Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: We're talking to I just tell you, like what I have.
Speaker 2: A great uncle passed away.
Speaker 3: Sorry, he died a couple of weeks ago.
Speaker 2: And he was renting a penthouse apartment with balconies on
Speaker 2: both sides on ninety six in Amsterdam. You know, for
Speaker 2: the past fifty years. I think he was paying like
Speaker 2: eight hundred dollars a month, and my brothers and I
Speaker 2: were always like, should one of us like move in
Speaker 2: with uncle Bud?
Speaker 3: Yes, we adopt us. We failed it.
Speaker 1: We didn't do it.
Speaker 3: We didn't We didn't get it.
Speaker 4: Matt, what's up with that?
Speaker 1: What do you do for a living?
Speaker 5: Did you know?
Speaker 4: Did you ever see? Was it the No Seinfeld episode?
Speaker 4: Remember when someone died in wanted the apartment? A?
Speaker 6: All right, right, we digressed, But we want to talk
Speaker 6: housing because the US is in what's traditionally the busiest
Speaker 6: home buying season. Right now, We've got some home data today.
Speaker 6: US home sales advancing and made of the fastest pace.
Speaker 4: In over years.
Speaker 6: So great roundtable to talk about it. Pat Clark is
Speaker 6: real estate reporter at Bloomberg News here in our interactive
Speaker 6: Broker studio along with Alison Schrager, Senior Fello at the
Speaker 6: Manhattan So Too Bloomberg opinion columnist. She has a column
Speaker 6: out about thirty year mortgages in the US, and we're
Speaker 6: going to get to that in just a moment. But
Speaker 6: Pat's at the stage in terms of the data and
Speaker 6: where we are in the US housing market.
Speaker 5: Yeah, well, we just had a solid increase in home
Speaker 5: prices from March to April. We're still down a little
Speaker 5: bit year over year, which is a you know, that's
Speaker 5: been a pattern we've had for the last few months,
Speaker 5: with small monthly increases, but still down a tad. Probably
Speaker 5: indicates that we are bottoming out and that.
Speaker 4: The worst is over.
Speaker 5: You mean, well, yeah, the worst is over for home prices.
Speaker 5: I mean the housing market. I mean, the housing market
Speaker 5: is it's a market. It's too side. If you own
Speaker 5: a home, the value of your home is not going
Speaker 5: to go down more probably if you are looking to
Speaker 5: buy a home, that's bad news.
Speaker 2: It's amazing to me though, that we're not going to
Speaker 2: go back down from here. I mean, if you look
Speaker 2: at the S and P. K Shiller chart from the
Speaker 2: beginning of the pandemic until now, it's prices have just
Speaker 2: absolutely soared, right because everybody wanted to get out of
Speaker 2: the city and COVID and we needed to distance. But
Speaker 2: now we don't have to anymore. We're like, calm down,
Speaker 2: the ULTI freaking out apply being low.
Speaker 4: Right in terms of the house.
Speaker 5: The supply, yes, the supply is really low, where inventory
Speaker 5: is something like something just short of half of what
Speaker 5: it was this time in twenty nineteen. But what that
Speaker 5: really speaks to is that, yes, there was this you know,
Speaker 5: there were stimulus. People wanted to go buy a house
Speaker 5: in the country, people wanted to people were forming households
Speaker 5: for the first time. But the prices were also supported
Speaker 5: by these really low interest rates, and those interest rates
Speaker 5: are locked in.
Speaker 4: All right, So let's get to Allison Trigger.
Speaker 6: Come on in Allison on your column today where you
Speaker 6: talk about the thirty year mortgage could save the US
Speaker 6: housing market laid out for us.
Speaker 7: Well, I mean I didn't even realize compared to two
Speaker 7: thousand and eight that Almost everyone who's bought a house
Speaker 7: in the last ten years has had a thirty year
Speaker 7: fixed rate mortgage, which means and I'm one of these people.
Speaker 7: I had locked in a really low interest rate during
Speaker 7: the pandemic, and effectively I'm never moving.
Speaker 4: And that's congratulation exactly.
Speaker 3: Yeah.
Speaker 7: You know, it's funny. I you know, we were talking
Speaker 7: about FED policy and how lowered rates. I was having
Speaker 7: our coffee with a member of the FED board during
Speaker 7: the pandemic, and I was.
Speaker 4: Like, oh, I heard you bought an apartment.
Speaker 7: I'm like, yeah, it's great, paid nothing for it, and
Speaker 7: he goes, you're welcome.
Speaker 4: Oh right.
Speaker 3: Yeah.
Speaker 2: By the way, I just looked at the Cashiller index.
Speaker 2: So from March of twenty nineteen until the peak that
Speaker 2: we hit in the middle of last year, home prices
Speaker 2: rose fifty one percent. That's insane. Froth like, how does
Speaker 2: that not come off when you're the starting point March nine? Okay, Oh,
Speaker 2: I guess that's a little bit too early. I should
Speaker 2: have started March of twenty twenty. The point is, though
Speaker 2: prices have marched higher, and your column, Allison kind of
Speaker 2: explains why we're not going to see a lot of
Speaker 2: movement back to the downside.
Speaker 7: Yeah, because if you remember in two thousand and eight,
Speaker 7: with thirty percent of people had those adjustable rate mortgages,
Speaker 7: so as rates went up, they couldn't afford it, and
Speaker 7: in fact, all of a sudden they found there are underwater.
Speaker 7: And what's interesting is that pretty much every other rich
Speaker 7: OECD country is seeing big drops in housing prices, but
Speaker 7: they also mostly have adjustable rate mortgages too. So the
Speaker 7: fact that people like us are locked into these very
Speaker 7: low rates means we're going to be very reluctant to
Speaker 7: move because, I mean, where can you go?
Speaker 2: Can I just wait, hat did you? Did you lock
Speaker 2: in a low rate path? No?
Speaker 3: Pat didn't get it.
Speaker 6: Can I just say that one stat in your story?
Speaker 6: By twenty twenty one, only two point two percent of
Speaker 6: mortgage applications were for adjustable rate mortgages. Well, in twenty
Speaker 6: twenty two, eighty five percent of mortgages were fixed thirty
Speaker 6: year Like that number.
Speaker 4: That's such a flat It's amazing.
Speaker 7: It is, and it's hard to imagine anyone even if
Speaker 7: home prices do fall a bit and they find their
Speaker 7: underwater with their mortgage.
Speaker 4: Is why people would leave.
Speaker 7: I mean your monthly outlay is going to just only
Speaker 7: go up if you go anywhere, even.
Speaker 6: If you downsize demographics though, I mean people are getting older.
Speaker 6: I have nieces and you know who are getting married,
Speaker 6: and they're buying homes and they're starting families and nephews
Speaker 6: and so on and so forth. I mean, eventually demographics,
Speaker 6: people will be moving or what.
Speaker 5: Well, people are going to want to form households. People
Speaker 5: are going to need homes. Whether that means, you know,
Speaker 5: can they buy them. It seems like right now in
Speaker 5: order to buy them, they're going to have to pay
Speaker 5: up to get them. They can go rent them too.
Speaker 5: I mean there's a you know, the other side of
Speaker 5: demographics is at some point people will die die, or
Speaker 5: at least they age out of a place where they
Speaker 5: want to live in a house in the suburbs and
Speaker 5: need to be in a community where they're getting more assistance.
Speaker 5: But that happens very slowly in overtime. You know, we
Speaker 5: imagine like that that we imagine the boomers all dying
Speaker 5: off all at once, but it's not how it really.
Speaker 2: Well look at in slock from Apollo, he sent around
Speaker 2: a chart. I don't know if you guys are on
Speaker 2: his list a couple of weeks ago showing the average
Speaker 2: new mortgage monthly mortgage payment, and it goes back twenty years.
Speaker 2: So over the past twenty years we've been bouncing around
Speaker 2: between one thousand and fifteen hundred, and now it's three thousand.
Speaker 2: So the current average new mortgage payment average across the
Speaker 2: country including the middle is three thousand dollars. That's insane.
Speaker 6: I remember when we bought our house years ago, decades ago,
Speaker 6: and it was like the mortgage was the same as
Speaker 6: our rent, Like it was just such an easy transition.
Speaker 6: Having said this, Alison, I think about broader economic implications.
Speaker 6: If people have great thirty year mortgages like yourself and
Speaker 6: he ain't moven, what does that mean in terms of
Speaker 6: economic activity?
Speaker 4: Because when we buy a house, we tend to buy
Speaker 4: a lot of stuff.
Speaker 6: There's just amount of an economic activity component as a
Speaker 6: result of that movement.
Speaker 7: So you mean, like people buy other things to go
Speaker 7: to house or are gonna want us maybe as well,
Speaker 7: do renovations stuff like that, home.
Speaker 2: Depot, real estate agents, commissions, I mean everything you can
Speaker 2: think of associated with buying a house or forming a household. Right,
Speaker 2: that kind of activity is maybe gonna lessen substantially, right,
Speaker 2: if we don't see a lot more transactions.
Speaker 7: Yeah, and now why I don't think anyway the thirty
Speaker 7: year mortgage might save us from a housing collapse. I
Speaker 7: don't think it's all necessarily good because anyway, it might
Speaker 7: save us some short term pain. It's also good to move.
Speaker 7: Like if you're thinking, I want to move to another
Speaker 7: city for a better job, but the housing costs are
Speaker 7: just too high because you have to sell your cheap
Speaker 7: house and go to something with a more expensive mortgage,
Speaker 7: maybe you won't and that might make the economy less dynamic.
Speaker 7: And as you say, younger people forming households might be
Speaker 7: priced out. That's not good either. So I think we're
Speaker 7: giving up some short term pain, but you know, might
Speaker 7: end up with a sort of just less dynamic economy
Speaker 7: in the process.
Speaker 2: So your takeaway was the thirty year mortgage has kind
Speaker 2: of saved us from falling off a cliff.
Speaker 4: Edge right now versus other countries, right versus.
Speaker 2: What you see in the UK. But in the long term,
Speaker 2: we're going to lack that dynamism that has made America
Speaker 2: so great.
Speaker 7: It will be less dynamic than we otherwise could be.
Speaker 7: We're always more dynamic than the UK, but I mean
Speaker 7: it's all relative, correctly.
Speaker 4: That's always dynamic.
Speaker 6: Up Papa coming in in terms of when you look
Speaker 6: at the residential real estate market, are home builders getting
Speaker 6: ready to amp up by land and build or what.
Speaker 5: It's a good time to be a home builder because
Speaker 5: you're not competing with existing home inventory, right, So I
Speaker 5: think certainly builders are feeling optimistic and see a great opportunity.
Speaker 5: What level they actually produce homes into, I guess is
Speaker 5: a question. And you know, they got burned.
Speaker 4: Fifteen years ago, were so cautious.
Speaker 5: Along with the rest of us, and they've kind of
Speaker 5: real you know, their business model operates in a way
Speaker 5: where they're taking less risk but also are less nimble
Speaker 5: in terms of capitalizing an opportunity.
Speaker 4: Home Builder stocks are up almost fifty percent this year. Yeah,
Speaker 4: they're doing very well on a tear. Okay, thank you.
Speaker 4: We didn't talk about the Manhattan Law. Sixty three percent
Speaker 4: is ken? How do we not do that?
Speaker 1: True?
Speaker 2: Jennifer Epstein has a great story on the Bloomberg Terminal
Speaker 2: about fifty eight hundred square foot loft that may sell
Speaker 2: for four million, which is pretty low for such a
Speaker 2: gigantic pad. Because there's a renter in there that's going
Speaker 2: to stay forever and only pays twenty three hundred dollars
Speaker 2: a month in rent.
Speaker 4: That's how it works in New York City. All Right,
Speaker 4: Pat and Allison, thank you so much.
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Speaker 6: All Right, as we try to figure out when we
Speaker 6: should go apply to be a Citadel intern, in the meantime,
Speaker 6: we continue to kind of passe through economic data points
Speaker 6: headlines on a lot of things. We talked about residential
Speaker 6: housing earlier with our team, and we know the current
Speaker 6: issue of Bloomberg Business Week is all about the office
Speaker 6: real estate market and noting that.
Speaker 4: It's getting scary. But then we had essel Green yesterday.
Speaker 6: Selling a stake in a park a Park Avenue tower.
Speaker 6: A value of about two billion put on that skyscraper
Speaker 6: as a result of the deal, and that showed to
Speaker 6: be or was looked at, Matt, is some optimism when
Speaker 6: it comes to the office real estates. Yes, I think
Speaker 6: in certain markets, certain areas.
Speaker 4: I won't use the.
Speaker 2: Tale of two cities cliche, but clearly there's a difference.
Speaker 2: Right if you have a great office building on Park
Speaker 2: Avenue in a place where everybody wants to be, or
Speaker 2: if you've got one of the buildings on the Third
Speaker 2: Avenue canyon down here that nobody wants to work in
Speaker 2: or will ever be able to live in. There's a
Speaker 2: very big difference in the value of those aspets.
Speaker 4: It's not apples to apples.
Speaker 6: Well, we have a great guest to comment on the
Speaker 6: commercial real estate world with us is Michael Chauveau. He
Speaker 6: is founder, chairman and CEO of the international real estate
Speaker 6: development and investment company that bears his name. Is company
Speaker 6: owns the Transamerica Pyramid in San Francisco, brought that back
Speaker 6: in twenty twenty other properties around the world, and we
Speaker 6: welcome him in our Bloomberg Interactive Brokers studio.
Speaker 3: Hello, Hello, Hello, good morning, afternoon.
Speaker 4: It's morning somewhere?
Speaker 1: Is it morning?
Speaker 5: Yeah?
Speaker 3: Bloom this morning?
Speaker 2: When when Carol and I get our Citadel internships, have
Speaker 2: you got a place for us to hang out in Miami?
Speaker 3: By the way, the Citadel Play in Miami is something
Speaker 3: that everybody's been talking about because you know, the move
Speaker 3: of citviel to Miami from Chicago has been a big
Speaker 3: generator of kind of other companies moving there. This whole
Speaker 3: interest thing is a phenomenal marketing tool. Right now you've
Speaker 3: got every top, every top, yeah, coming to Citadel. But
Speaker 3: you know, when when you're looking at the market and
Speaker 3: you were talking about theesyl Green deal, Essel Green deals
Speaker 3: is interesting if you if you go through the details,
Speaker 3: a lot of it was actually a transfer of debt, right,
Speaker 3: so the Japanese firm actually took over a bunch of
Speaker 3: the debt. But the fact.
Speaker 4: That it was great for sl Green.
Speaker 3: It was amazing for us. Greening to the fact that
Speaker 3: the building is worth more than the dead was a
Speaker 3: miracle on that specific acid. But as you said, it's
Speaker 3: not even a tail of two cities, it's it's it's
Speaker 3: a building specific today and the separation between good and
Speaker 3: not good, or good and really bad is huge. There's
Speaker 3: no more in between. It's either your winner, which means
Speaker 3: you're a trophy building you're generating rents of two hundred
Speaker 3: bucks a foot plus in that market's on fire, or
Speaker 3: you're dead. There's no in between. Because, as you said,
Speaker 3: nobody wants to go to Third Avenue because those buildings
Speaker 3: have expired. The idea that real estate lasts forever is
Speaker 3: something that people are now realizing is probably not true.
Speaker 2: By the way, what do you do with those buildings
Speaker 2: on Third Avenue, Because we've heard from people that look
Speaker 2: into it. Not only does nobody want to work in
Speaker 2: them as office buildings, but they cannot be repurposed as residential.
Speaker 3: I'm gonna ask it, when you open your fridge and
Speaker 3: you see the milk expired, what do you do with
Speaker 3: the mill? Throw it away exactly? And that's what's going
Speaker 3: to happen with these buildings. So when we're looking at
Speaker 3: these buildings, we don't buy on Third Avenue because I
Speaker 3: don't really it's it's not our neighborhood. We only focus
Speaker 3: on super prime real estate. But at some point, the
Speaker 3: value of those buildings is going to trade at land
Speaker 3: value and there will be an opportunity to demolish them
Speaker 3: and build a new office, a new building. It's not
Speaker 3: that nobody wants to live there, but you can't convert.
Speaker 3: You can't take bad stock and make make You know,
Speaker 3: you're not going to take the sour milk and make
Speaker 3: a cake out of it, It's still going to be
Speaker 3: a sour cake. And that's really the problem with a
Speaker 3: lot of these conversations about converting office to do RESI.
Speaker 3: It works in really specific cases with buildings that have
Speaker 3: the right column with and things of that native.
Speaker 2: For example, you've been to the Net in London.
Speaker 4: Yeah, gorgeous.
Speaker 2: It was a bank and now it's a really cool
Speaker 2: hotel with like nine restaurants.
Speaker 6: But once we take down the sour cakes, are we
Speaker 6: going to build new cakes? In other words, new offices
Speaker 6: or a we're going to do something else with that lane.
Speaker 3: Well, we're in certain cases whereas there's demand, we're going
Speaker 3: to build new office. I mean, I'm a big believer
Speaker 3: that the idea that everybody's worked from home is nonsense.
Speaker 3: You know, pre COVID, we all remember everybody wanted to
Speaker 3: be Google, Apple, Facebook, We all wanted big offices, hold hands,
Speaker 3: you know, and in collaboration years ago. I'm just going
Speaker 3: to I want to say that every time I come
Speaker 3: to this office, this was built in two thousand and five.
Speaker 3: What a visionary mic was to do this, to bring
Speaker 3: people together, forces you to come together in London as well,
Speaker 3: before you go to your office. This is it's brilliant
Speaker 3: and he's a true visionary.
Speaker 2: It's a fantastic place to work. And our new office
Speaker 2: in London, by the way, I Norman Foster designed that
Speaker 2: as well, So.
Speaker 3: We're so I just toured that actually with Norman. Norman's
Speaker 3: designing four buildings for us. He's also doing the Trans
Speaker 3: America Pyramid in San Francisco, and you know a couple
Speaker 3: of the new office buildings in Miami. The building is amazing.
Speaker 3: But just to go back here to your question, we're
Speaker 3: going to build office, We're gonna build residential. We're going
Speaker 3: to build the right thing at the time, but the
Speaker 3: value of the land will start making sense.
Speaker 6: Go to San Francisco. You bought that Trans America Pyramid
Speaker 6: back in twenty twenty. I think it was six hundred
Speaker 6: and fifty million dollars and you're putting a ton of.
Speaker 4: Money and to renovate it. Any regrets about that property
Speaker 4: and help me understand San Francisco.
Speaker 3: By five times again if I could. It's it's the
Speaker 3: first thing, as I said, focuses only on elevating super
Speaker 3: prime real estate. It doesn't get more prime than the
Speaker 3: Trans America period.
Speaker 4: So what's going on San Francisco.
Speaker 6: We have a cover story on Business Week at San
Speaker 6: Francisco's go through really tough.
Speaker 3: So if you read the press, you know, and you
Speaker 3: think San Francisco is dead and it's about the sink
Speaker 3: and the cable cars are going down the ocean. You
Speaker 3: guys reported recently about the Trans America Pyramid. We've signed
Speaker 3: multiple leases between two hundred dollars to two hundred and
Speaker 3: fifty dollars a foot in the pyramid. Now, that makes
Speaker 3: the Trans America Pyramid the third most expensive building in
Speaker 3: the country, more expensive than the building that essel Green
Speaker 3: just sold as far as rents, right, it's at the
Speaker 3: top of the market is rents. And this is in
Speaker 3: San Francisco, which a market that in general has a
Speaker 3: lot of negativity. It shows you that even in difficult markets,
Speaker 3: there's a flight to quality. And we're getting the investment banks,
Speaker 3: we're getting you know, the BC is there that are
Speaker 3: willing to pay if you give them the right thing.
Speaker 3: And obviously with Norman Foster and we're investing hundreds of
Speaker 3: minutes of dollars, we're seeing that. But San Francis, guys,
Speaker 3: obviously some existential issues that that will eventually get solved.
Speaker 3: I think that there's a lot of a lot of
Speaker 3: eyes on us with what we're doing at the Pyramid,
Speaker 3: with how we're going to rejuvenate the park. We have
Speaker 3: the Redwood Park there to really ignite that whole neighborhood
Speaker 3: Jackson Square, that's going to happen towards the end of
Speaker 3: the year early next year. So there's a lot of
Speaker 3: hope that that brings life to get.
Speaker 4: Ahead of itself.
Speaker 6: Also, I mean, I feel like we've been talking about that,
Speaker 6: the housing problems and situations, the expensive nature of San
Speaker 6: Francisco city like San Francisco for years. So did it
Speaker 6: just kind of need to write itself or is it
Speaker 6: the pandemic.
Speaker 3: I think I think it's a combination. It's it's the
Speaker 3: star align the stars aligned in the wrong location, and
Speaker 3: that's says because the pandemic took a hit. The largest
Speaker 3: groups that suffered from the pandemic, or in the sense
Speaker 3: from an office perspective, is the tech tenants because they
Speaker 3: all all of a sudden figured we can work from home.
Speaker 3: But that's all changing, right You're seeing a change of
Speaker 3: that and right now we're seeing even in San Francisco
Speaker 3: we're seeing Monday to Thursday. You know the card swipes
Speaker 3: right now, people are, people are at the office. Friday
Speaker 3: is still is still quite quiet. But all that really
Speaker 3: means is you got to give people a reason to come.
Speaker 4: You've got to endow or ED. Lola, who's dinner.
Speaker 6: San Francisco Bureau is listening, it says, ask him, what's
Speaker 6: going to happen to downtown San Francisco, Westfield and all
Speaker 6: the corporate real estate is empty.
Speaker 4: Everyone wants it rezoned.
Speaker 3: So well, they're working on ED. But again, part of
Speaker 3: part of the issue there is, as I said earlier,
Speaker 3: not every building works as as as a converse conversion
Speaker 3: to residential. San Francisco from all market needs it more
Speaker 3: than anything else because housing prices are out of control.
Speaker 3: You know, unemployment in San Francisco is sub three percent today,
Speaker 3: which is something really important to understand. People are there.
Speaker 3: There is going to be a back to work, but
Speaker 3: we will see the bad stock exactly like Third Avenue
Speaker 3: is you're talking about the creators at Third Avenue. There
Speaker 3: are buildings that expired in San Francisco in every market.
Speaker 3: Chicago is no different than New York is no different.
Speaker 3: We have to get rid. We have to get rid
Speaker 3: of the buildings that are not relevant anymore and and
Speaker 3: build new buildings stead of them. And it's that that's
Speaker 3: a transformation. That's what we're going right now. COVID has
Speaker 3: accelerated all this, kind of all this, I would think
Speaker 3: that's gonna that was gonna happen anyway.
Speaker 2: I would love to hear your take on New York
Speaker 2: because San Francisco, when I see that rents are going
Speaker 2: down there, it just makes me excited because I want
Speaker 2: to live there and maybe I can afford it one day. Miami,
Speaker 2: obviously it is white hot, not just Citadel. I mean
Speaker 2: even before Ken Griffin thought about moving to Miami, everybody
Speaker 2: wanted to be there. But New York feels kind of dead.
Speaker 2: You know. Even on this block, we had all of
Speaker 2: these big tenants downstairs, and those stores are empty still, right,
Speaker 2: Jay Crew and Curry Secret, they're all gone. So I
Speaker 2: just wonder what happens to New York.
Speaker 3: You had the containers store that went away, right, Yeah.
Speaker 2: We had gone.
Speaker 6: He used to have Williams Sonoma and Pottery Born. They
Speaker 6: left and I asked Himika, why are you leaving? It's
Speaker 6: a great place to be and they're like it got.
Speaker 4: Too expensive, right, so twenty seconds then we're going to
Speaker 4: bring you back.
Speaker 3: Okay, Well, there was an issue with obviously the cost.
Speaker 3: As you said, the cost went up, they couldn't afford it.
Speaker 3: The business interruption. But you're seeing if you look at Madison,
Speaker 3: Madison rents went up from it that it was a
Speaker 3: thousand bucks a foot down to four hundred. You're back
Speaker 3: at nine hundred bucks a foot on Madison. There is
Speaker 3: a bounce back in the locations where people want to be.
Speaker 6: All right, We're going to continue with Michael Schave he's founder,
Speaker 6: chairman and CEO of Cheveau real Estate. They are doing
Speaker 6: deals and we're going to continue talking real estate. We
Speaker 6: want to roll into the conversation though also our Ed Ludlow,
Speaker 6: who of course is co host of Bloomberg Technology, because
Speaker 6: we've had some news on the EV space. But before
Speaker 6: we get into it, you know, you really kind of
Speaker 6: popped in some good questions on San Francisco. You're living
Speaker 6: in the San Francisco area. Do you buy that San
Speaker 6: Francisco is going to be?
Speaker 4: Okay?
Speaker 8: I don't buy it in either direction. I asked the
Speaker 8: question because it's what the debate is here among everyone, residents,
Speaker 8: the industry. We had our Bloomberg Technology Summit last week, Michael,
Speaker 8: and the future of SF was everything that people were
Speaker 8: talking about. Alongside Ai and the mayor, London Breed was here,
Speaker 8: and I think what we're talking about is downtown SF.
Speaker 8: That the real estate you're talking about, And the mayor's
Speaker 8: proposal is that investors buy in and redevelop existing or
Speaker 8: knock it down and do something new with what's already there.
Speaker 8: And my question to you, Mike, was how attractive is
Speaker 8: that as an investor to get involved in a project
Speaker 8: to reimagine what downtown SF looks like.
Speaker 3: So you're asking the person that has the largest investment
Speaker 3: in downtown San Francisco. We have a billion dollars invested
Speaker 3: at the Trans America Pyramid Center, which is a full,
Speaker 3: full city block. I've had multiple conversation with the mayor
Speaker 3: about this whole idea. These things take time. It's not
Speaker 3: happening in five minutes. And the biggest city of San
Speaker 3: Francisco has and has had for a long time, is
Speaker 3: bureaucracy of getting things approved right. So now there's an
Speaker 3: emergency there trying to push everything quickly, which is good
Speaker 3: because I think that's going to make a change, but
Speaker 3: it's still going to take time. That is not going
Speaker 3: to be the immediate solution. There's a security issue in
Speaker 3: San Francisco that has to be dealt with, and it's
Speaker 3: it's this cycle where there's no people, so there's more.
Speaker 1: PRIDW do you deal with that?
Speaker 2: It doesn't seem like that will be dealt with. I
Speaker 2: remember going to San Francisco ten years ago to interview
Speaker 2: people around an Apple product release and Chris Sokka had
Speaker 2: to break up a fight between two homeless people behind
Speaker 2: us because they didn't know who owned the joint right. So,
Speaker 2: I mean, the homeless issue has been a problem for decades.
Speaker 2: That's not going to get solved well.
Speaker 3: But you didn't feel the homeless issue when you had
Speaker 3: people on the street right. Part of the issue with
Speaker 3: the homeless issue. When there's nobody on the street and
Speaker 3: it's mostly homeless and you're in you're and and the
Speaker 3: ratio between homeless that the non homeless people is upside down,
Speaker 3: you feel it a lot more right. And that's where
Speaker 3: you start seeing crime. That's where you're seeing drugs. I mean,
Speaker 3: the whole area in San Francisco that's problematic. But on
Speaker 3: the bright side, think about think about what's happening. You
Speaker 3: ask me what's going to change. What I think is
Speaker 3: going to change is that that you have voters and
Speaker 3: this tremendous amount of pressure on the mayor and on
Speaker 3: the on the entire board there to make a difference.
Speaker 3: You know, they've they've changed some of the some of
Speaker 3: some of the people. They're both on the education side
Speaker 3: and to fight crime. If you ask me if they're
Speaker 3: doing enough, it's probably not enough yet, but they're at
Speaker 3: least directionally going there because they know that that there
Speaker 3: is no option. And unfortunately the press has been has
Speaker 3: been very brutal on San Francisco, but it does it
Speaker 3: did give a kick in the butt to everybody there
Speaker 3: to move forward. But I think that what's interesting and
Speaker 3: why I find fascinating is, as I said earlier, if
Speaker 3: we're getting rents between two hundred and two and fifty
Speaker 3: dollars a foot, which is twice the market in San
Speaker 3: Francisco pre COVID. Pre COVID that this building was at
Speaker 3: sixty five to one hundred and five dollars. Today we're
Speaker 3: at one twenty to two fifty. Trending to three hundred.
Speaker 3: That tells you that that there is the first thing
Speaker 3: that that San Francisco is not dead. There is there
Speaker 3: is a belief at the top of the market, right
Speaker 3: that people want to be there. Right, So at the
Speaker 3: relevant real state and the relevant locations, I think that
Speaker 3: we're going to see We're going to see positive news
Speaker 3: and and like I said, there's a lot of eyes
Speaker 3: on us, you know, towards the end of this year
Speaker 3: really to be the the ignite downtown San Francisco, with
Speaker 3: with opening the Pyramid and opening the park and opening
Speaker 3: that whole neighborhood.
Speaker 4: And I want to bring you.
Speaker 6: In because initially we wanted to talk to you about
Speaker 6: what's going on at Stilantis, and I'm thinking about EV
Speaker 6: charging units. Right, you've got another kind of Stillantis taking
Speaker 6: a page from Tesla's playbook in terms of lining up
Speaker 6: other automakers and I and we can talk about EV infrastructure.
Speaker 4: Tell us the.
Speaker 8: News though, Okay, so summing up the news from Stilantis.
Speaker 8: They're basically making a standalone power unit much like Tesla
Speaker 8: has so down the road they can order they can
Speaker 8: offer the charging at home infrastructure, energy storage and then
Speaker 8: the charging products. The thing is we don't know anything
Speaker 8: about it. It's going to be through third party partnerships, investments,
Speaker 8: through their venture arm and in this country, Matt's probably
Speaker 8: thinking what is he talking about? In this country, STILLANTIS
Speaker 8: has no EV offering at all, so you know, they
Speaker 8: are so behind the curve here. I think the big
Speaker 8: question for everyone is did they join the NACS club,
Speaker 8: which we discussed last week, right, they joined Tesla's technology standard,
Speaker 8: but this is at least STILLANTIS making squeaks. Raises a
Speaker 8: good point for Michael though Carroll, which is, you know,
Speaker 8: where does the energy come from the private sector or
Speaker 8: the public sector? Always talking about the infrastructure bill, but
Speaker 8: you know, the private sector just gets going quicker. It
Speaker 8: just does it like Tesla just did it. In the
Speaker 8: case of this charging it.
Speaker 4: Michael, how do you think about this stuff?
Speaker 3: So we just completed the Mandarin Oriental Residences in Beverly
Speaker 3: Hills on Wilshire Boulevard, and you know, in California, obviously,
Speaker 3: as you know, evs are are extremely popular. I think
Speaker 3: you know a quarter a third of our parking spaces
Speaker 3: are actually are actually all facilitated with private charging station
Speaker 3: and we provide that to people that move in and
Speaker 3: that's where you're seeing. As you said, the private sector
Speaker 3: is much quicker to react because there's there's a true
Speaker 3: roy Right, if I have a guy that wants to
Speaker 3: buy or a family that wants to buy an apartment
Speaker 3: that the poor bedroom and needs three charging stations, there's
Speaker 3: a true ROI and providing these facilities versus you know,
Speaker 3: waiting for the you know, waiting waiting for the government
Speaker 3: to do it, or waiting for for for the for
Speaker 3: public funds for that.
Speaker 6: So it's becoming a bigger, bigger part, right, is it
Speaker 6: becoming a bigger part of you as you develop?
Speaker 3: For sure on the West Coast way, I think that
Speaker 3: it's really the mindset of the consumer. The West Coast
Speaker 3: consumer is very focused and there's a lot of demand
Speaker 3: for ev for for for evs.
Speaker 2: But don't you have to plan ahead, Like if you're
Speaker 2: putting up a building or you know, re engineering a
Speaker 2: building here in New York, if you're building something in Miami,
Speaker 2: don't you have to say, like okay, as Ed pointed out,
Speaker 2: Stillantis doesn't have electric vehicles in America this year, but
Speaker 2: in two or three years they're going to have a
Speaker 2: ton of them. And so eventually you know. I mean,
Speaker 2: you've got to think five, ten, twenty five, thirty years ahead.
Speaker 5: Right do you.
Speaker 3: I'm thinking about my internship I tended. But the answer
Speaker 3: to question is yes, New York is a unique market.
Speaker 3: You don't really we don't build a lot of parking here.
Speaker 3: And as a good point, you know, there's just a change,
Speaker 3: even this change that you see now with with the
Speaker 3: taxes on traffic that was proposed yesterday here in New
Speaker 3: York City. But in Miami, for sure. Miami is another
Speaker 3: market that we are incorporating ev charging stations, the whole
Speaker 3: energy you know, we're the building we're building with Norman
Speaker 3: Foster in Miami Beach is in is it totally? You know,
Speaker 3: is an energy efficient building where very much like your
Speaker 3: headquarters in London, you know, being environmentally friendly and environmentally neutral.
Speaker 6: Where's your favorite place for opportunities or to build? Right
Speaker 6: now when you look around the globe and let me.
Speaker 2: Ask you about the US versus the rest of the
Speaker 2: world on that note, good, you know, because right now
Speaker 2: America is going through a tough time. My wife's from
Speaker 2: Spain and she has issues with our government and our people,
Speaker 2: you know, but how do you look at it? As
Speaker 2: someone who immigrated here also, you know, twenty thirty years ago.
Speaker 3: Well, that's a load of question. We don't have that
Speaker 3: many that much time left to even answer that. But
Speaker 3: if you think about how other people look at how
Speaker 3: foreigners look at at America, we're still looked at the
Speaker 3: best place to invest. And that's it goes back to
Speaker 3: the sel Green deal. The Japanese just put tremendous amount
Speaker 3: of investment in here because the US has looked at
Speaker 3: it's the safest place to invest. Europe is a disaster
Speaker 3: from an investment point of view. They have you know, Spain, Germany,
Speaker 3: I mean, these markets have tremendous amount of problems. We
Speaker 3: all have the same issue with cost of capital. Right,
Speaker 3: cost of capital is expensive here, it's expensive in Europe.
Speaker 3: But there's the sense that the US is a more
Speaker 3: evanced market and it's safer market to invest. So we're
Speaker 3: seeing I mean, we're partners with some of the largest
Speaker 3: German state owned pension funds and insurance companies. They're still
Speaker 3: investing in the US more and more now here than
Speaker 3: they are they're in their own in their own backyard,
Speaker 3: because they do have problems there that have to do
Speaker 3: with you know what well, regulation, regulation, and for years
Speaker 3: they were in very low return environment that now is
Speaker 3: with high cost of capital. It just kills you.
Speaker 4: So, Michael, thirty seconds left here. So I'm not gonna
Speaker 4: poop poo some of the.
Speaker 6: Journalism that we've all been doing and the narrative out
Speaker 6: there about the concerns about office real estate. But do
Speaker 6: you think there is a crisis brewing? And just got
Speaker 6: about thirty seconds twenty five.
Speaker 3: It's as you said, there's it's not a crisis. It's
Speaker 3: not an overall market. It's there's a crisis in the
Speaker 3: B and C class office and and it's not a
Speaker 3: crisis that has expired. It's got to be demolished. It's
Speaker 3: got to be a replacement.
Speaker 6: I talked to someone who was overseeing kind of all
Speaker 6: of the old assets from like sears and so and
Speaker 6: so forth, and just saying, you know, I'm so glad
Speaker 6: we're not talking about the demise of the mall anymore.
Speaker 6: Like we've moved on to office and it just sounds
Speaker 6: like we're cleaning house at this point just a little bit.
Speaker 3: There's a reset and like you said, old inventory out,
Speaker 3: new inventory in, and people are paying for it. The
Speaker 3: good thing is there's a lot of money out there
Speaker 3: to pay for new inventory.
Speaker 4: Come back soon. This was really really fun pleasure.
Speaker 3: Thank you so much, Michael Schoe.
Speaker 6: He's founder, chairman, CEO of the company that bears his
Speaker 6: name here in our interactive brokera.
Speaker 4: Thanks Ed, Yes, thank you.
Speaker 1: At Ludlow, you're listening to the Bloomberg Business Week Podcast.
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Speaker 5: Am. Bromarco Journal.
Speaker 8: How about you let me drive?
Speaker 1: Oh no, no, no, no, who's going to drive?
Speaker 5: Honey?
Speaker 4: Please, I'll travels.
Speaker 6: I want to drive.
Speaker 2: It's a good question.
Speaker 1: This is the drive to the clothes me well by
Speaker 1: around yelling Don on Bloomberg Radio.
Speaker 6: All right, everybody, we've got just about seventeen minutes left
Speaker 6: in today's trading session here on this Tuesday, June twenty seventh,
Speaker 6: and as you heard from Charlie, Equity is definitely on
Speaker 6: a rally outperformance among the Nasdaq one point seven percent
Speaker 6: higher and maybe some expectations that the upbeat US economic
Speaker 6: data that the economy might be maybe won't fall apart.
Speaker 4: If we get a recession will be easy. But we
Speaker 4: have seen also rates moving up a little bit today.
Speaker 3: Matt right.
Speaker 2: And the concern I think if you're buying into this
Speaker 2: market is that rates need to rise further. Yea, as
Speaker 2: has been indicated by Jerome Powell and the Federal Reserve
Speaker 2: dot plot, But the markets don't seem to buy it.
Speaker 4: Yeah, all right, so let's get to it.
Speaker 6: Christopher Zook is with US, founder, chairman and chief investment
Speaker 6: officer of CEZ Investments, works with endowments, high net worth individuals,
Speaker 6: and family offices.
Speaker 4: He joins us on Zoom in Houston.
Speaker 6: Hey, Chris, good to have you back with us. First up,
Speaker 6: got to ask you about Houston temperatures, Texas records. Talk
Speaker 6: to us about the heat and the stress, the great stresses,
Speaker 6: because it's something we're going to dig into a little
Speaker 6: bit deeper. But I'm curious firsthand what you guys are seeing.
Speaker 9: You know, it's amazing. We had a very actually mild
Speaker 9: start to this spring in the early part of summer,
Speaker 9: and then it has really hit with a vengeance here
Speaker 9: the last couple of weeks, you know, the grid is
Speaker 9: under stress. What I will tell you is that most
Speaker 9: of the things that were done after the freeze that
Speaker 9: we dealt with in twenty twenty one have really improved
Speaker 9: the health of the grid, and the leadership, you know,
Speaker 9: of the new leadership that has taken over there, has
Speaker 9: really done a very very good.
Speaker 1: Job so so far.
Speaker 9: Even though it is very hot here. It's seventy two
Speaker 9: degrees everywhere you go, your car, your your office, and
Speaker 9: your home, because that grid is very much intact, all.
Speaker 2: Right, So you're staying cool with the ac on. Markets
Speaker 2: are hot right now, we're up again today, or we've
Speaker 2: broken the last the losing streak of the last couple
Speaker 2: of days, one point two percent on the S and
Speaker 2: P another one in three quarters percent on the Nasdaq.
Speaker 2: These these tech docs continue to run. How much longer
Speaker 2: can this go on?
Speaker 1: Chris?
Speaker 9: You know, it's it's hard because of the fact that
Speaker 9: the market could be anticipating either a soft landing or
Speaker 9: an economic recovery on the other side, or the market
Speaker 9: could just be flat out wrong. And right now it
Speaker 9: feels like we had this huge dichotomy to where in
Speaker 9: the S and P five hundred, twenty names have made
Speaker 9: up over ninety percent. Four percent of the names have
Speaker 9: made up over ninety percent of the performance of the
Speaker 9: S and P five hundred year to date. So we
Speaker 9: have this dichotomy where it looks like the bond market
Speaker 9: is wrong because the stock market is going up. I
Speaker 9: personally believe, and we believe as a firm, that the
Speaker 9: bond market is right and the stock market is wrong,
Speaker 9: and that this is going to end badly over the
Speaker 9: summertime in the fall as the recession really does arrive.
Speaker 6: Having said that, if I look at the S and
Speaker 6: P five hundred major industry groups, most of them are
Speaker 6: up on the year, and yep, it is some of
Speaker 6: those big tech names that are definitely leading the way
Speaker 6: communication services that named group, but nonetheless, but consumer discretionary
Speaker 6: industrials are also gaining on the year.
Speaker 4: Materials, you know, there are we were for a while,
Speaker 4: it feels.
Speaker 6: Like Chris, you know, talking about some of the plain
Speaker 6: vanilla old industrial stocks that were leading the way, and
Speaker 6: we were seeing some rotation. So having said that, does
Speaker 6: that not speak to you that maybe things are a
Speaker 6: little bit more broader in terms of the outperformance, and
Speaker 6: maybe it makes sense for tech to be such an
Speaker 6: outperformer and big influence, considering our world is so much tech,
Speaker 6: you know.
Speaker 9: It's those are very fair points and very fair questions.
Speaker 9: And at one point there was the appearance, based on
Speaker 9: what was happening in the bond market and in the
Speaker 9: stock market, that the Federal Reserve was going to be
Speaker 9: able to thread the needle and to be able to
Speaker 9: manufacture a slow, you know, slowing economy, beat inflation and
Speaker 9: then at the same time not destroy earnings and profit margins.
Speaker 9: Really doesn't look like that is the case right now,
Speaker 9: but FOMO was kicking back in again fear of missing
Speaker 9: out on the rally that is causing people to go, okay,
Speaker 9: what is not absurdly expensive? And so you are seeing
Speaker 9: a little bit more participation, but the actual indices themselves,
Speaker 9: they're still not performing like you would expect them to.
Speaker 9: And when you look at what the overall stock market
Speaker 9: is done, when you look at the S and P,
Speaker 9: and when you look at the Nasdaq, what I will
Speaker 9: say is this, most people right now believe the Fed
Speaker 9: is going to raise rates more, but yet they're trading
Speaker 9: stocks like that's not going to happen. That to me
Speaker 9: is a message of hope, and hope is a bad investment.
Speaker 6: So I'm just going to tell you christin math that
Speaker 6: sounds like with my husband's like, yeah, honey, you know,
Speaker 6: fair point for a point, but you know you're wrong.
Speaker 4: So it's okay. Would I ever do that now?
Speaker 5: I would? No, I hope you would.
Speaker 4: I hope you would push back.
Speaker 3: I hope you would.
Speaker 2: But anyway, in terms of you know, I've seen this
Speaker 2: hope playing out when I go to lunch with Wall
Speaker 2: Street fund managers.
Speaker 5: Who are like, Yeah, the Fed's got.
Speaker 2: A cut, They're definitely gonna cut.
Speaker 3: You know.
Speaker 2: Do you expect Powell to I guess at this point
Speaker 2: he'd be kind of reneging on his promise because he
Speaker 2: said last week they're not going to cut for years.
Speaker 9: I think that it is definitely wrong to think that
Speaker 9: the Federal Reserve is going to turn around and go
Speaker 9: the other way. The FED is in one of the
Speaker 9: most difficult boxes that they have been in the last
Speaker 9: forty years. If they raise rates too much, they know
Speaker 9: they're going to derail the economy and do so in
Speaker 9: a pretty significant way. But they may have to do
Speaker 9: that to whip inflation. To use the term of the
Speaker 9: early eighties. But at the same time, if they lower
Speaker 9: rates because the economy starts to show that recessionary environment
Speaker 9: and then all of a sudden inflation rears its ugly
Speaker 9: head again, then they look like they're completely incomfident. The
Speaker 9: markets lose confidence, and that is exactly what happened to
Speaker 9: the Federal Reserve in the late seventies early eighties. They
Speaker 9: cannot lower rates until they know for sure that inflation
Speaker 9: has been beaten to the ground and that they have
Speaker 9: literally laid on top of it for a while to
Speaker 9: make sure that it's going to stay down, which is
Speaker 9: that is when they're going to cut rates, and that's
Speaker 9: probably not anytime in the next.
Speaker 6: Twelve Don't you feel like Ja Pow was just throwing
Speaker 6: cold water at everybody, basically saying, come on, guys, stop
Speaker 6: talking about cutting rates already.
Speaker 4: That just doesn't make any sense. We're not even close,
Speaker 4: you know.
Speaker 6: But as I just texted or message to IBEAD Matt
Speaker 6: data dependent. I mean, if that's going to watch the
Speaker 6: data points, if inflation gets down and settles, you know,
Speaker 6: they certainly don't want a deep, deep recession either.
Speaker 4: Just got about thirty seconds Chris.
Speaker 9: Totally agree with you. And if they literally do see
Speaker 9: data that completely surprises people and then inflation is whooped. Yeah,
Speaker 9: And then if you don't see this bad recession coming,
Speaker 9: you know, there's no reason for them to keep raising rates.
Speaker 6: Hey, listen to twenty seconds, because you do make investment decisions.
Speaker 6: What's your favorite investment play against risk right now?
Speaker 4: Very quickly?
Speaker 9: Absolutely owning the stakes and private asset management firms. They
Speaker 9: have the biggest tailwind, they have the best profit margins,
Speaker 9: the most predictability.
Speaker 1: In the most upside.
Speaker 4: Got a favorite ticker.
Speaker 9: So in the public mortgage right now, we do own
Speaker 9: out blue out. That would be our favorite as far
Speaker 9: as the names in the public.
Speaker 6: Markets love that we got it in well, Stay cool.
Speaker 6: Christopher Zeck, Founder, chairman and chief investment Officer at CZ
Speaker 6: Investments on zoom from a pretty warm Houston, Carol Master,
Speaker 6: Matthew Miller, And this is Bloomberg Radio.
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