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Speaker 1: Let's go to Starbucks.
Speaker 3: Here, thousands of Starbucks workers who walked off the job
Speaker 3: have concluded.
Speaker 1: What a minute.
Speaker 3: It's about a five day strike against the coffee giant.
Speaker 3: From Rollness, we're joined by Bloomberg's Emily Cohne. Emily, thanks for
Speaker 3: coming into studio. You get the gold star for coming
Speaker 3: in the studio. We appreciate that the coveted gold star.
Speaker 4: I did it.
Speaker 1: What's going on to Starbucks? Why are they striking?
Speaker 4: So? Starbucks workers have been in a bitter battle with
Speaker 4: the company for since twenty twenty one, end of twenty
Speaker 4: twenty one, when the first store voted to unionize. So
Speaker 4: they have this growing union presence at Starbucks. I think
Speaker 4: about five percent of their stores are unionized now and
Speaker 4: they're in the final stages of negotiating their union contract.
Speaker 4: So that final stage is when you start talking about
Speaker 4: money and wages and all the really contentious stuff. So
Speaker 4: the company is alleging that the union walked off the
Speaker 4: left the negotiating table prematurely. The union is saying Starbucks
Speaker 4: came to the table with no raise offers, so that
Speaker 4: led to this strike that lasted five days. The last
Speaker 4: day was Christmas Eve. This is a really important time
Speaker 4: for Starbucks. People stop into the store to get lattes
Speaker 4: while they're doing their last minute shopping. They're buying gift
Speaker 4: cards as stocking stuffers. But only about two percent of
Speaker 4: their stores actually closed as a result of that the strike,
Speaker 4: so probably not a huge impact on the business, but
Speaker 4: definitely a morale hit for the company. This is something
Speaker 4: that we're all talking about that we all noticed. There
Speaker 4: were lots of headlines about it, so about it's unclear
Speaker 4: about how many stores strike. It was like probably between
Speaker 4: two hundred and three hundred between what the union is
Speaker 4: saying what the company is saying. That's a small percentage
Speaker 4: of their ten thousand stores, but definitely got a lot
Speaker 4: of attention.
Speaker 5: Just ask you to sort of give us some context
Speaker 5: into how this holiday retail season went. Now that we're
Speaker 5: sort of piecing together how many people went out in
Speaker 5: shopping stories and online and all of that. What are
Speaker 5: you kind of tracking or following here in the waning
Speaker 5: days of twenty twenty four when it comes to just
Speaker 5: sort of how the consumer performed at the end of
Speaker 5: the year.
Speaker 4: Yeah, it's a good question. I think we're seeing a
Speaker 4: lot of what we have seen throughout the year, which
Speaker 4: is what we talk about we call the bifurcation of
Speaker 4: consumer spending, where we see the upper income consumer households
Speaker 4: making one hundred thousand dollars or more a year doing
Speaker 4: quite well. They're splurging on gifts, they're getting out there
Speaker 4: and they're shopping. The stock market's doing well, their houses
Speaker 4: are worth more than they were a year ago. They
Speaker 4: feel pretty good in our shopping. And then at the
Speaker 4: lower end we see shoppers pulling back, not shopping as much,
Speaker 4: not splurging. We had a great story last week the
Speaker 4: CEO of Newell Brands, which is the maker of Sharpie
Speaker 4: and rubber Maid and Mister Coffee, saying that they're having
Speaker 4: a much easier time selling three hundred dollars coffee makers
Speaker 4: than they are selling thirty dollars coffee makers, which tells
Speaker 4: you everything that you need to know about the economy
Speaker 4: right now. The upper income households are spending, the lower
Speaker 4: ones are pulling back.
Speaker 3: How about tariff's I mean, what is the expected impact
Speaker 3: on the consumer here? I wonder if the folks have
Speaker 3: voted for Donald Trump, are they aware that in some
Speaker 3: scenarios tariffs can result in higher prices that we pay
Speaker 3: for stuff and maybe is that a concern for the.
Speaker 1: Consumer out there.
Speaker 4: Yeah, it's a really good question. I think it's somewhat
Speaker 4: ironic that we saw a lot of voters who I
Speaker 4: think were really frustrated with the cost of their groceries
Speaker 4: and how much they were spending on things, come out
Speaker 4: and vote for because they thought he would lower prices. Meanwhile,
Speaker 4: like Trump's platform is very open and honest about his
Speaker 4: protectionist policies, the core of that being increasing tariffs. And
Speaker 4: if you know how tariffs work, like they most of
Speaker 4: the time get passed down to the consumer and raise prices.
Speaker 4: So that is going to be a big theme of
Speaker 4: our coverage and what we're looking for next year. Obviously,
Speaker 4: tariffs are really complicated. We don't know what industries are
Speaker 4: they're going to hit first, what types of products are
Speaker 4: going to hit, how big they will be, what countries
Speaker 4: they will affect. These are all still unknown, but generally speaking,
Speaker 4: what economists think will happen is that tariffs will raise
Speaker 4: prices for consumers and will slow economic growth, which ultimately
Speaker 4: is not great for the consumer, not great for the
Speaker 4: companies that we cover on the consumer beat. And you know,
Speaker 4: we got a little bit of a preview of this
Speaker 4: in the consumer confidence ratings that were just out a
Speaker 4: couple weeks ago. They tanked for the first time in
Speaker 4: a while because of this concern and uncertainty over tariffs.
Speaker 5: Very quickly here about thirty seconds. We know consumers are
Speaker 5: talking about this. How about companies themselves? As you listen
Speaker 5: to earnings calls and CEO speaking, are they engaging with
Speaker 5: the notion of what tariffs might mean for their bottom line?
Speaker 4: Some are, Some are saying, we just don't know. I
Speaker 4: think a lot of companies that were maybe already planning
Speaker 4: on moving their production outside of China or closer to
Speaker 4: the US are speaking out about it. A lot of
Speaker 4: companies are just saying they don't know. Walmart obviously said yes,
Speaker 4: like tariffs will ultimately raise prices for US, So it's
Speaker 4: different answers across the board. It'll be really interesting to
Speaker 4: watch I think there's a lot we don't know that
Speaker 4: we will learn soon once the new administration enters the
Speaker 4: White House.
Speaker 6: We know you'd be watching it closely.
Speaker 5: Emily con joining us here in the studio in New
Speaker 5: York getting that gold star from one Paul Sweeney, which
Speaker 5: is not worth nothing, I promise you, consumer editor here
Speaker 5: at Bloomberg News, talking about what twenty twenty five is like.
Speaker 6: They look like across a variety of sectors.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just say Alexa Play Bloomberg eleven thirty.
Speaker 5: Something might not be feeling that's good about is the
Speaker 5: federal deficit. The incoming Trump administration facing the worst trajectory
Speaker 5: for federal borrowing in modern day history, with the deficit
Speaker 5: projected to exceed six percent of GDP next year. At
Speaker 5: something I spoke about with current Treasury Sectory Jennet Yellen,
Speaker 5: I asked her about her concerns.
Speaker 7: Well, I am concerned about the fiscal out loo can
Speaker 7: I believe the deficit reduction is necessary to keep us
Speaker 7: on a sustainable fiscal course.
Speaker 8: Now.
Speaker 7: President Biden signed into law a trillion dollars of deficit
Speaker 7: reduction over the next years. He did that in the
Speaker 7: agreement to raise the debt ceiling. And our budget proposes
Speaker 7: an additional three trillion dollars of deficit reduction over ten years,
Speaker 7: and I think that's necessary to make sure that our
Speaker 7: fiscal path is sustainable. Now, Congress hasn't really done anything to,
Speaker 7: you know, beyond what I've mentioned, to improve the fiscal outlook,
Speaker 7: and I think that's a shame. I'm disappointed in that,
Speaker 7: and I think Congress needs to work hard on that.
Speaker 7: There is a threat going forward that many of the
Speaker 7: provisions on the individual tax side of the jobs, job
Speaker 7: cuts and tax JCTA enacted by the Trump administration in
Speaker 7: Congress in twenty seventeen, they will sunset at the end
Speaker 7: of next year, and many Republicans have expressed a desire
Speaker 7: to keep all those provisions in place. CBO said that
Speaker 7: will cost five trillion dollars over ten years. So that
Speaker 7: really is and so that would be a blow in
Speaker 7: a situation where I believe an additional three trillion. You
Speaker 7: know that not doing the five trillion and three trillion
Speaker 7: more is necessary, and if the provisions are just extended,
Speaker 7: this will be a serious blow without finding ways to
Speaker 7: pay for them. We proposed a lot of pay fors
Speaker 7: that we think would fairly ask corporations, wealthy individuals to
Speaker 7: pay their fair share. We've negotiated an international tax agreement
Speaker 7: that would create a level playing field worldwide from multinationals.
Speaker 7: The United States has not yet joined, although many other
Speaker 7: countries have, and that would be a revenue raising measure
Speaker 7: that I think would be very valuable, and there is
Speaker 7: certainly more so. I do hope that the new administration
Speaker 7: in Congress will, if they extend features of JCTA, find
Speaker 7: ways to pay for what they do and also make
Speaker 7: sure that the benefits go not to the wealthiest individuals
Speaker 7: but to middle class families.
Speaker 5: As Treasury Secretary Jenna Yellen, of course, and joining us
Speaker 5: now is Lauren sidel Baker. She's an economist at ITR Economics,
Speaker 5: and Lauren, let me pick up from what the Treasury
Speaker 5: Secretary was saying. They're talking about what might happen when
Speaker 5: it comes to taxes as you look ahead to twenty
Speaker 5: twenty five, let's zoom in on that variable in particular,
Speaker 5: how much does that that kind of define or could
Speaker 5: it define sort of the economic trajectory of the country
Speaker 5: going forward, whether or not those so called Trump era
Speaker 5: tax cuts are are extended here in twenty twenty five.
Speaker 9: Well, clearly there will be some knock on effects, but
Speaker 9: generally we're seeing the consumer be in a very stable position.
Speaker 9: So if we're talking about individual tax rates, yes, that's
Speaker 9: something we consider in our spending, but our dollars do
Speaker 9: tend to walk based on many other fundamental factors. The
Speaker 9: big one that I'm looking at right now is the
Speaker 9: strength of the labor market. We've been talking a lot
Speaker 9: about that recently, but very low new unemployment claims, we
Speaker 9: have very low layoffs and other discharge discharges excuse me.
Speaker 9: And generally, if you want a job today with this
Speaker 9: low unemployment rate, you can typically find one. There are
Speaker 9: more job openings out there than there are unemployed job seekers.
Speaker 10: So at the end of the day, yes, the.
Speaker 9: Tax rate matters, but just having that strong consumer position
Speaker 9: from an employment perspective is what matters more.
Speaker 3: And Lauren, we're seeing, we're starting to hear from some
Speaker 3: of the retailers about some of the retail spending this season,
Speaker 3: you know, up low single it seems like the consumer
Speaker 3: is in decent shape.
Speaker 1: Is that kind of what your data shows?
Speaker 9: That is absolutely what our data show the consumer. We
Speaker 9: like to complain about a number of factors.
Speaker 10: Right we see prices going up.
Speaker 9: We've clearly been hit by inflation, but overall, our wages
Speaker 9: have still been rising, so our purchasing power is actually
Speaker 9: better off today than it has been at any point
Speaker 9: in history. So I think that low single digit growth
Speaker 9: that we're seeing from retailers, in some ways, we were
Speaker 9: spoiled in the post pandemic kind of stimulus era where
Speaker 9: consumers just had so much essentially windfall to go out
Speaker 9: and spend a lot of those very high growth rates
Speaker 9: in retail spending, those were never going to be sustainable.
Speaker 10: So what we're seeing today.
Speaker 9: Is these growth rates come back down to something more sustainable,
Speaker 9: a little bit more healthy for our kind of retail sector.
Speaker 9: But this is overall growth. It's slowing growth, yes, but
Speaker 9: it is still positive movement. And many of the fundamental
Speaker 9: leading indicators that we see today are putting in place
Speaker 9: an even better growth picture.
Speaker 10: In twenty twenty five.
Speaker 5: Lauren, I wondered what stood at to you from the
Speaker 5: most recent comments from the FED chair from Jerome Powell.
Speaker 5: Of course, he is adamant as he always has been,
Speaker 5: that the FED is data driven. There's this kind of
Speaker 5: complementary argument about the FED being data point driven. What
Speaker 5: if you've taken away just about their approach to the numbers,
Speaker 5: to the economic data that we've been getting, and what
Speaker 5: they're going to sort of treat as paramount most important here.
Speaker 6: In twenty twenty five.
Speaker 5: Yes, there's the FED favorite, the PCE flavor, all of that,
Speaker 5: But when the FED looks at that kind of panoply
Speaker 5: of data at the dashboard down in Washington, d C.
Speaker 5: What's most important to them and indeed what's most important
Speaker 5: to you here as we turn the corner into twenty
Speaker 5: twenty five.
Speaker 9: So the FED, with their duel mandate, we always have
Speaker 9: this kind of seesaw effect. Where are they putting more
Speaker 9: attention more focus. For a while, it was inflation, because
Speaker 9: that was the side of their dual mandate that really
Speaker 9: got away from us with very very high inflation numbers.
Speaker 9: Once we saw inflation start to come down, and I
Speaker 9: will be absolutely clear, even those core PC numbers were
Speaker 9: not yet at the fed's target two percent rate, but
Speaker 9: we're moving enough in that direction that they shifted their
Speaker 9: focus away from the inflation side and toward that labor
Speaker 9: market side. Now the labor market, well, some directional deterioration
Speaker 9: is happening. This is coming from such a tight starting point.
Speaker 9: This is still a tight labor market. So I think
Speaker 9: if we do see as we at ITR have been saying,
Speaker 9: we expect to see inflation start to build in the
Speaker 9: back half of twenty twenty five, I think it will
Speaker 9: be very easy for that focus to shift back to
Speaker 9: inflation very quickly. That's something we saw in especially the
Speaker 9: dot plot that came out in the most recent meeting.
Speaker 9: BED officials are starting to scale down their expectations for
Speaker 9: the number of cuts we'll get in twenty twenty five. Again,
Speaker 9: this is something we've had on our horizon for a while. Now,
Speaker 9: we do see those mounting inflation pressures coming back.
Speaker 10: Not to the recent highs. I don't want to.
Speaker 9: Scare anyone, but starting to see some of those fundamental
Speaker 9: pressures build. I don't think we're going to be comfortably
Speaker 9: at that two percent rate, and with the labor markets
Speaker 9: still relatively healthy again. It's going to be very easy
Speaker 9: to shift away from that side of the dual mandate.
Speaker 9: And I don't expect that we'll get rate hikes anytime soon,
Speaker 9: but by the end of twenty twenty five, it's not
Speaker 9: unimaginable that we could even see rates not just level off,
Speaker 9: but start to climb again.
Speaker 1: Lauren, new administration coming in.
Speaker 3: We don't know a lot about their economic policies, but
Speaker 3: what we do know is tariffs are on the table.
Speaker 3: Potential changes to immigration and migrant policy are on the table.
Speaker 3: Some have suggested that those two in and of themselves
Speaker 3: could be inflationary.
Speaker 1: Is that a material risk for you?
Speaker 10: Absolutely.
Speaker 9: We don't know a lot about those programs, but we
Speaker 9: do know that they tend historically to be inflationary. Tariffs,
Speaker 9: I mean, the inflation is almost built into the goal
Speaker 9: right to increase the cost of foreign imports. Back in
Speaker 9: the twenty eighteen Trump taraff round, we did see even
Speaker 9: domestic producers they felt like they had a little more
Speaker 9: wiggle room right with the cost of their competition products
Speaker 9: going up, So we saw domestic producers increase their prices
Speaker 9: back in twenty eighteen.
Speaker 10: Immigration, if we see mass deportations.
Speaker 9: Again, I mentioned there are more jobs available than there
Speaker 9: are job seekers, So taking, however, many million people kind
Speaker 9: of out of our labor force, even if they are
Speaker 9: not documented legal workers today, that will cause a little
Speaker 9: bit more upside pressure on wages. So we don't have
Speaker 9: full details. It remains to be seen what is actually
Speaker 9: policy proposal versus campaign rhetoric.
Speaker 10: But if we do tend in that direction, which.
Speaker 9: Seems a pretty good bet at this point, those would
Speaker 9: tend to put more upside pressure on prices.
Speaker 5: And we know that the FED is now wrestling with
Speaker 5: all of these various permutations of what could happen and
Speaker 5: what effect that could have on the economy. Lauren, let
Speaker 5: me ask you about the so called neutral rate and
Speaker 5: the Fed's necessary obsession with kind of figuring that out.
Speaker 5: Of course it can't pinpoint it in real time, but
Speaker 5: what's your sense of where it is? How much of
Speaker 5: a struggle this has been, indeed it's going to be
Speaker 5: for the FED here going forward? You mentioned the fact
Speaker 5: that they haven't reached that inflation target of two percent?
Speaker 5: Is it coming into any better focus here as we
Speaker 5: get into twenty twenty five?
Speaker 9: So we have to keep in mind that is made
Speaker 9: up of academics, So something like where is the neutral rate?
Speaker 9: That's a very academic argument. We will never know in
Speaker 9: real time. We'll only look back and say what did
Speaker 9: we get right and what did we get wrong? So
Speaker 9: at this point, I'm not sure it matters where the
Speaker 9: neutral rate is. What does matter is how many of
Speaker 9: these fundamental factors will be increasing inflation and then those
Speaker 9: add on risks right from the policy side that you
Speaker 9: just mentioned. What will that do to the inflation rate?
Speaker 9: How much does the FED need to move to keep
Speaker 9: inflation and check versus our labor market issues? Those are
Speaker 9: really long term demographic problems. So that's not something that's
Speaker 9: quite so easy to just for the FED to kind
Speaker 9: of put their hand on the scale to tilt that
Speaker 9: down to show balance in the labor market.
Speaker 10: It's demographics.
Speaker 9: That's not something they can fight with birth rates, right,
Speaker 9: That just isn't what the FED is here to do.
Speaker 3: So, Lauren, what is your GDP call for twenty twenty
Speaker 3: five and what are the real variables there that could
Speaker 3: kind of move that one way or the other.
Speaker 9: I do expect solid steady GDP growth. We're looking for
Speaker 9: about two and a half percent growth, in twenty twenty five. Again,
Speaker 9: a lot of those fundamental leading indicators that we tend
Speaker 9: to follow, they're showing upturn. We've had much more subdued
Speaker 9: growth lately, especially in things like our manufacturing economy, our
Speaker 9: industrial sector, but we see green shoots going forward. We
Speaker 9: see with this lower interest rate environment, now having had
Speaker 9: some room to run, businesses are looking to invest next year.
Speaker 10: There will be.
Speaker 9: Of course added policy implications, but the general underlying fundamental
Speaker 9: factors those are the ones that we find much more
Speaker 9: consistently important to business investment and to the long term
Speaker 9: growth of the economy. So I'm looking for steady consumer
Speaker 9: spending to really be the engine fueling that growth, but.
Speaker 10: A resurgence in business investment.
Speaker 9: The government side of GDP, they keep on spending, as
Speaker 9: we just heard from Yellen. So I do fully expect
Speaker 9: steady but rather broad based growth in twenty twenty five.
Speaker 5: I'll ask you lastly just to place this the US
Speaker 5: economy in a wider context, to global context. It does
Speaker 5: seem that things here are much better, certainly than they
Speaker 5: are in many parts many parts of Europe. Do you
Speaker 5: expect for that to persist?
Speaker 10: I think the.
Speaker 9: Reasons that our economy is doing better than Europe. Those
Speaker 9: are very foundational and it's a strong foundation. So we
Speaker 9: see a lot of foreign direct investments still coming into
Speaker 9: the United States. I don't think the re onshoring story
Speaker 9: has completely played out. There is more movement in that
Speaker 9: direction globally. We're just in a point of nationalism as
Speaker 9: opposed to globalism.
Speaker 10: The pendulum is shifting that direction.
Speaker 9: So with our strong consumer base that did get a
Speaker 9: little bit more boost than their European counterparts from that
Speaker 9: pandemic era stimulus spending. Yes, I think we are in
Speaker 9: a broad kind of strong position that's going to encourage
Speaker 9: the foreign direct investment to keep flowing this way. So
Speaker 9: for the foreseeable future, I think the US is a
Speaker 9: very good place to do business.
Speaker 1: All right, Lauren, thank you so much. We appreciate that.
Speaker 3: As always, Lauren sidel A Baker its economics, getting your
Speaker 3: thoughts on economic conditions out there are Federal Reserve and
Speaker 3: maybe a little bit of a peak ahead to twenty
Speaker 3: twenty five.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
Speaker 8: What do you go for?
Speaker 6: Let's talk about real estate now.
Speaker 5: New home sales in the US rebounded last month as
Speaker 5: builders and consumers sealed deals that have been delayed by
Speaker 5: storms in the South, and buyers took advantage of heavy
Speaker 5: sales incentives. He's the Best Freeman set of Luxury real
Speaker 5: Estate broke which Brown Harris Stevens had to say about
Speaker 5: the market.
Speaker 11: All real estate is local, so it depends on where
Speaker 11: you are and what the demand is. I'll give you
Speaker 11: an example, a place like Palm Beach. You put something
Speaker 11: on the market, there is a swarm of people who
Speaker 11: want to buy. But that's obviously more typically more high end,
Speaker 11: more expensive Connecticut. There's no supply, so when people put
Speaker 11: their homes on the market, there's a rush of people
Speaker 11: to line up to bid on the homes. I think
Speaker 11: once we have more supply than we're going to get
Speaker 11: prices to come down. And if sellers start to put
Speaker 11: their homes on the market and buyers get into the market,
Speaker 11: we start to see fluidness and supply and demand intersect,
Speaker 11: which is a healthy housing market, which we didn't have
Speaker 11: in twenty twenty four.
Speaker 10: Well, you talk about Palm Beach, you talk about Connecticut.
Speaker 10: I'm going to be selfish and ask about Manhattan.
Speaker 9: What does the supply picture look like there and how
Speaker 9: does that feed into the pricing dynamic.
Speaker 11: We have a decent supply, you know, the market in
Speaker 11: the city has been pretty flat. High end has done well,
Speaker 11: which it usually does because it's discretionary. I mean, look
Speaker 11: at Wall Street. The bonuses are going to be incredible.
Speaker 11: You know, a lot of people are saying the stock
Speaker 11: market is obviously pushes or drives a real estate market here,
Speaker 11: and it's been very frothy, and people are saying, is
Speaker 11: there a bubble coming? Do we know?
Speaker 6: I don't.
Speaker 11: It's unclear to us, but I do think that, you know,
Speaker 11: people are it's been moderate, it's been decent. I would
Speaker 11: like to see a pickup in that market. There's been
Speaker 11: a big portion of this market that's been cash. So
Speaker 11: remember the mortgage rates don't necessarily impact our byers and
Speaker 11: sellers as much, although it does play into it.
Speaker 12: When you think about that tension, that push pull between
Speaker 12: renting and buying, I feel like you're so close to
Speaker 12: the ground where you see people making that decision in
Speaker 12: real time. What are they choosing at this point in time?
Speaker 12: Is there a reason to wait to buy and rent
Speaker 12: for now instead?
Speaker 11: I think, you know, it's like they say, renting is
Speaker 11: more like dating. It's temporary, and so if you don't
Speaker 11: like it. I have a friend who's renting right now
Speaker 11: in the Upper east Side in one bedroom. She doesn't
Speaker 11: like the neighborhood. She's like, I'm definitely moving out. It's
Speaker 11: sort of like you're dating before you get married, right,
Speaker 11: And so I think if you want to commit to
Speaker 11: economic security in building intergenerational wealth, you buy a home.
Speaker 11: Because if the stock market plummets and your coinage goes
Speaker 11: way down, you know that you just look at your
Speaker 11: You're looking at your portfolio, go damn, I have less money.
Speaker 11: The stinks. Versus, if you bought a home and that
Speaker 11: value goes down, you have a roof over your head,
Speaker 11: do you have a place where you can eat, sleep,
Speaker 11: have dinner, have fun, and it's sort of it goes
Speaker 11: up in value. So I think that we have to
Speaker 11: think about the housing market as a law term investment,
Speaker 11: and it is still the American dream. It's a commitment
Speaker 11: to your future.
Speaker 2: All right.
Speaker 1: That was best Friedman.
Speaker 3: She is the CEO of luxury real estate brokerage of
Speaker 3: Brown Harris Stevens. Let's keep on this real estate story here,
Speaker 3: residential real estate. We do that with Russell Galbot. He
Speaker 3: is managing Principal Crest Heights. Russell, thanks so much for
Speaker 3: joining us here Residential real Estate, South Florida. Is there
Speaker 3: any reason for this market not to continue to be
Speaker 3: strong going forward? It just seems like everybody up here
Speaker 3: on this island of Manhattan has moved down to Florida.
Speaker 1: I don't know what's going on.
Speaker 8: I think you're right on that, Paul. In fact, we're
Speaker 8: very fortunate in South Florida. Somebody says that it's always location,
Speaker 8: and they're quite correct. Not every city is born equally,
Speaker 8: and not every state is equal. So we're very excited
Speaker 8: about what's happening South Florida. We're cautiously optimistic for the future,
Speaker 8: and things seem to be really going in our way.
Speaker 5: Talk a bit about what it has going for it.
Speaker 5: I know again there's enthusiasm among many companies to move
Speaker 5: large offices down there, save for the weather, which of
Speaker 5: course we're all in VSF here in Manhattan. What are
Speaker 5: the draws and what has South Florida done to incentivize
Speaker 5: companies to move down there.
Speaker 8: So look, capitalism and business follows the path of least resistance,
Speaker 8: and Florida has created that path because we have spent
Speaker 8: so much money on infrastructure and created the schools and
Speaker 8: the housing and all of the other things that are necessary,
Speaker 8: such as are cultural centers of excellence and support and
Speaker 8: more housing. So we're very, very pleased to be in
Speaker 8: South Florida. As I said to you earlier, we have
Speaker 8: a thousand people coming to our state every day and
Speaker 8: it is doing incredibly well.
Speaker 1: I don't know where you're putting them down there? Are
Speaker 1: you building new communities? Where do you build new communities?
Speaker 3: You can't build any more on the coast because since
Speaker 3: the fifties the coast has been pretty full up.
Speaker 1: Where are you putting people?
Speaker 8: Well, we're putting people inland as well, So we're building
Speaker 8: all over and South Florida. You know, we still have
Speaker 8: a great amount of land to build, and we're really
Speaker 8: creating urbanism. In the last ten years in Miami, we
Speaker 8: have for the first time a true urban urbanism. And
Speaker 8: the way we started that was our cultural centers of
Speaker 8: excellence in the downtown area and the Edgewater area. So
Speaker 8: and we have a new train now that goes directly
Speaker 8: to Orlando with numerous stocks in between, as well as
Speaker 8: public transportation at second to none. We've also put a
Speaker 8: lot of energy into our school systems, including private schools,
Speaker 8: charter schools, and we've embraced the concept of excellence, something
Speaker 8: that other states had forgotten. And we're very proud of
Speaker 8: what's happening in the state of Florida, for sure.
Speaker 6: Well let's talk about some of those other states.
Speaker 5: And I'm curious as you kind of pull back and
Speaker 5: look at the health of the residential real estate sector
Speaker 5: more broadly, where you see bright spots, where you see growth,
Speaker 5: maybe not as strong as in your beloved South Florida,
Speaker 5: but you're seeing positive and promising signs.
Speaker 8: So you know, I often joke that the greatest real
Speaker 8: estate salesman we had in South Florida was Deblasio, and
Speaker 8: to some extent it's true because he sent it off
Speaker 8: a lot of people to South Florida. So I think
Speaker 8: that between Florida and Texas, I mean, we're truly growing states.
Speaker 8: And the reason is that we welcome entrepreneurship. We make
Speaker 8: it easy to form your companies. And I think what
Speaker 8: happened here is with COVID, so many people work from
Speaker 8: home and create businesses from home. It used to be
Speaker 8: that you weren't proud to say you're a capitalist, but
Speaker 8: things have changed. Elections change things, and today I think
Speaker 8: people would be proud to say that they're a capitalists,
Speaker 8: proud to say that they're working at home. And when
Speaker 8: you can work at home, why would you want to
Speaker 8: not be in an area where we have beautiful beaches,
Speaker 8: sunshine and incredible weather, and that is places like South Florida.
Speaker 3: Interest rates, presumably the Federal Reserve, they're cutting rates, they're
Speaker 3: how do you think that's going to impact your business,
Speaker 3: your market over the next year, twelve to twenty four months.
Speaker 8: Well, first of all, I think the fact that interest
Speaker 8: rates are stable is very important, and I think the
Speaker 8: public is starting to feel that we know where interest
Speaker 8: rates are in the near future, and maybe they'll come
Speaker 8: down a few more quarter points, But I think that
Speaker 8: that's the most important thing. And I'll tell you next
Speaker 8: next year will be fifty years that I'm building condominians.
Speaker 8: My first condominium was in nineteen seventy five. In nineteen
Speaker 8: eighty one, interest rates were sixteen point one percent for
Speaker 8: condos and you know what we still sold. Then The
Speaker 8: average over the last one hundred years has been six
Speaker 8: point five. The median is five point six. So we're
Speaker 8: right in the range. Yes, we have to come down
Speaker 8: another point or two, maybe half a point next year,
Speaker 8: but I think we're okay when it comes to interest rates. Today.
Speaker 5: You're in the building business and there is so much speculation,
Speaker 5: some concern about what terift policies might mean for any
Speaker 5: number of goods. But I imagine timber, other construction supplies
Speaker 5: high on the list. There is it something that you
Speaker 5: are thinking about with any real seriousness? Is it something
Speaker 5: you're just monitoring? So how are you looking at some
Speaker 5: of the policy proposals pronouncements that we've heard from the president?
Speaker 8: Elivet Look, governance is extremely important. When you see how
Speaker 8: our particular governor in the state of Florida has run
Speaker 8: streamlining processes, creating local a great, great law that will
Speaker 8: allow for workforce housing, and you see the level of
Speaker 8: competency exercised by our legislation. Our bodies are sentate in
Speaker 8: our house.
Speaker 6: It is really terrific.
Speaker 8: And then you compare us to cities or states like
Speaker 8: California where they have builders remedy. It's a difference between
Speaker 8: day and night. So government does count. I'll tell you
Speaker 8: another benefit that South Florida has with the recent elections
Speaker 8: in Mexico, in South America and Columbia and so on
Speaker 8: and so forth, we're going to get a huge influx
Speaker 8: because South Florida, Miami especially is such a cultural diverse community.
Speaker 8: It is the most cultural diverse community I think in
Speaker 8: the state in the United States.
Speaker 1: Yeah, it is an extraordinary story there, Russell.
Speaker 3: Part and partial to that is I think in the
Speaker 3: construction business, you go to any construction site around the country,
Speaker 3: it feels like there's a lot of migrant and labor there,
Speaker 3: legal and illegal. How concerned is your industry about what
Speaker 3: might be stricter immigration, maybe even forced repatriation of certain
Speaker 3: people out there that may be critical to the workforce.
Speaker 8: You know, the workforce is extremely important in South Florida,
Speaker 8: and we do have a culturally diverse workforce as well,
Speaker 8: but we believe that most of them are are fully
Speaker 8: legitimate and and are welcomed into our country. And the
Speaker 8: great thing about South Florida is that it's been building
Speaker 8: now through the last four years when other parts of
Speaker 8: the country have been stagnant, and therefore we've had a
Speaker 8: lot of immigration into Florida of actually great construction workers.
Speaker 8: So the quality of our product has been maintained and
Speaker 8: we're the recipient of that. Now. It may cause problems
Speaker 8: in such states as New York and other states that
Speaker 8: receive so many of this illegal immigration. Thank god, in
Speaker 8: South Florida, we were not recipients of that. In fact,
Speaker 8: our recipients are a thousand people are the people of
Speaker 8: economic substance, the people who want to search for excellence
Speaker 8: and want to have the right schools and infrastructure. So
Speaker 8: while places like New York may have gained those illegal immigrants,
Speaker 8: Florida gained the wealthy and medium wealthy who wanted a change.
Speaker 5: Rus So let's talk about climate Imagine. It's something you
Speaker 5: have to keep in front of mind as you undergo
Speaker 5: the developments that you're undergoing. And there in South Florida
Speaker 5: we make a little light here of how much better
Speaker 5: the weather is than it is here in New York.
Speaker 5: But you have to be thinking about climate change and
Speaker 5: rise of sea levels and the like. How is it
Speaker 5: shaping the kind of development projects that you have been
Speaker 5: undertaking the way that you think about what residentss look
Speaker 5: like long term there in South Florida.
Speaker 8: I think that's a great question, by the way, and
Speaker 8: we do follow ULI and all.
Speaker 6: Of the issues of racing sea levels.
Speaker 8: Buildings are going to have to come out of the
Speaker 8: ground higher out of the ground, and build taller and
Speaker 8: leave more open space. And I think that's what you're
Speaker 8: seeing in South Florida. People are beginning to recognize that
Speaker 8: climate change is real and that there's ways to deal
Speaker 8: with it and ways to handle it. And we certainly
Speaker 8: have a legislature and a governor that's relentlessly focused on
Speaker 8: new legislation to ensure the safety and welfare of our residents.
Speaker 8: Some of those laws again like live Local we're in
Speaker 8: and inspections where we have a forty year certification, forty
Speaker 8: five year certification, those types of laws, that type of
Speaker 8: leadership is what makes South Florida different.
Speaker 3: Russell, one of the challenges I do hear about Florida,
Speaker 3: particularly real estate ownership in Florida is insurance. Getting some
Speaker 3: of that insurance against whether you know, the floods, the hurricanes,
Speaker 3: and that is a challenge for the state.
Speaker 1: How would you like to see that play out.
Speaker 8: That is probably one of our biggest challenges in the
Speaker 8: state of Florida, and we deal with it every day.
Speaker 8: I believe that that the state itself is going to
Speaker 8: have to get more involved, and they are getting more involved.
Speaker 8: And by the way, the increases in insurance has been
Speaker 8: becoming less and less each year.
Speaker 3: Interesting because we've heard from a lot of insurance companies
Speaker 3: that continues to be a challenge there. But again, you're right,
Speaker 3: folks are coming down. They're to figure that out. Russell,
Speaker 3: thank you so much for joining us, Russell Gal. But
Speaker 3: Cresent Heights principle certainly chemical.
Speaker 6: I mean, it's just thriving.
Speaker 5: But point about insurance, I know this was something that
Speaker 5: came up with the context of those hurricanes earlier this year.
Speaker 5: Just the number of individuals quoted in the news who
Speaker 5: said that, you know, they've seen their premiums go up
Speaker 5: by a ton and have to worry about it. So
Speaker 5: if it's not an issue for everybody, I think it's
Speaker 5: likely to be a bigger deal.
Speaker 3: And you've seen a lot of the private insurans you know,
Speaker 3: have pulled out over out of the state over the years.
Speaker 3: Warren Buffett made his insurance business made a I think
Speaker 3: a pretty high profile re engagement with Florida a couple
Speaker 3: of years ago.
Speaker 6: Thought that that.
Speaker 3: Again there was an opportunity there, given the risk, to
Speaker 3: maybe make some good return there.
Speaker 1: But I know that has been a challenge.
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