WEBVTT - Sam Bankman-Fried Is Sentenced to 25 Years in Prison 0:00:00.600 --> 0:00:10.719 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.720 --> 0:00:13.960 Week Inside from the reporters and editors who bring you 0:00:14.000 --> 0:00:18.360 America's most trusted business magazine, plus global business, finance and 0:00:18.400 --> 0:00:22.880 tech news. The Bloomberg Business Week Podcast with Carol Messer 0:00:23.040 --> 0:00:25.800 and Tim Stenebeck from Bloomberg Radio. 0:00:27.000 --> 0:00:29.960 Once Crypto King, once Golden Boy, Crypto, once a modern 0:00:30.040 --> 0:00:33.040 day JP Morgan, that one time billionaire Tim and FTX 0:00:33.080 --> 0:00:35.320 co founder Sam Bankman Fried as you know by, now 0:00:35.560 --> 0:00:38.479 sentenced to twenty five years in prison for stealing billions 0:00:38.479 --> 0:00:41.600 of dollars from customers, marking the final chapter in a 0:00:41.600 --> 0:00:44.920 case that is both captivated and overshadowed the crypto industry 0:00:45.080 --> 0:00:45.599 with more on. 0:00:45.560 --> 0:00:48.920 Today sentencing in the era of crypto and finance failure 0:00:49.000 --> 0:00:51.839 and fraud that the now thirty two year old SBF 0:00:51.960 --> 0:00:54.920 was behind. We welcome into the Bloomberg Studio. Bloomberg News 0:00:55.000 --> 0:00:57.760 Legal anais Judent Grosso. She's also host of Bloomberg Law 0:00:57.800 --> 0:01:00.920 weeknights at six pm Wall Street Time on Bloomberg along 0:01:00.960 --> 0:01:03.880 with Zeke Fox, Bloomberg News Financial Investigations Reporter, also the 0:01:03.920 --> 0:01:07.040 author of Number Go Up, Inside Crypto's Wild Rise and 0:01:07.120 --> 0:01:09.319 staggering fall. Zeke joining us on the phone from New 0:01:09.360 --> 0:01:12.640 York City because Zeke traveling after being in the courtroom 0:01:12.720 --> 0:01:14.440 this morning. Now that's where we want to start. Zeke, 0:01:15.040 --> 0:01:18.280 what was it like in the courtroom earlier today when 0:01:18.360 --> 0:01:21.880 Sam Bankmon freed was sentenced, and also ahead of that sentencing. 0:01:22.680 --> 0:01:27.160 So it was packed as usual with reporters. And when 0:01:27.600 --> 0:01:32.039 Sam walked in, he was wearing his prison jumpsuit instead 0:01:32.040 --> 0:01:35.000 of a suit like during the trial, as his legal procedure, 0:01:36.560 --> 0:01:41.600 and he took the opportunity to address the judge like 0:01:41.720 --> 0:01:44.120 he did during his case. And I was watching to 0:01:44.200 --> 0:01:48.720 see if he would just apologize and take responsibility for 0:01:48.800 --> 0:01:51.400 what happened. For a minute, it sort of looked like 0:01:51.480 --> 0:01:56.200 he might, but then he fell back on the story 0:01:56.240 --> 0:01:59.520 that he's been saying since FTX failed, which is that 0:02:00.120 --> 0:02:04.600 mistakes were made the buckstocks with me. But he's not 0:02:04.720 --> 0:02:08.520 admitting to stealing customer money, all right, So I. 0:02:08.560 --> 0:02:10.840 Want to bring in June Grosso June. So I am 0:02:10.960 --> 0:02:15.200 curious that twenty five year sentence. How much did the judge, 0:02:15.800 --> 0:02:20.639 potentially Judge Kaplan use that. You know that even in 0:02:20.760 --> 0:02:23.359 the eleventh hour, Sam makemin Free didn't come out and 0:02:23.400 --> 0:02:25.919 said I committed a crime. How did that factor into 0:02:25.960 --> 0:02:28.079 the sentencing? Because it could have been much worse, It 0:02:28.120 --> 0:02:30.080 could have been a lot less potentially. 0:02:30.440 --> 0:02:34.320 So even before the sentencing, Judge Kaplan had increased the 0:02:34.360 --> 0:02:38.520 guidelines range for Bankin Freed after finding that he had 0:02:38.560 --> 0:02:41.800 perjured himself at his trial. And what he said at 0:02:41.840 --> 0:02:45.840 the sentencing was when he wasn't outright lying, he was evasive, 0:02:45.960 --> 0:02:49.480 hair splitting, dodging questions and quote, I've never seen a 0:02:49.560 --> 0:02:53.000 performance quite like that. He took that into account, and 0:02:53.240 --> 0:02:56.880 I think that you know that weighed against Sam Bankman Freed. 0:02:57.200 --> 0:02:59.560 He also took into account you know, as Zeke said, 0:02:59.600 --> 0:03:01.959 he didn't think that he was sorry for what he 0:03:02.080 --> 0:03:06.519 had done. He said, he expressed expressed sorrow, but it 0:03:06.840 --> 0:03:10.760 wasn't real to him. And you know also he had 0:03:10.960 --> 0:03:15.240 before the sentencing expanded the guidelines too, and he found 0:03:15.280 --> 0:03:17.760 that Sam Bankmin Freed had tampered with a witness. If 0:03:17.760 --> 0:03:22.200 you remember, before trial, Sam was out on bail and 0:03:22.360 --> 0:03:25.800 the judge called him back to New York and abruptly 0:03:26.360 --> 0:03:29.799 threw him into prison despite the bail because he said 0:03:29.800 --> 0:03:31.400 he had been tampering with a witness. So I mean 0:03:31.440 --> 0:03:34.800 the judge had been through this whole trial watching Sam 0:03:34.880 --> 0:03:37.839 Bankman freed, and you know, this is a very tough 0:03:37.920 --> 0:03:40.680 sentence if you think about though, it is in line 0:03:40.720 --> 0:03:43.680 with some of the big kind of white collar crime 0:03:43.840 --> 0:03:48.440 we've seen. For example, Jeff Skilling at Anron, I think 0:03:48.480 --> 0:03:52.360 he was sentenced to twenty four years and Bernie Evers 0:03:52.440 --> 0:03:55.480 twenty five years, So it is in line with that. 0:03:56.160 --> 0:03:59.839 But you think about state crimes. If you're committed murder 0:04:00.160 --> 0:04:03.200 state basically you know you'll be out in fifteen years 0:04:03.320 --> 0:04:06.160 or so. So they're making this white the white collar 0:04:06.280 --> 0:04:08.240 crime into what. 0:04:08.440 --> 0:04:10.400 You made one hundred and fifty years. 0:04:10.520 --> 0:04:13.600 Yeah, Bernie made off that is held up as the 0:04:13.760 --> 0:04:17.760 most extreme example of how many years of defrauding people. 0:04:18.400 --> 0:04:21.480 So I think it was a tough It is a 0:04:21.560 --> 0:04:22.200 tough sentence. 0:04:22.760 --> 0:04:24.359 Is he come on back in here and give us 0:04:24.360 --> 0:04:27.120 an idea of what Sam Beakman fried was like when 0:04:27.320 --> 0:04:30.280 he found out that he got twenty five years. If 0:04:30.320 --> 0:04:32.640 you saw any reaction from his parents who were in 0:04:32.760 --> 0:04:35.200 the courtroom, because his mom did write a lengthy letter 0:04:35.279 --> 0:04:39.240 to the judge in recent weeks about going being lenient 0:04:39.440 --> 0:04:40.160 in the sentencing. 0:04:41.400 --> 0:04:45.360 Yeah, Sam was standing there, his hands folded. He was 0:04:45.400 --> 0:04:48.320 pretty impassive. It was hard to know what he was thinking. 0:04:50.080 --> 0:04:54.440 His parents also did not make a big dramatic reaction, 0:04:54.760 --> 0:04:57.000 I mean his mom yet she had written a pretty 0:04:57.080 --> 0:05:01.479 moving letter about what Sam was like as a child, 0:05:02.000 --> 0:05:05.679 how he was different from other kids, how he wasn't 0:05:05.880 --> 0:05:08.240 motivated by the same things as them, and how his 0:05:08.600 --> 0:05:12.880 commitment to making the world a better place was real. 0:05:13.480 --> 0:05:16.440 And the defense talked about that that too when they 0:05:17.240 --> 0:05:21.000 when his new lawyer gave a speech, but in the 0:05:21.200 --> 0:05:23.280 defense said, in kind of a good one liner, he 0:05:23.440 --> 0:05:28.120 wasn't a monster, he was a mass nerd. And you know, 0:05:28.160 --> 0:05:30.360 if you if this was all the information you had, 0:05:30.880 --> 0:05:33.040 you know it might be kind of convincing. But the 0:05:33.960 --> 0:05:37.320 problem was that this totally didn't address the fact that 0:05:37.760 --> 0:05:43.839 during the trial, his four best friends and top lieutenants 0:05:43.920 --> 0:05:47.680 at FTX in a row each took the stand and said, hey, no, 0:05:48.160 --> 0:05:50.840 we committed a giant fraud on purpose. We knew it 0:05:50.960 --> 0:05:54.080 was wrong, we did it anyway Sam directed us to 0:05:54.120 --> 0:05:56.640 do it, and they presented a lot of evidence that 0:05:56.760 --> 0:06:01.920 showed that. So whether Sam was a nerd or whether 0:06:02.000 --> 0:06:04.120 he was actually greedy was kind of beside the point. 0:06:04.200 --> 0:06:05.600 It's like this fraud still occurred. 0:06:07.160 --> 0:06:09.360 Yeah, well, Zeke, I said, you bring up a really 0:06:09.400 --> 0:06:12.279 good point. We're talking about Caroline Allison, Nieschad Singing Gary 0:06:12.320 --> 0:06:15.160 Wong right now. They're awaiting their own fate after helping 0:06:15.279 --> 0:06:18.600 seal their former former bosses conviction for pulling off a 0:06:18.720 --> 0:06:22.479 multi billion dollar fraud involving tens of thousands of customers. June, 0:06:23.360 --> 0:06:25.480 I have this dish question, and I don't know to 0:06:25.560 --> 0:06:27.240 what extent you can answer it because we're kind of playing, 0:06:27.320 --> 0:06:30.560 you know, should it would have Kulda here? Yeah, but 0:06:31.000 --> 0:06:33.279 the three individuals I just mentioned, they all pleaded guilty 0:06:33.320 --> 0:06:37.560 and cooperated. What if Sam Bankman Freed had pleaded guilty 0:06:37.800 --> 0:06:42.000 and cooperated with law enforcement? What would he be facing 0:06:42.080 --> 0:06:42.320 right now? 0:06:42.520 --> 0:06:46.000 As I understand, and Zeke may know better. As I understand, 0:06:46.200 --> 0:06:51.159 the prosecutors never offered him a deal. There weren't deal negotiations. 0:06:51.680 --> 0:06:54.200 So that's my understanding that he wasn't offered a deal, 0:06:54.279 --> 0:06:56.920 that they got those three and the case against him 0:06:57.080 --> 0:06:58.279 then just built. 0:06:58.400 --> 0:07:01.000 Zeke, was that the case that's true? 0:07:01.120 --> 0:07:01.640 And I. 0:07:03.120 --> 0:07:05.440 You have to imagine he would have gotten a lighter 0:07:05.480 --> 0:07:07.360 set into be just threw himself in the mercy of 0:07:07.360 --> 0:07:10.760 the court. But I have another interesting counterfactual. What if 0:07:10.800 --> 0:07:14.680 all of those people got together and decided, hey, let's 0:07:14.840 --> 0:07:17.320 let's stick to a different story. Let's say it was 0:07:17.600 --> 0:07:19.680 you know, we didn't let's not admit to fraud. Let's 0:07:19.720 --> 0:07:22.480 all say we're not We're not guilty. Could do the 0:07:22.560 --> 0:07:26.080 government have enough evidence from documents and otherwise to convict them. 0:07:27.120 --> 0:07:29.040 I mean, they definitely had some evidence, but it would 0:07:29.040 --> 0:07:32.520 have been a lot harder. All of their text messages 0:07:32.560 --> 0:07:34.920 were set to auto delete, so the government didn't have 0:07:35.080 --> 0:07:38.760 a lot of contemporary records of them, you know, agreeing 0:07:38.960 --> 0:07:42.520 to commit some of the key acts. 0:07:42.960 --> 0:07:47.840 Someone always flips, though, Someone always flips because you have 0:07:48.000 --> 0:07:51.600 three people, four people, and someone is going to feel 0:07:51.680 --> 0:07:54.840 nervous about it. And the prosecutors, you know, they ask 0:07:54.920 --> 0:07:57.440 them questions, they bring them in, they bring them in 0:07:57.520 --> 0:08:00.960 with their lawyers, and you know, it's it's very hard 0:08:01.040 --> 0:08:03.800 to imagine that all three of them, all four of them, 0:08:04.240 --> 0:08:07.360 would have kept to a story. So I think one 0:08:07.400 --> 0:08:09.040 of them would have flipped somewhere along the way. 0:08:09.160 --> 0:08:12.440 See, let me ask you. I mean, the lawyers said 0:08:12.440 --> 0:08:14.520 that they expect to cover more money or enough money 0:08:14.560 --> 0:08:17.360 excuse me to pay back everyone in full in terms 0:08:17.880 --> 0:08:24.720 of FTX investors. So having said that, I don't know, 0:08:24.880 --> 0:08:27.160 does it speak to that, you know, they actually kind 0:08:27.200 --> 0:08:29.320 of figured out some things and did it well in 0:08:29.400 --> 0:08:32.120 the crypto space, Like, how do you read that? Interpret that? 0:08:33.280 --> 0:08:37.679 Yeah, So it is pretty wild that when ftx s failed, 0:08:37.720 --> 0:08:41.920 there's eight billion dollars mithsay, and now the lawyers running 0:08:41.920 --> 0:08:44.800 the bankrupt company are like, we've recovered enough money that 0:08:44.960 --> 0:08:46.520 we think we'll be able to pay all of that 0:08:46.679 --> 0:08:50.439 back to the customers. And the reason, though, is not 0:08:50.559 --> 0:08:54.160 that the money was never stolen. It's that a lot 0:08:54.240 --> 0:08:58.280 of it comes from this huge run up in crypto prices. Basically, 0:08:58.520 --> 0:09:03.679 when FTX filled in Alameda, they still had some crypto 0:09:04.000 --> 0:09:05.680 and it wasn't the stuff they thought they could sell 0:09:05.960 --> 0:09:09.160 quickly enough to satisfy the customer demand, hence the bankruptcy. 0:09:09.600 --> 0:09:12.920 But now they've had more time and the price of 0:09:13.000 --> 0:09:17.120 one of these tokens, in particular Solana, is up like tenfold, 0:09:17.679 --> 0:09:20.760 and if the bankruptcy estate is able to sell it 0:09:20.840 --> 0:09:23.240 all while the market is hot, they'll make like ten 0:09:23.360 --> 0:09:28.240 billion dollars. It's crazy. So that's essentially it's not that 0:09:28.360 --> 0:09:32.400 the customer money wasn't misappropriated. That he did make some 0:09:32.480 --> 0:09:33.319 good gambles with it. 0:09:33.400 --> 0:09:34.320 It looks like or. 0:09:36.200 --> 0:09:37.880 With the help of these bankruptcy lawyers. 0:09:39.600 --> 0:09:42.439 Judge didn't believe that, by the way, talk about that. 0:09:43.200 --> 0:09:44.559 That was interesting momentary. 0:09:44.200 --> 0:09:47.080 Because that was also what was in the defense papers, Hey, 0:09:47.320 --> 0:09:49.000 there's not really a loss here. They're going to be 0:09:49.080 --> 0:09:52.439 paid back. And the judge said the defendant's assurance that 0:09:52.520 --> 0:09:55.840 they'll be paid in full is misleading. It is logically flawed, 0:09:55.960 --> 0:09:59.600 it is speculative. The judge basically everything that they threw 0:09:59.679 --> 0:10:02.960 at him the defense, including that Sam Bankman Freed is autistic, 0:10:03.400 --> 0:10:06.840 he twisted it around and used it against Sam Bankman Fried. 0:10:06.920 --> 0:10:09.520 So they said he's autistic, he's and he said, well, 0:10:09.679 --> 0:10:13.199 he is autistic, but that gives him a great capacity 0:10:13.360 --> 0:10:14.120 to do things. 0:10:15.240 --> 0:10:18.200 He worries the judge Kaplin worried about what he might 0:10:18.280 --> 0:10:18.640 do next. 0:10:18.720 --> 0:10:20.760 Yet that was that was chilling to me and I 0:10:21.000 --> 0:10:23.920 just was reading it, he said, because the defense was 0:10:24.040 --> 0:10:26.839 arguing he has is young, he has an opportunity to 0:10:26.920 --> 0:10:28.959 do so many things. They tried to compare him to 0:10:29.040 --> 0:10:31.440 Michael Milkin, and what could happen if he comes out 0:10:31.920 --> 0:10:34.840 charitable work and the judge said, no, he just wanted power. 0:10:34.920 --> 0:10:37.200 He was power hunger, and he said, there's a risk 0:10:37.280 --> 0:10:38.920 that this man will be in a position to do 0:10:39.080 --> 0:10:42.720 something very bad in the future. It's not a trivial risk, 0:10:43.520 --> 0:10:44.800 and I was shocked by that. 0:10:45.080 --> 0:10:45.959 It's interesting, right. 0:10:46.360 --> 0:10:48.559 Well, I want to talk to Zeke about that, because Zeke, 0:10:49.000 --> 0:10:53.200 before the downfall of Sam Bankman Freed, before the fall 0:10:53.280 --> 0:10:57.880 of FTX, you spent some time one on one with SBF. 0:10:58.320 --> 0:10:59.559 You got to know him a little bit for a 0:10:59.600 --> 0:11:03.959 pretty story in BusinessWeek that you recently recounted in the 0:11:04.000 --> 0:11:07.439 Big Take podcast. Talk a little bit about what he's 0:11:08.080 --> 0:11:10.439 maybe actually maybe it was a Spellcaster podcast. Excuse me, 0:11:10.679 --> 0:11:12.360 it was in one of the great podcasts that our 0:11:12.440 --> 0:11:13.040 team has done. 0:11:15.600 --> 0:11:16.240 That's the message. 0:11:16.320 --> 0:11:16.600 A lot of. 0:11:16.600 --> 0:11:19.599 Podcast was ze talk a little bit about what his 0:11:19.720 --> 0:11:22.520 personality was like and what really shocked you about this guy. 0:11:23.679 --> 0:11:28.880 So one, some people after FTX failed have taken this 0:11:29.000 --> 0:11:31.640 to mean that you know, everything about Sam was a lie, 0:11:32.160 --> 0:11:35.439 and I actually don't think that that's true. When I 0:11:35.520 --> 0:11:39.920 met him, what really made him seem different and interesting 0:11:40.200 --> 0:11:43.920 was that this was a guy who he told me 0:11:44.200 --> 0:11:46.480 this story about how when he was a teenager he 0:11:46.600 --> 0:11:49.199 met a philosopher who convinced him that the best way 0:11:49.240 --> 0:11:51.280 to help the world would be to get really rich 0:11:51.360 --> 0:11:54.120 and give all the money away. I'm meeting him, it's 0:11:54.200 --> 0:11:57.040 like nine years later, and he's worth twenty billion dollars. 0:11:57.600 --> 0:12:02.160 And I actually think, from like all my time getting 0:12:02.200 --> 0:12:03.920 to know him and talking to people in his circles, 0:12:04.520 --> 0:12:06.679 this part of the story is really true, and that 0:12:06.840 --> 0:12:10.959 actually is what motivate made him dangerous because when he 0:12:11.200 --> 0:12:16.520 was presented with a chance to either he could justify 0:12:16.559 --> 0:12:19.240 anything that he wanted to do by saying, hey, there's 0:12:19.320 --> 0:12:22.480 like a real chance that if we're successful, we might 0:12:22.520 --> 0:12:25.319 do something that could change world history. So what's a 0:12:25.320 --> 0:12:29.040 little fraud here and there? Like we might literally save 0:12:29.120 --> 0:12:32.520 millions of lives when we get rich enough and make 0:12:33.640 --> 0:12:36.760 trillions of dollars. And he's a guy who thought about 0:12:36.760 --> 0:12:40.079 the odds all the time. He's somebody who weighed the odds, like, 0:12:40.120 --> 0:12:41.959 what are the odds I'm going to get caught? What 0:12:42.080 --> 0:12:46.079 are the odds if I'm successful? I mean to be fair, 0:12:46.160 --> 0:12:48.640 This is my take. Now, he did not admit to 0:12:48.679 --> 0:12:52.480 this to say sorry today, but I think that's why 0:12:52.520 --> 0:12:56.160 they're saying he's dangerous. Because if he has another chance 0:12:56.200 --> 0:12:59.920 to his philosophy, in my opinion, would justify trying again. 0:13:00.080 --> 0:13:03.839 The means justify the end is basically is basically what 0:13:03.960 --> 0:13:05.520 it is. Hey, June, I want to ask you, this 0:13:05.679 --> 0:13:09.199 was a punitive sentencing. This was about sending a message. 0:13:09.440 --> 0:13:11.640 Is it clear that Judge Kaplan did just that when 0:13:11.679 --> 0:13:14.199 it comes to I don't know, not just crypto but 0:13:14.400 --> 0:13:15.120 finance fraud. 0:13:15.640 --> 0:13:18.040 I think that that was part of what this was 0:13:18.080 --> 0:13:21.000 all about. And he said that this is about such, 0:13:21.200 --> 0:13:23.360 you know, stopping people from doing this in the future. 0:13:23.400 --> 0:13:28.040 And afterwards the Manhattan US Attorney Damian Williams put out 0:13:28.040 --> 0:13:32.240 a statement and he also said that this is a 0:13:32.320 --> 0:13:36.079 way of warning people about this. So that's part of 0:13:36.160 --> 0:13:38.800 a sentence. Because this is such a high profile case. 0:13:39.200 --> 0:13:43.560 It wasn't For example, Mark Mucazy got Trevor Milton four 0:13:43.679 --> 0:13:46.839 years instead of eleven. That case was high profile, but 0:13:47.040 --> 0:13:50.199 not like this. This was crazy. So I think that 0:13:50.320 --> 0:13:52.600 the judge felt that he had to send a message. 0:13:53.080 --> 0:13:55.240 Is there appeal? Can this be reduced real quickly? 0:13:55.520 --> 0:13:57.760 There is going to be an appealed that he says, 0:13:57.800 --> 0:14:01.000 they're going to appeal the conviction and the sentence. But 0:14:01.200 --> 0:14:03.520 you know, appeals are very difficult in cases like this, 0:14:03.840 --> 0:14:05.439 so and he has a new team, he has a 0:14:05.480 --> 0:14:08.439 great team. But so we'll see what happens with that. 0:14:08.600 --> 0:14:10.360 And the judge also asked that to be put in 0:14:10.440 --> 0:14:15.439 a low security prison because of his autism and that 0:14:15.559 --> 0:14:17.400 it might be difficult for him in a regular prison, 0:14:17.440 --> 0:14:19.880 although he seems to be getting along okay at Brooklyn Correction. 0:14:20.280 --> 0:14:24.360 Well, a fascinating I guess final chapter. Perhaps I don't 0:14:24.360 --> 0:14:26.760 know appeal yet. Well that's right, okay, so not quite 0:14:26.760 --> 0:14:29.360 a final chapter to both of you. Thank you so 0:14:29.520 --> 0:14:32.480 much really bringing a lot of clarity and analysis to 0:14:32.520 --> 0:14:34.720 the story. Bloomberg News legal alyst jun Gross, host of 0:14:34.720 --> 0:14:37.480 Bloomberg Law Weaknights at six pm Wall Street Time on 0:14:37.520 --> 0:14:40.840 Bloomberg Radio. To catch that and Zeke Fox immeasurable in 0:14:41.000 --> 0:14:43.440 terms of his insight to on the world of crypto 0:14:43.440 --> 0:14:46.960 Bloomberg News Financial Investigations Reporter. Check out his book Number 0:14:47.120 --> 0:14:49.520 Go Up, Inside Cryptos, Wild Rise and Staggering Fall. 0:14:50.840 --> 0:14:54.320 You're listening to the Bloomberg Business Week podcast. Catch us 0:14:54.400 --> 0:14:57.600 live weekday afternoons from two to five pm Eastern Listen 0:14:57.680 --> 0:14:59.920 on Apple card Play and then Bright Auto with him 0:15:00.000 --> 0:15:02.840 Blomberg Business Act or want us live on YouTube. 0:15:04.960 --> 0:15:07.400 We just talked with Bloomberg's mat Day about Amazon's plan 0:15:07.440 --> 0:15:10.000 to spend almost one hundred and fifty billion dollars over 0:15:10.040 --> 0:15:12.720 I think fifteen years on data centers needed for the 0:15:12.800 --> 0:15:15.160 AI Boom Data Center's tim We know one of the 0:15:15.200 --> 0:15:18.560 real estate investment plays we've heard a lot about for years. 0:15:18.680 --> 0:15:21.520 More recently, the focus and concern when it comes to 0:15:21.560 --> 0:15:26.080 commercial real estate has been on offices as working from home, 0:15:26.160 --> 0:15:28.800 as we know, still sticks for many post pandemic TEMs. 0:15:28.880 --> 0:15:31.960 Yeah, the Bloomberg Readoffice Property Index down about two percent 0:15:32.080 --> 0:15:34.040 so far this year. It lost three percent in twenty 0:15:34.080 --> 0:15:37.600 twenty three, but Carol dropped close to forty percent back 0:15:37.640 --> 0:15:38.440 in twenty twenty two. 0:15:38.480 --> 0:15:40.480 All right, with a look at the commercial real estate space, 0:15:40.520 --> 0:15:43.600 we welcome Lauren Huckfelder. She's co CEO of real estate 0:15:43.640 --> 0:15:46.480 Investing over at Morgan Stanley Investment Management. She joins us 0:15:46.560 --> 0:15:49.600 right here in New York City. Lauren, welcome to Bloomberg. Hey, 0:15:49.680 --> 0:15:52.800 commercial real estate. We know location, location, location, but it 0:15:52.880 --> 0:15:55.160 also can be divided into a lot of different buckets. 0:15:55.440 --> 0:15:58.640 You've got office, retail, You've got data centers, You've got industrial, 0:15:59.040 --> 0:16:01.280 walk us through the different sectors. Where are you seeing 0:16:01.360 --> 0:16:04.760 strength and where's the continued weakness, like perhaps office. 0:16:05.880 --> 0:16:07.680 Sure, well, first of all, thank you for having me. 0:16:07.760 --> 0:16:09.840 It's great to be here. And I would say it's 0:16:09.880 --> 0:16:13.800 funny you use the old expression location, location, location, that 0:16:14.040 --> 0:16:16.920 is absolutely paramount in real estate. But you know, today 0:16:17.120 --> 0:16:21.800 we talk about dislocation, dislocation, dislocation. We have to look 0:16:21.840 --> 0:16:26.840 at what's changing, what's being disrupted, and invest accordingly. So yes, 0:16:27.040 --> 0:16:31.800 take office, take US Commodity office in particular, and it 0:16:32.080 --> 0:16:36.480 is absolutely being disrupted. You have a dramatic demand destruction. 0:16:36.640 --> 0:16:39.120 We all know that people tried out working from home 0:16:39.200 --> 0:16:42.120 in the pandemic and decided it wasn't so bad. So 0:16:42.200 --> 0:16:46.120 we're seeing a dramatic demand destruction. But frankly, also those 0:16:46.200 --> 0:16:50.320 assets just don't meet modern tenant demands. They don't meet 0:16:50.360 --> 0:16:53.239 them from a standpoint of quality or menetization. 0:16:53.720 --> 0:16:56.080 Frankly, they don't meet their carbon reduction goals. 0:16:56.120 --> 0:16:58.760 So these are assets that many of which will be 0:16:58.880 --> 0:17:03.760 stranded because they simply don't have long term cash flow 0:17:03.840 --> 0:17:04.680 growth potential. 0:17:05.160 --> 0:17:06.399 But go to the office. 0:17:06.440 --> 0:17:07.960 Wait, wait, wait, can I jump in there? 0:17:08.040 --> 0:17:08.200 Though? 0:17:08.240 --> 0:17:11.160 So US Commodity Office you're saying it's going to be stranded. 0:17:11.280 --> 0:17:14.680 So what happens and what are the financial implications, whether 0:17:14.800 --> 0:17:18.399 it's to the owners of those properties, to the banks 0:17:18.400 --> 0:17:20.359 who hold the loans on those properties. How does that 0:17:20.480 --> 0:17:22.440 play out? And then how does that maybe make more 0:17:22.600 --> 0:17:25.520 valuable some of the higher tier or office property. 0:17:26.320 --> 0:17:29.359 Yeah, no, no, that's a fantastic question. Well, I'll start 0:17:29.400 --> 0:17:35.440 with the ends. So you're seeing a massive consolidation of 0:17:35.640 --> 0:17:39.960 demand into the best of the best assets. So perhaps 0:17:40.160 --> 0:17:45.439 counter intuitively, the destruction of demand for more commodity space 0:17:45.600 --> 0:17:48.560 is actually driving increased demand for the best of the best. 0:17:48.920 --> 0:17:53.040 I'll give you an example. Take San Francisco. San Francisco 0:17:53.240 --> 0:17:58.119 office is one of the worst markets globally, and I 0:17:58.240 --> 0:18:01.439 can tell you even in San Francis Go we own some. 0:18:01.560 --> 0:18:03.520 Of the best office assets in that market. 0:18:03.960 --> 0:18:08.439 Even today we're signing leases at rents above pre COVID levels. 0:18:08.760 --> 0:18:11.159 So to your point, it speaks to the benefits to 0:18:11.240 --> 0:18:11.600 the best. 0:18:11.800 --> 0:18:15.080 Okay, so let's talk about some of those benefits or 0:18:15.119 --> 0:18:18.399 what that offers potential tenants. I mean, what exactly in 0:18:18.480 --> 0:18:21.040 twenty twenty four, in this world of hybrid work that 0:18:21.119 --> 0:18:23.560 we live in a world where AI companies are just 0:18:23.680 --> 0:18:26.760 flourishing in the Bay Area and bringing people back to 0:18:26.840 --> 0:18:30.600 the city. What is an office building? What does an 0:18:30.640 --> 0:18:33.679 office building need to provide to attract and retain tenants 0:18:33.720 --> 0:18:34.000 right now? 0:18:34.920 --> 0:18:35.120 Yeah? 0:18:35.240 --> 0:18:40.760 Absolutely, Look, it's amenities, it's a focus on wellness. It 0:18:41.000 --> 0:18:45.240 is all of the bones, if you will, so big 0:18:45.359 --> 0:18:48.960 open ceiling, heights, big open windows. 0:18:49.359 --> 0:18:51.600 But ultimately it comes. 0:18:51.440 --> 0:18:55.760 Down to I think amenetization, wellness, and of course location. 0:18:57.480 --> 0:19:01.400 So can can buildings that don't offer those things right now? 0:19:02.359 --> 0:19:07.120 Can they be converted at a reasonable cost to buildings 0:19:07.160 --> 0:19:08.480 that will soon become attractive. 0:19:10.680 --> 0:19:14.080 There's a lot of talk about converting old office buildings 0:19:14.200 --> 0:19:18.920 into other uses, converting it into residential, converting it into life. 0:19:18.760 --> 0:19:22.120 Science or lab space, and the reality. 0:19:21.800 --> 0:19:26.080 Is some assets will be converted. We've seen success stories. 0:19:26.160 --> 0:19:29.200 For example, here in New York. After September eleventh, a 0:19:29.280 --> 0:19:32.639 lot of office buildings in Lower Manhattan were converted to 0:19:32.720 --> 0:19:33.800 residential buildings. 0:19:34.160 --> 0:19:35.560 But two things were different. 0:19:36.160 --> 0:19:40.000 One, many of those office buildings had smaller floor plates, 0:19:40.400 --> 0:19:45.959 so physical structures that were more conducive to conversion. And two, frankly, 0:19:46.080 --> 0:19:48.920 there was a government subsidy for that. 0:19:49.480 --> 0:19:51.280 And I think that the math is. 0:19:51.359 --> 0:19:55.840 Simply, even for those assets that have the right physical footprint, 0:19:56.240 --> 0:19:59.880 the math is very challenging when you get to over 0:20:00.160 --> 0:20:03.800 hauling the mechanical systems, everything going. 0:20:03.800 --> 0:20:04.800 Up and down the building. 0:20:04.960 --> 0:20:07.040 Hey, one thing I wanted to ask you obviously front 0:20:07.040 --> 0:20:12.240 and center here coming off the unfortunate bridge collapse in Baltimore, 0:20:12.280 --> 0:20:14.240 and we are once again talking about supply chains, and 0:20:14.280 --> 0:20:17.359 that is certainly an investment trend that you guys are seeing. 0:20:17.480 --> 0:20:20.000 You call it a second mega trend tail when driving 0:20:20.040 --> 0:20:22.320 demand in the industrial real estate space, and it has 0:20:22.400 --> 0:20:24.280 to do with the global supply chain. Talk to us 0:20:24.320 --> 0:20:26.359 about that, and you guys are investing this. 0:20:26.480 --> 0:20:31.000 Way absolutely, So I would say, in contrast to office 0:20:31.400 --> 0:20:34.440 we love industrial real estate. We love it on a 0:20:34.480 --> 0:20:37.879 global basis, and it's really for two reasons. The first 0:20:38.080 --> 0:20:40.800 is e commerce. So that's very much been the story 0:20:40.840 --> 0:20:44.359 of the last decade. So we, as all of us 0:20:44.440 --> 0:20:48.200 started buying and increasing share of our goods online versus 0:20:48.720 --> 0:20:51.520 in store, and frankly demanding it get to us faster 0:20:51.640 --> 0:20:55.159 and faster. We started buying in buildings, those warehouses that 0:20:55.280 --> 0:20:57.160 get goods to our front doors every day. 0:20:57.600 --> 0:21:01.639 And as e commerce penetration went grew by two and 0:21:01.720 --> 0:21:04.159 a half x so too did rents. 0:21:04.480 --> 0:21:08.400 So that's been a great tailwind for US industrial real estate, 0:21:08.880 --> 0:21:12.560 for global industrial real estate, and I think that will continue, 0:21:12.680 --> 0:21:16.480 albeit decelerate the second mega trend, and it's really at 0:21:16.520 --> 0:21:20.600 the earlier inning. So even more exciting is the overhaul 0:21:20.760 --> 0:21:24.440 in the global supply chain. Look, we're coming off decades 0:21:24.840 --> 0:21:29.600 of a super smooth, super efficient global supply chain. We've 0:21:29.640 --> 0:21:34.119 all enjoyed the disinflationary benefits of that supply chain, but 0:21:34.320 --> 0:21:36.040 now things are changing. 0:21:36.800 --> 0:21:37.400 You look at. 0:21:38.800 --> 0:21:42.560 What happened tragically in Baltimore this week, but I think 0:21:42.600 --> 0:21:47.200 it's really it goes well beyond that. Among the many 0:21:47.320 --> 0:21:51.000