0:02:17.760 it's gonna price next Monday. So we're still kind of 0:02:17.760 --> 0:02:20.919 full speed ahead, two billion dollars, feeling great, perching squares 0:02:20.919 --> 0:02:23.600 in for five hundred million dollars. Then yesterday we get 0:02:23.639 --> 0:02:28.120 the filing that because to kind of oversimplify, because they 0:02:28.160 --> 0:02:30.760 couldn't answer the question that investors wanted to know, why 0:02:30.760 --> 0:02:32.679 would I buy this at IPO when I can buy 0:02:32.680 --> 0:02:35.760 it at a discount, We're actually gonna pull the offering, 0:02:36.200 --> 0:02:38.400 rework it potentially, and try to come back with a 0:02:38.440 --> 0:02:42.360 different model. So going from twenty five billion to potentially 0:02:42.400 --> 0:02:46.000 four billion to two billion to now nothing as of now, 0:02:46.120 --> 0:02:48.600 though again he did say they plan on coming back 0:02:48.639 --> 0:02:50.840 in some potentially different formation. 0:02:51.360 --> 0:02:53.880 I don't know what to even ask about that. That 0:02:53.919 --> 0:02:56.320 was a great explanation by that one, but it's such 0:02:56.360 --> 0:02:56.920 a nightmare. 0:02:57.160 --> 0:03:01.880 But at Mike angle is there's an angle here. He's 0:03:01.919 --> 0:03:05.560 a really smart guy. How do you misjudge the market? 0:03:05.560 --> 0:03:07.400 How do you misjudge demand? How do you make that 0:03:07.440 --> 0:03:09.959 mistake of putting out a letter. These are things Bill 0:03:09.960 --> 0:03:11.320 Ackman doesn't do well. 0:03:11.400 --> 0:03:15.840 So to start at a high level, the largest closed 0:03:15.919 --> 0:03:20.040 end fund in US history was just over five billion dollars. Okay, 0:03:20.120 --> 0:03:21.799 So he was coming in with the ambition to four 0:03:22.000 --> 0:03:24.880 x that because he has a million and change followers 0:03:24.880 --> 0:03:26.800 on X and he has a strong track record. If 0:03:26.840 --> 0:03:29.160 you even look at and invested in the European offering, 0:03:29.160 --> 0:03:31.400 you've done pretty well over the last few years. But 0:03:31.480 --> 0:03:34.840 to your point, there's so many snags that came out 0:03:34.880 --> 0:03:36.440 of this. And when I talk to people who operate 0:03:36.440 --> 0:03:38.600 in the closed end fund space, they initially were kind 0:03:38.600 --> 0:03:40.960 of saying they don't this has to go through a 0:03:40.960 --> 0:03:43.080 seasoning period. The SEC is going to hold it up, 0:03:43.120 --> 0:03:46.120 which Pershing Square came out and said was actually playing 0:03:46.120 --> 0:03:48.920 a factor in the delayed pricing to the extent that 0:03:48.960 --> 0:03:51.520 I talked to a couple of advisors. You said maybe September, 0:03:51.640 --> 0:03:53.760 just because you need this to cool off. The way 0:03:53.800 --> 0:03:56.480 this is structuring, you can't just kind of ignore these 0:03:56.520 --> 0:03:59.120 warning signs and keep your pedal to the medal. And 0:03:59.160 --> 0:04:02.600 it does seem like a number of miscalculations have kind 0:04:02.600 --> 0:04:05.760 of ended up throwing it into a tailspin. Well, it's 0:04:05.760 --> 0:04:06.000 a fact. 0:04:06.000 --> 0:04:07.960 I mean literally, like yesterday, he was on the exact 0:04:07.960 --> 0:04:10.600 same time. We were talking about the different evolution of 0:04:10.640 --> 0:04:12.560 the story. All right, Billy, you'll be coming back at 0:04:12.560 --> 0:04:14.280 the top of the eleven as well. Billy lipschealz A 0:04:14.400 --> 0:04:17.400 joining us. Bloomberg Senior Equities reporter Joining us. 0:04:17.440 --> 0:04:22.760 There, you're listening to the Bloomberg Intelligence Podcast. Catch us 0:04:22.800 --> 0:04:26.200 live weekdays at ten am Eastern on applecar Play and 0:04:26.200 --> 0:04:29.479 Android Auto with the Bloomberg Business. You can also listen 0:04:29.600 --> 0:04:32.680 live on Amazon Alexa from our flagship New York station. 0:04:33.040 --> 0:04:35.799 Just say Alexa playing Bloomberg eleven thirty. 0:04:37.240 --> 0:04:39.640 Okay, let's go to the individual movers here. One of 0:04:39.640 --> 0:04:42.080 them is meta. That's not popping ten percent. Did you 0:04:42.160 --> 0:04:43.560 listen to the earnings call on the beach? 0:04:44.440 --> 0:04:46.360 He did part of it, part of it, but then 0:04:47.040 --> 0:04:49.000 then my swell came in, so I had to drop 0:04:49.000 --> 0:04:49.240 an out. 0:04:49.400 --> 0:04:50.000 I understand. 0:04:50.040 --> 0:04:50.839 I mean this priority. 0:04:51.200 --> 0:04:52.600 Mandy pp sing was not at the beach on the 0:04:52.640 --> 0:04:54.240 earnings call. And I know this because he was on 0:04:54.320 --> 0:04:57.159 set with me when the numbers came out. Mandy Singh, 0:04:57.200 --> 0:05:02.080 Bloomberg Intelligence Senior at Tech Industry analyst, you were pretty 0:05:02.080 --> 0:05:05.120 positive on Meta earnings in the street really agrees with you. 0:05:05.320 --> 0:05:09.760 This is AI delivering on helping more targeted ads, meaning 0:05:09.760 --> 0:05:10.880 more revenue straight. 0:05:11.360 --> 0:05:14.520 I mean, look, with all the other AI spend that 0:05:14.560 --> 0:05:18.359 we are seeing from the cloud vendors, they're saying the 0:05:18.440 --> 0:05:21.839 revenue will come in twenty five twenty six, Meta is 0:05:21.920 --> 0:05:26.480 actually delivering AI revenue right now. And that's the big 0:05:26.520 --> 0:05:31.119 surprise that all the large anguid model investments they have done, 0:05:31.400 --> 0:05:35.240 they have infused their apps with AI and it's actually 0:05:35.320 --> 0:05:39.080 yielding tangible returns. And there was a good Macro read too. 0:05:39.320 --> 0:05:42.719 I mean my sense was e commerce spending is strong, 0:05:43.279 --> 0:05:47.360 Gaming spending is strong. That's why their advertisers who are 0:05:47.440 --> 0:05:52.039 spending on Meta platforms. So overall, I think Macro looks 0:05:52.080 --> 0:05:54.840 to be much better than what people talk about, and 0:05:55.240 --> 0:05:58.680 ad spending is strong and that's why Meta did well. 0:05:59.240 --> 0:06:03.279 Is this a cross for Amazon for Google in terms 0:06:03.320 --> 0:06:04.480 of the ad spending angle? 0:06:05.080 --> 0:06:09.119 Absolutely, I mean Amazon is que towards e commerce. In fact, 0:06:09.360 --> 0:06:13.600 anybody who is an e commerce provider on Amazon's platform 0:06:13.760 --> 0:06:16.880 has to spend on ads for you know, slotting, and 0:06:16.960 --> 0:06:21.880 so I do think you know, and certain pockets when 0:06:21.920 --> 0:06:24.120 it comes to ads aren't doing well, which is why 0:06:24.160 --> 0:06:27.360 Google didn't have that sort of a lift, because they 0:06:27.640 --> 0:06:32.160 are sort of equal across different sectors. Automotive, insurance, those 0:06:32.200 --> 0:06:35.040 are the weak sectors, so they're probably not spending as 0:06:35.120 --> 0:06:37.919 much on ads, but e commerce, retail, these are the 0:06:37.960 --> 0:06:41.280 pockets where the AD spending is strong. And I think 0:06:41.360 --> 0:06:42.600 Snap should do well. 0:06:42.400 --> 0:06:46.200 Tonight, so the cap X spend also, So they narrowed 0:06:46.200 --> 0:06:49.480 the range specifically to come in for thirty seven to 0:06:49.480 --> 0:06:51.880 forty billion rather than thirty five to forty billion. They 0:06:51.880 --> 0:06:53.719 didn't raise it, yeah, which is not what some of 0:06:53.720 --> 0:06:57.120 the peers have done. Was that also positive for the stock? 0:06:57.320 --> 0:07:00.280 Absolutely? I mean they've learned their lesson last time around. 0:07:00.320 --> 0:07:03.799 They raised the CAPEX by three billion, the stock reacted negatively. 0:07:04.279 --> 0:07:06.599 This was more of weight and see approach. They did 0:07:06.600 --> 0:07:09.360 say twenty twenty five CAPEX will go up like every 0:07:09.400 --> 0:07:12.880 other hyperscaler. But for this quarter they actually came out 0:07:12.880 --> 0:07:16.040 below consensus, a billion dollars below consensus when it comes 0:07:16.080 --> 0:07:19.080 to CAPEX for this quarter. And like you said, you 0:07:19.120 --> 0:07:22.520 know they reinformed the guide and overall, I feel like 0:07:22.800 --> 0:07:26.240 everyone keeps talking about how they are gpu constrained and 0:07:26.280 --> 0:07:29.880 they need to spend more Capex. Meta didn't say that 0:07:29.880 --> 0:07:32.520 that they are GPU constrained in anyway. At the same time, 0:07:32.560 --> 0:07:36.280 they expect AI infrastructures spent to go out and they're 0:07:36.320 --> 0:07:39.840 able to monetize it. WhatsApp to me was the real 0:07:40.120 --> 0:07:40.800 bright spot. 0:07:40.840 --> 0:07:43.360 I mean, nobody has any monetizing that yet. 0:07:43.520 --> 0:07:46.200 Actually, yes, So they did give a data point yesterday 0:07:46.200 --> 0:07:49.720 where family of apps other revenue grew seventy three percent. 0:07:50.080 --> 0:07:52.960 Most of it is WhatsApp. So WhatsApp actually is a 0:07:53.000 --> 0:07:55.360 four hundred million dollar rund reread business. 0:07:55.040 --> 0:07:57.440 Now really okay, yeah, and taking ten years. 0:07:57.480 --> 0:08:01.320 And that's where I think they called that the US adoption. 0:08:01.520 --> 0:08:06.160 So WhatsApp now has one hundred million active users in 0:08:06.200 --> 0:08:09.760 the US, and that's where they see AI infusing in 0:08:09.960 --> 0:08:12.040 WhatsApp being a revenue generator. 0:08:12.520 --> 0:08:15.760 All right, market likes it stacks up nine percent today 0:08:15.800 --> 0:08:18.080 of forty seven percent year to date. All good in 0:08:18.160 --> 0:08:22.200 metaaland tonight after the closed Amazon and Apple, let's start 0:08:22.240 --> 0:08:23.800 with Amazon. What are you gonna be looking for there? 0:08:24.280 --> 0:08:28.520 I mean cloud aws growth adds growth. I think the 0:08:28.520 --> 0:08:32.559 one thing that stands out between Google, Microsoft and Meta 0:08:32.679 --> 0:08:36.240 versus Amazon and Apple is Amazon and Apple don't have 0:08:36.360 --> 0:08:39.880 their own large anglid model. One thing we realize with 0:08:39.960 --> 0:08:42.760 Meta is because they own their large anglid model, they've 0:08:42.760 --> 0:08:46.200 been able to deploy it so quickly. Well, Amazon is 0:08:46.240 --> 0:08:49.240 relying on Anthropic to give them the large anglid model. 0:08:49.559 --> 0:08:52.680 Apple announced Apple Intelligence, but they're delaying it. They don't 0:08:52.720 --> 0:08:55.640 have their own large anglid model. And what everyone is 0:08:55.679 --> 0:08:59.679 realizing is owning a large anglid model like Microsoft, OpenAI, 0:09:00.240 --> 0:09:04.720 Google Gemini, that's a big advantage, and that advantage may continue, 0:09:05.200 --> 0:09:07.880 I think, given everyone is so bullish on generative AI. 0:09:08.040 --> 0:09:09.320 So how is that going to wind up showing up 0:09:09.320 --> 0:09:09.920 in the numbers? 0:09:10.559 --> 0:09:14.240 So, I mean, look at Meta's ad pricing. The reason 0:09:14.280 --> 0:09:18.080 why ad pricing grew so much is because they actually 0:09:18.160 --> 0:09:21.480 applied the large anglid model on their own products. Same 0:09:21.520 --> 0:09:25.000 thing with Microsoft. The reason why their Microsoft's cloud revenue 0:09:25.000 --> 0:09:28.480 has accelerated is because the workloads are getting deployed, the 0:09:28.520 --> 0:09:32.720 copilots are getting deployed in their own products. So Amazon 0:09:32.840 --> 0:09:37.000 has to somehow one leverage the large angliine model in 0:09:37.080 --> 0:09:40.920 Tropic or somebody else's. In fact, Meta said they are 0:09:40.960 --> 0:09:43.520 warming up to Amazon more and more to deploy their 0:09:43.640 --> 0:09:46.800 Lama large anglid model on AWS. That'll be an interesting 0:09:46.840 --> 0:09:50.840 partnership if that pans out, because Meta doesn't have a 0:09:50.880 --> 0:09:55.600 cloud facing business, whereas Amazon AWS is the largest cloud provider. 0:09:55.920 --> 0:09:59.160 If they can leverage Lama model, which Meta owns, that 0:09:59.240 --> 0:10:02.320 could be a huge, huge driver off revenue for both 0:10:02.440 --> 0:10:05.360 Amazon as well as paying a licensing fee to Meta. 0:10:05.440 --> 0:10:07.839 But obviously that nobody called that out, so that's a 0:10:07.920 --> 0:10:09.439 speculation at this point. 0:10:09.720 --> 0:10:11.679 Fascinating. All right, really good stuff. Can't wait. 0:10:11.720 --> 0:10:13.400 It's not just selling ads anymore. 0:10:13.800 --> 0:10:15.040 It's other stuff. 0:10:15.040 --> 0:10:16.760 Well, it is about selling ads, but in a more 0:10:16.920 --> 0:10:20.000 efficient way. I took my notes for those coming out 0:10:20.000 --> 0:10:23.280 after the closing bell. And you've seeing Bloomberg Technology, Bloomberg 0:10:24.160 --> 0:10:26.440 Intelligence senior technology analyst. 0:10:26.520 --> 0:10:27.640 There we go, I got it. 0:10:29.160 --> 0:10:33.040 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:10:33.120 --> 0:10:36.200 weekdays at ten am Eastern on Apple CarPlay and Android 0:10:36.200 --> 0:10:39.320 Auto with the Bloomberg Business app. Listen on demand wherever 0:10:39.360 --> 0:10:43.679 you get your podcasts, or watch us live on YouTube. 0:10:44.440 --> 0:10:46.320 That im number, that's ugly. 0:10:46.360 --> 0:10:47.560 That's got my attention there yet. 0:10:47.480 --> 0:10:50.079 Also the job's number, the employment number in there with 0:10:50.240 --> 0:10:54.360 forty three, that's definitely that's definitely something interesting that we're 0:10:54.360 --> 0:10:57.800 seeing the buying really coming in though to the bond market. 0:10:58.320 --> 0:10:58.600 On that. 0:10:58.760 --> 0:11:01.000 All right, let's get more into the data because this 0:11:01.960 --> 0:11:04.320 feels icky. Tim Fiory is chair of the Institute of 0:11:04.320 --> 0:11:08.840 Supply Management, a manufacturing business Survey committee, and he joins us, Now, okay, 0:11:08.920 --> 0:11:12.240 we are at an eight month low near any We 0:11:12.280 --> 0:11:14.559 are contracting the most in about eight months for the 0:11:14.920 --> 0:11:17.800 m manufacturing. You really had that weak employment data. What 0:11:17.880 --> 0:11:20.199 is leading this? Does this data surprise for you? 0:11:22.360 --> 0:11:25.800 Yeah, Alex, So, yeah, this is a disappointment. So the 0:11:25.880 --> 0:11:29.840 last couple of months we've been stuck, stable, stagnant. We're 0:11:29.840 --> 0:11:32.560 no longer stuck stable or stagnant. We're declining at a 0:11:32.559 --> 0:11:36.199 faster rate. We're off almost two points from last month. 0:11:36.640 --> 0:11:40.160 We're off almost more than two points from expectations, twenty 0:11:40.200 --> 0:11:42.880 one months into a contraction, and we haven't seen a 0:11:42.960 --> 0:11:45.720 number at the headline level this low since November twenty two. 0:11:46.720 --> 0:11:48.000 So, first off, the. 0:11:47.960 --> 0:11:50.560 Good news, supplier deliveries are starting to stiffen up. It's 0:11:50.559 --> 0:11:53.080 a little bit harder for them to deliver. That price 0:11:53.120 --> 0:11:56.839 index number is a marginal expansion, very weak. Happy to 0:11:56.880 --> 0:11:58.959 see that, Glad to see that if you're looking for 0:11:59.000 --> 0:12:02.880 a rate activity that supports a rate reduction, no doubt. 0:12:03.600 --> 0:12:05.880 On the demand side, we still can't find demand. The 0:12:05.920 --> 0:12:09.880 demand is non existent, backlog is still extremely low, new 0:12:09.920 --> 0:12:13.679 export orders very weak, and no real end in sight. 0:12:13.800 --> 0:12:18.320 Our top six industry sectors all showed declines, significant declines 0:12:18.360 --> 0:12:21.959 like forty five. In the demand side, new orders and production. 0:12:22.559 --> 0:12:24.320 The big story here for the month is really the 0:12:24.320 --> 0:12:26.839 production number. We've been talking for the last year and 0:12:26.880 --> 0:12:29.400 a half. That look, as long as the production number 0:12:29.440 --> 0:12:34.599 stays around fifty, revenues or expectations are being met, profitability 0:12:34.679 --> 0:12:36.760 is probably okay. Just have to deal with the out 0:12:36.760 --> 0:12:39.439 the input side, Well, that's so long in the case here, 0:12:39.480 --> 0:12:42.600 we've fallen down to a forty five to nine, big drop, 0:12:42.960 --> 0:12:46.920 disappointing lowest since May of twenty twenty two. And then 0:12:46.920 --> 0:12:50.280 coupled with that, we've got the employment numbers sagging really strongly. 0:12:50.400 --> 0:12:53.199 So what it really says, and we've indicated this last 0:12:53.240 --> 0:12:56.600 month the month before, is that without new orders, we're 0:12:56.640 --> 0:13:00.240 gonna see a decline in production slash revenue, and we're 0:13:00.240 --> 0:13:02.600 going to see a decline in employment. And that's exactly 0:13:02.600 --> 0:13:06.400 what we've see in here from a sentiment standpoint. You know, 0:13:06.480 --> 0:13:09.400 I track headline sentiment month to month, running at a 0:13:09.600 --> 0:13:12.640 one to one point four. So I think we're in 0:13:12.679 --> 0:13:13.800 for a ride here now. 0:13:13.960 --> 0:13:14.160 You know. 0:13:14.200 --> 0:13:16.080 The one last thing is we've been looking for a 0:13:16.120 --> 0:13:20.800 soft landing. That doesn't necessarily mean that manufacturing is going 0:13:20.880 --> 0:13:22.920 to see a soft landing. We could actually have a 0:13:22.960 --> 0:13:26.480 moderate landing or even a hard landing. And it doesn't 0:13:26.480 --> 0:13:29.040 mean that the economy is going to see a hard 0:13:29.080 --> 0:13:31.440 landing or a moderate landing. So we're at a real 0:13:31.520 --> 0:13:34.680 strange spot here. I mean, if you're looking for data 0:13:34.800 --> 0:13:37.680 facts for the fat to support a ray cut, don't 0:13:37.679 --> 0:13:38.400 look any farther. 0:13:38.440 --> 0:13:40.280 Don't look any farther than this, right, all right, Tim, 0:13:40.280 --> 0:13:42.880 thanks for the breakdown, Really appreciated. Tim Fury, Chair for 0:13:42.920 --> 0:13:46.640 the Institute for Supply Management on their business survey. Again, 0:13:46.840 --> 0:13:48.560 numbers coming in. Wee can then expect it for the 0:13:48.600 --> 0:13:49.679 manufacturing front. 0:13:51.200 --> 0:13:55.079 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:13:55.160 --> 0:13:58.640 weekdays at ten am Eastern on applecar Play and Android 0:13:58.679 --> 0:14:01.880 Auto with the Bloomberg Misus. You can also listen live 0:14:01.960 --> 0:14:05.120 on Amazon Alexa from our flagship New York station, just 0:14:05.200 --> 0:14:08.160 Say Alexa playing Bloomberg eleven thirty. 0:14:09.760 --> 0:14:12.120 Bloomberg Intelligence, Alex Steel, Paul Spooney. Youre live here in 0:14:12.160 --> 0:14:15.600 our Bloomberg Innactor Broker studio, streaming live on YouTube, so 0:14:15.600 --> 0:14:18.040 that means video too, So go to aur YouTube dot 0:14:18.040 --> 0:14:20.720 com and search Bloomberg Podcast and that's where you'll find us. 0:14:21.000 --> 0:14:22.960 One of the stories that you know, Alex ly like 0:14:23.040 --> 0:14:25.880 to continue to focus on is commercial real estate. It's 0:14:25.960 --> 0:14:29.440 undergone a tremendous change over the last four five six years, 0:14:29.440 --> 0:14:32.400 obviously with the pandemic and longer term trends here that 0:14:32.520 --> 0:14:34.560 still need to be understood and worked out. So we 0:14:34.720 --> 0:14:36.720 like to talk to smart people to get a little 0:14:36.760 --> 0:14:39.600 bit smarter on this. Hillaryspond joins us. She's executive vice 0:14:39.640 --> 0:14:43.640 president at b XP. BXP is a publicly traded real 0:14:43.720 --> 0:14:47.000 estate investment trust. B XP is the ticker handily market 0:14:47.040 --> 0:14:50.600 KAP eleven point two billion dollars stock's pretty much unchanged today, 0:14:50.680 --> 0:14:53.080 up about two percent year to date. Hillary, thanks much 0:14:53.080 --> 0:14:55.360 for joining us in our studio New York City. Let's 0:14:55.360 --> 0:14:57.800 focus on on New York City. That's your remit here. 0:14:59.080 --> 0:15:01.720 A lot of empty space here in New York City 0:15:01.760 --> 0:15:06.560 in the offices. Tell us where we are and how 0:15:06.640 --> 0:15:08.360 we're going to get out of this. If at all, 0:15:08.640 --> 0:15:10.600 explain to us how the commercial real state environment is 0:15:10.640 --> 0:15:11.600 in New York City today. 0:15:11.760 --> 0:15:13.480 Sure well, First of all, Alex and Paul, thank you 0:15:13.520 --> 0:15:16.320 for having me this morning. I think that it's fair 0:15:16.360 --> 0:15:21.200 to say that the market is bifurcating itself, and that means. 0:15:20.920 --> 0:15:23.240 That there are groups of properties that are. 0:15:23.200 --> 0:15:26.840 Performing quite well actually, and others that are performing less well. 0:15:26.960 --> 0:15:31.000 Those properties that are newly constructed, that have been reinvested 0:15:31.040 --> 0:15:33.960 in by their ownership, and that are well located are 0:15:34.000 --> 0:15:36.840 generally doing pretty well. And as evidence of that, if 0:15:36.880 --> 0:15:39.160 you look at the vacancy rate in the Park Avenue 0:15:39.160 --> 0:15:42.520 sub market of Manhattan, it's less than ten percent, which 0:15:42.560 --> 0:15:46.680 is quite tight by historical standards. You're seeing landlords there 0:15:47.880 --> 0:15:51.920 with the ability to push rental rates to reduce concessions 0:15:52.000 --> 0:15:55.160 like free rent, like capital that's associated with new leasing, 0:15:55.480 --> 0:15:58.120 and so therefore net effective rents are actually increasing in 0:15:58.200 --> 0:16:01.440 that sub market. The weaker sub markets and some of 0:16:01.480 --> 0:16:05.080 the older buildings, landlords have had more trouble attracting tenants. 0:16:05.120 --> 0:16:09.800 But for those businesses that are generating revenue that have 0:16:10.000 --> 0:16:12.440 clients that need to come visit them, that want to 0:16:12.480 --> 0:16:15.800 attract talent, being in a great building in Manhattan is 0:16:15.800 --> 0:16:18.000 a really good bet for them, and you're seeing strength 0:16:18.040 --> 0:16:19.200 in that segment of the market. 0:16:19.320 --> 0:16:19.920 So we've had some. 0:16:19.880 --> 0:16:22.320 Property people in here who've talked about those older buildings 0:16:22.320 --> 0:16:24.000 and over the last few years, I spent a lot 0:16:24.000 --> 0:16:26.880 of money retrofitting them and updating them to make them 0:16:26.880 --> 0:16:29.480 more appealing. Are we seeing a lot of that still, 0:16:29.560 --> 0:16:31.360 and like, what's the cost profile for that? 0:16:31.600 --> 0:16:33.160 Is it payoff? Like how does that work? 0:16:33.440 --> 0:16:35.480 So I think it's also a little bit location dependent. 0:16:35.520 --> 0:16:39.320 You're certainly seeing some buildings spend money that are would 0:16:39.360 --> 0:16:42.320 be classified as older or maybe less well amenitized, just 0:16:42.320 --> 0:16:44.760 not a newer building. But if they're in a great location, 0:16:44.880 --> 0:16:47.160 they can actually do quite well. And I would point 0:16:47.800 --> 0:16:50.880 to the Grand Central sub market as evidence of that. 0:16:51.600 --> 0:16:53.280 A lot of people who commute in the city are 0:16:53.320 --> 0:16:55.800 really looking for a one seed commute, meaning they get 0:16:55.800 --> 0:16:57.560 off of Metro North or they get off of Long 0:16:57.560 --> 0:16:58.520 Island Railroad. 0:16:58.240 --> 0:16:59.400 They walk to their office. 0:16:59.800 --> 0:17:02.560 So those buildings, despite the fact that they're somewhat older 0:17:02.560 --> 0:17:04.880 in that submarket, are leasing quite well. And a lot 0:17:04.880 --> 0:17:07.800 of the landlords that own in that district are amenetizing 0:17:07.840 --> 0:17:09.160 their buildings to great effect. 0:17:09.600 --> 0:17:11.480 The cost of construction have gone up. 0:17:11.480 --> 0:17:14.520 Radically over the last call it five years, and that 0:17:14.560 --> 0:17:17.879 does definitely have an effect. It tends to favor the 0:17:17.920 --> 0:17:21.120 landlords that are better capitalized, but for those that can 0:17:21.119 --> 0:17:23.960 do it, it really does benefit their leasing velocity. 0:17:24.160 --> 0:17:26.840 How about like I'm going to reference this once again 0:17:26.840 --> 0:17:29.199 I always do when having commercial real estate discussions in 0:17:29.240 --> 0:17:32.399 New York. Bloomberg News put out a piece maybe eighteen 0:17:32.400 --> 0:17:35.200 months ago and just focusing on Third Avenue between Grand 0:17:35.240 --> 0:17:37.680 Central and here we're at fifty eight to fifty ninth Street. 0:17:38.920 --> 0:17:40.919 You can't give that stuff away or talk to us 0:17:40.920 --> 0:17:43.240 about that market. I'm thinking, like the Lipstick Building. When 0:17:43.280 --> 0:17:45.480 I see one of those buildings, trade is there going 0:17:45.520 --> 0:17:48.480 to be a thirty percent discount, forty fifty sixty percent discount? 0:17:48.560 --> 0:17:50.600 Talk just about that kind of market because those are 0:17:50.640 --> 0:17:52.760 more I guess b properties as I understand it. 0:17:52.920 --> 0:17:55.320 Well, So there actually has been some activity on Third Avenue. 0:17:56.119 --> 0:17:58.399 Memorial Song kettering, I believe took some space in the 0:17:58.440 --> 0:18:01.240 Lipstick Building. One of the office buildings that is on 0:18:01.280 --> 0:18:04.280 Third Avenue was recently announced to be a conversion to residential. 0:18:04.359 --> 0:18:07.439 So folks are getting creative with that space. For us 0:18:07.640 --> 0:18:11.480 in our sub markets, we're focused on attracting large corporate 0:18:11.560 --> 0:18:15.040 tenants and investing the capital that's required to attract and 0:18:15.119 --> 0:18:18.240 retain them. But I think there's I think that third 0:18:18.240 --> 0:18:19.040 avenue has hope. 0:18:19.520 --> 0:18:20.880 So let's just game this out for a second. 0:18:20.960 --> 0:18:23.440 So swaps markets pricing in three fed rake cuts now 0:18:23.520 --> 0:18:25.880 for September, right, I mean, excuse me, for the rest 0:18:25.880 --> 0:18:28.680 of the year starting in September, let's say that happens. 0:18:29.119 --> 0:18:31.360 What's the trickle down to the commercial real estate market 0:18:31.400 --> 0:18:32.560 in a short term. 0:18:33.119 --> 0:18:37.879 So the transaction volume acquisitions, dispositions has been somewhat muted, 0:18:38.480 --> 0:18:41.120 not so much as a result of where treasuries are trading, 0:18:41.160 --> 0:18:44.159 I think, but how quickly they went from practically. 0:18:43.720 --> 0:18:45.040 Zero to where they are today. 0:18:45.880 --> 0:18:50.880 Any relief on the ten year I think would tend 0:18:50.920 --> 0:18:54.639 to support higher transaction volumes in our space, which is 0:18:54.760 --> 0:18:57.160 again the sort of higher end of the market. There's 0:18:57.200 --> 0:19:00.639 been very very little transactions because in general, landlords are 0:19:00.640 --> 0:19:02.320 not distressed and are not willing. 0:19:02.040 --> 0:19:03.520 To sell at depressed prices. 0:19:03.920 --> 0:19:06.159 So I think it would tend to tend to support 0:19:06.160 --> 0:19:08.240 a higher transaction volume going forward. 0:19:09.200 --> 0:19:14.480 You guys, BXP well capitalized, well experienced owner of real estate. 0:19:15.000 --> 0:19:16.560 Are you buying in New York City today? 0:19:17.480 --> 0:19:20.320 At the moment, we don't have active acquisitions, but we're 0:19:20.320 --> 0:19:23.159 constantly looking for new opportunities. 0:19:23.200 --> 0:19:24.440 The real gating. 0:19:24.119 --> 0:19:27.359 Issue for us is quality. So if we cannot find 0:19:27.400 --> 0:19:30.199 something that is at least equal to the quality of 0:19:30.240 --> 0:19:33.080 what we already own, we are not buyers. And the 0:19:33.119 --> 0:19:35.520 fact of the matter is there's relatively little available in 0:19:35.560 --> 0:19:39.160 the market for purchase that is consistent with our quality. 0:19:39.400 --> 0:19:41.439 That having been said, we do have a couple of 0:19:41.480 --> 0:19:45.320 development sites in New York City, the most active of 0:19:45.359 --> 0:19:48.199 which will be three forty three Madison this year. It 0:19:48.240 --> 0:19:51.560 is it's between forty fourth and forty fifth on Madison, 0:19:52.119 --> 0:19:55.440