WEBVTT - Bloomberg Wall Street Week - June 16, 2023 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.680 a rolling recession. A kind of role looks pretty strongly 0:00:06.760 --> 0:00:07.680 is when it comes to jobs. 0:00:07.680 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.920 --> 0:00:13.600 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.560 --> 0:00:17.320 generative AI through. 0:00:17.160 --> 0:00:19.320 The eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 0:00:22.520 --> 0:00:25.320 Gebro Lair of the Paulson Institute, Glen Hubbard of the 0:00:25.360 --> 0:00:26.280 Columbia Business School. 0:00:26.280 --> 0:00:30.440 Bloomberg Wall Street Week with David Weston from Bloomberg Radio Time. 0:00:30.480 --> 0:00:33.000 In is everything for the FED, for the banking sector, 0:00:33.040 --> 0:00:36.080 and for asset managers. This is Bloomberg Wall Street Week. 0:00:36.240 --> 0:00:40.240 I'm Romain Bostic and for David Weston. This week Barkley 0:00:40.320 --> 0:00:43.880 CEO CS Bencotta Krishnan on his vision for investment banking. 0:00:44.080 --> 0:00:47.760 You bring it all together, and you're talking about us 0:00:47.800 --> 0:00:51.040 thinking about the next generation of leadership of the investment bank. 0:00:51.240 --> 0:00:54.160 Former Treasury Secretary Larry Summers on whether the FED spight 0:00:54.240 --> 0:00:55.680 the curb inflation is working. 0:00:55.920 --> 0:00:59.640 I found the Fed's action a little bit confusing. 0:00:59.320 --> 0:01:02.480 And CBR CEO Bob Selontek on how interest rates are 0:01:02.480 --> 0:01:04.240 reshaping America's biggest. 0:01:03.880 --> 0:01:05.440 Cities, San Francisco. 0:01:05.680 --> 0:01:20.080 That's probably the toughest story out there in office buildings. 0:01:21.280 --> 0:01:23.319 There was a big sigh of relief on Tuesday. From 0:01:23.319 --> 0:01:24.400 Wall Street to Main. 0:01:24.200 --> 0:01:25.959 Street to the hulls of the Federal Reserve. 0:01:26.319 --> 0:01:29.680 The Consumer Price Index released a rise of just four 0:01:29.720 --> 0:01:30.759 percent year over year. 0:01:31.000 --> 0:01:32.240 That's the smallest game. 0:01:32.120 --> 0:01:34.120 Going back to March of twenty twenty one, and it 0:01:34.200 --> 0:01:36.800 suggests that the lag effects of a fifteen month rate 0:01:36.840 --> 0:01:38.600 tightening cycle are lagged no more. 0:01:38.760 --> 0:01:41.920 I have been consistently in the camp that we would 0:01:41.920 --> 0:01:45.360 see some slowing in growth, put no recession, and that 0:01:45.400 --> 0:01:48.400 we could see inflation come down. And part of that 0:01:48.840 --> 0:01:50.800 is because I've had confidence in the Fed. 0:01:51.160 --> 0:01:54.120 Then on Wednesday, a fresh report on supply side inflation 0:01:54.240 --> 0:01:57.160 hit that showed producer prices rising at the slowest pace 0:01:57.200 --> 0:02:00.400 since twenty twenty, normalizing supply chains and a broad cooling 0:02:00.480 --> 0:02:03.680 and commodity costs Aiding that trend. Two big data points 0:02:03.680 --> 0:02:06.720 this week in a disinflationary trend that ultimately gave the 0:02:06.720 --> 0:02:10.160 Fed enough confidence to stand down after hiking rates ten 0:02:10.240 --> 0:02:14.200 straight times. The FMC decision to hold fire it was unanimous, 0:02:14.440 --> 0:02:15.959 and you can call it a pause if you want, 0:02:15.960 --> 0:02:17.880 but don't you dare call it a skip. 0:02:18.240 --> 0:02:20.800 I think that the skip, I shouldn't call it a skip. 0:02:21.080 --> 0:02:22.880 The decision makes sense. 0:02:22.919 --> 0:02:25.400 Pal making it clear that the US economy isn't out 0:02:25.400 --> 0:02:28.000 of the woods yet and more rate hikes could come. 0:02:28.440 --> 0:02:32.200 I still think and my colleagues agree that the risks 0:02:32.440 --> 0:02:33.960 to inflation are to the upside. 0:02:33.960 --> 0:02:36.440 Still, less than a day after the FED left borrowing 0:02:36.480 --> 0:02:40.079 costs unchanged, the European Central Bank raised its deposit rate 0:02:40.280 --> 0:02:43.160 to the highest in more than two decades. But investors, 0:02:43.320 --> 0:02:45.840 they're betting that after four percentage points worth the hikes, 0:02:45.919 --> 0:02:48.919 the ECB, along with other major central banks, they're finally 0:02:49.080 --> 0:02:52.040 at the final stages and they're onslot against the global 0:02:52.040 --> 0:02:52.800 inflation shock. 0:02:53.360 --> 0:02:57.360 We are determined to reach our target in a timely 0:02:57.440 --> 0:03:00.200 manner and to continue to apply the principles that have 0:03:00.240 --> 0:03:04.760 applied today, data dependency, the three elements of the reaction function, 0:03:05.240 --> 0:03:07.280 and moving meeting by meeting. 0:03:07.720 --> 0:03:11.440 Meanwhile, the European banking sector entering a new era, ubs 0:03:11.760 --> 0:03:14.120 completing the government broker takeover of its story. 0:03:14.200 --> 0:03:15.600 Swiss rival Credits sue. 0:03:15.639 --> 0:03:18.320 It's the biggest global banking merger since the two thousand 0:03:18.320 --> 0:03:21.320 and eight financial crisis, and time finally may be up 0:03:21.400 --> 0:03:24.359 for Chrispinoti, ousted from his London based investment firm, A 0:03:24.400 --> 0:03:27.880 makes sexual assault allegations. Od Asset Management now hiving off 0:03:27.880 --> 0:03:28.600 its funds and. 0:03:28.560 --> 0:03:31.040 Employees, a move that would likely signal. 0:03:30.760 --> 0:03:34.040 The end of the multi billion pound firm altogether. Clients 0:03:34.040 --> 0:03:36.200 and business partners up against the clock right now to 0:03:36.200 --> 0:03:36.960 get their money out. 0:03:37.120 --> 0:03:41.360 We're in the process of moving away from their basis. 0:03:43.000 --> 0:03:43.640 And back here. 0:03:43.680 --> 0:03:46.600 In the US, stocks scoring their best week since March, 0:03:46.880 --> 0:03:48.800 the S and P five hundred climbing more than two 0:03:48.800 --> 0:03:51.840 percent and the Nasdaq one hundred jumping by almost four 0:03:52.200 --> 0:03:54.960 That move higher in the US match by moves overseas, 0:03:55.280 --> 0:03:57.920 Japanese stocks pushing to their highest since nineteen ninety, the 0:03:57.920 --> 0:04:00.400 German Dacks closing at a record high, one of the 0:04:00.400 --> 0:04:04.200 main gauges tracking emerging market equities advancing for a third 0:04:04.240 --> 0:04:04.880 straight week. 0:04:05.160 --> 0:04:06.360 Even commodities got. 0:04:06.240 --> 0:04:09.560 Bought, posting their strongest weekly performance as a group going 0:04:09.640 --> 0:04:12.400 back to November. Joining US now to walk us through 0:04:12.400 --> 0:04:14.520 what happened this week and well, what could happen in 0:04:14.560 --> 0:04:17.960 the weeks ahead Sonala, Sig Franklin Templeton, Tick's income CIO, 0:04:18.320 --> 0:04:21.560 and Bloomberg Managing editor Tracy Alloway, the co host of 0:04:21.600 --> 0:04:24.760 the very popular Odd Lots podcasts. So I'll start with you, 0:04:24.800 --> 0:04:27.640 and I'll start with that FED meeting on Wednesday and. 0:04:27.520 --> 0:04:28.520 That press conference. 0:04:28.760 --> 0:04:31.479 Not necessarily a surprise what they did, but were you 0:04:31.600 --> 0:04:33.600 surprised at what Powell had to say? 0:04:34.800 --> 0:04:38.680 So, you know, I actually feel in some ways that 0:04:39.000 --> 0:04:41.440 Powell got a little bit of the short end of 0:04:41.440 --> 0:04:44.800 the state this time around. Historically been quite critical of 0:04:44.839 --> 0:04:48.039 the communication that the FED does, but I think this 0:04:48.120 --> 0:04:52.080 time around they paused for a very valid reason. They 0:04:52.120 --> 0:04:55.040 hadn't guided the market. Well valid in some people's minds. 0:04:55.040 --> 0:04:58.679 This FED doesn't like surprising the market, and it chose 0:04:58.800 --> 0:05:03.000 not to do so. However, I think they really made 0:05:03.000 --> 0:05:06.520 it clear that sometimes a pause is really just a pause, 0:05:06.600 --> 0:05:10.320 and that's what this meeting was. Prior to the meeting, 0:05:10.720 --> 0:05:14.800 there was a reasonable quantity of people who thought reasonable 0:05:14.960 --> 0:05:17.640 portion of the market which believed that the pause was 0:05:17.680 --> 0:05:19.520 really the end of the hiking cycle. 0:05:19.920 --> 0:05:20.279 It's not. 0:05:20.880 --> 0:05:24.039 That's abundantly clear, And I think that we saw action 0:05:25.720 --> 0:05:29.520 from the Bank of Canada from the Reserve Bank of Australia. 0:05:30.040 --> 0:05:33.120 Both in recent weeks have come back, recent months have 0:05:33.160 --> 0:05:35.440 come back from pauses, and so I think the market 0:05:35.480 --> 0:05:39.000 is beginning to be more realistic about what the Fed's 0:05:39.200 --> 0:05:39.800 outlook is. 0:05:39.920 --> 0:05:42.159 Yeah, how do you feel about that, Tracy? We say 0:05:42.160 --> 0:05:44.200 a pause is just a pause. And of course even 0:05:44.279 --> 0:05:47.360 j Powell had that Freudian skip during the press conference. 0:05:47.360 --> 0:05:49.640 There is there some distinction that we should be paying 0:05:49.680 --> 0:05:52.039 attention to here Freudian skip. 0:05:52.160 --> 0:05:54.480 Was that a Freudian slip of your own their romain 0:05:54.560 --> 0:05:56.640 or all day long? 0:05:57.560 --> 0:05:59.479 We think it will create some of the most valuable 0:05:59.480 --> 0:06:02.000 companies market's ever seen, and I think it's certainly driven 0:06:02.040 --> 0:06:04.840 companies like Cisco, given them the life that they've had. 0:06:05.080 --> 0:06:08.599 It's obviously also spectacularly volatile, but the market is pulled 0:06:08.600 --> 0:06:11.400 back in this sector since it became public, since it 0:06:11.440 --> 0:06:13.720 began in nineteen ninety five, it's pulled back thirty to 0:06:13.760 --> 0:06:15.800 fifty percent at least seven or eight times. 0:06:16.800 --> 0:06:18.200 All Right, A blast from the past there. 0:06:18.279 --> 0:06:21.320 Henry Blodgett, then the Internet analyst over at Merrill Lynch 0:06:21.360 --> 0:06:23.520 back in June of two thousand, when he appeared with 0:06:23.600 --> 0:06:26.880 Lewis Ruckheiser on Wall Street Week. Internet stocks were all 0:06:26.960 --> 0:06:29.080 the rage then, and to a certain extent, they're the 0:06:29.200 --> 0:06:32.200 rage now. It's all about AI, artificial intelligence. There are 0:06:32.200 --> 0:06:34.920 a lot of people trying to look for some parallels 0:06:35.080 --> 0:06:37.960 between the AI frenzy that we're seeing today and the 0:06:38.040 --> 0:06:40.400 dot com frenzy, if you will, that we saw back 0:06:40.440 --> 0:06:42.080 in the late nineties and early two thousand. 0:06:42.160 --> 0:06:43.400 Are you finding that parallel? 0:06:43.839 --> 0:06:45.720 There is no doubt that we are going to see 0:06:45.760 --> 0:06:50.360 shades of dot Com in some of the enthusiasm around AI. 0:06:50.560 --> 0:06:53.239 I mean I was looking at in videos valuation before 0:06:53.240 --> 0:06:55.440 I came on here. I think it's something like forty 0:06:55.560 --> 0:07:00.280 two price to sales at the moment, which is a lot. 0:07:00.760 --> 0:07:04.239 And we have seen some companies already start to pivot 0:07:04.600 --> 0:07:07.159 towards AI. So of course a lot of the crypto 0:07:07.200 --> 0:07:10.160 players that aren't doing so well at the moment are 0:07:10.200 --> 0:07:13.360 now talking a lot about this new technology. The one 0:07:13.640 --> 0:07:16.400 difference I think I was actually at an event with 0:07:17.040 --> 0:07:20.920 Mark Barribau, pgim's global equity head this week, and he 0:07:21.040 --> 0:07:23.880 was talking about the difference is a lot of the 0:07:23.920 --> 0:07:28.840 AI winners so far are incumbent companies. There are places 0:07:28.880 --> 0:07:33.000 like Nvidia, places like Microsoft. These are real companies with 0:07:33.280 --> 0:07:37.880 actual revenue, and from that perspective, we are in a 0:07:37.920 --> 0:07:41.080 different place to say, twenty twenty, twenty twenty one, where 0:07:41.120 --> 0:07:44.400 people were betting on the really speculative stuff. I know 0:07:44.480 --> 0:07:47.200 it's a low bar, but it does bear mentioning that 0:07:47.280 --> 0:07:50.440 to some extent, these are people betting on already incumbent, 0:07:50.640 --> 0:07:51.600 established companies. 0:07:51.680 --> 0:07:53.160 That's a good point, and Soanal I want to get 0:07:53.200 --> 0:07:55.320 your thoughts on that, particularly just in the context of 0:07:55.320 --> 0:07:58.120 investor sentiment and really this idea that there does seem 0:07:58.120 --> 0:08:00.000 to be a lot of folks out there who really 0:08:00.120 --> 0:08:02.120 sort of want to, I guess, grab on to that 0:08:02.200 --> 0:08:04.280 next big thing, and at least for right now, it 0:08:04.280 --> 0:08:05.400 seems like it might be AI. 0:08:05.640 --> 0:08:07.040 It does look like this is going to be the 0:08:07.080 --> 0:08:09.559 decade of AI. Really, if you think about the last 0:08:09.560 --> 0:08:12.560 decade as a decade of mobility, that you know, if 0:08:12.560 --> 0:08:16.640 you look at the two thousand and ten twenty twenty. 0:08:17.360 --> 0:08:20.000 I am not an equity specialist. I always make that case, 0:08:20.280 --> 0:08:23.440 but I do think that this decade that we're in 0:08:23.520 --> 0:08:25.840 right now is likely to be the decade of AI. 0:08:26.360 --> 0:08:30.120 I'm not the person to peak individual stocks clearly I'm 0:08:30.160 --> 0:08:32.000 the last person to do so. But if I look 0:08:32.080 --> 0:08:34.840 at the technology, it is something we're very excited about. 0:08:35.200 --> 0:08:38.199 Having said that, there are many other technologies. Whether you're 0:08:38.240 --> 0:08:41.800 looking at what's going on in the field of medicine 0:08:41.800 --> 0:08:45.079 with genomes, there's a lot happening and technology. More broadly, 0:08:46.440 --> 0:08:48.880 AI is very much the flavor of months. So that 0:08:49.040 --> 0:08:51.760 is the element which goes back to what we were 0:08:51.800 --> 0:08:54.280 talking about the dot com to some extent, I'd. 0:08:54.160 --> 0:08:57.120 Say absolutely, and Tracy, I mean, you bring up a 0:08:57.120 --> 0:09:01.360 good point here about kind of these established players in videos, Microsauce, Alphabet's, 0:09:01.400 --> 0:09:04.839 proven companies with relatively solid balance sheets here, but there 0:09:05.040 --> 0:09:07.559 is certainly some froth in this as well, a sort 0:09:07.559 --> 0:09:09.320 of a lot of second and third tier companies that 0:09:09.360 --> 0:09:12.880 have mentioned AI. Your colleague Joe Wisenthal, the co hosts 0:09:12.880 --> 0:09:15.120 of Odd Lots, I thought, had a great point when 0:09:15.120 --> 0:09:18.080 he talked about Kroger, a grocery store chain, where the 0:09:18.120 --> 0:09:21.160 CEO mentioned AI eight times on the conference call. I'm 0:09:21.160 --> 0:09:23.440 having a hard time making that connection, but I don't know, 0:09:23.480 --> 0:09:24.760 maybe they know something we don't. 0:09:25.600 --> 0:09:27.360 I mean, look, I do think there is a danger 0:09:27.400 --> 0:09:30.480 here that everyone starts using AI as basically a synonym 0:09:30.559 --> 0:09:33.960 for every type of software that's currently an existence. I 0:09:34.000 --> 0:09:36.280 can see that happening. However, when it comes to the 0:09:36.360 --> 0:09:39.440 Kroger earnings call, sure he said AI eight times, but 0:09:39.480 --> 0:09:42.600 the stock still went down, which to me suggests that 0:09:42.640 --> 0:09:47.560 people are still being somewhat rational about this. That said, 0:09:47.679 --> 0:09:52.480 there are plenty of pockets of irrationality in the market. 0:09:52.600 --> 0:09:57.720 So there's something called the bubble portfolio that GAM portfolio 0:09:57.720 --> 0:10:01.400 manager Paul McNamara put together many many years ago, and 0:10:01.480 --> 0:10:05.440 it contains a bunch of stuff like Tesla, Netflix, Chinese 0:10:05.480 --> 0:10:09.360 tech companies, real estate developers. That thing has shot back 0:10:09.440 --> 0:10:12.440 up I think something like thirty percent so far this year, 0:10:12.480 --> 0:10:16.000 which is about double the S and P performance. So 0:10:16.240 --> 0:10:20.480 clearly people are piling back in to some low quality names. 0:10:20.800 --> 0:10:23.280 That said, a lot of those names are coming off 0:10:23.280 --> 0:10:25.320 of significant lows. So what does it mean if a 0:10:25.360 --> 0:10:28.280 company goes from you know, ten bucks to twenty bucks. 0:10:28.360 --> 0:10:32.280 That's doubling a performance, but it's still relatively low compared 0:10:32.280 --> 0:10:33.200 to prior history. 0:10:33.280 --> 0:10:36.120 Thanks to both of you, a great conversation. Tracy Alloway, 0:10:36.240 --> 0:10:39.400 she's managing editor here at Bloomberg and co host of 0:10:39.400 --> 0:10:43.880 the Odd Lots podcast and Sonaltasi Franklin Templeton CIO for fixed. 0:10:43.559 --> 0:10:46.079 Income coming up. 0:10:46.200 --> 0:10:49.200 Whether or not bosses want their employees back in the office, 0:10:49.280 --> 0:10:53.640 the economy certainly does. Cbre CEO Bob Solentik says office 0:10:53.679 --> 0:10:55.000 vacancies might be. 0:10:55.000 --> 0:10:55.600 The new norm. 0:10:55.800 --> 0:10:57.920 You really are seeing a push from companies to get 0:10:57.920 --> 0:10:59.839 people back in. I do not think it's going to 0:10:59.880 --> 0:11:00.880 go back to where it was. 0:11:02.280 --> 0:11:05.120 That's next on Wall Street Week on Bloomberg. 0:11:12.280 --> 0:11:15.679 Commercial real Estate, Bloomberg estimates it to be a twenty 0:11:15.800 --> 0:11:19.360 trillion dollar market, one that benefited from years of low 0:11:19.480 --> 0:11:22.400 interest rates, but all that changed when the FED height 0:11:22.559 --> 0:11:23.959 rates at record speed. 0:11:24.440 --> 0:11:28.400 Rates go up, financial conditions titan, and then what happens 0:11:28.480 --> 0:11:31.720 is that consumption drops, investment drops, and then we get 0:11:31.880 --> 0:11:33.040 job destruction. 0:11:32.880 --> 0:11:36.280 Even as offices remained empty in the wake of the pandemic. 0:11:36.480 --> 0:11:39.920 It's shocking to me that the vacancy rate for commercial 0:11:40.080 --> 0:11:42.119 space in San fran is thirty. 0:11:41.840 --> 0:11:44.640 Five percent, hitting valuations hard. 0:11:44.960 --> 0:11:47.320 You're seeing the office buildings that had a six hundred 0:11:47.360 --> 0:11:50.240 million dollar valuation or a three hundred million dollar valuation 0:11:50.520 --> 0:11:52.800 being sold for maybe fifty or sixty. 0:11:52.800 --> 0:11:54.680 With the potential for the problem to spread to the 0:11:54.720 --> 0:11:58.320 banking sector, particularly for the regional banks responsible for much 0:11:58.440 --> 0:11:59.720 of the commercial real estate. 0:12:00.679 --> 0:12:04.240 I think you're going to see more bank failures, likely 0:12:04.280 --> 0:12:05.880 in the small bank So it's not going to be 0:12:05.880 --> 0:12:09.120 the big headlines and the size of the failures we 0:12:09.200 --> 0:12:13.040 had so far. But I think there's more problems under 0:12:13.120 --> 0:12:13.680 the surface. 0:12:13.920 --> 0:12:14.120 Well. 0:12:14.160 --> 0:12:16.960 Banking experts like Roger Cohen say it may be a 0:12:17.000 --> 0:12:19.640 more narrowly focused problem than some think. 0:12:19.840 --> 0:12:23.920 I think only a small slice of commercial real estate 0:12:24.040 --> 0:12:28.000 is really being effective, and that slice is office buildings 0:12:28.080 --> 0:12:32.280 in a few metropolitan areas, and even there there are 0:12:32.480 --> 0:12:34.680 vast differences in credit quality. 0:12:34.920 --> 0:12:38.000 And Steve Ross have related insists that the problem does 0:12:38.080 --> 0:12:41.119 not extend to the top tier of office buildings. 0:12:41.520 --> 0:12:45.840 Chennas today are looking to find class office buildings that 0:12:45.920 --> 0:12:50.000 are new, that embody all the latest and technology and 0:12:50.040 --> 0:12:52.600 where people want to work. It's really the class speed 0:12:52.679 --> 0:12:55.000 buildings where the carnage will take place. 0:12:55.480 --> 0:12:58.440 But any way you cut it, as banking goes, so 0:12:58.600 --> 0:12:59.960 goes commercial real estate. 0:13:00.440 --> 0:13:03.080 The key to commercial real estate today, though we'll be banking. 0:13:03.360 --> 0:13:06.320 If the industry can't get a construction loan, real estate 0:13:06.400 --> 0:13:07.280 will have a recession. 0:13:10.400 --> 0:13:12.720 And to take us into the world of commercial real estate, 0:13:12.800 --> 0:13:14.600 where it is now, where it's going. Welcome to someone 0:13:14.640 --> 0:13:16.920 who knows it terribly well. He's Bob Salentek. 0:13:17.040 --> 0:13:17.559 He is the. 0:13:17.520 --> 0:13:20.599 President and CEO of CBRE. Thank you so much for 0:13:20.679 --> 0:13:21.040 joining us. 0:13:21.040 --> 0:13:21.240 Bob. 0:13:21.240 --> 0:13:23.000 Great to have you here in Wall Street Week. Thanks 0:13:23.040 --> 0:13:24.920 for having me, David, really nice to be with you. 0:13:25.200 --> 0:13:27.160 So we hear a lot abot commercial real estate right now, 0:13:27.320 --> 0:13:29.400 not all of it good, a lot of focused on 0:13:29.760 --> 0:13:33.480 office buildings, but we've learned that commercial real estate is 0:13:33.559 --> 0:13:35.040 more than just office buildings. 0:13:35.080 --> 0:13:36.600 It's part of it, but not all of it. 0:13:36.600 --> 0:13:38.880 Give us a sense of overall how commercial real estate 0:13:38.960 --> 0:13:39.600 is doing well. 0:13:39.679 --> 0:13:42.720 Of course, office buildings are the most difficult part of 0:13:42.720 --> 0:13:45.480 the commercial real estate story today when you look at 0:13:45.480 --> 0:13:48.719 other asset classes, so for instance, industrial buildings, which is 0:13:48.760 --> 0:13:59.160 a big asset class, medical office buildings, hotels, life sciences buildings, multifamily, 0:14:00.280 --> 0:14:06.480 institutional quality apartment buildings. Basically very strong fundamentals. And when 0:14:06.480 --> 0:14:11.040 I say fundamentals, I mean the following well leased, in fact, 0:14:11.080 --> 0:14:15.800 some of them historically well leased, strong rental rates and 0:14:15.920 --> 0:14:18.560 upward pressure on rental rates in a lot of cases, 0:14:19.080 --> 0:14:22.440 not a lot of new supply coming on. That's what 0:14:22.480 --> 0:14:25.680 we mean by fundamentals, and when you get beyond office buildings, 0:14:25.760 --> 0:14:29.200 the fundamentals and the commercial real estate group of asset 0:14:29.320 --> 0:14:33.200 classes are generally very strong. And even within office buildings, 0:14:33.240 --> 0:14:35.520 there's a slice of office buildings. I'm going to say 0:14:35.880 --> 0:14:40.200 for thirty to forty percent of them, these newer, better configured, 0:14:41.040 --> 0:14:44.680 better infrastructure office buildings where companies are trying to create 0:14:44.840 --> 0:14:48.160 a really high quality experience for their employees to get 0:14:48.160 --> 0:14:49.480 them back in the office. 0:14:49.840 --> 0:14:51.440 Those assets are doing quite well. 0:14:51.560 --> 0:14:55.520 So the headlines, the headline grabbing stories of an eighty 0:14:55.520 --> 0:14:58.920 percent vacant office building, that's an anecdote. That's not a 0:14:58.920 --> 0:15:01.000 proxy for what's going on on a commercial real estate. 0:15:01.040 --> 0:15:03.000 So when you talk about the newer buildings, we're learning 0:15:03.000 --> 0:15:05.600 to call them a's or A pluses as oppos the 0:15:05.600 --> 0:15:08.200 b's and c's. Yes, but if you take a look 0:15:08.240 --> 0:15:10.600 at commercial estate, the office portion of it right now, 0:15:10.720 --> 0:15:12.120 how much of it's A, how much of it be 0:15:12.160 --> 0:15:12.680 how much of C? 0:15:12.800 --> 0:15:14.000 Would you say? In general? 0:15:14.640 --> 0:15:17.520 Well, I think if you look at true A or 0:15:17.560 --> 0:15:21.240 A plus, it's maybe a quarter of the a quarter 0:15:21.280 --> 0:15:23.440 of the space out there. But you could go down 0:15:23.440 --> 0:15:25.600 a little further and have some very nice buildings that 0:15:25.640 --> 0:15:29.400 if upgraded appropriately, would be true a's and then you 0:15:29.480 --> 0:15:32.960 probably have the bottom core quarter or so that are 0:15:33.280 --> 0:15:35.840 real problematic buildings that are either going to have to 0:15:35.880 --> 0:15:40.560 be mega redeveloped or probably scraped and turned into land sites. 0:15:40.600 --> 0:15:43.280 And then in between you have a variety of different 0:15:43.360 --> 0:15:46.480 kinds of buildings, some of which can be repurposed, maybe 0:15:46.520 --> 0:15:50.440 into multifamily all that's very difficult to do. Some of 0:15:50.480 --> 0:15:52.680 them will be upgraded to Class A buildings, and some 0:15:52.720 --> 0:15:54.760 of them will go the way of land also, so. 0:15:54.680 --> 0:15:56.800 You have different parts to commercial real estate, and then 0:15:56.920 --> 0:15:59.040 within the office part of commercial real estate, you've got 0:15:59.080 --> 0:16:02.320 different classes. Look at what about geography, because another thing 0:16:02.360 --> 0:16:04.760 that we have heard is that it depends on what 0:16:04.800 --> 0:16:08.280 metropolitan area you're talking about. San Francisco may be troubled 0:16:08.320 --> 0:16:10.160 New York, maybe not so great Chicago. But then there 0:16:10.200 --> 0:16:15.040 are others, whether it is Miami, for example, some parts 0:16:15.040 --> 0:16:17.560 of Texas are doing pretty well well. 0:16:18.400 --> 0:16:22.400 You mentioned San Francisco first, So that's probably the toughest 0:16:22.400 --> 0:16:26.000 story out there in office buildings, and it's for more 0:16:26.120 --> 0:16:29.560 reasons than just the tough to get people back in 0:16:29.600 --> 0:16:33.280 the office. First of all, everybody knows that's where so 0:16:33.440 --> 0:16:38.080 much concentration of tech occupancy is those companies have laid 0:16:38.080 --> 0:16:39.000 off a lot of people. 0:16:39.040 --> 0:16:40.160 But David, think about this. 0:16:40.920 --> 0:16:44.560 We all know that the technology companies that are going 0:16:44.600 --> 0:16:47.520 backwards with headcount now are going to go the other 0:16:47.600 --> 0:16:50.480 direction for sure in the long run. We know that's 0:16:50.520 --> 0:16:52.480 going to happen, and that part of what's going on 0:16:52.600 --> 0:16:54.560 is going to come back. And then, of course you 0:16:54.600 --> 0:16:58.160 do have the cyclical thing with the economy being down 0:16:58.200 --> 0:17:00.960 a little bit, and you have the secular thing with 0:17:01.040 --> 0:17:03.800 people not being back in the office as much, and 0:17:03.920 --> 0:17:05.359 technology companies kind. 0:17:05.240 --> 0:17:07.640 Of lead that charge. But by the way, if you. 0:17:07.600 --> 0:17:10.160 See what's going on now, the technology companies are talking 0:17:10.160 --> 0:17:12.639 about getting their people back into the office. 0:17:12.400 --> 0:17:14.520 Talking about it, but they're getting that done. I mean, 0:17:14.520 --> 0:17:17.720 we just this week passed the milestone in New York 0:17:17.800 --> 0:17:21.159 of fifty percent occupancy, and that is by use of 0:17:21.160 --> 0:17:23.040 the sort of security cards they know they're actually in 0:17:23.119 --> 0:17:25.000 the office. Is it ever going to come back to 0:17:25.000 --> 0:17:25.719 where it was before? 0:17:26.840 --> 0:17:30.159 Well, New York is a good example of quite a 0:17:30.160 --> 0:17:33.200 bit of the spectrum of what's going on. So in 0:17:33.840 --> 0:17:37.199 class A top quality buildings here in New York, you 0:17:37.240 --> 0:17:39.680 go over to Hudson Yards or you go to one 0:17:39.800 --> 0:17:43.760 Vanderbilt in Midtown across from a Grand Central station. These 0:17:43.800 --> 0:17:46.159 buildings are doing well and they're going to continue to 0:17:46.200 --> 0:17:49.200 do well. And they're doing well because they create a 0:17:50.800 --> 0:17:53.879 great story for the client or for the tenants and 0:17:53.920 --> 0:17:56.040 their people, a great experience for their people. 0:17:56.840 --> 0:17:58.520 Other buildings are suffering. 0:17:58.080 --> 0:18:00.840 More because they don't create that experience, but they're all 0:18:00.880 --> 0:18:03.960 slowly filling up. We did see a flat spot for 0:18:04.040 --> 0:18:06.399 quite a while I'm going to say from earlier this 0:18:06.480 --> 0:18:09.439 year till about now, but we're starting to see it 0:18:09.520 --> 0:18:12.239 rise a little bit again now, and you really are 0:18:12.280 --> 0:18:14.359 seeing a push from companies to get people back in. 0:18:14.640 --> 0:18:16.159 I do not think it's going to go back to 0:18:16.160 --> 0:18:18.240 where it was, and in fact, the work we've done 0:18:18.280 --> 0:18:21.679 would suggest that in the long run, companies are going 0:18:21.720 --> 0:18:25.359 to take maybe eighty percent of the space, maybe as 0:18:25.400 --> 0:18:28.600 little as seventy five percent of the space as they 0:18:28.800 --> 0:18:29.640 previously had. 0:18:29.920 --> 0:18:31.240 So I don't want to put words in your mouth, 0:18:31.320 --> 0:18:32.960 but I think what I'm hearing you say is by 0:18:33.040 --> 0:18:35.800 and large, looking at as far as you can, you say, 0:18:35.800 --> 0:18:38.240 maybe the market has largely discounted what it needs to 0:18:38.320 --> 0:18:39.320 discount at this point. 0:18:39.480 --> 0:18:43.040 Yeah, I think that's probably the case. Now we all 0:18:43.080 --> 0:18:44.520 need to figure out what's going to go on with 0:18:44.560 --> 0:18:48.080 the economy. Right now, the economy has performed better than 0:18:48.119 --> 0:18:49.680 we thought it was going to perform, quite a bit 0:18:49.720 --> 0:18:52.400 better around the world, in fact that there's now an 0:18:52.400 --> 0:18:55.959 expectation that we won't even have a recession in Europe. 0:18:56.040 --> 0:18:59.119 If we ended up with a worse recession than we 0:18:59.119 --> 0:19:01.600 think we're going to get, values would come down further 0:19:01.680 --> 0:19:05.560 because people would stop spending money of all types, including 0:19:05.920 --> 0:19:09.280 try to spend less on rents. But we think values 0:19:09.320 --> 0:19:12.000 have kind of hit the bottom are going to start recovering, 0:19:12.040 --> 0:19:14.560 and we think we believe that we're going to have 0:19:14.600 --> 0:19:17.200 a mild recession that's going to take place later this year, 0:19:17.280 --> 0:19:20.480 be relatively short, and you'll start to see things come back. 0:19:20.480 --> 0:19:23.840