Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find the Bloomberg P L Podcast on iTunes,
Speaker 1: SoundCloud and at Bloomberg dot com. Well, we talk a
Speaker 1: lot about healthcare these days and how it may change
Speaker 1: due to UH new congressional efforts. But here someone is
Speaker 1: living with it and is in our studio right now.
Speaker 1: Alan Miller, chief executive officer of Universal Health Services, which
Speaker 1: is based in King of Prussia, Pennsylvania. But he is
Speaker 1: here with us in our Bloomberg eleven three oh studio.
Speaker 1: Thank you so much for joining us, Allen. Um. I
Speaker 1: want to start with your company, Universal Health. It shares
Speaker 1: her up almost eight so far this year. This doesn't
Speaker 1: really jibe with a lot of what we hear about
Speaker 1: the health care sector and how depressed it's been. What
Speaker 1: is your company doing? That has sort of led to
Speaker 1: these Well, we're not. We've been in business for thirty
Speaker 1: eight years. UM, we've grown every year. UM. We UM
Speaker 1: are diversified, we are in acute care. We're in behavioral health.
Speaker 1: We're a leader in the nation and behavioral health, and
Speaker 1: we are international in the UK. We've been growing there,
Speaker 1: so it's a nice diversified mix. We've done well financially. UM.
Speaker 1: We are in fast growing markets. That's our strategy. UH.
Speaker 1: And we're reliable. People know the company. UM. We are conservative.
Speaker 1: UM Our debt is less than FI many others are
Speaker 1: much much more leverage. So we've been doing this for
Speaker 1: a long time and I think people have become aware
Speaker 1: of us and they're comfortable that we're going to continue.
Speaker 1: Know we're gonna get to the political side of this
Speaker 1: in a minute, but I want to just touch on
Speaker 1: the situation for hospitals in general, acute care hospitals across
Speaker 1: the country. We've heard a lot about, UH, the vacancy
Speaker 1: rates in beds, the fact that reimbursements from medicated Medicare
Speaker 1: have been challenging. UH. And I'm wondering, would you buy
Speaker 1: an acute care hospital right now? We do. We just
Speaker 1: built one. Yeah, we we just opened Henderson in Las Vegas.
Speaker 1: It is our sixth acute care hospital in Las Vegas. UM.
Speaker 1: It is doing very well. We opened two years ago
Speaker 1: we opened into Mecuela in southern California. It's doing very well.
Speaker 1: Oh yes, we we buy hospitals and we build hospitals.
Speaker 1: So what's this you here? Why do we hear so
Speaker 1: much talk about the decline in hospitals. I don't understand
Speaker 1: that UM other than UM people are reflecting the fact
Speaker 1: that perhaps I'm sure UM Obamacare UM ensured twenty to
Speaker 1: million people who did not have insurance before, and so
Speaker 1: that has been very good for the hospitals because obviously
Speaker 1: when these people present themselves at a hospital, they have
Speaker 1: some sort of ability to pay where they may have
Speaker 1: not been able to do that in the past. So
Speaker 1: that's certainly very positive if your patients can pay. And
Speaker 1: UM now with Obamacare in question because of the Republican
Speaker 1: parties saying that they would replace it, UH and their
Speaker 1: efforts have not been successful. At the first crack and
Speaker 1: UM without going through all of it, which I am
Speaker 1: very familiar with, UM, it did it did tend. It's complicated,
Speaker 1: it did tend to UM reduce coverage. That's what the
Speaker 1: big A back was, and a lot of people, including
Speaker 1: many Republicans in Congress, said we can't stop coverage or
Speaker 1: withdraw coverage, um from all these people that needed everyone
Speaker 1: should have coverage. Have any Republican leaders reached out to
Speaker 1: you to ask you advice on how to reshape or
Speaker 1: fine tune? Well, yes, Um, I wrote a book a
Speaker 1: number of years ago, and a number of those things,
Speaker 1: um or a number of the suggestions in the book
Speaker 1: are still applicable. One of them is selling across state lines.
Speaker 1: And you see that now, because that would get the
Speaker 1: insurance companies more competitive and they more of them would
Speaker 1: come into every market. So that makes a lot of sense. Um.
Speaker 1: I've always been very keen on tort reform because trial
Speaker 1: lawyers should not be uh involved in premiums of insurance
Speaker 1: and then needs to be a tort reform um on
Speaker 1: a nationtional basis, state by state. It's happened, Just to
Speaker 1: be clear, this is in order to cap potential medical practice.
Speaker 1: Laws of them give some sense of the premiums for say,
Speaker 1: you know a neurosurgeon, it's something like a hundred thousand
Speaker 1: dollars a year or something to ensure yourself, right, it's something,
Speaker 1: it's something pretty pretty tremendous. It's it's it's it's outrageous
Speaker 1: only because of the trial lawyers and UM situations where
Speaker 1: there's no cap on pain and suffering. We're not talking
Speaker 1: about UM people being reimbursed for care. We're talking about
Speaker 1: UM an outrageous situation in most cases where UM trial
Speaker 1: lawyers are are driving up insurance premiums. What about drug prices?
Speaker 1: There's been so much discussion about how high the cost
Speaker 1: is for pharmaceuticals. Do you feel like this issue is
Speaker 1: something that is overblown. Do you think that there are
Speaker 1: many savings that could come from some kind of agreement?
Speaker 1: I think what should happen, Well, what could happen is
Speaker 1: let the federal government UM and negotiate with the farmer
Speaker 1: industry UM. We buy out of a cooperative and so
Speaker 1: we do negotiate UM on an industry wide basis UM
Speaker 1: based on volume. Other than that, I'm not an expert.
Speaker 1: On hold on a second, what what kind of cooperative
Speaker 1: is this? It's called Premier and we buy through it. Yeah. Absolutely,
Speaker 1: And a number of hospitals are involved. And it's just
Speaker 1: a question of volume, which is basic business. If you
Speaker 1: have a lot of volume, the sellers are very interested
Speaker 1: in dealing with you. So how optimistic are you that
Speaker 1: there will be good changes? Made to Obamacare or a
Speaker 1: potential replacement to it. Well, I think that UM, the
Speaker 1: things I started to mention I did mention to you
Speaker 1: UM would be helpful. And the big thing is UM
Speaker 1: getting younger people to have insurance. UM. This enables the
Speaker 1: insurance companies their actuaries to not only be looking at
Speaker 1: older people who are sicker, but having younger people in
Speaker 1: the mix makes the insurance more affordable. And they have
Speaker 1: not been able to UM the mandates were too small
Speaker 1: to push these people to have insurance. We must have
Speaker 1: the younger people insured in order to make the whole
Speaker 1: insurance thing work. Allen Miller, thank you so much for
Speaker 1: joining us. Really is a wonderful to have you. Allen
Speaker 1: Miller is chief executive officer of Universal Health Services. It
Speaker 1: is based in King of Prussia, Pennsylvania, and it's a
Speaker 1: broad based, multifaceted company that owns behavioral health facilities, acute
Speaker 1: care hospitals, and ambulatory centers throughout the US, the UK,
Speaker 1: put RICO, and the Virgin Islands. Leverage in US stocks
Speaker 1: has risen to the highest level on record. How concerned
Speaker 1: our investors about this. I am honored to bring in
Speaker 1: David Lebovits global market strategist for JP Morgan, who's here
Speaker 1: with us in our Bloomberg eleven three oh studio and
Speaker 1: David we were just chatting about how much UH margin
Speaker 1: debt has increased in US stocks. This to me indicates
Speaker 1: an incredible amount of complacency, just that people are willing
Speaker 1: to double down on their bets. How are you taking this?
Speaker 1: And does this sort of a raise some kind of
Speaker 1: alarm to you? You know, I think that the biggest
Speaker 1: concern is what this means and what it tells us
Speaker 1: about investor sentiment. You know, our investors so excited about
Speaker 1: equities that they're willing to borrow money to pump even
Speaker 1: more into the stock market. And I think that it's
Speaker 1: it's it's reasonable to look at this and see the
Speaker 1: rate of change and see the levels that we're currently
Speaker 1: sitting at from a margin debt standpoint, and say, you know,
Speaker 1: has this market come too far too fast? And we
Speaker 1: have And that's the and that's the question. You know,
Speaker 1: we have seen we have seen quite a rally here,
Speaker 1: but it's our view that the underlying economic fundamentals actually
Speaker 1: look pretty good. You know, this rally really began um
Speaker 1: or at least we started to see yields rise and
Speaker 1: and give some more confidence to the equity market, you know,
Speaker 1: back in the late summer of two thousands sixteen. So
Speaker 1: the economic data has been getting better for a while.
Speaker 1: You know, I think that the pullback we've seen here
Speaker 1: in the market is probably justified. It's a little bit
Speaker 1: more of a backfill um as opposed to the beginning
Speaker 1: of something bigger. But what we're focused on is the
Speaker 1: upcoming earning season. You know. The question to our mind
Speaker 1: is are these companies making money? If the cash flows
Speaker 1: are there, if the earnings are there, I think stock
Speaker 1: prices can keep moving higher. If we see some weakness
Speaker 1: and earnings. I think that this thing is like margin debt,
Speaker 1: maybe maybe worth keeping an eye on. Well. I mean,
Speaker 1: we are seeing some other cracks. I mean, because we
Speaker 1: were just talking about how that seems to be the
Speaker 1: consensus right now that the economy is in fairly good
Speaker 1: shape that you know, despite some clouds around the edges.
Speaker 1: In general, things are chugging along. But we did see
Speaker 1: a pretty substantial decline in commercial and industrial loans on
Speaker 1: US bank balance sheets in a recent survey, and this
Speaker 1: raised some alarms that either banks were tightening up their
Speaker 1: lending criteria to such a degree that they're not allowing
Speaker 1: companies to get credit, or that there just isn't the demand,
Speaker 1: which suggests that the economy isn't growing that fast. How
Speaker 1: do you interpret this? You know, we think that it's
Speaker 1: not as much a bank issue. UM. Lending standards have
Speaker 1: been pretty tight, and you know, the quality of borrowers
Speaker 1: the banks of looking for has been pretty elevated for
Speaker 1: the better part of this business cycle. UM. Actually, one
Speaker 1: thing that we've found is that when you look at
Speaker 1: capital expenditures and you look at CNI loans UM, the
Speaker 1: capital expenditure data actually tends to lead some of the CNIDADA.
Speaker 1: So actually, what I think is going on here in
Speaker 1: terms of the decline in the lending data is and
Speaker 1: we went through this period from a two thousand fourteen
Speaker 1: to mid two thousand sixteen where manufacturing was under a
Speaker 1: tremendous amount of pressure because of lower commodity prices and
Speaker 1: a stronger dollar. I think we're just seeing some lagged
Speaker 1: effects of that and some of the pullback in investment
Speaker 1: that companies went through, and that's why we're seeing c
Speaker 1: ANY loans cool off a little bit here. We don't
Speaker 1: necessarily think again, it's the beginning of something bigger. More,
Speaker 1: we think it's a reflection of what's actually happened in
Speaker 1: the past. You know, given the fact that what you're
Speaker 1: saying is so coherent with when and jibs so directly
Speaker 1: with what a lot of other people are saying, which
Speaker 1: is the economy is doing fairly well. Some of these
Speaker 1: warning signs are a little concerning, but they're not anything
Speaker 1: that big. Uh. It seems like people are sort of
Speaker 1: pricing in the same scenario, which is sort of chugging
Speaker 1: along growth. Does this mean a that returns are going
Speaker 1: to be a lot lower because everybody is piling into
Speaker 1: the same trades and there isn't a lot of value
Speaker 1: to be found, or B that everybody's missing something and
Speaker 1: that the chance of of a substantial hiccup is getting greater.
Speaker 1: You know, I think that it's more the former than
Speaker 1: the ladder. I think that return expectations for US assets
Speaker 1: in general, both stocks and bonds, have certainly come down
Speaker 1: here the couple of years. So our view is that
Speaker 1: over the next ten to fifteen years, US equities should
Speaker 1: return you about five and a half percent a year um,
Speaker 1: which is, you know, a couple percent below the the
Speaker 1: seven and eight percent bogies that have been thrown around previously.
Speaker 1: But what I would say is just because there's not
Speaker 1: dwindling opportunity, perhaps less opportunity from a return standpoint in
Speaker 1: the US, we're thinking much more seriously about opportunities in Europe,
Speaker 1: opportunities and emerging markets, places outside of the US where
Speaker 1: the potential for elevated return seems to be a little
Speaker 1: bit greater than here in the States. So where are
Speaker 1: you looking in particular, So within emerging markets, we like
Speaker 1: the Asian economies more than the Latin American economies. We
Speaker 1: like the manufacturers more than the commodity exporters. And then
Speaker 1: within Europe, you know, we're really focusing on the domestic
Speaker 1: recovery that's going on there. You have an unemployment rate
Speaker 1: which is backed down at the level where it was
Speaker 1: before the double dip back in two thousand twelve. You've
Speaker 1: capath city utilization which is up around its long term average.
Speaker 1: The p m I data, It is a survey, but
Speaker 1: the p m I data has been pretty solid there.
Speaker 1: So we think that playing this domestic recovery, thinking about
Speaker 1: some of the consumer companies in Europe is a good
Speaker 1: way of going about that. How hard is it to
Speaker 1: invest in Asia given the questions around the quality of
Speaker 1: some of the economic data that you get out of there,
Speaker 1: It's it's difficult. You know. China in particular is kind
Speaker 1: of a kind of a black box. They say we
Speaker 1: have the six and a half percent growth target, and
Speaker 1: magically they seem to come very close to six and
Speaker 1: a half. Well, did you read the art. I think
Speaker 1: it was black Rock using drones to look at factories
Speaker 1: in China to sort of assess growth in their own way.
Speaker 1: I have heard about the satellite images where people are
Speaker 1: counting the cars in the parking lot. You know, some
Speaker 1: of the things that we do is we look at,
Speaker 1: for example, the Taiwan import data from China rather than
Speaker 1: the China export data to Taiwan. So we try to
Speaker 1: square that circle in a couple of different ways. But
Speaker 1: you know the benefit for investors is they're getting access
Speaker 1: to more information. They're finding themselves with new and different
Speaker 1: ways of building a picture around what's going on in
Speaker 1: emerging markets. So the data has been an issue. The
Speaker 1: data will continue to be somewhat of an issue, but
Speaker 1: I think we're moving in the right direction, and I
Speaker 1: think that investors are able to get a better sense
Speaker 1: of the profitability of some of these companies. What's the
Speaker 1: biggest risk area right now in markets? So I think
Speaker 1: that there are a couple of risks right now. To me,
Speaker 1: the markets are standing on kind of two pillars. One
Speaker 1: of them is a political pillar and one of them
Speaker 1: is a nominal growth pillar. Now, the political pillar, you know,
Speaker 1: both in the US and abroad, is looking a little
Speaker 1: bit wobbly. We saw the UK, you know, begin their
Speaker 1: Brexit negotiations the other day. Um, we've had some disappointments
Speaker 1: here in the US in terms of the pace of
Speaker 1: of policy reform relative to what some people were expecting.
Speaker 1: But the nominal growth pillars still looks okay. So I
Speaker 1: think one of the biggest risks is that the nominal data,
Speaker 1: that the activity data, starts to deteriorate. Because you know,
Speaker 1: we're we're investors, right We're trying to follow the cash flows.
Speaker 1: We're trying to find the companies that are generating earnings,
Speaker 1: and if the economic data starts to deteriorate, that's a
Speaker 1: signal that it's going to be more difficult for these
Speaker 1: companies to generate profits going forward, and if we think
Speaker 1: back to the last time that happened again from mid
Speaker 1: fourteen to mid six team, right, the stock market didn't
Speaker 1: go anywhere. People always say to me, David, why didn't
Speaker 1: the stock market go anywhere from June fourteen until the
Speaker 1: middle of two thousand and sixteen. And my answer is, well,
Speaker 1: because earnings weren't growing. So the biggest risk in my view,
Speaker 1: is that the activity data rolls over and that passes
Speaker 1: through and hinder's corporate profitability. All right, thank you so
Speaker 1: much for joining us. Really, what I'm speaking with you
Speaker 1: David Lebovitz. He is the global market strategist for JP
Speaker 1: Morgan Investment Management, and he joins us here in our
Speaker 1: Bloomberg eleven three oh studio. Right now, I want to
Speaker 1: talk about a three day gathering that's happening in May
Speaker 1: that's going to be host it by Amazon and attended
Speaker 1: by executives from General Mills and Montalis, among others. Craig Giomana,
Speaker 1: who wrote this fantastic story, is here with us in
Speaker 1: our Bloomberg eleven three oh studio. Craig um this is
Speaker 1: a tremendously interesting story because it really highlights how Amazon
Speaker 1: is trying to take over the entire retailing sector. Can
Speaker 1: you tell us a little bit about this three day meeting? Yes, So,
Speaker 1: I mean you're right, the Amazon is trying to take
Speaker 1: over everything. They're the everything store and kind of the
Speaker 1: one area that they haven't really cracked is food. You know,
Speaker 1: they only e commerce for groceries is only like one
Speaker 1: point five percent of the market. Amazon has taken over
Speaker 1: everything else, and they're kind of looking at this really
Speaker 1: hard and comes We've come to find out that in
Speaker 1: May they're bringing you know, big companies sort of from
Speaker 1: the CpG world consumer package goods and household products out
Speaker 1: to Seattle to talk about logistics and supply chain stuff.
Speaker 1: And they're basically trying to get General Mills and Montolis
Speaker 1: and these companies that make our food to think about
Speaker 1: a world where e commerce is primary, So put it
Speaker 1: in different boxes and package it in a way that
Speaker 1: we can ship it to actly to people. So this
Speaker 1: is Amazon really muscling in more to the grocery stores,
Speaker 1: turf and just to be clear, right now, food goes
Speaker 1: largely through Walmart, Target or Costco and then it could
Speaker 1: potentially be ordered on Amazon. Right, There's there's plenty of
Speaker 1: delivery services that have popped up. I mean, I think
Speaker 1: in New York City that stuff is popular. But you
Speaker 1: gotta remember it's a big country out there, and like
Speaker 1: I said, one point five percent of the grocery market
Speaker 1: is online, So really we're talking about people still going
Speaker 1: to Kroger Albertson's safe way to shop for groceries. People
Speaker 1: don't buy food online at this point, but it's growing
Speaker 1: and it's clearly has gotten the attention of the general
Speaker 1: mills is of the world. These guys are struggling for
Speaker 1: sales growth and they really can't ignore Amazon, and they're
Speaker 1: trying to figure out, you know, a world where, like
Speaker 1: everything else, people used to say, we're never going to
Speaker 1: buy shoes online, we have to try them on, or
Speaker 1: we're not going to buy books online. But that's where
Speaker 1: we are with food. It's kind of the last frontier. Well,
Speaker 1: but to get a sense, I mean, because to your
Speaker 1: point you were saying, in this city it's pretty popular
Speaker 1: with Fresh Direct or even just other delivery services from
Speaker 1: grocery stores. It's more popular because people don't have cars.
Speaker 1: But in other places, I mean, what's the challenge for
Speaker 1: Amazon just with respected distribution of shipping fresh food, and
Speaker 1: and you know some organization like fresh Direct, how much
Speaker 1: penetration have they gotten outside of cities. But the shortager
Speaker 1: is not much. Fresh Direct does well in New York City.
Speaker 1: There's something called Pepod, which is owned by the company
Speaker 1: that owns Stop and Shop. They've done okay, but it's
Speaker 1: called the last mile. Basically, it's just incredibly expensive to
Speaker 1: run those trucks and to do it economically when you
Speaker 1: have one house on a block in the suburbs, to
Speaker 1: run a refrigerated truck out there, make sure the ice
Speaker 1: cream is cold, all the produce looks how the people wanted.
Speaker 1: The steak is what they want. Amazon has been trying
Speaker 1: this for years. Amazon has been going after fresh food
Speaker 1: for you know, a decade at least, and it just
Speaker 1: hasn't worked. So now they're really stepping up those efforts.
Speaker 1: So is this do you expect that at this three
Speaker 1: day meeting part of the discussion will be how they
Speaker 1: can more efficiently transport these goods to people's houses other
Speaker 1: than to the stores. Yes, I mean, I think what
Speaker 1: we know about it is it's Amazon saying to these
Speaker 1: big companies, hey, let's come out and let's talk about
Speaker 1: a world where you're thinking not necessarily about the store first,
Speaker 1: but about selling stuff direct to consumers online. So the
Speaker 1: Cheerios box, think about that, that's set up to catch
Speaker 1: your eye in a store. You know, years and years
Speaker 1: decades of people grocery shopping that way. That's how the
Speaker 1: box is designed. So Amazon is going to say, let's
Speaker 1: think about, we don't need this box like this necessarily,
Speaker 1: Let's put it in a box that we can take
Speaker 1: real quick and ship it out. So it's just them getting,
Speaker 1: you know, trying to get these companies to change their
Speaker 1: mindset a bit. So the Walmart targets and Costcoats of
Speaker 1: the world, they must be fighting back. They are right,
Speaker 1: So Walmart. The big thing for Walmart is something called
Speaker 1: click and collect, where basically you're going to go online,
Speaker 1: order order your food, you drive up to the curb
Speaker 1: and they have it ready for you. Because Walmart wants
Speaker 1: to live in a world where you're still maybe going
Speaker 1: to go into that store. Plus, in a big part
Speaker 1: of the country, people are out on the weekends in
Speaker 1: their cars. Again, this is a bit of a sort
Speaker 1: of New York City San Francisco versus the rest of
Speaker 1: the country thing. It's still convenient for people to pick
Speaker 1: up those groceries in their cars. So you know, Walmart
Speaker 1: is just desperate to get you into the store where
Speaker 1: you start grabbing other stuff. That's how they make their margins.
Speaker 1: Is this the first time Amazon has held a meeting
Speaker 1: like this that we know of? That we know of?
Speaker 1: And I mean again, it's very very small part of
Speaker 1: the business, and you know, grocery stores aren't going away
Speaker 1: anytime soon. But I think why this is so interesting
Speaker 1: to everyone is that food is like the last thing
Speaker 1: that Amazon hasn't cracked. They've taken over electronics, clothes, books,
Speaker 1: all these other things, and now here they are coming
Speaker 1: hard for the food business and they've been unsuccessful to
Speaker 1: this point, but are clearly going after it. Craig Jamanna,
Speaker 1: thank you so much for coming in and talking with us.
Speaker 1: Thank It's really a fascinating story. The last frontier for
Speaker 1: Amazon and maybe the last frontier for some of these
Speaker 1: big retailers that want to keep a corner on this market.
Speaker 1: Craig is a consumer reporter here at Bloomberg News, fresh
Speaker 1: off the plane from Hong Kong. Mark Gabay, CEO of
Speaker 1: Asia Pacific LaSalle Investment Management, is here with US in
Speaker 1: our Bloomberg eleven three oh studio, and I am so
Speaker 1: excited to speak with you Mark about what the flows
Speaker 1: are doing right now from Asia to the US with
Speaker 1: respect to real estate. Uh. First, I want to start
Speaker 1: with these images that I'm sure a lot of people
Speaker 1: have seen, of these empty buildings that have been built
Speaker 1: in China with not enough people to fill them. Uh.
Speaker 1: This raises a lot of fear and expectation that the
Speaker 1: housing market in China is going to collapse. What do
Speaker 1: you tell your your clients in the U S who
Speaker 1: are looking to invest in China and how concerned are they? Right? So,
Speaker 1: first of all, it's true there are a lot of
Speaker 1: empty buildings and mostly the secondary cities in China, not
Speaker 1: so much the primary cities like a Shanghai or Beijing,
Speaker 1: but some of the other secondary city So it is
Speaker 1: a concern. But overall, we tell people they have to
Speaker 1: understand in China that is a store of wealth for
Speaker 1: the retail market. So there's not a lot of options
Speaker 1: for retail investors where to put their money in China.
Speaker 1: Bank deposit rates are low, they tend to put it
Speaker 1: in real estate and so when they buy these units,
Speaker 1: they're not really looking to rent them out, so they're
Speaker 1: actually quite comfortable leaving them empty, which is a typical
Speaker 1: compared to the US, but typical for their But how
Speaker 1: much of these purchases are being financed with leverage. It's
Speaker 1: not as highly levered as as the U S. So
Speaker 1: usually we would say mortgagees there in the fifty to
Speaker 1: sixty percent range, maybe sev tops. So in Asia you
Speaker 1: tend to have a bank market for retail where more
Speaker 1: money is put down, so we don't believe it's leveraged,
Speaker 1: but we would say is it a good thing for
Speaker 1: the overall real estate market? No, it's not good because
Speaker 1: if if someone try to sell some of those units
Speaker 1: would be much harder to sell them on the secondary market.
Speaker 1: So where are U S investors flanning opportunities within Asian
Speaker 1: real estate right now? Well, that really depends on your
Speaker 1: risk profile. If you're a high risk investor or a
Speaker 1: low risk investor. If you're a higher risk investor, then
Speaker 1: you are generally looking at the gateway cities and you're
Speaker 1: looking at commercial buildings that have good income profiles because
Speaker 1: fundamentally borrowing rates are quite low in the region and
Speaker 1: you can still generate good cap rates on your buildings
Speaker 1: and that's creating nice cash flow. So Tokyo, Sydney, soul um.
Speaker 1: And you know, one thing that we were also talking
Speaker 1: about is is a flip side so UH. For a
Speaker 1: long time, China's Chinese investors are Since two thousand, Chinese
Speaker 1: investors have been studily increasing their investment UH in the
Speaker 1: US and in some of the big cities. And there's
Speaker 1: been a big question about whether we're gonna start seeing
Speaker 1: a pullback of that money and those investments due to
Speaker 1: capital controls UH in China as well as a less
Speaker 1: uh benevolent environment for them in the US. UM. What
Speaker 1: have you seen? It will edb and flow. I don't
Speaker 1: think that will change, but I think the overall trend
Speaker 1: will be the same. They will continue to flow out
Speaker 1: and look to diversify its holdings. And there's just so
Speaker 1: much capital saved up in China across the board UH,
Speaker 1: and it is trying to get out for purposes of diversification.
Speaker 1: And real estate tends to be an asset class of
Speaker 1: the Chinese like to use again to hold you know,
Speaker 1: to store wealth, so they don't really look at it
Speaker 1: so much as a cash flow asset. They look at
Speaker 1: it as as a way to to to save money
Speaker 1: and hold an asset over time. Although we have seen
Speaker 1: reports about a slowdown in Chinese investors or Asian investors
Speaker 1: generally in US property, there's a slowdown, but I think
Speaker 1: there's a lot of capital that's already outside of it,
Speaker 1: what we would characterize as Chinese capital that's already outside
Speaker 1: of China, and whether it's in Hong Kong or in
Speaker 1: Singapore and other cities, there's a fair amount of capital
Speaker 1: that's out out there. So if there's a slowdown, I'd
Speaker 1: say it's temporary. UM. It's just the Chinese government trying
Speaker 1: to make sure the currency store stays in balance, and
Speaker 1: there's not dramatic capital flight, but that trends not going away. Well,
Speaker 1: I'd expect we'd see more Chinese capital coming out. So
Speaker 1: LESL Investment Management overseas about seven billion dollars real estate?
Speaker 1: Is that all in Asia? That the seven We are
Speaker 1: sixty billion globally with about twelve billion in securities and
Speaker 1: forty eight billion in private. Of the forty eight billion
Speaker 1: of private, seven billion of it is in Asia. Okay,
Speaker 1: And so what have you invested in UM? Recently? We've
Speaker 1: been UM by quite a bit of office and UM
Speaker 1: logistics in in Tokyo. That's a favorite sector for US.
Speaker 1: Logistics in China is a favorite sector for US. Retail
Speaker 1: in Australia. What places have you been avoiding or sort
Speaker 1: of pulling back from? For US? Not really playing back,
Speaker 1: but i'd say avoiding. We're not really an emerging market investors,
Speaker 1: so you don't see US investing in India. We don't
Speaker 1: invest in Vietnam, Philippines, Thailand. So we tend to stay
Speaker 1: in the developed markets because we think the risk return
Speaker 1: there is quite favorable. Do you think fears about China's
Speaker 1: economy exploding are overblown right now? We do you think
Speaker 1: it's overblown? I think the Chinese have demonstrated, uh, they're
Speaker 1: a command economy, which means they can control UM a
Speaker 1: lot of what can be deemed as panic. I think
Speaker 1: they've done in a job controlling that in the last
Speaker 1: couple of years, and we expect they're going to continue
Speaker 1: to do it. So we don't think the hard landing
Speaker 1: scenario is really um the main scenario. There's still potential
Speaker 1: of that, but it's not We're not worried about it.
Speaker 1: Given that. Have you seen an increase in US investors
Speaker 1: looking to invest in Asia. Uh, definitely. We would say
Speaker 1: over the last couple of years that trend line has
Speaker 1: probably been increasing ten to fifteen percent year a year
Speaker 1: over year years. So a couple of years ago, we
Speaker 1: would say that's about a twenty billion dollar kind of
Speaker 1: market in terms of investors come into to UH Asia.
Speaker 1: Now it's it's in that billion dollar range, and recently
Speaker 1: we'd say there's much more European and US money coming
Speaker 1: into Asia, and I think it's about diversification fundamentally, and
Speaker 1: as far as Asian investors coming in, you're just saying
Speaker 1: real quick kind of similar to that. I mean, it's
Speaker 1: also a double digit growth rate. It's getting to be bigger,
Speaker 1: but as you pointed out, it's going to EBB and
Speaker 1: flow a little bit. But it's been a consistent uptake
Speaker 1: year year over year. So I think what's happening is
Speaker 1: there's so much money saved in the world and it's
Speaker 1: looking to put it find a home someplace in real
Speaker 1: estates natural that big ball of money just rolling around
Speaker 1: the world. Thank you so much for joining us. Mark Goobey,
Speaker 1: CEO of Asia Pacific at LaSalle Investment Management, overseeing about
Speaker 1: seven billion dollars of assets real estate assets in Asia.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
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