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Speaker 2: Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 3: Hi, everyone, Welcome to the Bloomberg Business Week Weekend Podcast.
Speaker 3: It may have been a chilly January outside in much
Speaker 3: of the country, but you know what wasn't called US inflation.
Speaker 3: The Consumer Price Index rose by more than forecast across
Speaker 3: the board in January on a monthly and annual basis,
Speaker 3: as did the core measures, which strip out food and
Speaker 3: energy costs, and with employers also adding three hundred and
Speaker 3: fifty thousand jobs last month, again exceeding all estimates. Well,
Speaker 3: that has led to some rethinking when the FED is
Speaker 3: going to cut rates this year. That said, we also
Speaker 3: got data that supports those thinking about the FED cutting
Speaker 3: rates sooner than later. US retail sales broadly declined in January,
Speaker 3: the biggest drop in nearly a year. Treasury Secretary Jennet
Speaker 3: Yellen this past week showed her comments on the CPI,
Speaker 3: saying that she still sees continued progress in bringing inflation down,
Speaker 3: though she did address one of the more worrying components
Speaker 3: of the report, shelter costs. Today, on the program, we
Speaker 3: take a step back to focus on everything real estate,
Speaker 3: from apartments bought with cash in New York City to
Speaker 3: commercial real estate, student housing, storage units, and more. So,
Speaker 3: let us begin by taking a moment to think about
Speaker 3: your life. Thinking about your daily routine and the built
Speaker 3: environment that you interact with, your office or workspace, the roads,
Speaker 3: the parks, public transit, all of the infrastructure that's around you,
Speaker 3: and equally important, what you find on the other side
Speaker 3: of the doorways that you walk through. Maybe it's just me,
Speaker 3: but these things have a huge effect on my life
Speaker 3: and my well being. For our next guests, this is
Speaker 3: their world. Andy Cohen and Diane Hoskins are the co
Speaker 3: CEOs of the privately held global architecture design and planning
Speaker 3: firm Gensler. Gensler has more than fifty locations and six
Speaker 3: thousand employees around the world in the America's euro Up,
Speaker 3: Greater China, Asia, Pacific, and the Middle East. Gensler does
Speaker 3: more than two billion dollars a year in revenue and
Speaker 3: counts eighty percent of the top fifty Fortune five hundred
Speaker 3: companies as clients. Terminal One at JFK, Invidios Corporate headquarters
Speaker 3: in Silicon Valley, Shanghai Tower, the tallest building in China,
Speaker 3: m and T Bank Stadium in Baltimore. These are among
Speaker 3: the thousands of Gensler projects around the world. Andy Cohen
Speaker 3: and Dian Hoskins are also the co authors of a
Speaker 3: new book. It's called Design for a Radically Changing World.
Speaker 3: They joined us in our New York City studio.
Speaker 4: We're in a world where new cities are being created
Speaker 4: I won't say overnight, but you know, again at such
Speaker 4: a rapid pace. You know, we were just in India
Speaker 4: and you know, to see the kind of energy and
Speaker 4: excitement going on and the transformation that we're part of
Speaker 4: as a design firm in Bangalore. We were just in
Speaker 4: Mexico City hearing a lot about the near shoring and
Speaker 4: the energy that that's bringing to the economy there and
Speaker 4: obviously opportunities in the built environment as well. So you know,
Speaker 4: again as a global firm, we're part of this transformation
Speaker 4: that is literally happening, you know, around the world. We
Speaker 4: were at COP twenty eight and in Dubai and you know,
Speaker 4: again all of what's happening in the Middle East. So,
Speaker 4: you know, the United States, there's amazing things happening that
Speaker 4: hopefully we'll talk about as our cities are you know,
Speaker 4: finding their path.
Speaker 1: But we're very bullish, wells safe to say we have
Speaker 1: a sensitivity about cities too, and we think it's really
Speaker 1: important that if you have healthy cities, you have healthy
Speaker 1: countries and healthy policies. Like it kind of starts at
Speaker 1: that level, but I want to dig a little bit deeper, Andy,
Speaker 1: because you guys do have this incredible global perspective. Any
Speaker 1: signs that there are companies are you know, cities slowing
Speaker 1: down on projects because of uncertainty about.
Speaker 5: What's to come again, like Diane said, it's where we
Speaker 5: have this global perspective. We worked in over one hundred
Speaker 5: countries last year. You know, we're seeing the US right
Speaker 5: now in definitely in the work sector, in the office
Speaker 5: sector definitely slowing down. You know, we're in four sectors
Speaker 5: in our firm. We have work, lifestyle, what we call cities,
Speaker 5: and health and wellness. We're seeing our work sector definitely
Speaker 5: being hit right now with the slowdown in office although
Speaker 5: we're doing a ton of office to RESI residential conversions
Speaker 5: right now. Are you really a ton of those right
Speaker 5: like old office buildings, older office buildings. What we're seeing
Speaker 5: is because office buildings right now they're only fifty percent occupied.
Speaker 5: We're seeing this unbelievable flight to quality that's going on
Speaker 5: right now where tenants really only want to be in
Speaker 5: highly amenditized quality buildings that are brand new or newer.
Speaker 5: And the older building stock millions upon millions of square
Speaker 5: feet what we call B and C product are B
Speaker 5: and C buildings are a really, really problematic. So we
Speaker 5: have done we created an algorithm recently that we're able
Speaker 5: to study entire cities or whole portfolios of buildings and
Speaker 5: analyze them quickly to see which buildings can be converted
Speaker 5: from office to REZI and about twenty five percent of
Speaker 5: the building stock in the United States and around the
Speaker 5: globe can be converted.
Speaker 3: Diana, How I mean we've heard for years since the
Speaker 3: pandemic that oh, it's just too expensive to convert on
Speaker 3: a large scale old office buildings into housing. I mean,
Speaker 3: think about it from the perspective of the plumbing, and
Speaker 3: there's some lack of windows. I mean how do you
Speaker 3: do this efficiently? Is it something that is realistic to
Speaker 3: do to offices that aren't used?
Speaker 4: Yeah, as Andy said, we've created a tool where we
Speaker 4: can answer that question really quickly.
Speaker 3: So some buildings, it works in some buildings.
Speaker 1: Yeah, I mean that tool. Yeah, what is it? No,
Speaker 1: it's you know, we've put together basically.
Speaker 4: A way of bringing all the analytics that would probably
Speaker 4: take you know, a pretty extended period of time to
Speaker 4: study into a very concise set of metrics that predict
Speaker 4: the viability of an office building becoming residential. So the
Speaker 4: window to the core, you know that dimension. Obviously, super
Speaker 4: deep apartments are not going to work. You know, the
Speaker 4: Florida floor height again, you know there are ideal Florida
Speaker 4: floor heights for residential that are different in many cases
Speaker 4: than office. The loading dock, by the way, makes a
Speaker 4: huge difference. What's going on with you know, the column base.
Speaker 4: So all of this basically we do a scoring and literally,
Speaker 4: if it's eighty or above, it's viable. If it's below,
Speaker 4: maybe not so much.
Speaker 1: And you said that algorithm says twenty five percent can
Speaker 1: be reworked, which makes me think that other seventy five
Speaker 1: percent do you think ultimately it's just going to have
Speaker 1: to be either torn down or done away with.
Speaker 5: Well, we're doing a lot of adaptive reuses right now
Speaker 5: to other types of uses, but definitely be the reason
Speaker 5: why we're studying residential is such as short as a
Speaker 5: residential and so we need more residential and this is
Speaker 5: a sustainable way of doing it. Instead of ripping a
Speaker 5: building down, we can reuse the building, which is so
Speaker 5: much better for the environment. I should also add, Diana
Speaker 5: and I just went this morning. We saw a project
Speaker 5: called a Pearl House and it's here in Lower Manhattan.
Speaker 5: It's the first unbelievable successful conversion from office to REZI
Speaker 5: and it was a building built in nineteen seventy and
Speaker 5: we were able to literally turner it inside out and
Speaker 5: turn it from a standard office building into residential and
Speaker 5: we think it's going to be a home run here
Speaker 5: in New York.
Speaker 3: It's really cool to hear about this because again again
Speaker 3: it's like we've heard about we've been talking about this
Speaker 3: for years, and it's like it's good to finally see
Speaker 3: this happening. So, Diane, how susceptible is Gensler II blips
Speaker 3: in the economy, Because the reason I ask it's and
Speaker 3: I don't think it's an obvious answer. Is because yes,
Speaker 3: a big portion of your revenue does come from offices,
Speaker 3: but also a lot comes from municipal municipalities. You do airports,
Speaker 3: courthouse renovations, parliament. So how much of that is dependent
Speaker 3: on you know, fluctuations within the global economy.
Speaker 6: Yeah.
Speaker 4: You know, over the last twenty years where we've been
Speaker 4: co CEOs, we've really focused on diversification and really looking
Speaker 4: at all of the kind of a three sixty from
Speaker 4: as Andy said, sort of this work sector which we've
Speaker 4: been talking about, that's the office buildings and then the
Speaker 4: spaces inside those buildings. But even that is like, you know,
Speaker 4: you've got tech, and you've got financial services and you know,
Speaker 4: professional services. But you know, right now one of our
Speaker 4: fastest growing practice areas is actually aviation. And you know,
Speaker 4: you look at the stimulus, the you know, infrastructure bill
Speaker 4: that got passed not that long ago. You're starting to
Speaker 4: see amazing projects going on all over the US in
Speaker 4: terms of these you know, much needed new terminals. We
Speaker 4: all go you know, overseas and see great terminals, but
Speaker 4: we're starting to see some amazing opportunities.
Speaker 1: Here in the US.
Speaker 4: So you know again that diversification, whether it's another massive
Speaker 4: growth area for US is sports stadiums. And you know,
Speaker 4: again we all saw the Super Bowl, but you know
Speaker 4: it's so important in our communities to you know, entertainment
Speaker 4: in sports as well. So you know, the and let's
Speaker 4: say hospitality. I mean again since COVID, we all know,
Speaker 4: the hospitality sector has been just on a rocket and
Speaker 4: that reflects also back into the work that we're doing.
Speaker 1: I want to go right to one called social and
Speaker 1: racial justice because I think about how we have done
Speaker 1: in general housing for decades and kind of separating lower
Speaker 1: income and then developers maybe they throw a few units
Speaker 1: like how do we do and Diane, let me start
Speaker 1: with you, how do we do this better?
Speaker 4: Yeah, you know, it's about equity, right for so many years,
Speaker 4: you know, and in so many of our cities there
Speaker 4: are communities that just haven't had the investment. And so
Speaker 4: you know, at Gensler, we're really being mindful about seeking
Speaker 4: out opportunities to work on projects that are helping to
Speaker 4: create more livable streets, more green space, you know, helping
Speaker 4: to create schools that are exciting children to want to
Speaker 4: learn and grow, but.
Speaker 1: For not just one member of the social strata.
Speaker 4: Correct, yeahat for everyone, for everyone, and it's it is
Speaker 4: about equity and how do we bring that through design?
Speaker 3: Andy, You and Diane argue that design can be a
Speaker 3: more powerful tool than policy when it comes to changing
Speaker 3: cities for the better.
Speaker 5: Explain, well, sure, I think first let's talk about the context.
Speaker 5: For the first time in human history, more people live
Speaker 5: in cities than not. Fifty five percent of the world's
Speaker 5: population lives in cities, and by twenty fifty seventy percent
Speaker 5: of the world's populations lives in cities. So the design
Speaker 5: of cities are obviously going to be really important for
Speaker 5: the global population. And we believe and this has to
Speaker 5: do with policies moving forward. We believe in the philosophy
Speaker 5: and through our research of a twenty minute city and
Speaker 5: the twenty minute city, and we learned this through COVID,
Speaker 5: is that everything is walkable. Everything you need in life,
Speaker 5: every amenity that you need in life is walkable. Grocery stores, restaurants, retail, healthcare,
Speaker 5: education is older than a walkable district. Now, in a
Speaker 5: small city that would be twenty minutes. In a city
Speaker 5: like New York, you might have multiple twenty minute cities.
Speaker 5: But this philosophy of access and amenities, even having to
Speaker 5: do with racial justice, is the idea that you have
Speaker 5: these amenities that your fingertips, and about that design can
Speaker 5: make a difference in our world.
Speaker 1: How do you make sure it's affordable amenities that are
Speaker 1: within everybody's reach, because that maybe is not always I
Speaker 1: don't know if that's within design you know capabilities, or
Speaker 1: is it like how do you work that in as well.
Speaker 4: Again, at the end of the day, design isn't about
Speaker 4: the price tag. It's about the decisions that we make
Speaker 4: as designers. Where to put, you know, the green space,
Speaker 4: where to put you know, instead of a wall, maybe
Speaker 4: it's it's shrubbery, or maybe it's the way that you
Speaker 4: move from one space to the other instead of something
Speaker 4: that's very rigid and kind of onerous. You know, it's
Speaker 4: about experience, and you know, at the end of the day,
Speaker 4: you know, design is about a you know, a thousand
Speaker 4: different choices we make with the design problem. And again
Speaker 4: I go back to it's what we focus on, you know,
Speaker 4: it's what we focus on. Design is for every neighborhood
Speaker 4: in a city.
Speaker 1: But our client's all sensitive to that. I mean, I
Speaker 1: do always wonder, especially if it's a tougher economic environment, right, Tim,
Speaker 1: and I constantly here we are going through earning still
Speaker 1: and it's you know the bottom line, and you know
Speaker 1: what gets a stock moving, it's a buyback. Sometimes there
Speaker 1: a dividend or cost cuts in these you know, thank you,
Speaker 1: Mark Zuckerberg. The year of efficiency continues for many. So Andy,
Speaker 1: come on in on this, Like when you guys are
Speaker 1: working on a pro how important is it that it's
Speaker 1: access for most How do you incorporate climate change aspects?
Speaker 1: How do you do it make it green or make
Speaker 1: it better.
Speaker 5: For our clients?
Speaker 3: They're looking for it all.
Speaker 5: They want to mark they really they want to make
Speaker 5: sure that it's equitable, but they also want to make
Speaker 5: sure that it's financial financial, and so we're constantly balancing
Speaker 5: the two. And I'll talk about housing for a second.
Speaker 5: We do a lot of housing, and much of the
Speaker 5: housing today about every project ten to twenty percent is
Speaker 5: affordable housing that's being factored into the performance.
Speaker 1: Is that more than has been in the past.
Speaker 2: Absolutely?
Speaker 7: Okay, most projects residential products would have zero affordable and now,
Speaker 7: based on the demographics of the community, developers are building
Speaker 7: that into their performer and make it work, and that
Speaker 7: gives us the ability to create equality and design, to
Speaker 7: make sure that designs for everyone.
Speaker 3: Diane Andy mentioned climate change, and I'm curious how you
Speaker 3: do design in a world where extreme weather events are
Speaker 3: happening more frequently beyond just putting everything on stilts, because
Speaker 3: that's certainly one way to do it. But is that
Speaker 3: I mean, is that the is that like the only
Speaker 3: option for low lying environments or even lower Manhattan or
Speaker 3: Red Hook and Brooklyn.
Speaker 4: Do you need develop Well, look, you put your finger
Speaker 4: on probably the most critical issue of our time, which
Speaker 4: is climate change, and this is impacting all aspects of
Speaker 4: the built environment. You know, forty percent of global emissions
Speaker 4: and CO two are from buildings. Yeah, I mean, it's
Speaker 4: a huge issue. It's both how we make the buildings,
Speaker 4: the town and steel and all of that. So this
Speaker 4: whole idea of you know, adaptive reuse, that's that's really
Speaker 4: literally we can cut in half the amount of emissions
Speaker 4: from our buildings if we can reuse buildings, so that's
Speaker 4: a big piece. And then of course creating efficiency in
Speaker 4: our buildings, So you know, that's one piece of it.
Speaker 4: And you're bringing up resiliency and the point there is
Speaker 4: that we have to think about the climate not just
Speaker 4: this year and next year, but in the next fifty years.
Speaker 4: And so we need to create the systems and the design,
Speaker 4: the orientation of the building that is going to allow
Speaker 4: that building to be able to be usable and valuable
Speaker 4: into the future.
Speaker 1: I love that this idea, Andy, come on, I got
Speaker 1: me thirty seconds out here.
Speaker 5: You know, climate change is the moral and business imperative
Speaker 5: of our lifetimes. As Diane said, forty percent most people
Speaker 5: think that autobiles are in industry are the largest. It's
Speaker 5: buildings that produce the most amount of CO two. We
Speaker 5: have put in place that by twenty thirty all of
Speaker 5: our buildings will be net zero, and that's really really important.
Speaker 5: That's the focus for us. And I'll give you an
Speaker 5: example of one quick project, San Francisco Airport, the first
Speaker 5: net zero, net zero waste airport in the United States.
Speaker 3: So even publicly, like.
Speaker 5: You were mentioned, Tim, it's coming that municipality is a
Speaker 5: pushing for net zero.
Speaker 1: It's a nice thing to hear, an upbe thing to hear,
Speaker 1: because it does feel like sometimes it's a tough climb,
Speaker 1: especially when it comes to climate change. Andy Cohen, Diane
Speaker 1: Hoskins co CEOs at Gensler their new book, Check it Out.
Speaker 1: Designed for a radically changing world, it'll definitely get you
Speaker 1: thinking when it comes to your neighborhood and just developments
Speaker 1: in general.
Speaker 2: You're listening to the Bloomberg Business Week Podcast. Catch us
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Speaker 1: We're going to stick gears a little bit talk about
Speaker 1: the real estate market, in particular here in New York.
Speaker 1: The vacancy rate for New York City's most expensive rentals
Speaker 1: plunging to three point four percent last year. Tim that's
Speaker 1: the lowest in almost three decades.
Speaker 3: All right, here's some more numbers for you. So we're
Speaker 3: talking about rental units costing more than twenty four hundred
Speaker 3: dollars a month. Availability fell from about thirteen percent back
Speaker 3: in twenty twenty one. That's according to the latest New
Speaker 3: York City Housing and Vacancy Survey. It reflects caroll a
Speaker 3: broader housing shortage in the Big Apple not seen going
Speaker 3: all the way back to the nineteen sixties.
Speaker 1: Yeah, So let's get to it. Let's get to the
Speaker 1: interview at this hour on the New York City real
Speaker 1: estate market, an important one and a closely watched one
Speaker 1: with us as Lisa Littman, Licensed associate real estate broker
Speaker 1: at Brown Harris Stevens joining us on Zoom in New
Speaker 1: York City. Lisa, good to have you here with Tim
Speaker 1: and me. What are you seeing in terms of availability
Speaker 1: when it comes to the housing supply here in New
Speaker 1: York City? What are you seeing in terms of demand
Speaker 1: for buyers who are looking for properties?
Speaker 8: So we're seeing increased demand since about mid December. I'm
Speaker 8: seeing a lot more people coming back to the market
Speaker 8: to purchase. We definitely had a lull from last spring
Speaker 8: summer through the fall.
Speaker 9: It was quiet, and.
Speaker 8: In the middle of December, sort of out of the blue,
Speaker 8: things started picking up. Hart to know exactly why. Often
Speaker 8: after a period of lull we get busy again for
Speaker 8: obvious reasons. People need to move, people die, they get married,
Speaker 8: they have children, they get divorced.
Speaker 9: So things started picking up in mid December.
Speaker 8: I feel like this January and early February have been
Speaker 8: busier than the average early year. Usually our spring market
Speaker 8: starts more in March April, but it started earlier this year.
Speaker 3: Lisa, how closely is your business tied to the equity
Speaker 3: market and what we see in the bond market when
Speaker 3: it comes to rates in the ten year and mortgage
Speaker 3: rates that is, you know, if we started to see
Speaker 3: markets move higher in November and December, is it fair
Speaker 3: to say that people would come off the sidelines and say, Okay,
Speaker 3: wait a second, I feel wealthier now, I'm ready to
Speaker 3: make a big purchase. And at the same time, I'm
Speaker 3: also seeing mortgage rates come down slightly from what we
Speaker 3: saw over the past few months.
Speaker 8: Absolutely, my market is definitely tied to those factors. Having
Speaker 8: said that, we have a lot of wealthy cash buyers
Speaker 8: in New York, which has continued to fuel our market.
Speaker 9: And the buyers.
Speaker 8: That purchased in the fall were buy a large cash
Speaker 8: buyers at every price point, from one million all the
Speaker 8: way up to one hundred million, and even the uptake
Speaker 8: that started in mid December, that's continuing now.
Speaker 9: We still have a.
Speaker 8: Lot of cash buyers, although I'm starting to see people
Speaker 8: who will finance creeping back into the market.
Speaker 1: Yeah, that's interesting, I guess, you know, when we hear
Speaker 1: something like this, I'm always curious Lisa in terms of perspective, So,
Speaker 1: like what you're seeing today in terms of the real
Speaker 1: estate cycle, how it compares to probably a lot of
Speaker 1: cycles you've seen.
Speaker 10: Is it a.
Speaker 1: Typical one, you know, in terms of the amount of
Speaker 1: people buying by cash? Is it makes sense maybe the
Speaker 1: amount of people you're seeing, you know, starting to maybe
Speaker 1: tap into some loans. I mean, give us some perspective
Speaker 1: because you you've been in the industry for a while,
Speaker 1: so you've seen a lot.
Speaker 8: Yes, Yes, I've been in the industry for twenty five years,
Speaker 8: and I work through nine to eleven and post nine
Speaker 8: to eleven and the financial crisis, and then obviously you know,
Speaker 8: the latest big depression recession. The difference now is that
Speaker 8: there is a lot there are a lot more cash
Speaker 8: buyers than I've seen in the past. And you know,
Speaker 8: since I've started doing this, interest rates have come up
Speaker 8: and gone down. But this most recent rise in interest
Speaker 8: rate was the largest percent to drop rise, and that
Speaker 8: really pulled a lot of people back, freaked a lot
Speaker 8: of people out. I've been doing this long enough to
Speaker 8: know that even now the interest rates aren't really historically
Speaker 8: that high, but in.
Speaker 9: Relation to what they had been, it preached people out.
Speaker 8: But what we learned about the real estate market now
Speaker 8: is that there is so much wealth in New York
Speaker 8: that has been created in the last few years with
Speaker 8: the stock market, that there's a.
Speaker 9: Lot of cash buyer. There's a lot of cash out there,
Speaker 9: and there are a lot of cash buyers now.
Speaker 8: The important thing about cash buyers is they don't overpay.
Speaker 8: They expect to get a good deal because they're paying cash.
Speaker 3: Okay, So if somebody's a seller out there and they
Speaker 3: get an all cash offer that's not at their price point,
Speaker 3: what's the next step here in terms of countering in
Speaker 3: a realistic way, taking into account that this thing could
Speaker 3: close quickly and not necessarily be dragged on by the
Speaker 3: financing process.
Speaker 8: Well, I always encourage sellers to look at reasonable offers carefully,
Speaker 8: and especially cash offers. You know, it's something's financing contingent.
Speaker 8: It's never as interesting. A cash offer is always interesting.
Speaker 8: And you know something that we learned in the last
Speaker 8: ten years when the market hasn't been as gangbusters as
Speaker 8: it might have been at different times.
Speaker 9: You know, we had this really.
Speaker 8: Crazy market in two thousand and five, two thousand and six,
Speaker 8: we had a mini crazy market from twenty fourteen to sixteen,
Speaker 8: but at other times when things weren't like that. Any
Speaker 8: offer you get, especially cash, should be looked at seriously
Speaker 8: and you should play ball with that person.
Speaker 1: Hey, are all the buyers American?
Speaker 9: Most of them are.
Speaker 8: I'm seeing about eighty percent domestic buyers, twenty percent or
Speaker 8: foreign money, but it's not where it used to come from.
Speaker 8: We see a lot more South American money. We see
Speaker 8: some European money, and then we see some money coming
Speaker 8: from Asia, but places like Singapore, Taiwan, Korea different than.
Speaker 9: We used to see.
Speaker 1: So, in other words, not seeing China.
Speaker 9: Correct.
Speaker 3: What about Russia? Are you seeing Russia?
Speaker 9: We see no Russian money. I haven't seen any Russian
Speaker 9: money in several years.
Speaker 11: You know.
Speaker 1: It's funny New York City. You know, we always talk
Speaker 1: about location, location, right when you talk about anything. In
Speaker 1: terms of the real estate market. New York City has
Speaker 1: a lot of different markets in the residential space Uptown, downtown, East, West,
Speaker 1: So walk us through, what are the properties that people
Speaker 1: are most interested in right now or where in New
Speaker 1: York City?
Speaker 8: All right, Well, Downtown's always popular, West Village is always popular. Tribeca,
Speaker 8: especially prime Tribeca, meaning west of Church Street is always
Speaker 8: super popular, so home very popular. You know, the fifty
Speaker 8: seventh Street corridor Midtown tends to be less popular, except
Speaker 8: for the period of time where we saw lots of
Speaker 8: Chinese and Russian buyers buying there. Not to say that
Speaker 8: people don't buy there, but less popular. And then of
Speaker 8: course we have the Upper east Side, in the upper
Speaker 8: west Side on the Park is always the most popular.
Speaker 8: And then beyond that, what's really been the most popular
Speaker 8: for several years is anything that's in really beautiful condition,
Speaker 8: move in condition. People are very wary of doing renovation.
Speaker 8: It started before COVID, but certainly during COVID and since COVID.
Speaker 9: The cost of doing renovations.
Speaker 8: In New York City is very very high, and to
Speaker 8: get somebody to buy something that needs a lot of work,
Speaker 8: you really have to be priced very very attractively. Otherwise
Speaker 8: people just don't buy properties that need work.
Speaker 3: What do you have on your radar? Just in the
Speaker 3: last thirty seconds that we have of perhaps the biggest
Speaker 3: shift that you can expect in the next few months
Speaker 3: as we get into that spring real estate season, I
Speaker 3: think that.
Speaker 9: It's going to get more competitive for buyers.
Speaker 8: Buyers have gotten used to in the last six months
Speaker 8: being able to sort of drag their feet making offers
Speaker 8: take a long time making a deal expecting to be
Speaker 8: the only buyers. I think they will see more competition,
Speaker 8: So I think that will that'll be a change.
Speaker 9: But what I also want to warn.
Speaker 8: Sellers is sellers are always very slow to react to
Speaker 8: a softme market, and they're often too quick to react
Speaker 8: to a market that they see as getting better. So
Speaker 8: what will slow down our market again is if sellers
Speaker 8: start raising their prices.
Speaker 9: That there is a danger of that.
Speaker 1: All right, interesting take on that, Hey, Lisa, thank you
Speaker 1: so much, Lisa Littman. She is licensed associate real estate
Speaker 1: broker at Brown Harris Stevens. Joining us on zoom from
Speaker 1: New York City.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekday starting a two pm Eastern on applecar Play
Speaker 2: and ANDROYD Auto with the Bloomberg Business Ada. You can
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Speaker 2: York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 3: Okay, here's a bit of good news. Commercial property deals
Speaker 3: in the US are starting to pick up. Here's the
Speaker 3: bad News. These deals are happening at deep discounts, and
Speaker 3: that's been forcing landers around the world to brace for
Speaker 3: souring loans and mounting distress. This distress can be traced
Speaker 3: to issue stemming from COVID, like reduced office demand or
Speaker 3: apartments that were overbought in the pandemic frenzy at peak values,
Speaker 3: and is exacerbated by much higher borrowing costs. As of December,
Speaker 3: offices accounted for forty one percent of the value of
Speaker 3: distressed US properties, which stood at nearly eighty six billion dollars.
Speaker 3: That's according to MSCI. For more, we turned to one
Speaker 3: of the most read stories on the Bloomberg this past week,
Speaker 3: which was also a Bloomberg Big take. The brutal reality
Speaker 3: of plunging office values is here. The story by Bloomberg
Speaker 3: News real estate reporters Natalie Wong and Patrick Clark. It
Speaker 3: tells us how the plunging valuations of office buildings are
Speaker 3: being felt around the world. Pat joined us in our studio.
Speaker 12: For a long time, we've known that office values in
Speaker 12: particular were way down right. You can tell by just
Speaker 12: looking around how many people you see when you go
Speaker 12: to work. We knew that was going to have a
Speaker 12: hit that was going to play out across real estate
Speaker 12: owners and banks. We didn't know exactly how much because
Speaker 12: nobody was selling anything, and so it was very easy
Speaker 12: for everyone to kind of collectively put their head in
Speaker 12: the sales.
Speaker 1: We didn't really kind of know how it was all
Speaker 1: going to settle, right, Yeah, a little bit.
Speaker 11: Well, that's true.
Speaker 12: In twenty twenty one, you know, there were still debate,
Speaker 12: you know, are people coming back to the office when
Speaker 12: while it happened, you know there's going to be a recession.
Speaker 12: You're going to want to come and look good for
Speaker 12: your boss so you don't get laid off.
Speaker 11: You hear much less of that these days.
Speaker 12: And I don't know if it's because you know, we
Speaker 12: haven't had the recession, or if you know, we've all
Speaker 12: sort of the defenders of the office have sort of
Speaker 12: capitulated and come to accept the fact that attendance is
Speaker 12: not going to be what it once was. The buildings
Speaker 12: are not going to, you know, command the same rents
Speaker 12: when releases roll over, and those they're not going to
Speaker 12: be worth there's much money when they have to either
Speaker 12: be sold or refinanced.
Speaker 3: Well, when it comes to people actually going back to
Speaker 3: work and using these office buildings on a daily basis.
Speaker 3: There are big regional and geographic differences here. The US
Speaker 3: is a real laggard when it comes to where it
Speaker 3: stands in the world. How does that affect the way
Speaker 3: that buildings are valued in different parts of the world.
Speaker 12: Yeah, well, it's you know, it's fascinating, right, I mean,
Speaker 12: it's I think the data that we have in the
Speaker 12: story is that Asia and Europe are kind of like
Speaker 12: seventy five eighty percent of you know, pre pandemic levels,
Speaker 12: and the US we're kind of stuck at fifty percent.
Speaker 13: You know?
Speaker 12: Is that because of the type of work we do here?
Speaker 12: Is it you know, how people sort of organize their lives.
Speaker 12: I mean, I think you could argue that it has
Speaker 12: to do with housing markets, at least from a US perspective,
Speaker 12: I would say that, you know, the lack of housing
Speaker 12: near you know, downtowns is something that makes remote working
Speaker 12: really appealing. You know, maybe someday we'll start converting all
Speaker 12: these office buildings into apartments and that will improve inventory
Speaker 12: and affordability, and all of a sudden it will be
Speaker 12: easier to get people back to the offices that offices
Speaker 12: just won't be there.
Speaker 11: Anymore, or maybe we won't.
Speaker 1: Yeah, right, And this is kind of what we're facing with.
Speaker 1: I mean what's interesting is it's good to see the
Speaker 1: market finally moving, but that valuation means I think about
Speaker 1: global investors, right who've had exposure in terms of the
Speaker 1: debt side of the equation and all the loans that
Speaker 1: went out. I mean, they're kind of holding this bag
Speaker 1: that now is not worth as much as it was
Speaker 1: a few years ago. So what you know, we've talked
Speaker 1: about regionals, right, certainly in the US. I mean, what
Speaker 1: are some of the implications. We're already starting to see
Speaker 1: some of this play out.
Speaker 12: These were the safe assets right in the low interest
Speaker 12: rate era. This was like an alternative to buying treasuries,
Speaker 12: was buy an office building in New York or San Francisco.
Speaker 12: You know, it's it's it's absolutely not great for the
Speaker 12: owners and not great for their lenders. And you know,
Speaker 12: I think the thing that has started to happen is
Speaker 12: we're getting closer to certainty on where interest rates are
Speaker 12: going to settle. Greater certainty, right, people people are now
Speaker 12: starting to feel like they know what their borrowing costs
Speaker 12: are going to be in the future, and so that's
Speaker 12: getting to them to the point, and it's both owners
Speaker 12: and lenders. More certainty on interest rates gets you to
Speaker 12: the point where you can start to take some of
Speaker 12: the punishment that you need to on valuation. Now, you know,
Speaker 12: lenders are having to put aside greater reserves to deal
Speaker 12: with the fact that they're going to take back some
Speaker 12: you know, take back some keys on office buildings that
Speaker 12: they're then going to have to Really, what are they
Speaker 12: going to do it?
Speaker 3: That was my question. So let's say you are one
Speaker 3: of these lenders who gets one of these buildings at
Speaker 3: a deep discount, or perhaps you're a buyer who's looking
Speaker 3: to buy something at a deep discount. What are we
Speaker 3: starting to see now when it comes to this commercial
Speaker 3: office space that is actually what these buildings will be
Speaker 3: used for.
Speaker 12: The thing The place where I come out I guess
Speaker 12: is I don't see a ton of reason to think
Speaker 12: that things will go better for office than they did
Speaker 12: for shopping malls. I mean, it feels like it took
Speaker 12: us a really long time, and I don't think it's
Speaker 12: a solved problem. What do you do with off it?
Speaker 12: What do you do with shopping malls when people no
Speaker 12: longer want to go to them right. And there's there's
Speaker 12: obviously the malls that are great and people still love to.
Speaker 3: Go right these experiential places, experiential or.
Speaker 11: Just like high end or the right place and to properties.
Speaker 12: We certainly have that. In the office market as well.
Speaker 12: There are offices that will draw people in for a
Speaker 12: variety of reasons. Either the jobs are really good and
Speaker 12: sought after, or you know, the and usually it goes
Speaker 12: along with that. They make the office a pleasant place
Speaker 12: to be, like the office we're in right now. But
Speaker 12: you know, many of these buildings are not going to
Speaker 12: be very successful in pulling people in. For a decade,
Speaker 12: we were writing probably more we were writing stories about
Speaker 12: the future of them all and how do you repurpose
Speaker 12: the mall that is no longer a magnet for shoppers?
Speaker 12: And I don't know that that anyone did anyone ever
Speaker 12: solve that problem. At some point you just kind of
Speaker 12: either kind of just dies out.
Speaker 3: It or they become like Amazon distribution center right right
Speaker 3: at some point.
Speaker 12: But it's a lot of the times. What did that
Speaker 12: is that the value of the building, the value of
Speaker 12: the mall, the retail center, you know, became depressed and
Speaker 12: a new buyer could step into it at such a
Speaker 12: low basis that it actually was functional as real estate.
Speaker 12: You could collect enough rents to make it work. It
Speaker 12: just didn't look at all like what it did before.
Speaker 1: What you know, And this is where the academic outlook
Speaker 1: is really so important you right, though in your story
Speaker 1: it's still too early. It's common for commercial mortgages to
Speaker 1: have five year or ten year terms at amortized out
Speaker 1: a thirty year schedule, leaving balloon payments that need to
Speaker 1: be paid off or refinance when a loan comes due.
Speaker 1: That's a fairly long runway, right, And I'm sure that
Speaker 1: if you're a lender, a commercial lender, you're going to
Speaker 1: do it. If you're a back, you're going to do everything
Speaker 1: you can, right, especially if it's a big loan, like
Speaker 1: you don't want it to default and come undune, so
Speaker 1: you kind of have some time to play with. So
Speaker 1: is this kind of a long slow burn or how
Speaker 1: do you see it in terms of the rest of
Speaker 1: commercial office?
Speaker 12: I mean, I hope so, right, isn't that that we
Speaker 12: hope that it's a manageable problem?
Speaker 1: Then, yeah, do not a crisis, not a.
Speaker 12: Crisis, a manageable problem. You space them out right, you're
Speaker 12: going to extend certain ones. You know, sometimes something will
Speaker 12: be more critical and you'll have to take back you know,
Speaker 12: you'll take back that property now. But if it doesn't
Speaker 12: happen all at once, and we do get relief on
Speaker 12: borrowing costs and it gets easier to refinance some of them,
Speaker 12: then you know, things could play out in a gradual
Speaker 12: and you know, you know, short of crisis way, and.
Speaker 14: That's what we hope.
Speaker 3: So the lenders are going to be okay.
Speaker 11: Not all of them, right, I mean, nobody believes. I
Speaker 11: don't think anybody.
Speaker 12: I don't think there's any way that everyone makes it
Speaker 12: through intact, but some I'm sure will.
Speaker 1: It's interesting though, so much we're talking about is really
Speaker 1: us focus, right, because that's where we're seeing the biggest
Speaker 1: kind of valuation reset pat Yeah, and.
Speaker 12: The and the global exposure is you know, through the debt.
Speaker 12: I mean it's I don't think that's investor personally. So
Speaker 12: there are you know, multi family owners in Europe who've
Speaker 12: run into trouble, for sure, but we've got banks in
Speaker 12: Germany and Japan and all over the place who you know,
Speaker 12: again they thought that financing a building an office building
Speaker 12: in Chicago was a safe way to deploy capital.
Speaker 1: Right, we got this. It should be okay until it's
Speaker 1: not pack clock. Thank you as always really appreciate it.
Speaker 1: He's a real estate reporter at Bloomberg News, joining us
Speaker 1: here in our studio. The stories we said it is
Speaker 1: the Bloomberg Big Take. It is among the most read
Speaker 1: on the Bloomberg.
Speaker 2: You're listening to the Bloomberg Business This Week podcast. Catch
Speaker 2: us Live weekday afternoons from two to five pm Eastern
Speaker 2: Listen on Apple car Play and then brout Auto with
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Speaker 1: While Treasury Secretary Janet Yellen said that while losses in
Speaker 1: commercial real estate are worried, US regulators are working to
Speaker 1: ensure that lone loss reserves and liquidity levels the financial
Speaker 1: system are adequate to cope. Essentially worried about how much
Speaker 1: is on bank's balance sheets, That's what she was addressing.
Speaker 4: Well.
Speaker 3: One big player in the commercial real estate industry is
Speaker 3: the Canadian asset management giant Brookfield. The company owns more
Speaker 3: than seven hundred properties around the globe, makes it one
Speaker 3: of the world's biggest owners of commercial property. Eight hundred
Speaker 3: and sixty five billion dollars under management. Brookfield is second
Speaker 3: only to Blackstone among alternative asset managers.
Speaker 1: Yeah and tim. As office values languished and higher rates persis,
Speaker 1: Brookfield finds itself at the center of a global real
Speaker 1: estate shakeout. In fact, it's still though raising a new
Speaker 1: real estate fund even after defaulting on more than three
Speaker 1: billion of US commercial mortgages. That is top of mine.
Speaker 1: When we bring in John Gittleson.
Speaker 3: Yeah, he's part of the team that writes about Brookfield today.
Speaker 3: He's Bloomberg News real Estate and investing reporter as well
Speaker 3: as Los Angeles bureau chief. He joins us from our
Speaker 3: Los Angeles bureau right now. So, John, let me get
Speaker 3: this straight. Brookfield defaulted on three billion, more than three
Speaker 3: billion dollars of US commercial mortgages in recent years, and
Speaker 3: now it's going back to investors saying we want to
Speaker 3: raise billions of dollars more from you to go and
Speaker 3: buy the same thing.
Speaker 13: Well, they're saying it's not the same thing. They're saying
Speaker 13: now is a great time to invest because they will
Speaker 13: be able to buy office buildings, malls, and other kind
Speaker 13: of properties that they like at a discount compared to
Speaker 13: what they would have been a few years ago. And
Speaker 13: they also say, hey, everybody buys a whole bunch, nobody
Speaker 13: bats a thousand. So these defaults are deminimous as far
Speaker 13: as our you know, total investments, and that put your
Speaker 13: money with us because we know what we're doing.
Speaker 1: Are they right to say that? What do folks investors
Speaker 1: in their fund say?
Speaker 13: Well, I mean that's what's interesting, that's why you play
Speaker 13: the game.
Speaker 1: You know, that's fair.
Speaker 13: But their argument is they take a very value oriented
Speaker 13: approach to investing, and they say the best time to
Speaker 13: buy is when other people are overleveraged or mismanaged real
Speaker 13: estate and we can get assets that have long term
Speaker 13: value at a good price. Others in real estate take
Speaker 13: more of a growth approach to what they're investing, and
Speaker 13: they're saying there's too many office buildings, for example, out there,
Speaker 13: there's a lot of malls that are you know, zombie
Speaker 13: malls that aren't worth money. So they're putting money into
Speaker 13: industrial real estate, into data centers, into types of real
Speaker 13: estate that are undersupplied and have a growth story to them.
Speaker 13: And so it's really interesting kind of comparing it to stocks.
Speaker 13: Brookfield is like the value investor, whereas other companies are
Speaker 13: more the growth investor, thematic investments.
Speaker 3: Hey take us through the structure here of Brookfield, Brookfield Corp.
Speaker 3: And Brookfield Asset Management. So you know what's going on
Speaker 3: with these two separate but related companies.
Speaker 1: Whiteboard, which we like crops go ahead.
Speaker 13: Yeah, that would have been a good idea. I should
Speaker 13: have prepared a sort of org chart. But there's a
Speaker 13: parent company that is now called Brookfield Corporation. There was
Speaker 13: a spin off that's called Brookfield Asset Management, and essentially
Speaker 13: Brookfield Asset Management, which is seventy five percent owned by
Speaker 13: Brookfield Corporation, manages outside investors' money and all of their
Speaker 13: separate funds. Brookfield currently has a real estate fund that
Speaker 13: they're raising, an opportunistic fund. Their target goal is fifteen
Speaker 13: billion dollars. This is like a closed end private equity
Speaker 13: type fund, and they've raised about seven billion dollars so far.
Speaker 13: Brookfield also has an insurance or multiple insurance affiliates. They
Speaker 13: do infrastructure investing, they do energy investing. It's a very
Speaker 13: diversified company, but real estate is their biggest segment, and
Speaker 13: there are all kinds of interwoven parts and affiliates of
Speaker 13: this company.
Speaker 1: You know, we're laughing about the structure, but I mean,
Speaker 1: why is it important I'm thinking about our audiences listening
Speaker 1: or watching right now. Why is it important to kind
Speaker 1: of is it convoluted? Is it not transparent as a
Speaker 1: result of it? Like, why is it important that we're
Speaker 1: pointing this out? John?
Speaker 13: It's important to point it out for a couple of reasons.
Speaker 13: One is it is hard to say. It's an important
Speaker 13: to say which part of Brookfield owns something. If it's
Speaker 13: part of one of these funds, which have a term
Speaker 13: typically of about ten years, their shorter term, they're more opportunistic.
Speaker 13: If the assets are owned by their real estate I'm sorry,
Speaker 13: by their insurance affiliate, or by the parent corporation, they
Speaker 13: are more long term investors. And sometimes what they have
Speaker 13: done is transferred properties from one of their shorter term
Speaker 13: funds to their insurance affiliate or their parent corporation, and
Speaker 13: that way they can return money to investors in these funds,
Speaker 13: and they can hold onto a property over the longer
Speaker 13: term without necessarily having to sell at a time when
Speaker 13: the market is not paying the price that they think
Speaker 13: they could get if they hold on too longer. And
Speaker 13: a lot of these are income producing properties that they figure, hey,
Speaker 13: we can keep collecting rent making money on these properties
Speaker 13: rather than being forced to sell to repay investors. Works
Speaker 13: for them, but it also is a concern of investors
Speaker 13: who may think are our interests aligned with theyers? Are
Speaker 13: they playing you know, accounting games by moving stuff from
Speaker 13: one segment of the company to another.
Speaker 3: Hey, let's just end talking a little bit about Bruce Flatt.
Speaker 3: I was so surprised to reading your story that he
Speaker 3: became CEO of Brooksfield Asset Management in two thousand and two.
Speaker 3: And this is a guy who was in his thirties
Speaker 3: when he became CEO.
Speaker 13: Correct, that was twenty one years ago. He's fifty eight now,
Speaker 13: so do the math. Anyway, Yeah, he was very young.
Speaker 13: I mean he's been nicknamed the Warren Buffett of Canada
Speaker 13: or Canada's Warren Buffett. He is a very you know,
Speaker 13: not a real colorful guy. His name is flat. But
Speaker 13: he also has a long track record and you know,
Speaker 13: very shrewd building this company from what was once a
Speaker 13: small I wouldn't say small, but you know, he's definitely
Speaker 13: managed to grow it. And his value investing theme is
Speaker 13: a really strong, you know it. It's done very well
Speaker 13: by him.
Speaker 1: Listen, and he's raising money for that new fund. And
Speaker 1: either of the BET's going to be a smart one.
Speaker 1: And I guess time will tell ultimately about this, John,
Speaker 1: This is incredible story, John Gilson. Another one from John
Speaker 1: la Bureau, Chief real Estate investing reporter at Bloomberg News,
Speaker 1: joining us from our La Bureau. Find it at Bloomberg
Speaker 1: dot com or on.
Speaker 11: The Bloomberg terminal.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 2: York station Just Say Alexa play Bloomberg eleven thirty.
Speaker 3: Plenty ahead in our second hour of the weekend edition
Speaker 3: of bloom Burg BusinessWeek, including a check on your new
Speaker 3: Year's resolutions. Have you been eating better, exercising more, getting
Speaker 3: more sleep? Or maybe your resolution is trying to learn
Speaker 3: a new language. We get an update from the CEO
Speaker 3: of the language learning at Babbel Plus from Athens de Mikinos.
Speaker 3: It feels like everyone has been taking a trip to
Speaker 3: Greece recently, except for me, more Americans are going to Greece.
Speaker 3: The Greece ad Minister of Tourism on why Greece can
Speaker 3: be a year round destination. First up this hour, more
Speaker 3: real estate and a conversation with the CEO of a
Speaker 3: firm that works in multifamily, industrial and commercial. Carol and
Speaker 3: I spoke with Michael Levy, CEO at Crow Holdings. It's
Speaker 3: a Dallas based privately owned real estate investment and development affirm.
Speaker 3: They've got thirty one billion dollars in assets under management.
Speaker 15: I'd boil down to three things, you know. The first
Speaker 15: is the market is highly bifurcated in terms of haves
Speaker 15: and have nots, And today the have nots as office buildings,
Speaker 15: and the have nots is a lot of the downtown
Speaker 15: urban cores that are impacted by the flexible workforce and
Speaker 15: not having as many people there and the issues. There's
Speaker 15: a lot of halves in the business today, which is
Speaker 15: the industrial sector and the residential rental sector, the data
Speaker 15: center sector. So there it's a highly bifurcated, not painting
Speaker 15: with a single brush across real estate in anyway.
Speaker 3: But you guys have some commercial office we have very little.
Speaker 15: We do have we we're building a fabulous mass timber building,
Speaker 15: the largest mass timber office building.
Speaker 11: We have a fabulous office.
Speaker 15: Campus in Dallas at the very upper end of the
Speaker 15: office sector. Buildings like this, they're very attractive to people,
Speaker 15: they meet the modern needs. They're well leased. So the
Speaker 15: top third of office is great. The bottom third is
Speaker 15: going to be dirt. It just doesn't know it.
Speaker 3: I just want to make sure I get this right.
Speaker 3: You're actually actively building.
Speaker 11: We're active. We have a development company.
Speaker 3: An office, but an office building.
Speaker 11: Correct. It's the largest Dallas.
Speaker 15: It's in Frisco, which is effectively Dallas for metroplex.
Speaker 3: Okay, so when did you start? When did you make
Speaker 3: the plans for that?
Speaker 15: Versus and right after COVID, right after right after Well.
Speaker 3: How are you designing that in this flexible work environment
Speaker 3: that you.
Speaker 15: Just First of all, the building is not made of steel.
Speaker 15: It's made of timber using a construction technology. So from
Speaker 15: a sustainability perspective, you know, it's a much more sustainable building,
Speaker 15: which appeals to lots of corporations and individuals today. It's
Speaker 15: also physically beautiful because the interiors would so the structure
Speaker 15: is shown and the layout is just big open collaborative
Speaker 15: spaces and amenities, and it'll be in a neighborhood with
Speaker 15: a hotel ultimately and other amenities, and people will be
Speaker 15: able to live, work, play in this area. And that's
Speaker 15: what people want.
Speaker 11: All right.
Speaker 1: So you are in New Yorker, you understand this market
Speaker 1: really really well. I'm assuming you play in the commercial
Speaker 1: real estate space. Would you not want to be someone
Speaker 1: here in New York who owns maybe that's second or
Speaker 1: third tier office property right now?
Speaker 15: Like most things, it's all about what your basis, your costs.
Speaker 15: But yes, as a general rule, let's just call it
Speaker 15: the bottom third of office buildings. A lot of these
Speaker 15: buildings you see, for example on Third Avenue, for example, these.
Speaker 11: Are really tough properties that are likely.
Speaker 15: To wind up in the hands of people who buy
Speaker 15: them at huge discounts to their value of just a
Speaker 15: few years ago and ultimately look to repurpose them. But
Speaker 15: this is a multi decade problem. This is not going
Speaker 15: to be resolved in the next two.
Speaker 11: Or three years.
Speaker 15: So no crisis there. There's not a broader real estate crisis.
Speaker 15: There is distress in the office space. But if you
Speaker 15: really look at the percentage of disposure that people have
Speaker 15: to this asset class. In the totality of the real
Speaker 15: estate sector, it's relatively small. If you talk to the
Speaker 15: banks and their exposure. It's not going to take the
Speaker 15: financial system down, it's not going to take the real
Speaker 15: estate industry down. But those lower third of office buildings
Speaker 15: across the country, they are very difficult assets and people
Speaker 15: are going to lose them.
Speaker 3: Why do you think it's going to be such a
Speaker 3: multi decade long turnaround or at least experience.
Speaker 15: Well, One, you can look at things that have already happened,
Speaker 15: like the mall sector, which start to get disintermediated in
Speaker 15: the early two thousands, and you can see lots of
Speaker 15: dormant malls all over America. The issue is one it
Speaker 15: needs to from a price perspective, get down down to
Speaker 15: ultimately the value of the land so someone can redevelop
Speaker 15: it and it makes sense. And secondly, the entitlement process,
Speaker 15: you know, going from zoning and entitlements. You know, communities
Speaker 15: and neighborhoods don't necessarily want to entitle you for apartments,
Speaker 15: for example, if you were zoned for office and so
Speaker 15: this takes decades, and it's going to take decades.
Speaker 1: Michael, your company's seventy five years years old. Obviously you
Speaker 1: haven't been there the whole time, but you guys have
Speaker 1: seen a lot of different cycles. I mean, if you
Speaker 1: had one word, two words to describe the real estate
Speaker 1: cycle right now, how would you And I know that's
Speaker 1: hard because different geographies, different types, but what would how
Speaker 1: would you describe it?
Speaker 15: Sure, I would describe it as we are just beginning
Speaker 15: to merge because of the interest rate cycle and inflation.
Speaker 15: We are just becoming beginning to emerge, literally just beginning
Speaker 15: to e merge from a very contracted, frozen period of
Speaker 15: time twenty twenty four. It looks like in terms of
Speaker 15: the capital markets and lending, because of inflation and interest rates,
Speaker 15: the friction that's been in the business is beginning to
Speaker 15: be alleviated. So there's a capital market cycle that's been
Speaker 15: destructive with respective valuation levels and transaction levels. But the
Speaker 15: fundamentals rental growth, occupancy, with the exception of the office sector,
Speaker 15: have been great generally across the country in most major markets.
Speaker 1: You are obviously watching the rate cycle very carefully. Does
Speaker 1: it matter if the Fed does two rate cuts, three
Speaker 1: rate cuts, five rate cuts this year in terms of
Speaker 1: what it means for your business.
Speaker 15: I don't think there's a very direct course. I certainly
Speaker 15: would not speculate the two is bad in five is good.
Speaker 15: I can just say in general, for our levered asset class,
Speaker 15: don't fight the FED. And the FED is relaxing rates
Speaker 15: and they're coming down. That's going to be good for
Speaker 15: our industry in terms of transaction activity, financing, valuation levels,
Speaker 15: the grease that allows the industry to move forward.
Speaker 3: We recently spoke about a Bloomberg big take by own
Speaker 3: Sean donn and about how Americans are moving around, especially
Speaker 3: in swing states, and that could impact the presidential election outcome.
Speaker 3: You have people all over the country, You have businesses
Speaker 3: and properties all over the country. Give us some color
Speaker 3: about the demographic trends that you're seeing.
Speaker 15: Yeah, look, there is no doubt America is moving to
Speaker 15: the southeast and southwest. Now at one level, that's a set,
Speaker 15: you know, seventy five year trend when air conditioning started,
Speaker 15: but it is accelerated, it's sustaining itself, and it's a
Speaker 15: virtual cycle. Cities that thirty years ago, as someone from
Speaker 15: New York you may not wanted to have lived in
Speaker 15: today are vibrant and with restaurants and culture and food,
Speaker 15: and so this trend is continuing.
Speaker 3: Does that make you barish on New York?
Speaker 1: I think be careful.
Speaker 11: There's a lot of New Yorkers right.
Speaker 15: I understand New York has some very significant challenges, not
Speaker 15: as difficult as some other cities such as San Francisco.
Speaker 15: But the reality is our office buildings. This was a
Speaker 15: city that forever has been first work, second play, third live. Well,
Speaker 15: people are coming into the office a lot less. And
Speaker 15: if they come into the office a lot less, that
Speaker 15: means not only the offices occupied less, the retailers have less.
Speaker 15: It's hurting on top of people are not only people,
Speaker 15: but wealth is and business is leaving the city and
Speaker 15: the state. You can look at the data for lower costs,
Speaker 15: higher quality of life markets.
Speaker 1: We got to run really a great perspective. Michael Levy,
Speaker 1: chief executive Officer of cro Holdings, joining us here at
Speaker 1: our New York studio. This is Bloomberg Business Week. Michael,
Speaker 1: thank you.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and and Brout Auto with a
Speaker 2: Bloomberg Business app or want US Live on YouTube well again.
Speaker 1: Depending US existing home sales rebounded sharply in December to
Speaker 1: a five month high, suggesting the recent drop in mortgage
Speaker 1: rates is helping to stabilize the resale market. That recent drop,
Speaker 1: by the way, in mortgage rates also helping to bring
Speaker 1: sales of new homes in the US past forecasts in December.
Speaker 1: We got that data yesterday, and in general, we've been
Speaker 1: thinking a lot about real estate and talking to different
Speaker 1: voices in different sectors of the industry.
Speaker 3: You have some sectors that we've covered in recent days
Speaker 3: have been office, hospitality, hotel, industrial, but it got us
Speaker 3: thinking more about so called alternative real estate assets. We're
Speaker 3: talking about senior housing, self storage, student housing, and more.
Speaker 3: It's top of mind at Harrison Street, a company that
Speaker 3: focuses exclusively on so called alternative real assets. The company
Speaker 3: has fifty five billion dollars in assets under management with
Speaker 3: more than five hundred institutional investors around the world.
Speaker 1: Christopher Merrill is CEO of the Chicago based Harrison Street.
Speaker 1: He's in town and he joins us here in our
Speaker 1: Bloomberg Interactive Broker studio. So great to have you here.
Speaker 1: We like to start big broad it's a new year.
Speaker 1: How are you looking at twenty twenty four and how
Speaker 1: it compares to coming off of the pandemic and then
Speaker 1: even pre pandemic.
Speaker 6: Sure, well, thank you for having me. It's great to
Speaker 6: be here.
Speaker 16: You know, we look at this year and we're absolutely
Speaker 16: excited about the alternative segments. To us, this is now
Speaker 16: sort of the second black Swan event we've been through
Speaker 16: as a firm.
Speaker 6: We were the first move and alternative real.
Speaker 16: Estate, starting the business in five so we saw how
Speaker 16: these alternative assets did in the global financial crisis, and
Speaker 16: then we saw how they performed the pandemic. So coming
Speaker 16: out of this environment, going to twenty twenty four, what
Speaker 16: you have as a situation where demographics are solid, they're strong,
Speaker 16: but supply has been choked off. So many asset classes
Speaker 16: that you mentioned have a ton of headwinds. When you
Speaker 16: think about what's happening in student housing, senior housing, medical,
Speaker 16: life science, tremendous tailwines right now is demands increasing, enrollments
Speaker 16: are up at schools, aging population, and there's no supply.
Speaker 16: So we look at this as some of the greatest
Speaker 16: vintage years we're going to see for some time.
Speaker 3: I understand that for life sciences, medical, senior housing, student housing.
Speaker 3: But self storage isn't there a glut?
Speaker 11: You know?
Speaker 6: It's interesting.
Speaker 16: Self storage is a fantastic asset class, and it's really
Speaker 16: is one that you have to look market by market.
Speaker 16: It's a sort of not in my backyard asset. But
Speaker 16: the great thing about storage is people use it in
Speaker 16: good and bad times. It's life events. You'll never get
Speaker 16: rid of their They don't ever get.
Speaker 2: Rid of it.
Speaker 1: You've ever seen storage.
Speaker 3: It's so unique, but it's amazing, Derek glut of it.
Speaker 16: I mean the way we do how we invest in
Speaker 16: all terms, because there's a lot of different ways to
Speaker 16: invest in terms, we'd like to invest in asset by asset,
Speaker 16: create portfolios and then sell to the larger players. So
Speaker 16: for us, there's a huge demand in owning these assets.
Speaker 16: It's consistent cash flow month to month leases, so in
Speaker 16: a inflationary environment you can really reprice. And so what
Speaker 16: we like to do is do the hard work, build
Speaker 16: portfolios and then sell to those groups that are really
Speaker 16: trying to get exposure to the asset class.
Speaker 3: Is it nice that self storage also as zero employees,
Speaker 3: so their overhead is so low.
Speaker 16: It's amazing it's the lowest default asset class. You get
Speaker 16: about the same rent per square foot as an apartment,
Speaker 16: but you really don't have a tenant. When someone leaves,
Speaker 16: you roll it up, you sweep it. So it's a
Speaker 16: it's a great business, but the challenge with it is
Speaker 16: it's an easy asset class to build, so you have
Speaker 16: to go into markets where it's hard and titlements because
Speaker 16: it's not in my backyard, so you've got to find
Speaker 16: high barrier entry markets once you own those assets.
Speaker 1: Fantastic what happened during the pandemic to all of the assets.
Speaker 16: So what happened it was fantastic, you know during the
Speaker 16: pandemic because at first people nervous, what's going to happen
Speaker 16: to student housing? What is online learning? What's going to
Speaker 16: happen to your off campus housing environment?
Speaker 1: And self storage particularly?
Speaker 16: Yeah, I mean what happened with all these asset classes
Speaker 16: just consistent, consistent people that were doing businesses online were
Speaker 16: using storage facilities. People were you know, when you thought
Speaker 16: about people moving, there was more flexibility, so people were
Speaker 16: starting to move into other markets.
Speaker 2: Right.
Speaker 16: You saw a lot of remote working, so people were traveling,
Speaker 16: moving and so they were using storage.
Speaker 11: And student housing.
Speaker 1: Same thing.
Speaker 16: Student housing was fantastic because really the students didn't want
Speaker 16: to be in mom or dad's basement.
Speaker 6: They wanted to stay in their off campus apartment with nieces.
Speaker 1: My daughter wasn't in college, ye, but my nieces didn't
Speaker 1: care if she was on college. I think it was
Speaker 1: her first year. She was a freshman, and I think
Speaker 1: after having to stay home for a little bit, was like,
Speaker 1: I think, very happy to be at least on campus,
Speaker 1: had a whole dorm room to herself.
Speaker 16: And that's what's happening that you look at the Power
Speaker 16: five universities, enrollments are up, You're seeing rent increases eight
Speaker 16: to ten percent a year.
Speaker 6: There's just no supply.
Speaker 3: Talk to me about the type of student housing you do,
Speaker 3: because not all student housing is created equal. I know
Speaker 3: that the student housing that I experience and student housing
Speaker 3: that I experience isn't necessarily the same student housing that
Speaker 3: other folks have experienced.
Speaker 16: You know, it really is a different level of quality
Speaker 16: and a lot of us experience. But it's really is
Speaker 16: that what you say, Well, I mean, it's what it is.
Speaker 3: It's come with a beer soaked couch outside outside, you know.
Speaker 16: I think that the key the key with the business
Speaker 16: is it's it's all a bed bath parody, so it's
Speaker 16: like multifamily, but really what it is is not bed
Speaker 16: bath parody, three bedroom, three bath, but it's a real
Speaker 16: focus on gated, well lit safe safety is a big issue,
Speaker 16: so that's really a focus is creating an environment where
Speaker 16: you are providing safe environment study rooms, amenities, health clubs,
Speaker 16: et cetera.
Speaker 3: So what are these are? These? Are these student housing?
Speaker 3: Are these student houses that are multi multi unit that
Speaker 3: are affiliated with a college or university? So or is
Speaker 3: it are you essentially building like a huge building of apartments?
Speaker 16: So a big part of our business, we're sort of
Speaker 16: the largest owner of off campus housing, so that's not
Speaker 16: really affiliated with university. It's off campus, but the school
Speaker 16: loves it because it becomes an amenity to the school.
Speaker 16: They can say to a student when you're a sophomore, junior, senior,
Speaker 16: this is where you can live. So the schools like
Speaker 16: working with good managers. We also have a part of
Speaker 16: our business what we call our P three business where
Speaker 16: we're doing public to private partnerships with universities where we're
Speaker 16: working with and helping them build dormitory because a lot
Speaker 16: of these big universities don't have the capital. So we're
Speaker 16: going we've probably got thirty to thirty five universities that
Speaker 16: we are actually helping them with their housing.
Speaker 3: Hey, security deposits and student housing. Like, what's the average
Speaker 3: rate that you actually keep from those? These people just
Speaker 3: destroy their rooms?
Speaker 16: You know what, It's fascinating that if you provide a nice,
Speaker 16: high quality product and you walk the units on a
Speaker 16: regular basis and you have the willingness to kick children
Speaker 16: out if they're not taking care of it, and you're
Speaker 16: building their parents. Actually they're taking very good care of
Speaker 16: the units. And you know, we have a higher percentage
Speaker 16: of women a lot of times.
Speaker 6: In these units.
Speaker 16: And so actually saying it's not the type of thing,
Speaker 16: and that's when we started the business, it was student
Speaker 16: housing is an in social asset class.
Speaker 6: It's animal house. There's no way this is going to
Speaker 6: be insit usual.
Speaker 16: But I think people have seen how the industry has
Speaker 16: really developed and it's really become an asset class where
Speaker 16: insurance costs are lower than multi family. We have better
Speaker 16: rent growth than multifamily, and you have really sticky strong demand.
Speaker 1: Drivers well, and you have parents who are footing the bill.
Speaker 6: And you have parents who are footing the bill.
Speaker 16: So from a credit standpoint, you think of only a
Speaker 16: multi family versus only student housing. We have great credit sticky,
Speaker 16: not because you've spilled jello shots everywhere.
Speaker 1: I have to tell you, like I go and I
Speaker 1: know you do. There's a story there. I've helped my
Speaker 1: daughter move out and I am amazed at like some
Speaker 1: of the haroommates or like you will just leave that
Speaker 1: in the fridge. I'm like, nope, You're cleaning it all out.
Speaker 1: It's going to be clean because I want the security
Speaker 1: to possibility.
Speaker 11: Right, that's right.
Speaker 3: I'm a tough bringing me back, Carol. What's senior housing?
Speaker 1: So senior we're just getting older.
Speaker 16: People are getting older. But the challenge is and there's
Speaker 16: different ways to invest in senior housing, is people getting
Speaker 16: but we're having memory.
Speaker 6: Issues, assisted dementia.
Speaker 16: So where we focus is on independent living, memory care,
Speaker 16: dementia rental for and private pay.
Speaker 6: We don't focus on skilled nursing. That's more public pay issues.
Speaker 16: But when you look at what's happening, five million people
Speaker 16: turning eighty by more turning eighty by you know twenty thirty,
Speaker 16: there is not near enough supply right now. So We're
Speaker 16: going to wake up in four and five years and
Speaker 16: wonder where are we going to house all of the
Speaker 16: folks that have memory and health issues. It's almost impossible
Speaker 16: to take care of a loved one that has Alzheimer's dementia.
Speaker 16: So it is a very important NASA class. It's hard,
Speaker 16: it's not easy. You need great operating partners. But it's
Speaker 16: a business that we're very bullsho on and we're seeing
Speaker 16: occupancies back to pre pandemic levels right now.
Speaker 3: How do you design for that just in the last
Speaker 3: thirty seconds that we have.
Speaker 16: You know, I think what you do is we have
Speaker 16: folks that have been taking care of demension also repairers
Speaker 16: for decades. So it's really about what paint colors you use,
Speaker 16: you know, how do you do how do you do carpets,
Speaker 16: how do you do the right caregivers? And so really
Speaker 16: for us, it's about choosing great local partners to work with.
Speaker 1: I've seen it firsthand. And there's safety issues, so you
Speaker 1: can't somebody can't just walk out. There's a lot of
Speaker 1: safety measures in place. Favorite favorite market right now, geography
Speaker 1: real quick, you.
Speaker 16: Know, I think the right now we're active in the US,
Speaker 16: Canada and Europe, and so we love all those markets.
Speaker 16: So for us, if I'm near a great university or
Speaker 16: near a great hospital system, you know, that's where we
Speaker 16: want to be. And so we can be really diversified
Speaker 16: across the US and Europe. And so it's hard to
Speaker 16: pick a favorite market. We just love some of the fundamentals.
Speaker 1: Right now, all right, I can leave it there, real fun,
Speaker 1: Thank you so much. Great trip back home to Chicago,
Speaker 1: Chris Christopher Merrill. He's the chief executive officer at Harrison Street.
Speaker 1: Joining us here in our Bloomberg Interactive Brokers studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
Speaker 2: each weekdays starting a two pm Eastern don't applecar play
Speaker 2: and Androyd Auto with the Bloomberg Business And you can
Speaker 2: also listen live on Amazon and Alexa from our flagship
Speaker 2: New York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 3: So we wondered too about the hospitality side of the business.
Speaker 3: The Bloomberg Reat Hotels indexes rally twenty six percent since
Speaker 3: late October, and we had the perfect guest with us.
Speaker 3: Kevin Davis is CEO America's Hotel and Hospitality at JL
Speaker 3: Jones Langmassol. It's the publicly held real estate and investment
Speaker 3: management consultancy. It trades under the ticker JL. Kevin's here
Speaker 3: in our studio at Bloomberg Headquarters in New York. Good
Speaker 3: to have you with us this afternoon, welcome back, Great
Speaker 3: to be here. You know, our Bloomberg Pursuits team called
Speaker 3: it already, they said, twenty twenty four is going to
Speaker 3: be a record setting year when it comes to travel
Speaker 3: on the tourism side, on the business travel side. First up,
Speaker 3: though at JL, you're involved in office, industrial, retail, give
Speaker 3: us size and scope here when it comes to the
Speaker 3: hotel and hospitality business that you're in charge of.
Speaker 17: Yeah, So our business relative to some of the other
Speaker 17: asset classes is relatively small, but certainly our impact on
Speaker 17: GGDP is relatively large given the number of people that
Speaker 17: work in hotels and hospitality and leisure around the country.
Speaker 17: So it's a business that has a pretty significant impact
Speaker 17: on the economy.
Speaker 11: Yeah.
Speaker 1: Absolutely, And you guys obviously want to get into because
Speaker 1: why and want you assume you can grow to how
Speaker 1: much of your business.
Speaker 17: Look, we have aggressive and ambitious growth goals, and so
Speaker 17: our hope is that we continue to move the business
Speaker 17: forward and make significant strides in terms of growth.
Speaker 3: I mean, is it going to grow faster? Is it
Speaker 3: going to grow faster than office, industrial and retail?
Speaker 11: You know, look, it's hard to say.
Speaker 17: Certainly, some of those sectors have been challenged and are
Speaker 17: in the midst of recovering. I will tell you one
Speaker 17: of the things that we're super optimistic about as it
Speaker 17: relates to hospitality, it has proven to be a strong
Speaker 17: inflation hedge and while inflation looks like it's in the
Speaker 17: rear view mirror.
Speaker 11: As a result of that, it's attracted a lot.
Speaker 17: Of institutional investors into the space. And also hospitality typically
Speaker 17: offers incremental yield relative to other asset classes, and so
Speaker 17: as a result of that, investors are coming into the space.
Speaker 1: Kevin, you talk about investor interests, quantify that give us
Speaker 1: an idea of how it was maybe pre pandemic. I mean,
Speaker 1: tell us how long have you guys been building up
Speaker 1: this business.
Speaker 17: I mean, we've been in the hospitality business at JLL
Speaker 17: for over twenty five years. So this is a core
Speaker 17: business for us and we are leaders in the space.
Speaker 17: So just by a order of magnitude, and I'll give
Speaker 17: you global numbers. I mean generally globally hospitality. It's typically
Speaker 17: between seventy five and one hundred billion dollars worth of
Speaker 17: transactions that take place in a given year. Last year, globally,
Speaker 17: we had about fifty billion dollars worth of transactions, so
Speaker 17: we were down about thirty percent relative to twenty twenty two.
Speaker 17: But we expect that it will likely increase sales volume.
Speaker 17: Transaction volume will likely increase fifteen to twenty five percent
Speaker 17: this year.
Speaker 11: So we are on the way back.
Speaker 17: We don't expect to get all the way back this year,
Speaker 17: but we think we're on a great trajectory toward stronger transactions.
Speaker 1: What's feeling that you talk about investor demand? Is it
Speaker 1: because we're expecting a lower rate environment? Is it because
Speaker 1: you expect the economy And I'm curious when you look
Speaker 1: at the economies, I'm assuming it's the US and elsewhere
Speaker 1: or is it the US specifically?
Speaker 17: Yeah, it's strong growth in the US, strong growth in Europe. Globally,
Speaker 17: though relatively speaking, we actually expect more growth in Asia,
Speaker 17: which has been slow to emerge out of the pandemic.
Speaker 1: Japan.
Speaker 17: Japan has actually started, but more specifically China, which has
Speaker 17: recently opened up much more so we expect that you'll
Speaker 17: see strong growth in China. Also inbound travel from China
Speaker 17: to the US, which is something that certainly has not
Speaker 17: it's not close to recovering to what it was pre pandemic.
Speaker 3: Hey, talk a little more about that, because we've talked
Speaker 3: a lot on our program about the struggles that China
Speaker 3: faces internally, the struggles that they face with their own
Speaker 3: property market, with the economy, with youth unemployment, with demographic challenges.
Speaker 3: Why are you bullish on China?
Speaker 17: Well, I'm bullish relative to what we've seen over the
Speaker 17: past couple of years. I'm bullish in terms of Chinese
Speaker 17: travelers getting out and traveling. I mean, you ultimately have
Speaker 17: an emerging and growing middle class in China, and as
Speaker 17: the middle class grows, we expect that more people will
Speaker 17: travel and will travel specific to the US into Europe
Speaker 17: as well.
Speaker 1: So what type of hospitality properties do you think investors
Speaker 1: are investors kind of clamoring for or asking for?
Speaker 17: Of you guys, Absolutely, it's really the two poles, if
Speaker 17: you will.
Speaker 11: It's luxury, which has.
Speaker 17: Performed exceptionally well coming out of the pandemic, and it's
Speaker 17: select service and extended stay assets which have also performed well.
Speaker 1: What's select service?
Speaker 17: Select service, So typically you don't have extensive food and beverage.
Speaker 17: It's primarily rooms, and you typically don't have a lot
Speaker 17: of meeting space, so you wouldn't if you're going to
Speaker 17: a big conference, you're generally not the meetings are not
Speaker 17: going to be at a select service hotel. You'll typically
Speaker 17: go to a full service hotel that has meeting space
Speaker 17: and banquets and catering, et cetera. Part of the reason
Speaker 17: why the select service space has grown though, particularly extended stay,
Speaker 17: is people have a lot more flexibility now post COVID
Speaker 17: as it relates to work, and you've seen a bit
Speaker 17: of the blended business and leisure travel, the so called
Speaker 17: bleisure travel, And so because people have a lot more
Speaker 17: flexibility to travel when they are frequently on the road,
Speaker 17: they want a bit more homelike amenities. So extended stay,
Speaker 17: which typically have kitchens, are attractive and that's a sector
Speaker 17: where we expect to see a lot of growth.
Speaker 3: What about regional differences here in the US. You talked
Speaker 3: about where you're seeing action globally, but what about here
Speaker 3: in the US.
Speaker 17: Yeah, so in the US, it's interesting and it's changing.
Speaker 17: In the first couple of years out of COVID, we
Speaker 17: saw strong growth in the sun Belt and the resort markets,
Speaker 17: which we expect to continue. We saw meaningful contraction in
Speaker 17: the urban markets New York, Boston, Chicago, Los Angeles, San Francisco.
Speaker 17: But the trend that we started to notice last year,
Speaker 17: which picked up steam and we expect will continue over
Speaker 17: the course of this year, is really improving performance in
Speaker 17: urban markets, so again the New York's, the Boston's, Chicago, etc.
Speaker 17: The reason really threefold. You've had return of leisure travelers.
Speaker 17: For many years, people were concerned to go to an
Speaker 17: urban city, to an urban market because of the pandemic,
Speaker 17: so you've had leisure comeback. You've also had group travel comeback,
Speaker 17: so people come to the cities for meetings. And then
Speaker 17: you've also had a sector called business business transient, which
Speaker 17: are business people coming to meet with clients and colleagues,
Speaker 17: et cetera. So that segment is all coming back. The
Speaker 17: other part, the last component, though, is the global which
Speaker 17: is early days of coming back, but we expect that
Speaker 17: that will pick up in earnest and that's going to
Speaker 17: drive performance in markets like New York Boston, San Francisco.
Speaker 1: Go move a little bit more on San Francisco because
Speaker 1: I feel like Tim, we've had some different guests who
Speaker 1: are it's fine, it's coming back.
Speaker 3: Others others say no way, we're not touching it, and that.
Speaker 1: They make it so hard to build or do anything
Speaker 1: in that city. So you see opportunities there.
Speaker 17: Look, San Francisco is a gateway market, it's a top
Speaker 17: five market. It's not going anywhere. Certainly, it's having its
Speaker 17: challenges now they're political issues, social issues.
Speaker 11: Et cetera.
Speaker 17: But we certainly believe that longer term, San Francisco is
Speaker 17: going to be a great place to invest. And so, yes,
Speaker 17: the market is challenged today, but we think this is
Speaker 17: a short, medium term issue which over time San Francisco
Speaker 17: will recover.
Speaker 1: You sound really optimistic. I have bottom lined. So what's
Speaker 1: the risk out there? I mean, we have spent so
Speaker 1: much of January, you know, laying out quite a long
Speaker 1: list of risks for folks out there, whether it's geopolitical
Speaker 1: politics here in the US and elsewhere. What if the
Speaker 1: FED gets it wrong? Just got about thirty seconds. What's
Speaker 1: your number one risk that could kind of upend this optimism?
Speaker 17: Number one risk is if the FED doesn't cut rates
Speaker 17: as aggressively as the market expects, so six ' five
Speaker 17: more or look, I think it's at least three okay,
Speaker 17: Or or if the rate cuts get pushed to later
Speaker 17: in the year. I think if one or both of
Speaker 17: those things happen, that will take some, not all, some
Speaker 17: of the optimism out of the market, and we may
Speaker 17: be on a slightly different trajectory, but ultimately we feel
Speaker 17: very good about twenty twenty four.
Speaker 1: All right, well, this was a fun check up.
Speaker 14: Thank you so much.
Speaker 11: Thank you, I appreciate it.
Speaker 1: Kevin Davis, he's chief executive officer of America's Hotels and
Speaker 1: Hospitality over at Jones Lang LaSalle. Joining us here in
Speaker 1: our studio at Bloomberg Headquarters.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple card Play and then brought auto with a
Speaker 2: Bloomberg Business act or watch us live on YouTube.
Speaker 1: Never too late to be talking about a new year's resolution.
Speaker 3: Yeah, maybe things like eating better, getting more sleep, working
Speaker 3: out more.
Speaker 1: Launched on our popcorn.
Speaker 3: Yeah the hate Popcorn's okay? Maybe the new year's resolution
Speaker 3: for you, Carol, is learning another language.
Speaker 1: Yeah, I could kind of brush up on my Spanish.
Speaker 1: You have so much spare time, yeah, exactly, we can multitask. Well.
Speaker 1: There are plenty of online platforms out there to help
Speaker 1: you do that. Among them, though, is Babel, the Berlin
Speaker 1: based company that does exactly that helps you learn a
Speaker 1: new language.
Speaker 3: Well, we've got back with us Julie Hansen, the US
Speaker 3: CEO of Babel. It's a role that she's had since
Speaker 3: twenty seventeen. We should note Julie also the former COO
Speaker 3: and president of Business Insider. It's a role that she
Speaker 3: served in when Axel Springer bought bi back in what
Speaker 3: twenty fifteen, value the company for four hundred and fifty million.
Speaker 3: Julie joins us on Zoom from New York. Julie, good
Speaker 3: to have you with us this afternoon. How are you good.
Speaker 10: Thanks for having me, Sam and Carol.
Speaker 3: Yeah, well, thanks so much for coming back here. So
Speaker 3: I kind of made this joke about having so much
Speaker 3: spare time there, But at the same time, the whole
Speaker 3: point of the app based companies that help you learn
Speaker 3: another language is that you kind of do them when
Speaker 3: you do have a few minutes talk to us a
Speaker 3: little bit about how you differentiate Babel in a marketplace
Speaker 3: that has Rosetta Stone, it has duo Lingo. There's you know,
Speaker 3: so many options out there for people to learn another language.
Speaker 10: You're right there are, and it is a great New
Speaker 10: Year's resolution. So I love that Carol is on it
Speaker 10: and trying one thing. You know, we do say that
Speaker 10: with Babel you only need like ten to fifteen minutes
Speaker 10: a day, and that's actually really important because you'll do
Speaker 10: better learning consistently versus binge learning. I think it's probably
Speaker 10: like starting for a test in college, you want to
Speaker 10: keep going with a daily habit versus one giant study session.
Speaker 10: But Babel is very much about learning efficacy, you know.
Speaker 10: We are about getting you conversational. It's not comparable to
Speaker 10: college in that sense. We understand that our users want
Speaker 10: to learn a language to speak it and use it
Speaker 10: in their lives, not to not to pass a test necessarily,
Speaker 10: So that's the focus. We use a lot of human
Speaker 10: intelligence augmented by some artificial intelligence. But the role of
Speaker 10: teachers in creating our product has been super important over
Speaker 10: the years, and we now have teachers actually giving live
Speaker 10: lessons in our Babbel Live product. So I think that's
Speaker 10: a quick way to think about Babel.
Speaker 3: What about from the perspective of a business that needs
Speaker 3: its employees to brush up on a new language or
Speaker 3: learn learn a new language, Because there's a business side
Speaker 3: of this too, in terms of where the revenue comes from,
Speaker 3: at least here in the US, your US CEO, of course,
Speaker 3: what is what is personal use of versus business and
Speaker 3: enterprise use?
Speaker 10: Absolutely the fastest growing portion of our business is the
Speaker 10: B to B business, the business use and that's very
Speaker 10: interesting in the US. It's quite different from the use
Speaker 10: case we see in Europe. So in the US we
Speaker 10: really have one main use case or two languages that
Speaker 10: together make up a main use case. So English speakers
Speaker 10: learning Spanish, Spanish speakers learning English. You know, we have
Speaker 10: many different industries that we serve, but we're clearly seeing
Speaker 10: a trend toward those industries that have a large proportion
Speaker 10: of Spanish speaking workers in them. So that can be
Speaker 10: anything from healthcare even to like manufacturing and construction. And
Speaker 10: it's interesting and baseball, by the way, we have something
Speaker 10: like eight MLB teams working with US, and it's bilateral.
Speaker 10: You know. We find workers learning English, managers learning Spanish.
Speaker 10: To generalize, there can be a mix of those two,
Speaker 10: of course, but that's the general trends and that definitely
Speaker 10: ties in with the trendsency in the US in consumer
Speaker 10: where Spanish is by far our biggest language.
Speaker 3: Are you seeing this added at all as a workplace perk?
Speaker 3: Like companies that are saying, you know, come work for
Speaker 3: us because we believe in continuing education and we'll pay
Speaker 3: for you. Like for example here at Bloomberg, you know,
Speaker 3: now we have virtual physical therapy that's new this year.
Speaker 3: I think we should talk about that. I hope I
Speaker 3: don't get in trouble for dog, but I think it's
Speaker 3: a pretty cool. I think it's a pretty cool new thing.
Speaker 3: But would an HR department ever say, you know, we
Speaker 3: want to attract and retain talent. One way we can
Speaker 3: do that is by offering babble. Do any companies do that?
Speaker 10: Yeah? Absolutely, maybe a little more so in Europe than here,
Speaker 10: but it's a good use case of both cases. For example,
Speaker 10: we work with a major ad agency that has a
Speaker 10: large international program where they move their people around, and
Speaker 10: they bought a large license to prep people for those trips.
Speaker 10: So and that's but that's kind of a it's a
Speaker 10: it's a perk for that, So yes, that is a
Speaker 10: use case, But honestly, I'm a little more excited about
Speaker 10: the use case where I feel we can really make
Speaker 10: a difference, which is around safety. You know, in a
Speaker 10: lot of our B to B situations, we have workers
Speaker 10: in say meatpacking or manufacturing or warehouses, and there are
Speaker 10: safety issues if they can't communicate with their teammates or
Speaker 10: their managers. So, you know, making the chance for Bibble
Speaker 10: to improve the safety of people's jobs but also their
Speaker 10: career prospects, their earning potential, that's really exciting.
Speaker 1: Hey, do you ever worry? It's so funny. We had
Speaker 1: a conversation with our Rachel Metz, who covers all things
Speaker 1: AI and all the stuff that's going on. You are
Speaker 1: you worried though at all about chatbots kind of replacing
Speaker 1: some of what you do? And I'm like even amazed.
Speaker 1: On my phone, you know, I can type something in,
Speaker 1: it translates it right away, and it just sends it
Speaker 1: off to whomever. So I do think about that that
Speaker 1: is potentially a threat.
Speaker 10: To what you do.
Speaker 1: So I'm curious to keep you up at night or
Speaker 1: how are you thinking about that and how how it
Speaker 1: applies to kind of what you do or maybe how
Speaker 1: you guys adapt to that.
Speaker 10: There's kind of fringy use cases where that can erode
Speaker 10: the need to learn a language if you're just using
Speaker 10: it for those sort of transactional interactions. Our learners, generally speaking,
Speaker 10: want to communicate. They want to learn a language to
Speaker 10: speak to someone, to take that trip because their mother
Speaker 10: in law speaks a different language, whatever it is. And
Speaker 10: you know, people already five years ago people went traveling
Speaker 10: and held up the phone, you know, to use as
Speaker 10: a live translator. So that use case, I think is
Speaker 10: already well established and we don't worry that much about that.
Speaker 10: It's the it's you know, our purpose as a corporation
Speaker 10: is creating mutual understanding through language. So you know, mutual
Speaker 10: understanding is really much deeper than quick translation.
Speaker 3: Well, speaking of AI, Carol brought it up. Are you
Speaker 3: using and integrating AI tools at all and the way
Speaker 3: that you develop courses, the way that teachers developed courses
Speaker 3: and then deploy that for people to learn.
Speaker 10: We are, and which is very exciting. We've actually had
Speaker 10: a machine learning and AI and the product for a
Speaker 10: long time Now, one of the key concepts that you
Speaker 10: find in our product and in language learning in general,
Speaker 10: is this notion of space repetition, where we bring things
Speaker 10: back to you and remind you of what you've already learned.
Speaker 10: And so there's quite a bit of machine learning in
Speaker 10: the product that does that. Just to use one example,
Speaker 10: and we see possibly we have we're in the works
Speaker 10: direct features where a consumer can interact directly with the
Speaker 10: AI and have a conversation and get training that way.
Speaker 10: So yeah, we think that AI is fantastic augmented by HI,
Speaker 10: you know, the human intelligence. Those two go together really nicely.
Speaker 3: So how do you think that will change the way
Speaker 3: the business is run in terms of margins or in
Speaker 3: terms of you know, how you guys are able to
Speaker 3: run the business. Does it have like a does it?
Speaker 3: Does it have an effect on the bottom line?
Speaker 10: I hope so, because otherwise, I mean, it's expensive to
Speaker 10: use AI. So if we only add costs and don't
Speaker 10: figure out how to be more efficient with it, we
Speaker 10: will have a problem. We actually have indiatives kind of
Speaker 10: across the whole organization to use AI and to come
Speaker 10: up with use cases and experiments, et cetera. So everything
Speaker 10: from marketing, copywriting to you know, deep feature development in
Speaker 10: the product. We're embracing AI, but we don't really have
Speaker 10: any I think we will. We expect there to be
Speaker 10: cost savings that come out of this, but we're starting
Speaker 10: really more with the efficiency, productivity and like you know,
Speaker 10: use user experience as the primary goals.
Speaker 1: All right, Julie, where we started? So I am curious
Speaker 1: New year resolutions. Do you find a jump in people
Speaker 1: on your platform at the beginning of the year because
Speaker 1: they're like, yeah, I think I want to I want
Speaker 1: to lose some weight and I want to learn a
Speaker 1: new language. Just give us an idea. We've about thirty
Speaker 1: forty seconds left.
Speaker 10: January is the biggest month of the year every year.
Speaker 10: It's super important and people tend to subscribe in Jenuary
Speaker 10: and then they really use it. So our job is
Speaker 10: to keep them going throughout the year. But absolutely, and
Speaker 10: you think about it, January sets you up for your
Speaker 10: spring and summer travel, so it's very important.
Speaker 1: All right, So what's the weakest I'm curious now that
Speaker 1: we went down this path.
Speaker 10: The dead of summer, you know, especially in Europe where
Speaker 10: everyone's traveling, like they're getting the payoff for all that
Speaker 10: work they've done to learn the language.
Speaker 1: In the summertime, I want to drink the margarite rather
Speaker 1: than learn the language.
Speaker 3: Like I said, they go hand in hand. You've got
Speaker 3: to be on the ground in that country to actually
Speaker 3: learn the language as well. You know, that's a big
Speaker 3: part of the education.
Speaker 1: I totally agree you immerse yourself in it. But this
Speaker 1: is a good starting place. Julie, thank you so much.
Speaker 1: Julie Hanson, us CEO of Babbel jenningsan zoom in New York.
Speaker 1: Great to check back with her.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: Live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and then brought Auto with a
Speaker 2: Bloomberg Business act or want us Live on YouTube.
Speaker 6: All right.
Speaker 1: So, I don't know about you, but at certain points
Speaker 1: over the last couple of years, I know, Tim, I've
Speaker 1: thought about going to Greece. I was just talking to
Speaker 1: my daughter who's planning. She's overseas. That's on her list
Speaker 1: before she heads back home here to New York. And
Speaker 1: you open up your Instagram a lot and think about.
Speaker 3: It, Yeah, trying it to open up my Instagram too
Speaker 3: much because you know, hashtag fomo. But it does feel
Speaker 3: like at certain points of the year, everyone in my
Speaker 3: feet is either in Greece or Italy, like I don't
Speaker 3: know what's going on. It's actually not our imagination here, Carol.
Speaker 3: More Americans are going to Greece. In November of twenty
Speaker 3: twenty three, tourists spending by US travelers increased by sixty
Speaker 3: two point four percent to more than sixty five million euros.
Speaker 1: All right, so there's a lot of folks, and Greece
Speaker 1: wants even more Americans to come and spend time and
Speaker 1: money in Greece. And that's why Olga Kevaloyani, the country's
Speaker 1: Minister of Tourism, is here in the United States. She
Speaker 1: joins us now here in our Bloombery Interactive Brooke Studio
Speaker 1: og A pleasure to have you here. First up, why
Speaker 1: are you in New York.
Speaker 18: Well, thank you very much for hosting me, and thank
Speaker 18: you very much for giving me the opportunity to talk
Speaker 18: about what we're trying to do in terms of tourism
Speaker 18: in Greece. Of course, American market is a very important
Speaker 18: source market for Greek tourism, and twenty twenty three was
Speaker 18: a record year for Greek tourism as a whole, both
Speaker 18: in terms of arrivals also in terms of revenue, and
Speaker 18: it was also a record year in terms of Americans
Speaker 18: arriving in Greece and spending in Greece.
Speaker 1: Show us the Pine like how much in terms of tourists,
Speaker 1: how much are from America, how much are from elsewhere,
Speaker 1: maybe from the European contentent or so.
Speaker 18: Well, the majority of our of our visitors are from
Speaker 18: European countries, so we believe that there's a lot of
Speaker 18: room for the increase from the American market. But you know,
Speaker 18: up to a couple of years ago, we didn't even
Speaker 18: have a direct connection, so this was actually an impediment.
Speaker 18: So nowadays we have direct connections through New York, Boston
Speaker 18: and Chicago and this year twenty twenty four will be
Speaker 18: having even more connections.
Speaker 14: So I think direct flights are.
Speaker 3: So there were no direct flights.
Speaker 18: There were direct flights, but they were not year round,
Speaker 18: so they were very seasonal.
Speaker 3: So what do you think when a person, when an
Speaker 3: American is making the choice about where to go on
Speaker 3: vacation and they're choosing like they're in you know, in
Speaker 3: that stage where they're planning that trip, what prevents them
Speaker 3: from choosing Greece, Like, what's the barrier that they need
Speaker 3: to get over?
Speaker 18: Well, first of all, I think that connectivity is very important,
Speaker 18: so we are very happy that nowadays there is more
Speaker 18: of a direct connection through a lot of airlines. But
Speaker 18: I think that an impediment, if this is a correct,
Speaker 18: let's say word, would be that Greece is mostly associated
Speaker 18: with summer vacations. So Greece is always associated with the
Speaker 18: Greek Islands, a beach vacation, sea and sun. And there
Speaker 18: is a lot more in Greece than just that. So
Speaker 18: what we are trying to do is extend the season
Speaker 18: and promote Greece as a year round destination for Americans
Speaker 18: throughout the States, because it's not just the East Coast,
Speaker 18: it's also the West Coast.
Speaker 14: And all the other parts of America that well.
Speaker 1: Remind us about the weather in Greece, because it is true,
Speaker 1: like when I'm thinking about when traveling, or I know
Speaker 1: my daughter she was looking when did some overseas traveling
Speaker 1: in December and talked about Greece, and I'm like, I
Speaker 1: think it's kind of cold there in December, But give
Speaker 1: us an idea, so as you make it year round,
Speaker 1: I mean the weather is supportive of doing what in December?
Speaker 1: Or give us an idea of how you're thinking about
Speaker 1: that year round approach.
Speaker 18: Well, when we're talking about the year round approach, that
Speaker 18: means that, of course you can have year round beach vacation,
Speaker 18: but the weather is very moderate year round, so you
Speaker 18: would have a very nice experience in the countryside the
Speaker 18: mainland Greece, mountainous areas, and you can have some activities
Speaker 18: outdoors in the nature like trekking, rafting for anyone who's
Speaker 18: interested in astronomy. Of course, Greece is associated with really
Speaker 18: good food, so I think that you would find like
Speaker 18: a Michelin Star restaurants in Athens, but also super super
Speaker 18: cute and super nice at awareness in all parts of Greece.
Speaker 3: We had an executive from a real estate firm based
Speaker 3: in Texas on a few weeks ago, and he's a
Speaker 3: New Yorker but moved to Texas to become a CEO
Speaker 3: of this job, the t CEO of this company. And
Speaker 3: he told us, we're asking him what he missed about
Speaker 3: New York, and he was like, I can't get any
Speaker 3: good Greek food in Texas, like in the entire state.
Speaker 3: He's like, when I come to New York, the first
Speaker 3: thing I do is I go hit some Greek food,
Speaker 3: not of course saying it's anything close to what you
Speaker 3: find in Greece.
Speaker 18: But yeah, but you know, like even you know, for us,
Speaker 18: when we are in a Greek island and we have
Speaker 18: the fish that is just like caught fresh.
Speaker 14: Fish and it's just grilled fish.
Speaker 18: You don't really need to have a lot of seasoning
Speaker 18: or you know, like very cooking in a very particular way.
Speaker 14: You just have like very very good raw materials, and
Speaker 14: then you just have.
Speaker 18: Like olive oil, Greek olive oil, and it's like the
Speaker 18: best meal that you can have.
Speaker 3: I'm sold. I want to talk a little bit about balance.
Speaker 3: Though tourism is certainly important, but also maintaining historical significance,
Speaker 3: maintaining artifacts and making sure that the place doesn't overrun
Speaker 3: with tourists. How do you find that balance.
Speaker 18: Well, it's actually the biggest challenge right now. And this
Speaker 18: is why I'm as a minister. I'm always talking about,
Speaker 18: you know, like the new era for Greek tourism, which
Speaker 18: takes local communities needs into and to you know, significance
Speaker 18: when it comes, you know, to planning, because we see that,
Speaker 18: of course tourism is a very big source of revenue
Speaker 18: for the local economy. It's also a very big generator
Speaker 18: of jobs. For Greece, Tourism represents almost twenty percent of GDP,
Speaker 18: both in terms of direct and indirect contribution. So you
Speaker 18: see this is a very important economic activity. But at
Speaker 18: the same time we see that there's a lot of
Speaker 18: pressure to the local communities, and of course we really
Speaker 18: need to to protect and preserve our natural environment, our
Speaker 18: cultural environment.
Speaker 1: When you're blue economy, I have to say I am obsessed.
Speaker 1: I'm a sailor and my husband I are obsessed with
Speaker 1: some of the YouTubers that sail the world and they
Speaker 1: spend a lot of time in the Mediterranean and certainly
Speaker 1: in your neighborhood and at your home. And that economy
Speaker 1: in terms of supporting fishermen, the ocean economy, the blue
Speaker 1: economy is soport. So just to you know, kind of
Speaker 1: push a little bit more on and what Tim was
Speaker 1: asking about, like that economy, you want to make sure
Speaker 1: that doesn't come undone by a mass, you know, move
Speaker 1: of tourists into the area that maybe it can occur
Speaker 1: because I see it in areas around the world as
Speaker 1: a diver like just whether it's cruising or cruise ships
Speaker 1: or just over development that just really messes up the
Speaker 1: ocean economy and then impacts a country or anything.
Speaker 14: I couldn't agree with you more.
Speaker 18: This is why our strategy is focused on sustainability, and
Speaker 18: we take sustainability when it comes to the marine environment
Speaker 18: very very seriously.
Speaker 14: This is why we just.
Speaker 18: Founded this observatory for maritime and coastal tourism in the
Speaker 18: Mediterranean region. So we did this and collaboration with the
Speaker 18: UN World Tourism Organization. So Greece, let's say, we'll be
Speaker 18: in the forefront of preserving the coastal and the maritime
Speaker 18: environment in the Midtranian because of course it's very important
Speaker 18: for all insular nations and coastal nations to preserve the
Speaker 18: marine environment. So in this respect, of course, we are
Speaker 18: reviewing our strategy when it comes, let's say, to cruise ships.
Speaker 1: I know that you guys push back a little bit.
Speaker 18: I know that it's a big interest into the American market,
Speaker 18: but you know, at the same time, we cannot be
Speaker 18: having so many cruise ships, so many large cruise ships
Speaker 18: in Greece, So we are thinking of, you know, applying
Speaker 18: some quota and having a more strict birth allocation system.
Speaker 18: So I think we should find, as you said before,
Speaker 18: the correct balance. So we need the revenue, but at
Speaker 18: the same time, we need to preserve what makes us
Speaker 18: really unique and authentic and attractive, you know, as a destination.
Speaker 3: Thirty seconds and then we're going to do some news
Speaker 3: and we're going to come back. But what is specifically
Speaker 3: about the cruise operators do you find that you need
Speaker 3: to push back on?
Speaker 18: You see that especially in some of the very very
Speaker 18: popular islands such as Mikonos and Santa Reni, it becomes
Speaker 18: very frustrating even for visitors who are on the island
Speaker 18: and also for the islanders. So we really need to
Speaker 18: find the right balance. And of course I understand, you
Speaker 18: know that there are people who really enjoy cruising, but
Speaker 18: then again you need to have everything in proportion. Let's say,
Speaker 18: you know, like Greece is a smaller country, so we
Speaker 18: need to have, you know, proportionate and balanced approach to things.
Speaker 3: So Olga, we're looking at all different places we could
Speaker 3: go in Greece. We're already excited to plan our trip.
Speaker 3: I want to talk about costs. You're here in New York.
Speaker 3: You were telling us what we were doing news that
Speaker 3: it's shockingly expensive to be here.
Speaker 14: And yeah, I'm sorry, I can say that.
Speaker 3: Yeah, say whatever you want. Like, really, I won't be
Speaker 3: used to anyone?
Speaker 1: Is it everything?
Speaker 18: I used to live here twenty years ago? So it's
Speaker 18: not like I haven't been used to like New York
Speaker 18: being quite expensive compared to other places.
Speaker 14: But I think that.
Speaker 18: Nowadays it's like super super expensive everything.
Speaker 1: Are you about hotels?
Speaker 2: Food?
Speaker 1: Everything?
Speaker 18: Especially food? I mean compared to the prices that you
Speaker 18: would have in Athens. So for the prices that you
Speaker 18: would pay here for you know, relatively mediocre restaurant, plenty
Speaker 18: of you would have the same let's say, price in
Speaker 18: a Michelin Star restaurant in Athens. So you understand that
Speaker 18: the quality that you pay is, you know, not comparable.
Speaker 3: What about lodging? When it comes to paying for a hotel?
Speaker 3: What should what's the range?
Speaker 18: Well, you know, the good thing is that there's a
Speaker 18: very big offering. So I think that depending on your budget,
Speaker 18: you can find you know, something that's equivalent, you know,
Speaker 18: to what you want to spend.
Speaker 3: How do you, as Minister of Tourism think about a
Speaker 3: company like Airbnb because they're pretty it's pretty controversial. There
Speaker 3: are some folks who in governments who don't like it
Speaker 3: because they think that it displaces housing for people who
Speaker 3: live in areas and drives up the price of housing.
Speaker 3: How are you thinking about it.
Speaker 14: Well, it's true that.
Speaker 18: It's you know, it's a challenge nowadays, you know, finding
Speaker 18: again the word is the right balance because of course
Speaker 18: we understand that there are a lot of people who
Speaker 18: would only look into this kind of accommodation that you know,
Speaker 18: they wouldn't go to a hotel, so they would look
Speaker 18: for short term rentals for their vacation. So as a
Speaker 18: country that appeals to a lot of people, you of
Speaker 18: course need to have all sorts of so the whole
Speaker 18: range of the offering when it comes to accommodation, so
Speaker 18: both hotels and also the short term rentals. Well at
Speaker 18: the same time, if you do not have a framework,
Speaker 18: then of course this creates a lot of i would
Speaker 18: say social issues, especially when it comes to prices for locals.
Speaker 18: So for accommodation for locals. I'm also a member of Parliament,
Speaker 18: so I present Athens and we see that, you know,
Speaker 18: in the recent years, some very nice neighborhoods that used
Speaker 18: to be like full of younger people are now younger
Speaker 18: Greek people are now no longer residential areas because they're
Speaker 18: very near the acropolis. So it was, you know, it
Speaker 18: made much more sense for people to just rent their
Speaker 18: apartments for visitors through these platforms Airbnb and other platforms
Speaker 18: for short term rentals.
Speaker 14: So nowadays we have a stricter framework.
Speaker 18: And really we try to have a very balanced approach
Speaker 18: because again we understand that this is something that appeals
Speaker 18: to a lot of visitors, but at the same time
Speaker 18: we also need have both the revenue, the correct revenue,
Speaker 18: and also you know, we don't need to have like
Speaker 18: the unfair competition to hotels, which you know, I have
Speaker 18: to go under a lot of scrutiny when it comes,
Speaker 18: you know, to the Ministry of Tourism controls and little
Speaker 18: frameworks for the way that they operate.
Speaker 2: OK.
Speaker 1: I want to go back to what your mission is
Speaker 1: to really expand tourism. Summer check, you got it down.
Speaker 1: There's lots of people who come in, but you'd like
Speaker 1: to expand it throughout the year. And what's interesting is
Speaker 1: your Prime Minister was on with our TV colleagues in
Speaker 1: the fall, and specifically he made the point that you know,
Speaker 1: part of the reason that you guys can expand potentially
Speaker 1: your tourist season is because the climate change, right that
Speaker 1: it's impacting a little bit the environment, you know, so
Speaker 1: that's kind of an unforeseen I don't want to say benefit,
Speaker 1: but right because of what's happening, or you're just seeing
Speaker 1: warming right throughout the year.
Speaker 18: Well, you know, the climate crisis, I think is an
Speaker 18: issue for everyone to address, you know.
Speaker 14: In a very strict manner.
Speaker 18: So I understand that there's a silver lining for everything,
Speaker 18: but I think that the most important thing is, you know,
Speaker 18: to really address the impact of the climate crisis and
Speaker 18: really for every country to do whatever they.
Speaker 14: To reverse the effect that we see in the environment.
Speaker 18: And I think that this is important for us, it's
Speaker 18: important for our children and the future generations. So I
Speaker 18: think that all of us have a very big responsibility
Speaker 18: when it comes to to the environment and the climate.
Speaker 18: So Greece has a very strict, let's say, legislative process
Speaker 18: right now when it comes to the environment and environmental protection,
Speaker 18: and we have a plan for having all our hotels
Speaker 18: sustainable by twenty thirty. So this is the most important
Speaker 18: thing for us that we see the climate crisis as
Speaker 18: an obligation for all of us to do something differently.
Speaker 18: And I think that this is also something that our
Speaker 18: visitors are considering when they make their bookings, because you know,
Speaker 18: the carbon footprint and you know what you're traveling would
Speaker 18: do through the environment is also something that is of
Speaker 18: consideration to a lot of people nowadays. Right, So I
Speaker 18: think that we have to do our part of the responsibility.
Speaker 2: Reality.
Speaker 1: No, but I guess what I'm just saying, like the
Speaker 1: reality of not pointing fingers, I mean the reality of
Speaker 1: we talk to vineyards all the time, right, and maybe
Speaker 1: they're shifting where they're growing because climate change is just
Speaker 1: made a reality. If you can't cry here anymore, and
Speaker 1: the same thing, you know, for you guys, or for
Speaker 1: any country, right they're looking at Okay, it's warmer. What
Speaker 1: does that mean potentially that we maybe have a longer
Speaker 1: growing season or a longer tourist season, right, I mean,
Speaker 1: it's just kind of the reality of it.
Speaker 18: Unfor yes, I understand, but yeah, but on the other hand,
Speaker 18: you know, we really, especially politicians, we really have to
Speaker 18: be very firm when it comes, you know, to what
Speaker 18: we really have to do in order to reverse these
Speaker 18: very negative results to the environment. So this is why
Speaker 18: I really feel that I have to make this point,
Speaker 18: and also as a minister, I have to make sure
Speaker 18: that especially tourism is really sustainable. But when we're talking
Speaker 18: about extending the season, we're not talking only about you know,
Speaker 18: the weather and the fact that it's you know, moderate
Speaker 18: year round. It's also that you can have these amazing
Speaker 18: experiences and agreece year round.
Speaker 14: And you know, actually for me.
Speaker 18: I would say that, especially for people who are interested
Speaker 18: in culture, it's much much better to enjoy all these
Speaker 18: amazing sites, you know, like two thousand and five year
Speaker 18: old sides outside the summer season, because I love why
Speaker 18: would you go there, you know, like when it's forty
Speaker 18: five degrees celsius and not go when it's much much nicer.
Speaker 18: And then you can also enjoy the wineries. You can
Speaker 18: also enjoy all all sorts of other activities in Greece.
Speaker 18: Especially also for some people who are interested in skiing.
Speaker 18: You have to know that there are ski resorts in Greece.
Speaker 18: We are upgrading the ski facilities right now, so good
Speaker 18: to know.
Speaker 14: And I'm from Creed, and you know Creed. You could
Speaker 14: have X. You could ski but off base, okay, and
Speaker 14: then you can go to the ocean.
Speaker 6: Right.
Speaker 1: We have to run. Olga Keva Aliani as she is
Speaker 1: the Minister of Tourism in Greece, joining us here in studio.
Speaker 2: This is the Bloomberg Business Week podcast of a Little
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