WEBVTT - Apple, Real Estate, Russia, and Carvana 0:00:00.800 --> 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. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.400 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:21.959 at Bloomberg dot com slash podcast. Let's talk about the 0:00:21.960 --> 0:00:25.440 tech space PCs. People are still out there buying PCs, 0:00:25.480 --> 0:00:28.640 Apparently they bought a lot during the pandemic, and maybe 0:00:28.840 --> 0:00:30.720 comps are getting a little tougher here. But let's figure out. 0:00:30.760 --> 0:00:32.440 We got some news out there that PC shipments are 0:00:32.440 --> 0:00:35.000 down pretty big. Anna rog Rana, senior tech an also 0:00:35.000 --> 0:00:38.640 Bloomberg Intelligence, joins us, what's going on in the PC 0:00:38.840 --> 0:00:41.960 market is just us tough comps. I'm seeing minus twenty, 0:00:41.960 --> 0:00:45.760 minus thirty even Apple minus forty percent on PC deliveries, 0:00:45.800 --> 0:00:49.000 even though, as Matt Riley points out, Apple doesn't sell PCs, 0:00:49.040 --> 0:00:53.360 they sell max. But what's going on in that PC space? No? No, 0:00:53.400 --> 0:00:55.640 I agree, I mean I think it tough. Comps is 0:00:55.680 --> 0:00:58.800 one thing, but you know, the street already had MAC 0:00:59.040 --> 0:01:02.120 revenue going down twenty two. But if the unit shipments 0:01:02.240 --> 0:01:04.679 is down forty percent. I think those numbers need to 0:01:04.680 --> 0:01:07.080 come down a little bit more, which to me tells 0:01:07.080 --> 0:01:10.080 me that the consumer spending is actually worse than what 0:01:10.160 --> 0:01:13.680 we anticipated a quarter ago, and that should bleed into 0:01:13.720 --> 0:01:16.880 other product categories as well. So I'm expecting a lot 0:01:16.920 --> 0:01:20.240 more downward revision of consensus estimates over the next couple 0:01:20.240 --> 0:01:25.160 of weeks. So you expect down or revision of senses estimates, 0:01:25.160 --> 0:01:29.920 meaning that you also expect the stock to drop, right. 0:01:30.720 --> 0:01:32.680 That depends on if you are renting it for a 0:01:32.760 --> 0:01:34.479 quarter or if you're buying it for the long run. 0:01:34.560 --> 0:01:37.240 So that's usually, you know, truly depends on who the 0:01:37.280 --> 0:01:40.280 buyer is. But I don't expect the revenue numbers to 0:01:40.319 --> 0:01:43.000 come down now that that may mean that whoever is 0:01:43.040 --> 0:01:46.040 taking those numbers down maybe increasing it the year from now, 0:01:46.319 --> 0:01:48.680 because it's not as if you know the buyer of 0:01:48.680 --> 0:01:51.680 that particular MacBook Pro like yourself. You know, if you're 0:01:51.720 --> 0:01:53.320 not buying it now, you're going to buy it six 0:01:53.360 --> 0:01:55.960 months from now or twelve months from now. Okay, the 0:01:55.960 --> 0:01:58.280 fact that I bought it twelve months ago because I 0:01:58.320 --> 0:02:03.440 had some stimmies and and you know, I had to 0:02:03.480 --> 0:02:05.640 work from home or had to do school from home. 0:02:05.760 --> 0:02:08.720 Now I can work in the office, I can go 0:02:08.760 --> 0:02:11.720 back to school. And plus, why would I spend money 0:02:11.760 --> 0:02:14.000 on that kind of thing now that I don't have 0:02:14.120 --> 0:02:18.520 the government sending me checks. Well, if you know the 0:02:18.520 --> 0:02:21.120 people who the government was sending the checks, we're not 0:02:21.160 --> 0:02:24.600 buying MacBook pros in my view. So if you are 0:02:24.600 --> 0:02:27.239 a gamer and you're looking for MacBook Pro with the 0:02:27.720 --> 0:02:30.200 next M two chip, you know you will spend fifteen 0:02:30.280 --> 0:02:32.840 hundred dollars or two thousand dollars to buy it. But again, 0:02:33.080 --> 0:02:35.480 that's a that's a luxury product. That's not something that 0:02:35.760 --> 0:02:39.359 you know everybody can buy. All right, I just want 0:02:39.360 --> 0:02:41.280 to get the generic Apple call here. What do you 0:02:41.320 --> 0:02:43.360 think they gets census calls for this stock? Right here? 0:02:43.360 --> 0:02:46.080 It's up twenty four percent year to date, still about 0:02:46.160 --> 0:02:48.440 five percent down on a trailing twelve month basis, So 0:02:48.480 --> 0:02:50.600 stick at trying to dig itself out of that twenty 0:02:50.639 --> 0:02:53.480 twenty two hole. What's the when you talk to some 0:02:53.480 --> 0:02:56.239 smart tech investors out there, what are they saying about Apple? 0:02:57.000 --> 0:02:58.519 You know, I think if you look at both Apple 0:02:58.560 --> 0:03:00.720 and Microsoft, they have been a safe stock for the 0:03:00.760 --> 0:03:03.480 past several weeks. As people are trying to figure out 0:03:03.480 --> 0:03:06.200 where they go from here. The valuation has gone up 0:03:06.200 --> 0:03:09.040 for both these companies quite a bit in the last 0:03:09.040 --> 0:03:12.120 two I would say, several weeks. Now the question is, 0:03:12.360 --> 0:03:14.960 you know, what happens to the rest of the tech portfolio. 0:03:15.240 --> 0:03:18.240 If we do see some stabilization in other tech stocks, 0:03:18.480 --> 0:03:20.359 then you would see some kind of I would say, 0:03:20.360 --> 0:03:24.080 a sector reallocation from you know, these two safety stocks 0:03:24.080 --> 0:03:26.360 to some of the other ones. Now, having said that, 0:03:26.400 --> 0:03:29.560 this is the first time I'm seeing a clear indication 0:03:29.600 --> 0:03:32.359 that Apple numbers needs to come down. You know, that 0:03:32.480 --> 0:03:34.680 wasn't the case. I would say in the last twelve months, 0:03:35.440 --> 0:03:38.680 what do you think about chip usage? I mean, the 0:03:39.600 --> 0:03:44.640 Samsung story and Taiwan Semiconductor as well, has really affected 0:03:44.760 --> 0:03:47.640 the US market. Today we see a jump at Micron. 0:03:48.640 --> 0:03:51.840 Does this mean that a lot of chip suppliers are 0:03:51.880 --> 0:03:55.120 going to have fewer orders or have they bottomed at 0:03:55.120 --> 0:03:58.240 this point? You see, that's a very tough call to 0:03:58.320 --> 0:04:01.240 make because a lot depends on you know, autos and 0:04:01.320 --> 0:04:04.320 other industries. It's not so much always tied with PCs, 0:04:04.360 --> 0:04:07.040 although consumer spending you know, in PCs is a big 0:04:07.040 --> 0:04:10.000 portion of chips. But I don't think Apple has ever 0:04:10.080 --> 0:04:12.200 had an issue with supply chain when it comes to 0:04:12.840 --> 0:04:15.080 you know, they get it first before anybody else. I'm 0:04:15.320 --> 0:04:18.840 I'm less concerned on those factors. For my biggest concern 0:04:18.920 --> 0:04:21.560 at this point for Apple is, um, you know, what's 0:04:21.600 --> 0:04:24.760 really going to happen on the on some of these 0:04:24.760 --> 0:04:27.680 products and how bad it's going to get in twenty 0:04:27.720 --> 0:04:30.880 twenty three before we see a potential bounce back next year? 0:04:31.240 --> 0:04:34.119 Do they have do they have to introduce a killer 0:04:34.200 --> 0:04:36.320 new product? Are they going to make some kind of 0:04:36.480 --> 0:04:43.279 virtual reality aar eyeglasses. Are they going to come out 0:04:43.279 --> 0:04:46.480 with new air pods that blow us away for this 0:04:46.560 --> 0:04:49.719 new function that we never knew headphones can have? Or 0:04:50.480 --> 0:04:53.160 is the car coming soon? I don't know about the car, 0:04:53.200 --> 0:04:55.520 but Mark German said that you know, they will launch 0:04:56.160 --> 0:04:58.719 the new mixed reality headset in the summer. You know 0:04:58.760 --> 0:05:01.919 that is going to truly vibe the whole metaphors discussion. 0:05:02.120 --> 0:05:05.400 But I don't think mathematically it adds anything at least 0:05:05.400 --> 0:05:08.280 for the next you know, this financial year. Next year, 0:05:08.320 --> 0:05:10.680 perhaps it adds a few billion dollars, But you know 0:05:10.800 --> 0:05:12.760 the big thing for Apple is going to be the 0:05:12.760 --> 0:05:15.760 iPhone fifteen launch by the end of this year and 0:05:15.920 --> 0:05:18.920 a revival potentially in the services division. So I think 0:05:18.960 --> 0:05:21.600 comps are getting easier and easier for Apple for a 0:05:21.640 --> 0:05:24.760 bounce back next year. But before that, I think we 0:05:24.800 --> 0:05:27.200 need to have a take a step back on numbers 0:05:27.240 --> 0:05:30.000 before we can jump back and say revenue growth is 0:05:30.000 --> 0:05:31.720 going to get back again into that eight to ten 0:05:31.760 --> 0:05:35.599 percent range. So I'm looking at the PGeo function on 0:05:35.640 --> 0:05:38.240 the Bloomberg termo for Apple. I see about twenty percent 0:05:38.360 --> 0:05:42.240 of their sales are in Greater China. Are the Chinese 0:05:42.360 --> 0:05:45.279 buying watches and phones and all that kind of stuff? 0:05:45.320 --> 0:05:48.400 What's the market like? I think this, You know, that's 0:05:48.400 --> 0:05:50.640 probably only going to be the one bright spot for 0:05:50.680 --> 0:05:53.200 Apple over the next six months, because you know, the 0:05:53.560 --> 0:05:57.240 China reopening trade and the Chinese consumer really hasn't spent 0:05:57.360 --> 0:05:59.479 quite a bit over the last twelve months. You know, 0:05:59.480 --> 0:06:02.120 we could see some relief over there to offset the 0:06:02.160 --> 0:06:05.159 other things that we are talking about. But you know, again, 0:06:05.360 --> 0:06:07.520 I think the big jump is going to come from 0:06:07.720 --> 0:06:10.960 a new hardware design from the iPhone fifteen, which is 0:06:11.040 --> 0:06:13.440 most likely going to be in the September October timeframe. 0:06:14.200 --> 0:06:16.679 All right, Now, Tim Cook was over there right in China, 0:06:16.720 --> 0:06:19.520 and what was she trying to do. It's trying to 0:06:19.520 --> 0:06:22.360 be nice to them. That's where they you know, it's 0:06:22.880 --> 0:06:25.279 it is. It is the heart and lungs off Apple 0:06:25.360 --> 0:06:28.320 supply chain. If something happens to that, Apple's going to 0:06:28.360 --> 0:06:30.880 be in really tough time. So he's just kind of 0:06:30.920 --> 0:06:34.160 trying to smooth things out that otherwise it's getting worse. Frankly, 0:06:34.320 --> 0:06:38.360 Hey guys, you look great today. Hey, anybody wants the 0:06:38.400 --> 0:06:43.200 new iPhone? Isn't Taiwan yours anyway? Yes, exactly, So I 0:06:43.320 --> 0:06:45.080 love to see about that. I don't know that's that's 0:06:45.120 --> 0:06:47.640 still a huge risk there, but I guess trying to 0:06:47.720 --> 0:06:49.679 smooth it over a little bit. On agron I, senior 0:06:49.720 --> 0:06:53.200 technology analyst with Bloomberg Intelligence, joining us on the phone 0:06:53.240 --> 0:06:57.960 talking about Apple, mac shipment's PC shipment's across the industry. 0:06:59.160 --> 0:07:03.040 You're listening to the Team Cancer Line program Bloomberg Markets 0:07:03.080 --> 0:07:06.159 weekdays at ten am Eastern on Bloomberg dot com, the 0:07:06.240 --> 0:07:08.960 I Heard Radio app and the Bloomberg Business app, or 0:07:09.000 --> 0:07:13.960 listen on demand wherever you get your podcast. Let's get 0:07:14.000 --> 0:07:17.360 to the next company, which I find really fascinating. I 0:07:17.440 --> 0:07:21.280 was initially interested because it's called the Howard Hughes Corporation, 0:07:21.880 --> 0:07:26.760 and who isn't interested in Howard Hughes, right, But it's 0:07:26.800 --> 0:07:31.080 actually got that name in a roundabout way. Howard Hughes 0:07:31.680 --> 0:07:36.160 bought the property for one of their master planned communities. 0:07:36.800 --> 0:07:41.160 And now that's the business that they're in. But it's 0:07:41.200 --> 0:07:43.600 not all stuff they got from Howard Hughes, mostly general 0:07:43.640 --> 0:07:47.400 growth properties. David O'Reilly joins as CEO of the company. 0:07:47.440 --> 0:07:50.760 The ticker is HC. It's publicly traded on the New 0:07:50.840 --> 0:07:54.280 York Stock Exchange. David, so talk to us first, give 0:07:54.360 --> 0:07:57.440 us the overhead view of the Howard Hughes Corporation. You 0:07:57.520 --> 0:08:01.800 have at least three master planned communities, right, These are big. 0:08:01.840 --> 0:08:04.560 It's not like a few thousands, like one hundred thousand 0:08:04.560 --> 0:08:07.520 people live in them, and there are thousands of acres. 0:08:07.880 --> 0:08:11.040 So what's the business. It's the end of the day. 0:08:11.240 --> 0:08:14.960 We play sim city. We're developing real estate to create 0:08:15.000 --> 0:08:17.120 the greatest places to live, to have the greatest and 0:08:17.200 --> 0:08:21.679 positive impact on our residents, tenants and visitors lives. Sell 0:08:21.760 --> 0:08:25.080 land to home builders, take that capital to amenitize built office, 0:08:25.200 --> 0:08:28.720 multi families, shopping within our communities, which in turn makes 0:08:28.720 --> 0:08:31.520 it better places to live where more people want to 0:08:31.520 --> 0:08:33.840 come live there, our land values go up, and that 0:08:33.880 --> 0:08:37.160 self fulfilling cycle goes on and on. We essentially play 0:08:37.240 --> 0:08:39.439 sim city. We decide where the roads go, where the 0:08:39.480 --> 0:08:42.680 hospitals are, where the homes are, and create what we 0:08:42.720 --> 0:08:44.760 think are the best communities to live in America. And 0:08:44.800 --> 0:08:47.280 then they have then they hopefully you know, they have 0:08:47.559 --> 0:08:52.640 the best plumbing, the best WiFi, pickleball on demand yep. 0:08:53.040 --> 0:08:54.920 And they also had a good golf course then in Houston. 0:08:55.160 --> 0:08:57.439 So all right, when I see a new company, I 0:08:57.480 --> 0:08:58.960 got right to the board of directors. I see your 0:08:59.000 --> 0:09:02.480 chairman of the boarders, Bill Ackman. Why is he the chairman? 0:09:02.520 --> 0:09:04.640 Then I go to the HDS screen gives you the 0:09:04.640 --> 0:09:07.840 shareholders and thirty two percent of your company. What's going 0:09:07.880 --> 0:09:10.240 on there? Wise? Persian there? Why are they big? Wise? Bill? 0:09:10.280 --> 0:09:12.600 On your board? Well? Bill took over General Growth when 0:09:12.600 --> 0:09:15.240 it filed for bankruptcy. And when he went through the 0:09:15.320 --> 0:09:19.280 assets of General Growth, he saw these communities, these great places, 0:09:19.360 --> 0:09:23.000 these unique development opportunities that didn't belong in a public malread. 0:09:23.200 --> 0:09:26.720 So the Howard used corporation is Bill's idea. He came 0:09:26.840 --> 0:09:28.719 up with it. He spun us out into our own 0:09:28.840 --> 0:09:31.640 entity about twelve years ago, and he's been an incredible 0:09:31.679 --> 0:09:34.400 supporter and incredible chairman ever since day one. So what 0:09:34.440 --> 0:09:37.040 do the numbers look like? I mean, how are you 0:09:37.080 --> 0:09:40.160 doing on the top and bottom line and give us 0:09:40.160 --> 0:09:44.160 your five year view. Things have been incredible. The pandemic 0:09:44.240 --> 0:09:47.160 has been an incredible tail winds to our business. We've 0:09:47.160 --> 0:09:49.720 sold more land to home builders, which is one of 0:09:49.760 --> 0:09:51.720 the three main areas of revenue for us, over the 0:09:51.720 --> 0:09:54.240 past two years than we have ever before. And we 0:09:54.280 --> 0:09:56.880 see that momentum, despite a rest bite in the fourth 0:09:56.960 --> 0:10:00.560 quarter of last year, coming right back very quickly this year, 0:10:00.800 --> 0:10:03.320 despite higher mortgage rates. That's kind of where I wanted 0:10:03.320 --> 0:10:05.280 to go. We've seen that spike in mortgage rates. It's 0:10:05.280 --> 0:10:07.240 scared a lot of people out of the market. Not me, 0:10:07.679 --> 0:10:09.199 but it scared some people out of the market. What 0:10:09.280 --> 0:10:11.880 are you seeing kind of in this spike in real 0:10:11.960 --> 0:10:14.640 estate more mortgage rates. I don't think it's the spike 0:10:14.679 --> 0:10:17.760 of rates that changes home builder demands. I think it's 0:10:17.800 --> 0:10:22.440 the change the volatility of rates forces homebuyers to pause. 0:10:22.880 --> 0:10:25.760 Once it settles in, they're right back to the market. 0:10:25.920 --> 0:10:28.880 We're looking out between a three and five million unit 0:10:28.960 --> 0:10:32.840 shortfall of housing units needed to meet the household formation 0:10:32.880 --> 0:10:35.640 of the past ten years. It doesn't exist today. People 0:10:35.679 --> 0:10:37.559 need places to look. I'll tell you what exist is 0:10:37.600 --> 0:10:41.720 all the McMansions everywhere. What doesn't exist is starter homes 0:10:42.360 --> 0:10:44.360 because those guys can't make the same margin on it. 0:10:44.559 --> 0:10:46.920 How do we fix that problem? Do you think? Oh? Look, 0:10:46.960 --> 0:10:49.960 I think that it's tough for me to say that 0:10:50.000 --> 0:10:52.680 there's a magic wand to solve that. Across the country. 0:10:53.200 --> 0:10:57.240 Within our Masterplant communities, which are twenty thirty thousand acres plus, 0:10:57.400 --> 0:11:00.880 we're prescriptive in terms of what homes are being sold 0:11:00.920 --> 0:11:03.880 for what price wear prescriptive in terms of the setbacks. 0:11:03.920 --> 0:11:07.040 That sizes the pricing so that we can meet affordability 0:11:07.040 --> 0:11:11.400 across every price point within our community. Look over the 0:11:11.480 --> 0:11:15.120 past year, we've seen home prices shoot up, and that 0:11:15.240 --> 0:11:17.679 part of that material prices getting higher. Part of that's 0:11:17.760 --> 0:11:20.400 labor higher, part of that's my land has been more expensive, 0:11:20.720 --> 0:11:23.160 and part of that has been home builder margins. Home 0:11:23.160 --> 0:11:25.480 building margins have been in that eighteen to twenty percent 0:11:25.559 --> 0:11:28.079 since I can remember, and last year they peaked at 0:11:28.080 --> 0:11:31.960 twenty nine percent. So there's room. We're seeing material prices 0:11:31.960 --> 0:11:34.680 come down. We're seeing home builders except lower margins. We're 0:11:34.679 --> 0:11:38.560 seeing homes land sellers like ourselves, except slightly lower prices. Now, 0:11:38.559 --> 0:11:40.920 where do you buy land, like when you decide I 0:11:40.960 --> 0:11:44.240 want to build another woodlands, where do you find How 0:11:44.280 --> 0:11:46.559 do you identify our market that is worthy of your 0:11:46.559 --> 0:11:49.400 investment of land? So for us, we belt We bought 0:11:49.400 --> 0:11:51.959 our last master plane community at the end of last year. 0:11:52.520 --> 0:11:55.400 It's called Terra Vallis outside of Phoenix, thirty seven thousand 0:11:55.440 --> 0:11:59.760 acres today, population zero. The characteristics that make that great 0:12:00.120 --> 0:12:02.960 it's fully entitled fore hundred thousand homes in fifty five 0:12:03.000 --> 0:12:06.319 million square feet of commercial space. It is immediately adjacent 0:12:06.320 --> 0:12:08.760 to Phoenix, just north of the I ten that connects 0:12:08.800 --> 0:12:13.560 to Los Angeles. So great transportation, great access, lower tax, 0:12:13.760 --> 0:12:17.840 business friendly community, warm or less expensive to live. Affordability 0:12:17.880 --> 0:12:19.839 helps drive our decision. Make is that only going to 0:12:19.920 --> 0:12:23.000 be you know, the older people like Paul and Tucker 0:12:23.679 --> 0:12:27.600 or kind of young buck like Megan and on that 0:12:28.360 --> 0:12:30.640 I would tell you that we're going to see this community. 0:12:30.640 --> 0:12:32.360 I think it's going to be more starter homes. I 0:12:32.360 --> 0:12:34.880 think it's going to be more younger families coming into 0:12:34.920 --> 0:12:38.559 the market. I think this is going to be not 0:12:38.679 --> 0:12:41.920 your age restricted community. Will have age restricted communities within 0:12:41.960 --> 0:12:44.800 the overall thirty seven thousand acres, but the predominance is 0:12:44.920 --> 0:12:47.640 starting here is going to be your young families moving 0:12:47.679 --> 0:12:49.839 into the area finding that quality of life that they 0:12:49.840 --> 0:12:53.080 can't get in La Sanford. So you're so you're now 0:12:53.120 --> 0:12:55.440 a kind of a ground zero type of situation in 0:12:55.559 --> 0:12:58.920 that community in Phoenix for that property. What's a lifespan 0:12:59.320 --> 0:13:01.720 before you get to a Woodlands where it is built 0:13:01.760 --> 0:13:03.360 out and it looks like it's been there forever. Well, 0:13:03.400 --> 0:13:08.240 the Woodlands is celebrating its fiftieth anterimursary next year, and 0:13:08.320 --> 0:13:12.000 we're out of residential land. All twenty twenty eight thousand 0:13:12.000 --> 0:13:14.679 acres or of the residential side are gone. We're down 0:13:14.720 --> 0:13:17.200 to seven hundred acres of commercial space, which is another 0:13:17.440 --> 0:13:20.960 twenty or thirty years of commercial development. So the life 0:13:20.960 --> 0:13:23.079 cycle of Tera Vallis and Phoenix could be forty or 0:13:23.120 --> 0:13:25.439 fifty years. Wow, I think it'll be quicker this. And 0:13:25.559 --> 0:13:27.680 you have developers, did that you know you want to 0:13:27.679 --> 0:13:30.400 work with to build the homes, to build the commercial space? 0:13:30.520 --> 0:13:33.960 Is that do you pick those? We are the commercial developer, 0:13:34.120 --> 0:13:37.120 you're the career master planning. We're just signing where those 0:13:37.200 --> 0:13:39.280 roads are gonna go. We're gonna build those office buildings, 0:13:39.320 --> 0:13:41.280 so you build them as well. Okay, we're gonna own 0:13:41.280 --> 0:13:43.959 them forever. We'll sell the land to home builders, okay, 0:13:43.960 --> 0:13:47.640 and they'll build a single family homes and got in 0:13:47.679 --> 0:13:49.360 the residence. So you can't help us up with a 0:13:49.360 --> 0:13:52.760 good contractor. I mean I was going to ask you. 0:13:52.960 --> 0:13:54.480 I was gonna see if you had a couple of records. 0:13:54.480 --> 0:13:56.640 Everybody wants to know because that kind of labor is 0:13:56.640 --> 0:13:58.800 tough to come by. But I guess you outsourced the 0:13:58.840 --> 0:14:01.800 home building process, so you're not as worried about, you know, 0:14:01.920 --> 0:14:05.280 finding people to put it up. Our labor is horizontal development. 0:14:05.320 --> 0:14:08.720 It is putting in the water, sewer, roads, curbs parks, 0:14:08.800 --> 0:14:12.160 and that labor is still very difficult to find. I 0:14:12.200 --> 0:14:15.000 think our competitive advantage is that when we're spending a 0:14:15.000 --> 0:14:16.720 billion and a half dollars a year, and we know 0:14:16.760 --> 0:14:18.520 we're going to spend it for the next forty years, 0:14:19.320 --> 0:14:21.960 we can keep someone's attention real time, rather than have 0:14:22.040 --> 0:14:24.400 them worry about moving to the next project in six months. 0:14:24.440 --> 0:14:26.640 So what are some of the big variables for your business? 0:14:26.640 --> 0:14:30.520 I mean, if your business can perform presumably you know 0:14:30.680 --> 0:14:33.360 you're saying, even at these levels of interest rates, what 0:14:33.400 --> 0:14:35.120 are some of the big variables that kind of you 0:14:35.200 --> 0:14:38.040 have to manage as a CEO. I think some of 0:14:38.120 --> 0:14:41.240 the biggest thing is there's two areas. One in the 0:14:41.280 --> 0:14:44.320 residential land development. We're trying to develop lots just to 0:14:44.400 --> 0:14:47.080 keep up with underlying home sales, right and underlying home 0:14:47.120 --> 0:14:49.680 sales are very difficult to predict, but we're watching them 0:14:49.720 --> 0:14:52.880 every day to see which size lots selling, which size 0:14:52.920 --> 0:14:54.960 homes are selling, and making sure we have those lots 0:14:55.000 --> 0:14:58.200 available for our home builders to get back into their inventory. 0:14:58.600 --> 0:15:00.680 And the other side of the equation is really just 0:15:00.720 --> 0:15:03.400 trying to get a pulse of our residence. We're most 0:15:03.400 --> 0:15:07.080 successful when we're building the amenities that our residents want, 0:15:07.600 --> 0:15:10.880 whether that's the Kirby Ice House in the Woodlands or 0:15:10.880 --> 0:15:14.000 whether that's another multi family apartment building. Because we're full 0:15:14.200 --> 0:15:17.320 and rents are raised rising too quickly, we need to 0:15:17.400 --> 0:15:19.560 be we make sure we have a finger on the 0:15:19.600 --> 0:15:22.280 pulse of what our residents want and meet that demand. 0:15:22.880 --> 0:15:25.920 I'm telling you it's pickaball. It's pickaball. Yeah, I don't 0:15:25.920 --> 0:15:29.040 know it has been. It's been amazing how we've seen 0:15:29.160 --> 0:15:32.960 parking garages and tennis courts being repurposed for pickaball and 0:15:33.040 --> 0:15:36.400 it gets used. So I see a big drop in 0:15:36.440 --> 0:15:39.400 revenue in twenty twenty. Was that just all pandemic driven? 0:15:39.440 --> 0:15:41.600 You guys kind of had to shut down development? It is, 0:15:41.800 --> 0:15:44.080 But we also another part of our business is selling 0:15:44.080 --> 0:15:46.480 condominiums in Hawaii, where we have sixty acres on the 0:15:46.520 --> 0:15:49.360 beach in an area known as Ward Village between Waikiki 0:15:49.480 --> 0:15:52.760 and alamo Ona Mall. If we don't have a condo 0:15:52.840 --> 0:15:55.960 tower closed in a particular year, the revenue will drop off. 0:15:57.000 --> 0:15:59.800 You know, We're not running our business for next quarters earnings, 0:16:00.080 --> 0:16:03.080 running our business to drive value creation for the next one, three, five, 0:16:03.480 --> 0:16:06.320 ten years. Fascinating stuff. I knew. I knew the Woodlands. 0:16:06.320 --> 0:16:07.480 I've been there a couple of times. I didn't know 0:16:07.520 --> 0:16:09.360 as you guys, so very very cool Slumberland. Is it 0:16:09.400 --> 0:16:13.800 called Summerlin outside Vegas? Yes, I played their tid. Hughes 0:16:13.880 --> 0:16:16.200 has been gone for about fifty years as well. I 0:16:16.200 --> 0:16:18.920 think he died in nineteen seventy three. Yeah, you fly 0:16:18.960 --> 0:16:21.560 into Lax you see the Hughes aerospace, which is very cool. 0:16:21.720 --> 0:16:25.080 David O'Reilly, CEO of Howard Hughes Corporation, trades on the 0:16:25.160 --> 0:16:30.080 NYC h HC talking about some planned communities, some commercial 0:16:30.120 --> 0:16:32.720 real estate. You're listening to. The tape cans are our 0:16:32.800 --> 0:16:36.520 live program Bloomberg Markets weekdays at ten am Eastern on 0:16:36.560 --> 0:16:39.600 Bloomberg Radio, the tune in app, Bloomberg dot Com, and 0:16:39.680 --> 0:16:42.440 the Bloomberg Business App. You can also listen live on 0:16:42.520 --> 0:16:45.800 Amazon Alexa from our flagship New York station, Just say 0:16:45.880 --> 0:16:51.600 Alexa play Bloomberg eleven thirty twenty twenty two. There was 0:16:51.960 --> 0:16:54.720 nowhere to hide really in the fixed income space. But 0:16:54.800 --> 0:16:57.440 I look at my i nd go function on the 0:16:57.480 --> 0:16:59.920 Bloomberg terminal for the Bloomberg Index browser, and I see 0:17:00.040 --> 0:17:04.320 the Bloomberg US Aggregate fixed Income Index is up three 0:17:04.359 --> 0:17:06.560 point five percent this year. So a much much better 0:17:06.600 --> 0:17:09.080 start to twenty twenty three. Let's see if there's more 0:17:09.119 --> 0:17:12.159 life in the fixed income space. Jason Greenblath joins us. 0:17:12.160 --> 0:17:15.760 He's a senior portfolio manager in American Century Investments, proud 0:17:15.800 --> 0:17:19.520 alumnus from Penn State University, joining us here in our 0:17:19.520 --> 0:17:22.359 Bloomberg Interactive Broker studio. So what do you do in 0:17:22.400 --> 0:17:24.439 this year? Jason, I mean twenty twenty two, let's just 0:17:24.480 --> 0:17:27.000 flush it. That's how bad it was for the fixed 0:17:27.000 --> 0:17:30.119 income folks. How'd you guys start this year and what 0:17:30.160 --> 0:17:32.080 do you think right now? Yeah, thanks for having me on. 0:17:32.119 --> 0:17:36.280 I appreciate it. Our highest conviction this year is duration, 0:17:36.400 --> 0:17:42.080 belong duration coming in. We've certainly seen some evidence last month. 0:17:42.119 --> 0:17:45.480 We saw evidence back in September that higher rates are 0:17:45.480 --> 0:17:48.640 starting to break things down in the economy. Last month 0:17:48.760 --> 0:17:52.120 was the banks back in September, with UK pension plans 0:17:52.440 --> 0:17:56.000 having problems and so being long duration in our mind 0:17:56.119 --> 0:18:00.040 is the economy's slowing is our highest conviction position. And 0:18:00.240 --> 0:18:03.400 at the moment, yeah, we saw, well, there's a Bloomberg 0:18:03.520 --> 0:18:08.600 story out overnight about one and a half trillion dollar 0:18:08.840 --> 0:18:15.399 wall of maturity coming due in just commercial real estate 0:18:15.840 --> 0:18:18.959 by twenty twenty five. So it started to kind of 0:18:18.960 --> 0:18:21.320 freak me out. I was worried, as had nightmares as 0:18:21.359 --> 0:18:24.640 I read this last night, because these higher rates could 0:18:24.760 --> 0:18:27.320 really break something. Right, We've already seen as you said, 0:18:27.359 --> 0:18:31.439 the banking crisis. Are are we giving up on the 0:18:31.480 --> 0:18:34.239 idea of a soft landing? Can the Fed not achieve that? 0:18:34.920 --> 0:18:38.320 In our minds, it's a low probability. The probability recession 0:18:38.400 --> 0:18:42.760 harder landing certainly has has grown the beginning of March 0:18:42.840 --> 0:18:47.120 with the banking crisis certainly illustrated that, Matt, you mentioned 0:18:47.400 --> 0:18:50.680 series and what's going on with maturity walls. I think 0:18:50.720 --> 0:18:53.320 if you look inside the data, there are certain loans 0:18:53.760 --> 0:18:56.760 even here in Manhattan that are being marked at fifty 0:18:56.760 --> 0:18:59.840 cents on the dollar. You can certainly see that cap 0:19:00.040 --> 0:19:04.480 rates have gone up substantially. Office vacancies, you know, are 0:19:04.520 --> 0:19:08.000 certainly playing into that, and I think you know higher 0:19:08.119 --> 0:19:13.440 rates are also causing issues with refinancings A push that 0:19:13.480 --> 0:19:17.919 blue button. Are you concerned about financial institutions banks and 0:19:17.960 --> 0:19:21.480 their real estate portfolios, because I'm not sure. Some folks 0:19:21.520 --> 0:19:23.240 are saying it had the big money center banks don't 0:19:23.240 --> 0:19:24.480 have to worry about it so much. It's more the 0:19:24.520 --> 0:19:27.080 regional banks. How do you think about that? Yeah, I 0:19:27.119 --> 0:19:32.199 think the regional banks certainly for sure have the higher exposure. Right. 0:19:32.200 --> 0:19:35.320 It's something like forty percent of their U of small 0:19:35.320 --> 0:19:37.760 business loans are coming out of these regional banks. So 0:19:37.800 --> 0:19:40.600 we need that part of the plumbing to certainly be 0:19:40.760 --> 0:19:43.040 be flowing and working. And you know, you guys at 0:19:43.080 --> 0:19:46.200 Bloomberg had a great story over the weekend on financial 0:19:46.200 --> 0:19:48.840 conditions and loans coming down the last two weeks of March, 0:19:49.119 --> 0:19:52.040 there's clearer evidence. I think we'll see a little bit 0:19:52.040 --> 0:19:54.840 more over the next one to two weeks with bank earnings, 0:19:54.840 --> 0:19:57.520 but we also need one to two more quarters to 0:19:57.560 --> 0:20:01.360 see if this becomes a trend or not. We talk 0:20:01.440 --> 0:20:05.199 about first of all, we're not great it running the 0:20:05.200 --> 0:20:08.040 audio today. No, it was a weekend. True, it was 0:20:08.080 --> 0:20:11.680 a long weekend too. It's a Monday. We talk about 0:20:11.680 --> 0:20:14.000 the world insurrate probability screen a lot. I'm sure you're 0:20:14.040 --> 0:20:16.399 familiar with it on the Bloomberg terminal. It shows what 0:20:16.440 --> 0:20:19.600 the market is pricing in terms of the Fed moves right, 0:20:19.640 --> 0:20:25.600 and currently we're pricing in four rate cuts through January 0:20:25.720 --> 0:20:28.199 thirty first, twenty twenty four. Does that make sense to you? 0:20:28.359 --> 0:20:31.359 Do you buy it? Our thought is the Fed's going 0:20:31.400 --> 0:20:33.800 to raise one more time next month and early meg 0:20:34.119 --> 0:20:37.879 and then pause. If something else breaks, then maybe they 0:20:37.920 --> 0:20:39.520 will cut, but we think they're going to hold that 0:20:39.680 --> 0:20:43.880 just to ensure that inflation is really under control. So 0:20:44.080 --> 0:20:47.160 those four rate cuts probably don't happen in twenty five 0:20:47.160 --> 0:20:50.119 bases point increments in our minds, they happen in hundred 0:20:50.200 --> 0:20:53.399 or two hundred bases point increments when something really breaks. Well, 0:20:53.480 --> 0:20:56.080 that's terrifying though it is it is, And so I 0:20:56.119 --> 0:20:58.840 think the other element we talked about being long duration. 0:20:58.840 --> 0:21:02.080 The other element is being credit risk. Credit spreads, in 0:21:02.119 --> 0:21:06.040 our mind do not reflect a recession, a hard landing. 0:21:06.920 --> 0:21:08.680 You know, in the mid to high four hundreds and 0:21:08.720 --> 0:21:11.399 high yield credit spreads, it's kind of normal and average 0:21:11.440 --> 0:21:14.120 over the last ten years. What's not normal is eight 0:21:14.119 --> 0:21:17.200 and a half percent because treasury rate rates are higher. 0:21:17.480 --> 0:21:20.080 So in our mind, credit spreads are not reflecting that 0:21:20.119 --> 0:21:23.040 hard landing. And we like being short here and waiting 0:21:23.040 --> 0:21:25.360 for a better entry point. I know earlier in your 0:21:25.400 --> 0:21:29.359 career you looked at the high yield space. That's distressed space. 0:21:30.240 --> 0:21:31.760 Do I take some risk here and go into the 0:21:31.800 --> 0:21:35.520 high old market? If so, where can I go in 0:21:35.600 --> 0:21:38.840 high yield? We like shorter duration, high qualities. So Doublebees 0:21:38.880 --> 0:21:42.440 that's a place that we think offers some value, some safety. 0:21:42.760 --> 0:21:45.400 There's still some names out there that we think will 0:21:45.440 --> 0:21:49.040 migrate up to investment grade, so there is total return potential. 0:21:50.080 --> 0:21:52.160 You know, we had the Citrics deal that that came 0:21:52.560 --> 0:21:55.000 price what's happened to that? So that the second lean 0:21:55.160 --> 0:21:57.800 the priced at seventy nine cents, and we had some 0:21:57.840 --> 0:22:03.200 banks unload off their balancy a leveraged buyout from last year. Now, 0:22:03.440 --> 0:22:06.200 is that something that you guys traffick in that kind 0:22:06.200 --> 0:22:08.680 of stuff? That really looks like the banks are just 0:22:08.760 --> 0:22:11.720 kind of, you know, chucking in on the market wherever 0:22:11.800 --> 0:22:15.280 it landed. You know, I think at a price, certain 0:22:15.320 --> 0:22:18.879 investments look interesting coming at at an oide of twenty 0:22:18.880 --> 0:22:21.840 one points. Pricing at seventy nine cents in the dollar. 0:22:22.560 --> 0:22:24.919 The market certainly warmed up to it. It's it's up 0:22:24.960 --> 0:22:27.399 about four points since it priced last week. All right. 0:22:27.640 --> 0:22:30.359 By the way, I thought, I saw another interesting story 0:22:30.400 --> 0:22:33.359 on the Bloomberg terminal over the weekend, and I wonder 0:22:34.240 --> 0:22:36.639 if I could put it to a genuine fixed income investor. 0:22:36.720 --> 0:22:41.280 Great to have you. Here. We see volatility just off 0:22:41.280 --> 0:22:45.760 the charts right in rates in the Western world. That 0:22:46.600 --> 0:22:51.040 moves are mind boggling, sixty seventy basis point moves in 0:22:51.040 --> 0:22:54.200 a day on the two year, And the Bloomberg story 0:22:54.480 --> 0:22:58.600 is that that's driving some fixed income investors to China 0:22:58.720 --> 0:23:03.320 where they have almost volatility. Do you find that believable. 0:23:05.400 --> 0:23:08.000 I mean, look, going from a DM market to an 0:23:08.000 --> 0:23:11.720 EM market and in a more esoteric, you know, less 0:23:11.800 --> 0:23:14.720 regulated environment, to me, does not make a whole lot 0:23:14.720 --> 0:23:18.080 of sense. You know, we like transparency and being able 0:23:18.119 --> 0:23:21.920 to dig through financial statements and have a more substantial 0:23:21.960 --> 0:23:26.040 regulatory body. I think the volatility here in the US 0:23:26.200 --> 0:23:29.480 needs to settle down. Once that settles down, we certainly 0:23:29.480 --> 0:23:32.720 will have more interest and inflos into the asset class, 0:23:32.720 --> 0:23:36.639 but we need volatility to come down. So what are 0:23:36.640 --> 0:23:38.840 some of the sectors that you guys are doing work 0:23:38.840 --> 0:23:40.440 in these days? And maybe conversely, what are some of 0:23:40.440 --> 0:23:44.120 the sectors you just staying away from? Yeah, I think 0:23:44.920 --> 0:23:48.760 to answer the latter first, I think CMBs and leverage 0:23:48.800 --> 0:23:52.119 loans are parts of the market that we're most concerned about, 0:23:52.200 --> 0:23:56.040 probably like a lot of our competitors. The rising rates, 0:23:56.080 --> 0:23:59.399 the maturity walls that we mentioned before, those are certainly 0:23:59.440 --> 0:24:02.280 areas of of concern. What do we like We like 0:24:02.920 --> 0:24:07.120 We like short spread durations, so short maturities um particularly 0:24:07.200 --> 0:24:11.199 in parts of more esoteric areas in the securitized market, 0:24:11.560 --> 0:24:14.760 in my space and corporate credit. You know, I think 0:24:14.800 --> 0:24:17.640 there's haves and have nots in the banking sector. So 0:24:17.680 --> 0:24:21.119 that's high quality investment grade. UM. I think that there 0:24:21.119 --> 0:24:24.399 are disclocations there. The proverbial may be thrown out. With 0:24:24.440 --> 0:24:28.760 the bathwater certainly created some opportunities last month. We're expecting 0:24:28.840 --> 0:24:33.040 more in the nearer term of these disclocations. I'm just 0:24:33.080 --> 0:24:37.960 looking through historically the matchups between Penn State and the 0:24:38.040 --> 0:24:41.399 Ohio State University. Last year it was a loss for 0:24:41.440 --> 0:24:44.359 your lions. The year before that, it was a loss. 0:24:44.400 --> 0:24:46.840 Before that, it was a loss. The year before that, 0:24:46.920 --> 0:24:49.399 it was a loss. The year before that, you lost. 0:24:50.160 --> 0:24:53.600 The year before that, we won. So when do you 0:24:53.640 --> 0:24:56.800 think Penn State can come back and beat the Buckeyes. 0:24:57.440 --> 0:25:00.840 So so, Matt, You're you're talking like a true cynic 0:25:00.920 --> 0:25:04.480 in the fixed income world, loss after loss after loss. 0:25:04.560 --> 0:25:07.280 I will tell you I visited Columbus, Ohio for the 0:25:07.320 --> 0:25:10.680 first time in my life my career a month ago. 0:25:11.600 --> 0:25:14.160 Nice city, but glad to be back on the East coast, 0:25:14.720 --> 0:25:18.240 all right. Jason Greenblatt, Senior portfolio manager, American Century Investments, 0:25:18.480 --> 0:25:22.280 with a zinger at the end, This is Bloomberg. You're 0:25:22.320 --> 0:25:26.440 listening to the Team Cancer Line program Bloomberg Markets weekdays 0:25:26.440 --> 0:25:29.040 at ten am, eas daring on Bloomberg dot Com, the 0:25:29.119 --> 0:25:31.840 I Heart Radio app, and the Bloomberg Business app. We're 0:25:31.880 --> 0:25:35.960 listening on demand wherever you get your podcast. I want 0:25:35.960 --> 0:25:38.480 to get right to our next guest listening fascinating discussion 0:25:38.520 --> 0:25:42.840 Alexander Isakoff. He is the Russia and CEE economist at 0:25:42.840 --> 0:25:48.520 Bloomberg Economics based in the Middle East. Alexander, you are 0:25:48.560 --> 0:25:52.639 out with a fascinating Bloomberg Economics column today story today 0:25:52.960 --> 0:25:56.760 talking about President Putin's to prioritize his twenty twenty four 0:25:56.880 --> 0:26:00.920 reelection over the war. How can me do that? Isn't 0:26:00.960 --> 0:26:04.520 the war front and center for everything and super popular 0:26:04.720 --> 0:26:07.119 at home? Yeah, so that seems like it would be 0:26:07.160 --> 0:26:11.040 the center of his election re election platform exact. So 0:26:11.119 --> 0:26:17.320 what are we seeing, Alexander H. We're seeing that Russian 0:26:17.359 --> 0:26:20.720 government and Pussing were able to stabilize the economy in 0:26:20.760 --> 0:26:23.840 the past months. So you're looking at an economy with 0:26:23.880 --> 0:26:28.399 inflation rate of like three percent and unemployment which is 0:26:28.520 --> 0:26:32.280 just a bit north of three percent. Our call is 0:26:32.320 --> 0:26:38.200 that because the labor market is so tight, essentially a 0:26:38.280 --> 0:26:44.280 Pussin face the dilemma whether to try and mobilize more people, 0:26:45.240 --> 0:26:49.800 uh and take a cost of cost of this in 0:26:49.920 --> 0:26:54.680 terms of public support mobilization, I'm never too popular with people, 0:26:55.520 --> 0:27:00.399 or just try to model through until his elections XTA 0:27:00.440 --> 0:27:05.760 in March and just postpone mobilization. So I think our 0:27:05.840 --> 0:27:09.640 call is that you will prefer the letter. So when 0:27:09.640 --> 0:27:15.480 you say mobilize, you mean draft people essentially force probably 0:27:15.800 --> 0:27:19.359 you know, young able bodied men to go to the 0:27:19.359 --> 0:27:22.399 front lines where they risk their lives. That's something that 0:27:22.760 --> 0:27:25.159 Russia hasn't done yet. What are they doing, What are 0:27:25.160 --> 0:27:31.000 they doing to you know, fill their ranks? Yeah, exactly. 0:27:31.840 --> 0:27:37.840 So they've drafted around three hundred thousand people lost October. 0:27:38.680 --> 0:27:42.880 But this means that in six months most of those 0:27:42.920 --> 0:27:46.480 people will be back at home and Russia would need 0:27:46.520 --> 0:27:51.280 to replenish its troops and it will not be easier. 0:27:51.480 --> 0:27:55.680 So Russia needs to find a way which will be 0:27:57.280 --> 0:28:00.959 less coversive but also very effective and finding another three 0:28:01.080 --> 0:28:05.399 hundred thousand people which will be very very hard. So, Alexander, 0:28:05.840 --> 0:28:09.760 to what extent, if any, are the Western sanctions having 0:28:09.760 --> 0:28:12.919 a negative impact on the Russian economy just given some 0:28:12.960 --> 0:28:15.960 of the data you just recited, doesn't seem to be 0:28:16.240 --> 0:28:23.920 hurting that badly. Yeah, I mean, the thing is that 0:28:24.240 --> 0:28:27.160 most of the numbers we are used to look at 0:28:27.840 --> 0:28:32.320 don't capture the pain, the economic pain that Russia undergoes. 0:28:32.800 --> 0:28:35.679 For example, if you look at imports, which were like 0:28:35.920 --> 0:28:41.000 down twenty percent, they reflect the quality of consumption and 0:28:41.080 --> 0:28:45.880 quality of investment in Russia. These both are declined pretty 0:28:45.920 --> 0:28:49.600 substantially last year. But from the GDP perspective, any decline 0:28:49.600 --> 0:28:54.640 in imports is actually neutral. Imports don't affect the GDP directly, 0:28:55.440 --> 0:28:59.400 so it doesn't show the GDP numbers. But Alexander, from 0:28:59.400 --> 0:29:05.400 an economic perspective perspective, given you your Russian background, do 0:29:05.760 --> 0:29:08.000 the Russian people is a Russian government prepared or the 0:29:08.040 --> 0:29:10.720 Russian people prepared to be what they are today, which 0:29:10.760 --> 0:29:15.000 effectively sealed off most of the world from an economic perspective, 0:29:15.000 --> 0:29:18.720 trading perspective, all the type of stuff. Are they prepared 0:29:18.760 --> 0:29:23.080 to do this for the long term? I think dances 0:29:23.640 --> 0:29:28.680 yes and no. If current continuitions, especially in the commodity markets, prevail, 0:29:29.240 --> 0:29:34.000 if oil prices remain north of eighty percent, then I 0:29:34.040 --> 0:29:39.680 think Russia can tellierate these functions a long time. But 0:29:40.320 --> 0:29:43.880 on the other hand, because Russian international reserves have been frozen, 0:29:44.200 --> 0:29:47.200 the country is very, very sensitive to any drop in 0:29:47.240 --> 0:29:51.040 the oil prices. So if COMMITI prices remain high, the 0:29:51.080 --> 0:29:54.160 country can't delierate that. But it's very fragile to any 0:29:54.640 --> 0:29:59.320 downside shock for oil price and it must be very 0:29:59.360 --> 0:30:03.280 fragile and lation situation because it's been relatively low. But 0:30:03.560 --> 0:30:08.520 with this tight labor market, especially if they need to 0:30:08.600 --> 0:30:12.080 draft more troops, that means wages are going to have 0:30:12.160 --> 0:30:17.400 to rise, are they not? Yeah? All correct? And in fact, 0:30:17.880 --> 0:30:20.720 we are looking at the data on the prestability of 0:30:20.760 --> 0:30:25.080 private enterprises and the lost mobilization actually was pretty detrimental 0:30:25.160 --> 0:30:28.920 to that. We see that the private sector margins are 0:30:28.920 --> 0:30:33.080 shrinking and I think, yeah, the labor costs will definitely 0:30:34.120 --> 0:30:38.480 reduce growth in the coming year. So, Alexander, just from 0:30:38.520 --> 0:30:41.200 you know, the consumer data, it seems like the war 0:30:41.880 --> 0:30:45.800 is having little to no impact on the consumers at 0:30:45.800 --> 0:30:51.600 home as at the case and B does it feel 0:30:51.600 --> 0:30:57.760 like that can go on going forward? I think so. 0:30:57.880 --> 0:31:01.320 If you look at historically at the impacts of wars 0:31:01.400 --> 0:31:04.280 on the labor markets, what they typically do is they 0:31:04.880 --> 0:31:09.640 reduced the premiere for high skill labor, but actually increased 0:31:09.640 --> 0:31:14.400 the wages for those who don't. We're not earning as much, 0:31:14.840 --> 0:31:19.760 so Essentially, they are reducing the inequality and labor incomes. 0:31:20.520 --> 0:31:23.000 This is what actually is happening in Russia. So you 0:31:23.080 --> 0:31:29.080 don't see much wage growth in the high pay success 0:31:29.080 --> 0:31:33.479 secious information technology or banking of finance, but actually you 0:31:33.520 --> 0:31:37.240 see a lot of growth in the manual labor, manufacturing 0:31:37.280 --> 0:31:40.959 and services, etcetera, etcetera. So what you see is that 0:31:41.040 --> 0:31:46.920 consumption is being supported by growth in in those UH 0:31:47.480 --> 0:31:52.400 kind of sectors where wages were low previously. All right, Alexander, 0:31:52.400 --> 0:31:55.680 thank you very much, Really appreciate your reporting here. Alexander Isakov. 0:31:56.040 --> 0:32:00.880 He is the Russian UH and CEE economist Blomberg Economics. 0:32:00.920 --> 0:32:03.600 He's based in Dubai. We appreciate getting some of his 0:32:03.680 --> 0:32:07.040 time there. You're listening to the tape cancer live program 0:32:07.080 --> 0:32:11.040 Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 0:32:11.160 --> 0:32:13.880 the tune in app, Bloomberg dot Com, and the Bloomberg 0:32:13.960 --> 0:32:17.040 Business App. You can also listen live on Amazon Alexa 0:32:17.120 --> 0:32:20.400 from our flagship New York station, Just say Alexa play 0:32:20.520 --> 0:32:25.640 Bloomberg eleven thirty. Let's talk about Carvana. Yes, well, we 0:32:25.720 --> 0:32:29.200 have my favorite headline writer in all of Bloomberg in 0:32:29.640 --> 0:32:33.720 the studio, right now, Joel Levington writes these headlines that 0:32:33.760 --> 0:32:37.520 get me to click no matter what. Even now I 0:32:37.600 --> 0:32:39.320 see them and I'm like, I know this is one 0:32:39.360 --> 0:32:42.480 of Joel's headlines. It's gonna be a bi credit report, 0:32:42.560 --> 0:32:46.840 but I'm still clicking because it's like Ferrari eats Maserati's lunch, 0:32:47.480 --> 0:32:50.800 you know. But so, Joel, thanks for coming to the studio. 0:32:51.600 --> 0:32:54.120 You have a great story out about you know, barbarians 0:32:54.120 --> 0:32:56.200 at the gate, except for they're not at the gate, 0:32:56.240 --> 0:33:00.920 they're at the Carvanna. What do they have like vending 0:33:01.360 --> 0:33:05.800 vending machines? Um? This story has been amazing on the 0:33:05.840 --> 0:33:09.880 stock side, right because just climbed so high during the 0:33:09.880 --> 0:33:15.240 pandemic and then came absolutely crashing down, paying stilly prices 0:33:15.320 --> 0:33:18.040 for used vehicles and then apparently not selling them for 0:33:18.480 --> 0:33:23.120 um similar amounts. What's the story on the debt side? Yeah, 0:33:23.200 --> 0:33:25.960 well it's been equally crazy. You know, it's just a 0:33:26.000 --> 0:33:28.920 few years ago that they were issuing bonds with you know, 0:33:28.920 --> 0:33:30.880 like a five handle on it or a little over 0:33:30.960 --> 0:33:33.960 five percent. Now those bonds are more like forty five percent. 0:33:34.360 --> 0:33:38.080 So it's it's been a dramatic turn, and unfortunately for 0:33:38.080 --> 0:33:40.680 for stakeholders. It hasn't been good a good run. So 0:33:40.680 --> 0:33:45.440 where I mean there's they've not, they've not. They're just 0:33:45.480 --> 0:33:48.560 proposing a debt exchange, right, right, So this is Carvana. 0:33:48.800 --> 0:33:52.720 They sell these cars market they don't or they don't 0:33:52.720 --> 0:33:54.920 market kind of dried up. Now they've got problems with 0:33:54.960 --> 0:33:58.000 their equity, but they really got problems with their debt. 0:33:58.040 --> 0:34:00.600 They did too much debt going into this rough patch. 0:34:00.680 --> 0:34:02.360 You're totally right, Paul, And this is one of those 0:34:02.400 --> 0:34:04.920 cases where it's the balance sheet that's driving the equity 0:34:04.960 --> 0:34:08.520 story as opposed to the opposite. In this case, they've 0:34:08.560 --> 0:34:10.719 levered up. They have eight billion dollars worth of debt. 0:34:10.960 --> 0:34:14.359 They're not supposed to generate positive ebada until twenty twenty five, 0:34:14.840 --> 0:34:17.320 So you know, like, how do you make that lending 0:34:17.400 --> 0:34:20.279 on no cash flow? I mean, you were lending on 0:34:20.360 --> 0:34:23.520 just the big equity cushion underneath, like a lot of 0:34:23.520 --> 0:34:25.800 tech companies will do. You know, yeah, exactly over the 0:34:25.880 --> 0:34:28.280 last couple of years, you could pick out any startup 0:34:28.280 --> 0:34:31.279 tech company or in my area, Tesla where it was 0:34:31.280 --> 0:34:34.120 issuing bonds also where the five percent handle on it, 0:34:34.360 --> 0:34:36.640 and people love the equity story, and they'll tell you like, hey, 0:34:36.680 --> 0:34:39.640 there's billions of billions of dollars a cushion as opposed 0:34:39.680 --> 0:34:42.600 to you know, like, what are the fundamentals and where 0:34:42.640 --> 0:34:45.160 can this company go? In the case of Carvana, it's 0:34:45.160 --> 0:34:47.920 in an industry where you have very thin margins and 0:34:48.000 --> 0:34:51.279 high capital intensity, and it really can't handle a lot 0:34:51.280 --> 0:34:53.520 of volatility. So when you put a lot of debt 0:34:53.560 --> 0:34:55.719 on that, you're kind of setting the stage for problems. 0:34:55.760 --> 0:34:58.320 And unfortunately they've run into it. All right, the stock 0:34:58.520 --> 0:35:02.440 on all thirteen twenty twenty one, three hundred and sixty 0:35:02.480 --> 0:35:06.600 dollars stocks training below nine? Isn't that guy? And so 0:35:06.840 --> 0:35:09.359 I can see. I can see buying debt when you've 0:35:09.360 --> 0:35:11.360 got all this equity underneath me, even though I wouldn't 0:35:11.360 --> 0:35:13.359 do because I only lend on cash flows. That's how 0:35:13.360 --> 0:35:15.200 I was. I was taught at the Chase Front and 0:35:15.200 --> 0:35:19.920 Bank Credit training class nineteen ninety one. Um, that's how 0:35:19.960 --> 0:35:22.840 you do it. But now what happens to these debthholders? 0:35:22.920 --> 0:35:25.120 What are they trying to do here? From credit to 0:35:25.160 --> 0:35:28.359 star that's the way it goes bossweek Okay, yes, well 0:35:29.120 --> 0:35:33.239 well really what what what Carvana is doing is trying 0:35:33.280 --> 0:35:36.200 to set the stage four there's going to be an exchange, 0:35:36.280 --> 0:35:38.799 or they're trying to make an exchange happen. Now this 0:35:38.880 --> 0:35:40.840 is if they do this, it's really the first of 0:35:41.080 --> 0:35:43.120 many steps that they would have to do to change 0:35:43.160 --> 0:35:46.480 their balance sheet because really here you're trying to exchange 0:35:46.880 --> 0:35:49.240 about a billion three of debt for a new billion 0:35:49.239 --> 0:35:53.560 dollars offering, and essentially you're saving about three hundred million 0:35:53.640 --> 0:35:56.720 worth of debt and fifteen to twenty million of interest 0:35:56.760 --> 0:35:59.840 expense for a company that has as much debt and 0:36:00.160 --> 0:36:02.480 so little cash flow as they do. This is just 0:36:02.520 --> 0:36:04.839 a beginning. It's really just a start to you know, 0:36:04.880 --> 0:36:07.680 like get the barbarians, to get the Apollos and the 0:36:07.719 --> 0:36:10.680 Arias out there to come up with a deal where 0:36:10.760 --> 0:36:13.440 they can restructure the balance sheet, but do it in 0:36:13.440 --> 0:36:16.360 a way where the Garcia family can we make in control. 0:36:16.400 --> 0:36:19.560 And that's really why family to remain in control. They 0:36:19.560 --> 0:36:22.719 want to remain in control. Well, as a neutral independent party, 0:36:22.760 --> 0:36:24.560 I would say you would not want them in control 0:36:24.600 --> 0:36:27.200 because they have made so many bad choices along the way, 0:36:27.280 --> 0:36:31.040 including debt financing a two billion dollars acquisition of Edessa 0:36:31.200 --> 0:36:34.440 at a time where where the industry was starting to 0:36:34.480 --> 0:36:37.960 go down. They've missed earnings expectations for like nine of 0:36:38.000 --> 0:36:40.719 the past ten quarters. Really, what you need to do 0:36:40.960 --> 0:36:45.040 is strip out costs, reslate the balance sheet to have 0:36:45.080 --> 0:36:47.680 a clean balance sheet. We've estimated that it should be 0:36:47.680 --> 0:36:49.560 about ninety four percent of the debt needs to get 0:36:49.560 --> 0:36:52.799 wiped out. Oh so really this is hit. I mean 0:36:52.880 --> 0:36:58.560 your point is that debt holders may be happier in bankruptcy. Yeah, yeah, exactly, Matt, 0:36:58.600 --> 0:37:00.719 because if you came out with a clean company and 0:37:00.840 --> 0:37:03.520 a story of hey, let's get back to basics, let's 0:37:03.520 --> 0:37:07.400 reduce our thirteen percent difference in SG and A, and 0:37:07.520 --> 0:37:10.960 here's a path to growth, that stock price can certainly 0:37:11.000 --> 0:37:14.080 turn around. And our expectation is that if it was 0:37:14.600 --> 0:37:17.839 a clean balanty like bond holders might get seventy five 0:37:17.880 --> 0:37:20.640 cents back on the dollar relatives to where bonds are, 0:37:20.640 --> 0:37:22.520 which is kind of more in the forty to fifty zone. 0:37:22.920 --> 0:37:25.799 So let me ask. I look through your bank up 0:37:25.880 --> 0:37:27.719 stories that you work on, and you cover the car 0:37:27.800 --> 0:37:33.239 industry very closely. Obviously, one that catches my eye is 0:37:33.960 --> 0:37:40.040 a concern I think that we have across markets, which 0:37:40.120 --> 0:37:46.760 is about refinancing. I think the point that you're making 0:37:46.800 --> 0:37:51.280 here is Ford needs to refinance a ton of debt. 0:37:51.400 --> 0:37:55.160 Right as rates rise, Ford credit may face five hundred 0:37:55.160 --> 0:37:57.680 and seventy million dollars headwin and refinancing debt is the headline. 0:37:57.719 --> 0:37:59.400 As rates rise, this is going to be a problem 0:37:59.400 --> 0:38:00.799 for a lot of the ending arms are the big 0:38:00.800 --> 0:38:03.239 carmakers I think so, you know, and it becomes a 0:38:03.320 --> 0:38:06.640 game mat of where do you reduce the pain? Right 0:38:07.200 --> 0:38:09.279 when you have a captive finance company like a Forward 0:38:09.400 --> 0:38:11.479 or a GM, you can do that in the form 0:38:11.520 --> 0:38:14.600 of incentives on the you know, MSRP on on the 0:38:14.640 --> 0:38:16.839 price that you're paying for a car, so you could 0:38:16.840 --> 0:38:19.920 reduce that as a way to making things more affordable. 0:38:20.239 --> 0:38:22.680 But really that's the issue is affordability. It's forty eight 0:38:22.719 --> 0:38:25.520 thousand dollars for your average car, and when the average 0:38:25.560 --> 0:38:28.200 American makes seventy thousand dollars a year, you can't afford 0:38:28.200 --> 0:38:30.560 a car. So how do you make that work and 0:38:30.640 --> 0:38:33.719 keep the volume in your plant going? And it's either 0:38:33.760 --> 0:38:37.080 going to be through the finance company, in the finance 0:38:37.120 --> 0:38:39.400 company eating the interest rates on it, or it's going 0:38:39.400 --> 0:38:41.960 to be through pricing on the cars. I hope it's 0:38:41.960 --> 0:38:45.000 through the finance company eating interest rates. Why just because 0:38:45.320 --> 0:38:46.480 I don't want to pay it. I don't want to 0:38:46.520 --> 0:38:49.000 pay that much. Our prices ever kind of come down 0:38:49.239 --> 0:38:51.600 in the card and Street or they resetting these new 0:38:51.680 --> 0:38:54.520 highs because I mean, they've incredible inflation. I'm not sure 0:38:54.560 --> 0:38:56.640 with the numbers, but over the last three or four years, 0:38:56.719 --> 0:39:00.600 ridiculous increases in price. The monthly nut is just impossible 0:39:00.640 --> 0:39:03.200 to cover for the average shoe, right, It's ridiculous. And 0:39:03.239 --> 0:39:05.879 I think that's you know, it's it's a great question, Paul, 0:39:05.920 --> 0:39:07.920 and I think it if you even if you asked internally, 0:39:07.960 --> 0:39:09.879 I think our equity analysts might have a different view 0:39:09.880 --> 0:39:12.960 than I do. I personally believe that pricing has to 0:39:13.000 --> 0:39:15.440 come down. I think you're seeing that with Tesla, right 0:39:16.520 --> 0:39:18.000 if you look at any of their models are down 0:39:18.280 --> 0:39:22.080 twenty to twenty this year, and a Model three now 0:39:22.160 --> 0:39:24.560 is about thirty six thousand dollars or thirty seven thousand dollars. 0:39:24.560 --> 0:39:26.240 So if you're saying, hey, do I want the Model 0:39:26.280 --> 0:39:30.560 three or the Honda CRV, like, that's a battle, and 0:39:30.719 --> 0:39:32.920 that's where Tesla is going to be picking up share. 0:39:32.960 --> 0:39:34.840 And I think others are going to eventually have to 0:39:34.880 --> 0:39:40.960 follow because economically, you know, they're they're they're very high 0:39:41.000 --> 0:39:44.120 in terms of cost. I mean the four has followed 0:39:44.160 --> 0:39:47.440 with them with the Mustang Maki in terms of price cuts, 0:39:47.480 --> 0:39:50.640 but not yet with the F one fifty Lightning that 0:39:50.760 --> 0:39:54.040 you drove. What was the sticker price four large ninety 0:39:54.080 --> 0:39:56.319 four grand for a pickup truck, right, I mean, and 0:39:56.360 --> 0:39:58.520 that's what I mean, so honestly, I mean, I'm not 0:39:58.560 --> 0:40:03.200 even joking. I mean, the American pickup truck buyers already 0:40:03.520 --> 0:40:07.439 used to laying out forty fifty sixty grand. I'm sure 0:40:07.520 --> 0:40:10.080 that was you just can you do ninety I don't 0:40:10.080 --> 0:40:12.800 know four thousand. I don't know what demand destruction is 0:40:12.840 --> 0:40:14.840 going to look like there. And that's in addition to 0:40:14.840 --> 0:40:16.759 all the software that they're trying to sell behind it, 0:40:16.920 --> 0:40:19.480 so you know, like there's a recurring revenue stream that 0:40:19.480 --> 0:40:22.640 they're trying to attach to the electric car. So you know, 0:40:22.680 --> 0:40:25.000 like something has to give, and I would think this 0:40:25.080 --> 0:40:27.120 is a case where the companies are gonna wind up 0:40:27.160 --> 0:40:29.640 having to give. And they're starting to see it, right, 0:40:29.680 --> 0:40:34.640 you see, GM, Ford, Mercedes, they're all announcing headcut plans 0:40:34.680 --> 0:40:36.960 over the next years because they recognize, like you have 0:40:37.000 --> 0:40:39.040 to change your cost structure to be in a world 0:40:39.360 --> 0:40:42.560 that can't afford these crazy, you know, high prices. Does 0:40:42.600 --> 0:40:46.680 Lucid survive? Does Rivian survive? Do these ev startups make it? 0:40:47.200 --> 0:40:50.719 I think they survive because you find over and over again, 0:40:50.719 --> 0:40:52.840 and maybe McLaren is a great example of it. You 0:40:52.880 --> 0:40:56.680 find these companies that find people that are willing to 0:40:56.680 --> 0:40:58.759 take a bet on a brand name, Investors in the 0:40:58.760 --> 0:41:01.719 Middle East, and in the case of Lucid, it might 0:41:01.760 --> 0:41:03.440 be an investor in the Middle East because they already 0:41:03.480 --> 0:41:05.759 old and sixty percent of the company in the case 0:41:05.800 --> 0:41:07.839 of Review, and they have enough flexibility that they can 0:41:07.960 --> 0:41:10.400 last at least a year or two before before you 0:41:10.440 --> 0:41:12.960 have to worry about that good stuff as always Joe Levington, 0:41:13.080 --> 0:41:16.880 he is a director credit research Bloomberg Intelligence. He covers 0:41:16.880 --> 0:41:18.840 and his real day job he covers some autos and 0:41:18.880 --> 0:41:21.759 some industrial credits and things like that. The management is 0:41:21.800 --> 0:41:24.319 just a ruse. He actually does a real job and 0:41:24.320 --> 0:41:27.720 he's a real analyst. But appreciate having come into studio. 0:41:27.920 --> 0:41:31.040 You're listening to the Take Cancer our live program Bloomberg 0:41:31.120 --> 0:41:34.600 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:41:34.719 --> 0:41:37.959 tune in app, Bloomberg dot Com and the Bloomberg Business App. 0:41:38.000 --> 0:41:40.839 You can also listen live on Amazon Alexa from our 0:41:40.840 --> 0:41:46.040 flagship New York station, Jo Say Alexa, play Bloomberg eleven thirty. 0:41:46.440 --> 0:41:49.439 Let's talk real estate. Now, let's talk commercial real estate. 0:41:49.480 --> 0:41:51.480 And we can do that with our next guest, Christine 0:41:51.560 --> 0:41:56.200 Mastandrea Coo of white Stone Reet. That's a publicly traded 0:41:56.280 --> 0:41:58.560 reet WSR as a ticker you can load into the 0:41:58.560 --> 0:42:02.320 Bloomberg terminal about four D thirty million dollars marketap. Christine, 0:42:02.520 --> 0:42:04.640 thanks so much for joining us live in the Bloomberg 0:42:04.640 --> 0:42:07.319 Interactive Broker Studio. So post pandemic, you get a gold 0:42:07.360 --> 0:42:10.239 star for showing up live, not phoning it in. Talk 0:42:10.280 --> 0:42:12.000 to us about Whitestone. What type of real estate do 0:42:12.040 --> 0:42:15.000 you guys specialize in? Oh, I specialize in smaller center 0:42:15.080 --> 0:42:18.520 is basically focusing on community and convenience for our retail 0:42:18.880 --> 0:42:22.520 So you so okay? So not a technical term, kind 0:42:22.520 --> 0:42:25.319 of like a strip mall type thing similar and all right, 0:42:25.360 --> 0:42:29.640 So Amazon is a thing out there. I've actually become 0:42:29.760 --> 0:42:32.840 very very depth on Amazon since the pandemic in the lockdown, 0:42:33.120 --> 0:42:34.919 but I can't and I've heard this is not good 0:42:34.960 --> 0:42:37.400 for bricks and more to retail or retail. How do 0:42:37.480 --> 0:42:39.880 you guys approach that and deal with that? So we 0:42:40.160 --> 0:42:43.120 saw that coming a long time back, especially with a 0:42:43.280 --> 0:42:46.160 change of people in the workforce and time crunch consumers. 0:42:47.160 --> 0:42:49.560 Amazon just solved a problem for people. So we focus 0:42:49.640 --> 0:42:52.920 primarily on services. Okay, so I go to see one 0:42:52.960 --> 0:42:54.960 of your properties and it's not gonna be necessarily selling 0:42:55.320 --> 0:42:58.520 goods that competing against Amazon. It's a services, whether it's 0:42:58.560 --> 0:43:04.040 a nail salon or something along those. So primarily around food, grocery, 0:43:04.719 --> 0:43:08.920 services such as health, wellness, medical. In addition to that, 0:43:09.040 --> 0:43:12.880 there would be you know, your financial services, ups, logistics 0:43:12.960 --> 0:43:15.200 and so what kind of markets attract you guys? And 0:43:15.280 --> 0:43:17.320 I think I know the answer, but go ahead. So 0:43:17.440 --> 0:43:20.640 we focused on the southern markets primarily. Yeah, what's going 0:43:20.719 --> 0:43:23.120 on is the rest of this country. Everybody's abandoning us. 0:43:23.920 --> 0:43:26.040 Go ahead, So well, they came from Chicago, it is 0:43:26.120 --> 0:43:30.080 happening there, and so focused on fast growing markets. So 0:43:30.200 --> 0:43:33.759 we started in Dallas, Houston, San Antonio, then moved into 0:43:33.760 --> 0:43:36.279 Austin and also in the Phoenix market, Scottsdale all the 0:43:36.320 --> 0:43:39.279 way down to Mesic over channel all winners certainly post 0:43:39.320 --> 0:43:41.719 pandemic winners, right those are you just listed to the 0:43:41.920 --> 0:43:44.000 names of the cities. So when you go into a market, 0:43:44.040 --> 0:43:45.879 what do you I mean, do you look for population growth? 0:43:45.880 --> 0:43:48.759 Does that kind of a good job growth, job job growth, 0:43:48.880 --> 0:43:53.080 job growth? Yeah, okayly mobile, really looking for good strong 0:43:53.160 --> 0:43:57.160 secondary school systems as well. Okay, So I'm guessing you 0:43:57.239 --> 0:44:00.880 guys are like most folks in real estate interest rates sensitive. 0:44:00.920 --> 0:44:03.960 Talk to us about the market today versus you know, 0:44:04.080 --> 0:44:06.799 a year or two ago. Yeah, that's great deal of change, 0:44:06.800 --> 0:44:09.400 as you can imagine. But this provides the opportunity of 0:44:09.440 --> 0:44:12.520 people know how to operate real estate versus just financial engineering. 0:44:12.760 --> 0:44:14.520 So who were like, who were some of the people 0:44:14.560 --> 0:44:17.279 maybe you were competing against, you know, when rates were 0:44:17.360 --> 0:44:21.440 low versus kind of today, Like what happened to Who 0:44:21.480 --> 0:44:23.279 were those people and what happened to them? Well, in 0:44:23.360 --> 0:44:26.759 most cases passive investors that just bought the properties. In 0:44:26.880 --> 0:44:30.280 our case, we have smaller centers, so it'd be local owners. 0:44:30.719 --> 0:44:33.960 But passive owners versus active owners like we are. So 0:44:34.080 --> 0:44:35.799 they're getting squeezed out of the market. It gives us 0:44:35.800 --> 0:44:38.840 an opportunity. So we read a lot about or at 0:44:38.880 --> 0:44:40.040 least year in New York. You know, some of the 0:44:40.200 --> 0:44:44.080 big private equity funds getting into real estate. What's been 0:44:44.120 --> 0:44:46.640 your experience do you run into them at all? If so, 0:44:47.200 --> 0:44:49.680 are they how do you compete? They don't compete in 0:44:49.760 --> 0:44:52.239 our space. That's why we stayed in smaller centers. So okay, 0:44:52.400 --> 0:44:53.800 might be a little bit more of a hands on 0:44:53.920 --> 0:44:56.600 operation than a larger center, but it's benefit is right. 0:44:56.719 --> 0:45:01.640 So when you go look for new property, what do 0:45:01.640 --> 0:45:03.560 you guys look for? What does your team look for? Oh? 0:45:03.760 --> 0:45:05.879 In most cases and sticking us so we use place 0:45:06.000 --> 0:45:08.360 or AI and we also use as ray as digital 0:45:08.400 --> 0:45:11.759 platforms to understand the communities. So we really dive into 0:45:11.960 --> 0:45:14.640 our users and who's the end end user and that 0:45:14.760 --> 0:45:18.080 allows us to find to find the most attractive locations. 0:45:18.480 --> 0:45:21.840 So what type of I mean, do you like to 0:45:21.880 --> 0:45:24.640 have one or do your shopping center a retail space 0:45:24.680 --> 0:45:27.400 attend of like a big kind of anchor tenant and 0:45:27.440 --> 0:45:29.440 then you build around it. How do you like that? 0:45:29.960 --> 0:45:31.680 So I don't like taking a lot of risk in 0:45:31.760 --> 0:45:35.680 bake anchors. I mean there's always a difficulty if you 0:45:35.800 --> 0:45:38.440 lose a big anchor to have to re fit somebody 0:45:38.520 --> 0:45:41.080 moving into that space. So we have a tendency to 0:45:41.200 --> 0:45:43.600 stay in the smaller shout space. So we found that 0:45:43.760 --> 0:45:46.200 twenty five hundred square feet to about three thousand square 0:45:46.239 --> 0:45:49.520 feet is about the most interchangeable use with the widest 0:45:49.960 --> 0:45:53.280 amount of users. So who do you tend to compete 0:45:53.280 --> 0:45:56.920 against a lot? Like even now? Is it other rates? 0:45:57.239 --> 0:46:00.880 Is it just local privately owned real estate development companies? 0:46:00.920 --> 0:46:04.280 Who are some of your competitors? So mostly local, privately owned, 0:46:04.400 --> 0:46:06.399 although we're starting to see some other reeds move into 0:46:06.400 --> 0:46:09.319 our space. So if it typically if I go up 0:46:09.320 --> 0:46:13.279 against a private, local person, presumably that person has something 0:46:13.360 --> 0:46:16.520 maybe I don't, such as local knowledge. I mean, how 0:46:16.560 --> 0:46:19.279 do you guys build that? Do you buy like said, 0:46:19.280 --> 0:46:21.279 I want to develop Phoenix? Do you just send your 0:46:21.320 --> 0:46:24.480 team into Phoenix or do you maybe buy a team 0:46:24.560 --> 0:46:26.840 that's already in Phoenix that knows how know? We usually 0:46:26.880 --> 0:46:30.359 build our teams in our markets. So and very much 0:46:30.680 --> 0:46:34.960 focusing on location again, using as much analysis as possible 0:46:35.000 --> 0:46:37.880 that we can that we're provided with our platforms to understand. 0:46:38.600 --> 0:46:41.360 So what was your business like during the pandemic, Like 0:46:41.640 --> 0:46:44.560 how did it just impact you guys? Oh, we did great. 0:46:44.719 --> 0:46:48.040 I think it's counterintuitive to a lot of the national tenants. 0:46:48.360 --> 0:46:50.920 In our case, we had the highest recovery rates and 0:46:51.120 --> 0:46:54.239 also the highest collection rates in the industry. So what 0:46:54.640 --> 0:46:56.520 why is that? I mean, I just I would think 0:46:56.760 --> 0:47:00.040 like just Main Street USA, Talent I live in, and 0:47:00.719 --> 0:47:03.759 a lot of vacancies, a lot of company businesses went 0:47:03.800 --> 0:47:05.719 out of business. So it was almost every third or 0:47:05.760 --> 0:47:08.640 fourth or fifth store was out of business. Now that's 0:47:09.239 --> 0:47:13.600 literally Main Street USA, not at a shopping center. Did 0:47:13.680 --> 0:47:16.520 you experience that and if so, did you get people 0:47:16.560 --> 0:47:19.120 back in there? No? I found, especially in our markets, 0:47:19.200 --> 0:47:22.320 people were pretty active, and in addition to that we 0:47:22.480 --> 0:47:26.080 had we were pretty I'm always amazed at you know, 0:47:26.080 --> 0:47:29.160 American business and especially growing entrepreneurs. They're the ones that 0:47:29.280 --> 0:47:32.359 flex the first. They caught the opportunity with a lot 0:47:32.400 --> 0:47:34.800 of customer switching at that point, especially at the nationals 0:47:34.880 --> 0:47:37.480 when they're closed because they're dictated by you know, their 0:47:37.560 --> 0:47:40.239 home office. Right. The other thing that I found really 0:47:40.320 --> 0:47:43.920 interesting through this whole thing is kind of the resilience 0:47:43.960 --> 0:47:46.680 of our portfolio and also the resilience of the American 0:47:46.840 --> 0:47:49.279 entrepreneur yep as We've talked about that a lot on 0:47:49.360 --> 0:47:51.400 the show. But if you go down to Electionton Avenue 0:47:51.480 --> 0:47:54.600 right there, a lot of empty retail between fifty eighth 0:47:54.640 --> 0:47:57.000 and fifty nine Street. It was once it was before 0:47:57.040 --> 0:48:00.399 the pandemic. It was full Victoria's Secret and some other 0:48:00.640 --> 0:48:03.239 box door or something I can remember. Now there's just 0:48:03.560 --> 0:48:06.959 a chocolate store that survived the pandemic. People bought chocolate 0:48:07.000 --> 0:48:09.320 during a pandemic in the lockdown, and a bank just 0:48:09.440 --> 0:48:11.800 opened up on the corner. But you see town cities 0:48:11.800 --> 0:48:13.279 like this, you're probably like, boy, I'm glad I'm not 0:48:13.360 --> 0:48:17.000 in big cities. Right. Yeah, we've avoided the big central 0:48:17.040 --> 0:48:20.480 business districts. Again, pretty tough. The rental rates, they are 0:48:20.560 --> 0:48:24.120 pretty difficult to size space, the ability to flex to 0:48:24.200 --> 0:48:26.879 the user. Most of those are goods. It's a little 0:48:26.920 --> 0:48:29.160 difficult to put in a service user in those type 0:48:29.160 --> 0:48:33.279 of locations as well. So yeah, interesting, all right, Last question, 0:48:33.320 --> 0:48:36.040 what's what's the growth outlook for you guys over the 0:48:36.120 --> 0:48:38.560 next one to two years. Oh, I think we're well possessioned. 0:48:38.600 --> 0:48:40.880 I mean already in our markets, were over ninety percent 0:48:40.920 --> 0:48:44.040 occupantsy in all of our markets, and I think there's 0:48:44.080 --> 0:48:45.880 not a lot of retail being built because of what 0:48:46.000 --> 0:48:48.560 happened in the past. So things look good to come. 0:48:48.719 --> 0:48:50.800 Oh interesting, good stuff, all right, Christine, thank you. So 0:48:50.960 --> 0:48:53.920 much for joining a Christine at Most Andrea Coo of 0:48:54.000 --> 0:48:57.200 white Stone reet again, that is a publicly traded company. 0:48:57.360 --> 0:49:02.280 WSR is the ticker or the retail space, the commercial 0:49:02.360 --> 0:49:05.040 retail space. Some weakness out there and a lot of 0:49:05.120 --> 0:49:07.200 big markets, and we certainly see it here in New 0:49:07.280 --> 0:49:09.279 York City, certainly in Midtown, but a lot of the 0:49:09.360 --> 0:49:12.480 country doing very well and good for them. So it's 0:49:12.520 --> 0:49:14.720 good to see some good growth out there in retail. 0:49:14.719 --> 0:49:17.239 The consumer remains a very strong consumer has a job 0:49:17.320 --> 0:49:20.600 that's good for all things retail. Thanks for listening to 0:49:20.640 --> 0:49:24.160 the Bloomberg Markets podcasts. You can subscribe and listen to 0:49:24.239 --> 0:49:28.359 interviews at Apple Podcasts or whatever podcast platform you prefer. 0:49:28.760 --> 0:49:32.040 I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 0:49:32.160 --> 0:49:34.799 seventy three and on Fall Sweeney I'm on Twitter at 0:49:34.880 --> 0:49:37.680 pt Sweeney. Before the podcast, you can always catch us 0:49:37.760 --> 0:49:39.160 worldwide at Bloomberg Radio.