WEBVTT - Banks, Supply Chain, Real Estate, and Pets 0:00:00.760 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.520 --> 0:00:15.520 with essential market moving news. Fund the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.439 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.799 at Bloomberg dot com slash podcast. So you were making 0:00:21.800 --> 0:00:25.799 a making fun man, First Citizens five ticker. We have 0:00:25.840 --> 0:00:28.800 five letter ticker we have if you're a good company, right, 0:00:28.840 --> 0:00:31.960 if you're like a blue chip, then usually you get 0:00:32.000 --> 0:00:34.000 like one letter like t no. But this is why 0:00:34.080 --> 0:00:36.839 you know this is a good company because Bloomberg Intelligence 0:00:36.880 --> 0:00:39.800 covers the stock. Herman Chen is the analyst here. He 0:00:39.840 --> 0:00:42.440 actually covers the stock good because a lot of questions. 0:00:42.520 --> 0:00:44.519 We got him here. He's in studio. He covers the 0:00:44.560 --> 0:00:47.280 regional banks. Alison Williams joins us on the phone. She 0:00:47.360 --> 0:00:50.040 covers all the big global banks as well. A swaying 0:00:50.040 --> 0:00:52.800 a little bit of a financial roundtable here, Herman, let's 0:00:52.800 --> 0:00:55.120 start with you tell Matt what he needs to know 0:00:55.200 --> 0:00:58.520 about First Citizens and why First Citizen stock is up 0:00:58.520 --> 0:01:00.680 a ga jillion percent here on this news. Sure, so 0:01:00.800 --> 0:01:04.920 First Citizens. It's a regional bank based in Raleigh, North Carolina. 0:01:05.120 --> 0:01:08.720 It has grown tremendously with the deal with C I T, 0:01:08.920 --> 0:01:12.200 which also has offices of New Jersey. So you should 0:01:12.240 --> 0:01:15.280 know c You should know, ye run wasn't it run 0:01:15.319 --> 0:01:18.720 at one point by the former governor of New Jersey 0:01:19.120 --> 0:01:26.160 John Cosign that had Manuchin owned. They own One West, 0:01:26.200 --> 0:01:30.520 which was part of Indiemac, so that that banking operation 0:01:30.720 --> 0:01:34.800 is part of the First Citizens, as well as the 0:01:35.480 --> 0:01:39.520 specially landing operations and the CRI lending that they do 0:01:39.800 --> 0:01:42.960 in the southeast. So it's a over one hundred billion 0:01:42.959 --> 0:01:46.040 dollars bank prior to the SBB deal. It basically doubles 0:01:46.240 --> 0:01:49.920 the size of the of the institution and the deal 0:01:50.040 --> 0:01:53.640 is very lucrative. Hard to say what the tangion book 0:01:53.680 --> 0:01:58.000 value accreciation accretion is, but it's probably around fifty percent. 0:01:58.080 --> 0:02:00.760 So that's why the stock pops into PA. So I 0:02:00.800 --> 0:02:03.200 was thinking about m Global, Yes you were, yeah, but 0:02:03.320 --> 0:02:06.320 C I T was mister Cushner ran that right. In 0:02:06.360 --> 0:02:09.079 any case, this is a bank that I guess has 0:02:09.120 --> 0:02:12.639 made a number of First Citizens, has made a number 0:02:12.720 --> 0:02:18.960 of distressed purchases. Basically still it's only an eight billion 0:02:19.000 --> 0:02:24.040 dollar market cap, Right, how does it work out a deal? Like, Yeah, 0:02:24.080 --> 0:02:27.480 it got a huge pop obviously because it's getting this 0:02:27.560 --> 0:02:30.600 asset at such a big discount. Right. It was It 0:02:30.720 --> 0:02:35.680 has traditionally been a distressed acquirer, and this is part 0:02:35.720 --> 0:02:38.560 of the game plan for for the management team that 0:02:38.560 --> 0:02:42.360 has been at the bank for decades. It's very unique, 0:02:43.120 --> 0:02:49.040 family operated. The grandfather of the CEO was the founder, 0:02:49.160 --> 0:02:54.480 so it's it's a unique operating success story. Yeah, and 0:02:54.600 --> 0:02:59.200 it's very much insider owned. So it's a different type 0:02:59.240 --> 0:03:01.960 of animal that we're used to. Go Alison, I want 0:03:01.960 --> 0:03:04.040 to bring you in here, Alison Williams. She covers the 0:03:04.040 --> 0:03:07.240 big global banks. How come I mean First Citizens Matt 0:03:07.240 --> 0:03:09.360 and I are just learning about First Citizens bank shares. 0:03:09.960 --> 0:03:12.480 This is not JP Morgan Chase. We didn't see much 0:03:12.560 --> 0:03:16.080 interest from the big banks for any of these troubled 0:03:16.080 --> 0:03:19.040 regional banks, did we. Well. I think first of all, 0:03:19.080 --> 0:03:23.320 they're they're limited, Um, you know. JP Morgan by definition 0:03:23.440 --> 0:03:25.840 is limited in terms of what it can acquire. And 0:03:25.880 --> 0:03:29.239 I think that, um, you know, the presumption is that 0:03:29.280 --> 0:03:34.280 the regulators would allow um something if needed. Um. But 0:03:34.400 --> 0:03:37.400 clearly there was interest and clearly this is this is 0:03:37.400 --> 0:03:40.920 a result that I think the government would much rather 0:03:41.000 --> 0:03:45.280 see in terms of um, you know, a smaller bank 0:03:45.440 --> 0:03:48.840 taking on this this deal and creating a competitor at 0:03:48.880 --> 0:03:51.400 the at the at this end of the scale. I mean, 0:03:51.440 --> 0:03:55.400 they were allowed to buy Barrastarns, right, So, but that 0:03:55.560 --> 0:04:01.760 was the U regulation relates to deposits, and so bank 0:04:01.960 --> 0:04:05.960 in the US cannot acquire if they're beyond a ten 0:04:06.000 --> 0:04:11.400 percent market share of deposits, and they kind of grow organically, 0:04:11.440 --> 0:04:14.680 but they can't do acquisitions. And at the time, so 0:04:14.920 --> 0:04:17.080 Washington Mutual was the one that was sort of on 0:04:17.120 --> 0:04:22.719 the edge for them. You know, there was also the 0:04:22.760 --> 0:04:28.960 Wacovia and Wells Fargo deal, but I think that first 0:04:28.960 --> 0:04:31.880 of all, there was the Wammoo had different righte glads, 0:04:31.920 --> 0:04:33.800 so that's like a little bit getting into the weeds 0:04:33.839 --> 0:04:36.240 of things, and the other deal is sort of add 0:04:36.279 --> 0:04:38.280 ten percent. But I think the presumption is, you know, 0:04:38.360 --> 0:04:41.200 if if needed, they would do it. And I think 0:04:41.360 --> 0:04:44.400 you know, also Embarrasserns that was also a government supported deal. 0:04:44.440 --> 0:04:47.839 So I think in times of crisis, obviously the government 0:04:47.880 --> 0:04:52.160 gets involved. We've seen that globally and can sort of 0:04:52.240 --> 0:04:56.159 change the rules. Herman, are we still in is this 0:04:56.279 --> 0:05:00.880 still a time of crisis or you know, was there 0:05:01.160 --> 0:05:06.919 was there a problem structurally or was this just a 0:05:06.960 --> 0:05:11.160 couple of idiosyncratic issues that led to one bank run 0:05:11.279 --> 0:05:15.520 or two bank runs and everything's okay Now. It definitely 0:05:15.560 --> 0:05:18.719 feels like it's lowered to temperature a bit. And we've 0:05:18.760 --> 0:05:21.880 written about how there's only a handful of banks that 0:05:21.880 --> 0:05:26.320 seemed to be stressed, Pacquest, First Republic and the banks 0:05:26.360 --> 0:05:30.960 that have already been folded SVB signature. If you look 0:05:31.000 --> 0:05:34.280 at the discount window usage that the numbers that came 0:05:34.320 --> 0:05:37.520 out last week, and the usage of the new bank 0:05:37.640 --> 0:05:42.039 term liquidity program, things seem pretty stable. So it suggested 0:05:42.080 --> 0:05:44.600 to us that you're not seeing some of the liquidity 0:05:46.000 --> 0:05:49.840 risks that that felled some of these other institutions spread 0:05:49.839 --> 0:05:52.679 to the broader regional bank space. So again you mentioned 0:05:52.720 --> 0:05:55.640 pac West, It's up four and a half percent, First 0:05:55.680 --> 0:05:59.359 Republics up seventeen percent here, So do you expect to 0:05:59.400 --> 0:06:03.200 see some more deals happening to kind of, you know, 0:06:03.320 --> 0:06:06.360 see more combinations occur for some of these other stress banks. Yeah, 0:06:06.400 --> 0:06:09.000 I think that remains to be seen. I think the 0:06:09.040 --> 0:06:12.200 regulators would ideally like a bank like First Republic to 0:06:12.800 --> 0:06:18.920 continue operating as as first Republic without needing any any acquirer. 0:06:19.600 --> 0:06:22.080 That remains to be seen if that can be feasible. 0:06:22.279 --> 0:06:25.000 But but the hope is that the deposits have stabilized 0:06:25.120 --> 0:06:28.520 and eventually, once there's more confidence in the system, they 0:06:28.520 --> 0:06:30.839 can regain some of the deposits that they lost to 0:06:30.920 --> 0:06:34.280 other institutions. Alison, what's the feeling just out there? I mean, 0:06:34.320 --> 0:06:36.560 you talk to these institutional investors for all kinds of 0:06:36.720 --> 0:06:39.440 you know, the financials, the asset managers, the big money 0:06:39.440 --> 0:06:43.120 center banks, regionals, you kind of see it all. What's 0:06:43.120 --> 0:06:45.400 your feeling about kind of just the banking system in general? 0:06:45.440 --> 0:06:48.240 Do we need any more concern Do you think we 0:06:48.279 --> 0:06:52.440 need any more regulatory review here? Where were are we today? 0:06:53.160 --> 0:06:55.360 I mean, I think that the regulatory view and those 0:06:55.400 --> 0:07:01.760 concerns are certainly being raised by politicians, I say, for banks, 0:07:01.800 --> 0:07:05.240 for bank investors, they sort of recognize that there was 0:07:05.520 --> 0:07:10.600 there was some mismanagement at a few institutions that um, 0:07:10.640 --> 0:07:14.400 you know, sort of exacerbated some of the industry wide 0:07:15.000 --> 0:07:19.560 issues in terms of the setup with Kewey and now QTUM. 0:07:19.640 --> 0:07:22.800 But I think broadly in terms of investors, you know, 0:07:22.840 --> 0:07:25.840 now the focus is turning towards the credit aspects, that's 0:07:25.880 --> 0:07:29.240 turning towards recession, and we're starting to hear a lot 0:07:29.280 --> 0:07:34.560 more about the concerns of related to commercial real estate. 0:07:35.080 --> 0:07:37.760 M Herman actually has at out this morning in terms 0:07:37.800 --> 0:07:40.120 of the regional banks on that. I'd love to get 0:07:40.160 --> 0:07:44.360 that Alison and Herman. I keep hearing real estate, real estate, 0:07:44.400 --> 0:07:48.160 real estate, that's the next bogey for banks. Alison. So wait, 0:07:48.200 --> 0:07:52.160 it was hold to maturity portfolios. Yep, And and now 0:07:52.320 --> 0:07:56.920 what a bunch of banks hold big commercial real estate portfolios? Right? 0:07:57.000 --> 0:08:00.280 So yeah, I mean that that shouldn't be h So 0:08:00.880 --> 0:08:02.360 that shouldn't be a surprise. I mean, I think that 0:08:02.560 --> 0:08:05.760 the health to maturity portfolios were a surprise just because 0:08:05.800 --> 0:08:10.480 we haven't seen that being an issue for banks in 0:08:10.520 --> 0:08:13.920 many decades. I think that, you know, commercial real estate 0:08:14.080 --> 0:08:17.320 is something that the you know, everyone's been focused on 0:08:17.360 --> 0:08:20.200 since the beginning of the pandemic, especially office because there 0:08:20.240 --> 0:08:24.040 were so many questions around that. And now you know, 0:08:24.080 --> 0:08:27.920 as we think about getting closer to recession, that is 0:08:28.000 --> 0:08:31.720 gaining focus, you know, not just for the banks, but 0:08:31.880 --> 0:08:34.240 you know broadly from what we're seeing in the CMBs 0:08:34.240 --> 0:08:39.319 market and regional banks do tend to have significant portfolios 0:08:39.320 --> 0:08:41.880 in that area, and they'll turn it over to Herman 0:08:41.960 --> 0:08:43.440 to talk a little bit about some of the work here. 0:08:43.559 --> 0:08:45.599 So I mean Herman. The problem with the Hold to 0:08:45.679 --> 0:08:50.079 Maturity's portfolios wasn't that they had them or that they 0:08:50.120 --> 0:08:55.000 were you know, not marked to market, but that when 0:08:55.520 --> 0:08:59.080 investors want to pull their money out, these banks had 0:08:59.120 --> 0:09:01.120 to sell that stuff in, take huge losses and then 0:09:01.160 --> 0:09:04.160 didn't have enough money. That's that's the that was the worry, right, correct. 0:09:04.200 --> 0:09:07.640 So should we have the same concerns about commercial real estate? 0:09:07.720 --> 0:09:10.800 Have they not marked those portfolios to market? Had they 0:09:10.880 --> 0:09:15.920 not tried to unload them? As you know, everybody, even 0:09:16.040 --> 0:09:18.760 Paul Sweeney, has gotten used to the idea that workers 0:09:18.760 --> 0:09:22.400 are no longer coming to the office. Right, So let's 0:09:22.400 --> 0:09:24.719 take a step back. The original issue with SBB was 0:09:24.760 --> 0:09:27.480 the Health to Maturity portfolio, which was not marked to market. 0:09:27.920 --> 0:09:30.040 The issue with First Republic is they have a big 0:09:30.120 --> 0:09:33.000 chunk of residential mortgage loans that are not marked to market. 0:09:33.080 --> 0:09:36.920 So now the focus has shifted a bit to other 0:09:37.200 --> 0:09:40.640 areas within bank balance sheets that may you know, the 0:09:41.000 --> 0:09:43.880 fair value of that asset may be less than the 0:09:43.920 --> 0:09:47.040 carrying value So that's what we're looking at now in 0:09:47.120 --> 0:09:51.239 terms of focus on commercial real estate, specifically office exposure 0:09:51.280 --> 0:09:54.199 where people are working from home and the cash flows 0:09:54.240 --> 0:09:57.120 are are down from where they were pre pandemic and 0:09:57.360 --> 0:10:02.200 interest rates are rising. So how the bar or refinanced 0:10:02.280 --> 0:10:05.400 that loan? When? When? When that loan comes due? You know, 0:10:05.480 --> 0:10:07.720 this year, next year, in a few years. So it's 0:10:07.720 --> 0:10:12.160 a longer term turn in the maturity profile of these loans, 0:10:12.200 --> 0:10:14.200 but it's something that a lot of folks are looking 0:10:14.200 --> 0:10:17.199 into more. And have you identified a number of banks 0:10:17.240 --> 0:10:20.000 that are going to have the biggest problems? Sure? So, 0:10:20.320 --> 0:10:22.320 I guess if you look at the banks that we 0:10:22.400 --> 0:10:24.959 cover on the regional side, there are a few banks 0:10:25.000 --> 0:10:27.720 that stand out in terms of their commercial real estate exposure. 0:10:28.440 --> 0:10:30.560 Bank oz K is the one that stands out with 0:10:30.880 --> 0:10:36.960 higher CRI concentration. OZK likes ozarks correct, So yeah, nice 0:10:37.120 --> 0:10:39.440 pick up there, man. So it's it's a bank that 0:10:39.559 --> 0:10:42.440 historically has been great in terms of managing their credit quality, 0:10:42.480 --> 0:10:44.600 but they do screen high in terms of office content. 0:10:45.160 --> 0:10:47.319 You know, in my town where I live, they're putting 0:10:47.360 --> 0:10:51.800 up this big mixed use um, you know, office building, 0:10:51.800 --> 0:10:52.800 and I don't know what's going to be in there. 0:10:52.840 --> 0:10:54.199 I don't know where the traffic is going. I don't 0:10:54.240 --> 0:10:56.920 think they thought about that at all, um, But it's 0:10:56.960 --> 0:11:01.679 financed proudly, big sign by local bank. And I remember thinking, boy, 0:11:01.360 --> 0:11:04.079 that's that's the way it works. That's what makes America great. 0:11:04.120 --> 0:11:07.439 You got a local lender financing growth in a local market. 0:11:07.480 --> 0:11:10.200 But now I'm thinking about, oh boy, if they can't 0:11:10.240 --> 0:11:12.520 fill this thing, you know, you know, you think about that, 0:11:12.960 --> 0:11:17.920 and you think about that, you'd drive around any town USA. 0:11:18.280 --> 0:11:20.160 The office buildings, I don't know, are they have full? 0:11:20.160 --> 0:11:22.319 Are they two thirds full? I don't know where I 0:11:22.360 --> 0:11:24.600 would I would say that most of the cre and 0:11:24.640 --> 0:11:27.480 office stress is really in San Francisco and New York. Right, 0:11:27.520 --> 0:11:31.040 So if you're in a suburban market, you're probably going 0:11:31.080 --> 0:11:34.439 to the office more than the folks in Silicon Valley, 0:11:34.440 --> 0:11:36.720 where they're working from home in majority of their time. 0:11:36.840 --> 0:11:41.520 So our view is that the regional banks probably have 0:11:41.640 --> 0:11:44.320 headline risks because of the office exposure, but the actual 0:11:44.360 --> 0:11:48.199 credit losses should be definitely manageable. All right, good stuff. 0:11:48.360 --> 0:11:51.080 Alison Williams, she covers the big global banks. We're gonna 0:11:51.080 --> 0:11:53.400 be talking to her a lot because we have a 0:11:53.480 --> 0:11:55.280 couple of weeks time, we're gonna have the banks, the 0:11:55.320 --> 0:11:58.000 big investment banks and the big money center banks reporting numbers. 0:11:58.000 --> 0:12:00.079 We'll be talking to Alison a lot. She covers the 0:12:00.160 --> 0:12:03.680 big global banks. Herman Chen senior analyst for Bloomberg Intelligence 0:12:03.679 --> 0:12:06.080 covering the regional banks, and he has been the man 0:12:06.080 --> 0:12:08.200 in the hot seat for the last few weeks because 0:12:08.480 --> 0:12:11.560 nobody cares about regional banks until they have to, and 0:12:11.600 --> 0:12:14.600 then it's you know, where's Herman Chan? Get him up here? 0:12:14.720 --> 0:12:16.200 We need to know what's going on. But I'll tell 0:12:16.200 --> 0:12:18.080 you what. At the very beginning of this, Herman taught 0:12:18.160 --> 0:12:19.680 us Tom Matt and I how to look at a 0:12:19.720 --> 0:12:22.040 bank balance sheet and to look at those hell to 0:12:22.120 --> 0:12:25.400 maturity things versus the deposits. And after five minutes we 0:12:25.520 --> 0:12:28.599 figured out that SVB was in trouble. How did the 0:12:28.640 --> 0:12:30.839 regulators miss it? That's that's that's the question that I 0:12:30.880 --> 0:12:32.800 think are not going to be delving into. In fact, 0:12:32.880 --> 0:12:35.800 I think the Senate looks into that starting tomorrow, and 0:12:35.800 --> 0:12:39.680 then Congress looks into it on Wednesday. This is Bloombergen. 0:12:41.600 --> 0:12:45.480 You're listening to the Team Cancer Line program Bloomberg Markets 0:12:45.520 --> 0:12:48.600 weekdays at ten am Eastern on Bloomberg dot Com, the 0:12:48.679 --> 0:12:51.440 I Heard radio app and the Bloomberg Business app. We're 0:12:51.440 --> 0:12:56.520 listening on to mand wherever you get your podcast. All right, 0:12:56.520 --> 0:12:58.400 we were just talking real estate and maybe the risk 0:12:58.480 --> 0:13:01.440 that may you know, point for some of the regional 0:13:01.520 --> 0:13:03.760 lenders out there. Let's just talk about it right from 0:13:03.760 --> 0:13:06.000 the primary perspective. Let'stuck real estate. We can do that 0:13:06.000 --> 0:13:09.040 with Lisa n She does all that stuff. She's a 0:13:09.120 --> 0:13:11.679 real estate lead at Eisener Amper. Joins us here in 0:13:11.720 --> 0:13:15.839 our Bloomberg and Advisory Group. I know it is Is 0:13:15.880 --> 0:13:18.000 it that is courage? Sorry I will say that and 0:13:18.080 --> 0:13:20.040 thank you for having me this. But they got the big, 0:13:20.559 --> 0:13:24.200 the big building on. She was at Burden and she 0:13:24.280 --> 0:13:27.160 was at Eisener Amper. Now she is at Eisener Advisory Group. 0:13:27.280 --> 0:13:29.720 Is that right? Okay, very good, I think. But the 0:13:29.720 --> 0:13:32.280 most important thing is she's here in a Bloomberg Interactor 0:13:32.320 --> 0:13:34.520 Broker studio, so she gets a gold star. She's also 0:13:34.520 --> 0:13:38.120 a lawyer and a CPA. All right, that's enough enough education, 0:13:38.400 --> 0:13:41.640 enough education, Let's get back to it, all right. I 0:13:41.720 --> 0:13:44.280 walk through mid ten Manhattan. I see empty building after 0:13:44.320 --> 0:13:46.560 empty building after empty building. What do you real estate. 0:13:46.600 --> 0:13:49.439 People say about commercial real estate these days, I think 0:13:49.440 --> 0:13:53.160 it's a disaster. Am I overreacting? So we're cautiously optimistic. 0:13:53.200 --> 0:13:56.840 That is the mood, So people are that's my favorite phrase, 0:13:57.360 --> 0:13:59.560 but that is the mood for where we are this 0:13:59.640 --> 0:14:01.520 year and where we are in the cycle. And so 0:14:01.559 --> 0:14:03.720 we know what's going on with the interest rates. Feds 0:14:03.720 --> 0:14:07.040 increase the seven times in twenty twenty two, and they're expected, 0:14:07.120 --> 0:14:09.640 you know, to continue. But are we at the peak? 0:14:10.120 --> 0:14:11.719 And we're hoping that we are at the peak? And 0:14:12.000 --> 0:14:14.720 so the problem with commercial real estate right now is pricing. 0:14:14.880 --> 0:14:17.360 Because there isn't a lot of transaction volume. People don't 0:14:17.360 --> 0:14:19.280 know where the pricing is and so that's really where 0:14:19.280 --> 0:14:23.000 we're hoping that this year we can get a pricing stability. 0:14:23.160 --> 0:14:25.600 Is the lack of transaction volume, like what we hear 0:14:25.640 --> 0:14:29.240 about in residential where sellers don't want to let go 0:14:29.640 --> 0:14:33.240 of their holdings at a low price, so buyers can't 0:14:33.280 --> 0:14:37.960 pick up bargains or has everyone who wants to sell 0:14:38.000 --> 0:14:39.920 already let go of what they've got now. I think 0:14:39.960 --> 0:14:42.240 it's a combination. And when you look at interest rates, 0:14:42.280 --> 0:14:44.440 that's going to change your cash flow and what your 0:14:44.520 --> 0:14:46.760 yield is in your return right, So whether it's personal 0:14:46.760 --> 0:14:49.800 real estate, investing your own home or commercial real estate, 0:14:50.160 --> 0:14:52.880 that interest rate is going to change your bottom line 0:14:52.880 --> 0:14:56.400 and cash flow. And so when interest rates go up 0:14:56.800 --> 0:15:00.200 and valuations go up, your returns go down essentially. And 0:15:00.280 --> 0:15:03.000 so that's really where that combination is, and it's making 0:15:03.080 --> 0:15:05.600 more difficult for people to find out where that happy 0:15:05.640 --> 0:15:07.400 median is. I was just wondering if there are any 0:15:07.680 --> 0:15:12.440 distressed bargains out there. You know, if there's some commercial 0:15:12.480 --> 0:15:15.480 real estate holder that has buildings on Third Avenue and 0:15:15.520 --> 0:15:18.560 they've decided, okay, we can't do anything with this. No 0:15:18.560 --> 0:15:21.320 one wants to have an office on Third Avenue because 0:15:21.320 --> 0:15:24.080 it's kind of gross, and nobody wants to live there 0:15:24.240 --> 0:15:29.000 because they can't, you know, they can't renovate the commercial 0:15:29.000 --> 0:15:31.680 space into a residential space, so they get rid of 0:15:31.720 --> 0:15:33.640 it for fire sale prices or are you seeing any 0:15:33.680 --> 0:15:36.080 of that? So there's two key points in what you said. 0:15:36.120 --> 0:15:38.760 There is just stress opportunity, and where that's coming in 0:15:38.880 --> 0:15:40.600 is on the lending side. So if you're a little 0:15:40.600 --> 0:15:42.760 bit of a riskier investor or you want to get 0:15:42.800 --> 0:15:45.680 in on a preferred or mezzotine lending that's where your 0:15:45.720 --> 0:15:47.920 opportunities are going to come in because people have to 0:15:47.920 --> 0:15:49.680 come in to make those As we've said before, those 0:15:49.720 --> 0:15:51.640 cash flows work, and so you're going to get a 0:15:51.720 --> 0:15:54.280 higher yield and a higher return if you're willing to 0:15:54.280 --> 0:15:56.680 be a riskier investor, right, And so that's going to 0:15:56.720 --> 0:15:58.800 be very helpful for that. Paul, you were just talking 0:15:58.840 --> 0:16:01.680 about you want to take some risk risks. I just 0:16:01.720 --> 0:16:04.960 went along some New Jersey, Jersey shore real estate, but 0:16:05.000 --> 0:16:07.960 I got a mortgage that is brutal um. Can I 0:16:08.000 --> 0:16:10.120 refinance my mortgage in like twelve to eighteen months and 0:16:10.160 --> 0:16:12.120 maybe get a four handle on it? What do I 0:16:12.480 --> 0:16:17.760 wish I could be able to different business? Different business? 0:16:17.800 --> 0:16:21.040 Maybe real estate? Is it just New York and San 0:16:21.040 --> 0:16:23.640 Francisco where it's really challenged in other parts of the 0:16:23.640 --> 0:16:25.440 country are better or we just kind of warped kind 0:16:25.480 --> 0:16:27.560 of given where what market we live in. So when 0:16:27.560 --> 0:16:29.760 you look at the gateway, everyone always focuses on these 0:16:29.800 --> 0:16:31.880 gateway cities. But when you look at the US and 0:16:31.920 --> 0:16:34.600 you look at global real estate, a report came out 0:16:34.640 --> 0:16:37.680 where Florida the transaction value is high right now, and 0:16:37.840 --> 0:16:40.880 people are looking still at those Sunshine States or the 0:16:40.920 --> 0:16:43.160 smile states where you want to do it an opportunity, 0:16:43.360 --> 0:16:44.720 but you also I hate to throw this in there, 0:16:44.760 --> 0:16:47.160 but when you look at climate change, there could be 0:16:47.280 --> 0:16:50.800 a demigration, migration back up north depending on what's going 0:16:50.840 --> 0:16:53.800 on in climate and insurance costs and overhead down in 0:16:53.840 --> 0:16:57.400 some of these more states that are more affected by climate. Right, 0:16:57.440 --> 0:16:59.360 and so when you're looking at it, it's hard to 0:16:59.360 --> 0:17:01.760 sort of say, right now is where we are with 0:17:01.800 --> 0:17:04.360 New York and San Francisco. People want to still live, 0:17:04.359 --> 0:17:07.080 work and play here. It's still New York. I'm with you, 0:17:07.480 --> 0:17:10.760 so we're still optimistic. Shaking his head. No, it's shaking 0:17:10.760 --> 0:17:12.240 his head. No, that's good thing. It's well, I just 0:17:12.280 --> 0:17:15.560 don't know. I just don't know. The commercial I honestly, 0:17:15.680 --> 0:17:18.440 honestly don't know what's going to happen with these commercial 0:17:18.720 --> 0:17:22.359 real estate, office real estate in New York City. I 0:17:22.359 --> 0:17:24.520 really don't know. If I'm Billy Ruden, what am I 0:17:24.520 --> 0:17:26.480 doing with my port? Not just office real estate? Dude? 0:17:26.480 --> 0:17:29.720 Look downstairs, right, we used to have like an H 0:17:29.760 --> 0:17:33.919 and M container store. There was a Victoria's Secret across 0:17:33.960 --> 0:17:36.320 the street, like a Jay Crew or Banana Republic or 0:17:36.359 --> 0:17:38.359 something like that. Though those are all gone. The only 0:17:38.400 --> 0:17:41.560 thing we have is like some high end chocolate tier, 0:17:41.600 --> 0:17:43.639 which I'm sure is a front for something else. No, 0:17:43.760 --> 0:17:45.320 it was awesome. It was packed, even though in a 0:17:45.320 --> 0:17:49.040 pandemic they had people in there. But again, what's the 0:17:49.400 --> 0:17:52.560 what is the smart money saying about New York office 0:17:52.600 --> 0:17:54.919 real estate and San Francisco for that matter. Right, So 0:17:54.920 --> 0:17:57.920 when you're looking at the smart money that those A buildings, right, 0:17:57.920 --> 0:18:00.639 the ones that are beautiful fifteen percent, that makes up 0:18:00.680 --> 0:18:03.679 fifteen percent of the real estate they're they're occupied, Yes, 0:18:03.800 --> 0:18:07.040 that fifteen percent. So the yards is Hudson Yards occupied. 0:18:07.200 --> 0:18:09.119 I wouldn't go into on their vacancy, and I wouldn't 0:18:09.200 --> 0:18:12.800 dare to do that on the radio. But any class 0:18:12.840 --> 0:18:15.720 A building that's going to have the prime amenities is 0:18:15.760 --> 0:18:17.800 going to have an easier time of being able to 0:18:17.840 --> 0:18:20.400 lease it up. That middle sector, which is sixty percent 0:18:20.480 --> 0:18:23.520 of real estate for office and for retail, that's going 0:18:23.600 --> 0:18:26.080 to need some capital. Those those buildings are going to 0:18:26.160 --> 0:18:28.280 need to have either the rescue capital coming in there 0:18:28.480 --> 0:18:31.960 or somebody really doing an infusion. It's the bottom twenty 0:18:31.960 --> 0:18:34.400 five percent that's really what you need to worry about. 0:18:34.440 --> 0:18:36.719 And this is USY not just New York, not just 0:18:36.760 --> 0:18:40.040 San Francisco. So it's that twenty five percent of the 0:18:40.080 --> 0:18:42.400 bottom of the that's going to have to be reconfigured 0:18:42.680 --> 0:18:44.280 and how do you put that in and what do 0:18:44.280 --> 0:18:46.240 you do with that? And that's the real challenge. So 0:18:46.520 --> 0:18:48.720 the top seventy five percent is going to be able 0:18:48.720 --> 0:18:50.639 to be usable, but you think that's sixty percent in 0:18:50.640 --> 0:18:53.240 the middle. I wouldn't put money into that thing. I 0:18:53.280 --> 0:18:55.880 wouldn't put it like a gym or a coffee machine, 0:18:56.240 --> 0:18:59.080 thinking that's going to workers back. But dude, your risk 0:18:59.119 --> 0:19:02.480 tolerance doesn't go on Muni's that's true. That's true. So 0:19:02.520 --> 0:19:04.280 that's where your opportunity is. And when I said to 0:19:04.280 --> 0:19:07.960 you before, a real opportunistic investor or somebody who's willing 0:19:08.000 --> 0:19:09.840 to you're gonna get a higher yield. By the way, 0:19:09.920 --> 0:19:12.000 if you're willing to put that money up, that's the 0:19:12.080 --> 0:19:14.320 higher yield. And that's where the you can make a 0:19:14.320 --> 0:19:17.439 lot of money in that exact space. What are you 0:19:17.520 --> 0:19:20.640 hearing about people actually going back to the office. I mean, 0:19:20.760 --> 0:19:24.880 for a while it was forget about it. The kids 0:19:24.880 --> 0:19:30.520 were telling potential employers, no way, Jose. But as we 0:19:30.600 --> 0:19:34.000 get closer to a recession, I would imagine that resolve 0:19:34.119 --> 0:19:36.680 breaks a little bit, right. I mean, if you need 0:19:36.720 --> 0:19:38.960 to find a job, you're probably going to be willing 0:19:38.960 --> 0:19:40.840 to go in like at least three days a week. 0:19:41.720 --> 0:19:43.520 I think it's the same thing everyone's been saying. It's 0:19:43.560 --> 0:19:46.840 that teamwork, camaraderie, and when people are in offices and 0:19:46.880 --> 0:19:49.159 they're able to be around each other, you're gonna be 0:19:49.160 --> 0:19:51.000 able to create a career for yourself versus sitting at 0:19:51.040 --> 0:19:53.719 home in front of your computer or watching TV. This 0:19:53.760 --> 0:19:55.200 is really where you're going to create your life. And 0:19:55.240 --> 0:19:57.760 I think you mentioned you just mentioned it that when 0:19:57.760 --> 0:20:00.520 we head into a little bit more challenging time, the 0:20:00.600 --> 0:20:03.320 job market's going to change. And so what really makes 0:20:03.320 --> 0:20:06.240 a difference is how you've created a work life balance 0:20:06.280 --> 0:20:08.040 for yourself and how you're going to start working with 0:20:08.080 --> 0:20:10.919 your employers. Also, what we're demanding as employers. You know, 0:20:10.960 --> 0:20:13.600 we're allowing for that work life balance in that three 0:20:13.680 --> 0:20:15.800 days a week, and so you know at some point, 0:20:16.600 --> 0:20:18.600 where where's that going to break and where are we 0:20:18.600 --> 0:20:20.680 going to say, come back to work. It's much more fun. 0:20:20.720 --> 0:20:24.080 We miss you. So at Eisner Advisory Group, I'm guessing 0:20:24.080 --> 0:20:28.200 you guys like transactions. You like the fees associate or transactions. 0:20:28.880 --> 0:20:30.679 What's your outlook for the next twelve months. I mean 0:20:30.760 --> 0:20:33.439 we're going to get some more transactions or is these 0:20:33.520 --> 0:20:35.960 higher interest rates just kind of keeping everybody on the sideline. 0:20:36.119 --> 0:20:38.160 So when you think of transactions, you can also look 0:20:38.200 --> 0:20:39.760 at there's going to be a lot of refinancings that 0:20:39.800 --> 0:20:41.160 have to come up. Where we are in the cycle, 0:20:41.240 --> 0:20:42.760 some of the data is due and so we're going 0:20:42.800 --> 0:20:44.440 to have to go in there and talk to lenders 0:20:44.680 --> 0:20:47.359 make sure we do some workouts. That's where mes lending 0:20:47.440 --> 0:20:50.080 comes in. A preferred equity position can come in. So 0:20:50.119 --> 0:20:52.000 any of the times that you're at some point in 0:20:52.040 --> 0:20:55.119