1 00:00:10,840 --> 00:00:14,280 Speaker 1: Hello, and welcome to another episode of The Thoughts Podcast. 2 00:00:14,400 --> 00:00:19,239 Speaker 1: I'm Tracy Alloway and I'm Joe Wiesn't so Joe. One 3 00:00:19,280 --> 00:00:21,840 Speaker 1: of the themes that I think has been popping up 4 00:00:21,920 --> 00:00:25,200 Speaker 1: quite a bit on recent episodes is this idea of 5 00:00:26,320 --> 00:00:30,240 Speaker 1: this sounds really trite, but opportunity in crisis, or this 6 00:00:30,320 --> 00:00:35,360 Speaker 1: idea that we're facing big, big economic devastation, but maybe 7 00:00:35,920 --> 00:00:38,880 Speaker 1: there's some sort of hidden opportunity or even very obvious 8 00:00:38,960 --> 00:00:43,000 Speaker 1: opportunity to remake the economic system or improve the financial 9 00:00:43,040 --> 00:00:46,479 Speaker 1: system at the same time. Yeah, I think that's right. 10 00:00:46,680 --> 00:00:49,360 Speaker 1: I mean, yeah, I think that that has been a theme, 11 00:00:49,360 --> 00:00:52,600 Speaker 1: and this idea that there are a lot of policies, 12 00:00:52,640 --> 00:00:55,240 Speaker 1: and we've sort of talked a lot about fiscal policies 13 00:00:55,320 --> 00:00:58,040 Speaker 1: or monetary policy, but there's all kinds of trends that 14 00:00:58,520 --> 00:01:02,040 Speaker 1: have been going in one direction and and people are 15 00:01:02,120 --> 00:01:05,720 Speaker 1: questioning have they reached their endpoint as a society, as 16 00:01:05,760 --> 00:01:08,280 Speaker 1: an economy, do we need to make some sort of 17 00:01:08,280 --> 00:01:12,479 Speaker 1: like meaningful turn in a different direction? Right? And times 18 00:01:12,480 --> 00:01:15,480 Speaker 1: of crises tend to be when we also see new 19 00:01:15,560 --> 00:01:21,520 Speaker 1: innovations in the market specifically, and I'm thinking about one 20 00:01:21,520 --> 00:01:25,039 Speaker 1: in particular back in the ninety nineties, immediately after the 21 00:01:25,080 --> 00:01:28,480 Speaker 1: savings and loan crisis, there is a shortage of capital 22 00:01:28,600 --> 00:01:32,119 Speaker 1: going into commercial real estate. Fast forward a few years 23 00:01:32,200 --> 00:01:37,280 Speaker 1: and someone invented commercial mortgage backed securities to kind of 24 00:01:37,520 --> 00:01:41,959 Speaker 1: take care of that problem. Now today, we've been discussing 25 00:01:42,000 --> 00:01:45,679 Speaker 1: already the intense pain facing the commercial real estate sector 26 00:01:45,800 --> 00:01:48,400 Speaker 1: at the moment. The question is is this going to 27 00:01:48,480 --> 00:01:50,680 Speaker 1: lead to some sort of innovation or is it going 28 00:01:50,720 --> 00:01:54,280 Speaker 1: to present some sort of opportunity to revisit the system 29 00:01:54,360 --> 00:01:57,720 Speaker 1: as a whole. There are different types and different degrees 30 00:01:57,760 --> 00:02:00,440 Speaker 1: of changes that could come about because of what we're 31 00:02:00,440 --> 00:02:02,800 Speaker 1: seeing happen right now. Wait, you want to hear an 32 00:02:02,880 --> 00:02:07,520 Speaker 1: interesting commercial real estate data point? Ye, go on. You're 33 00:02:07,560 --> 00:02:09,680 Speaker 1: back in New York, aren't you. I'm in the office. 34 00:02:09,880 --> 00:02:12,240 Speaker 1: I'm not only I'm not only back in New York. 35 00:02:12,720 --> 00:02:17,080 Speaker 1: You're gonna be brimming, brimming with commercial real estate anecdotes now, 36 00:02:17,080 --> 00:02:20,680 Speaker 1: aren't you. So I'm literally in commercial real estate as 37 00:02:20,720 --> 00:02:24,959 Speaker 1: we speak, after several months of recording the podcast from 38 00:02:24,960 --> 00:02:27,799 Speaker 1: a bedroom. So maybe it was all Maybe it's all 39 00:02:27,800 --> 00:02:30,280 Speaker 1: over height, Maybe everything is going back to normal, But no, 40 00:02:30,360 --> 00:02:32,560 Speaker 1: I don't know, it's not. It's definitely not normal by 41 00:02:32,639 --> 00:02:36,040 Speaker 1: any stretch here in New York. It's definitely not normal 42 00:02:36,080 --> 00:02:38,880 Speaker 1: by any stretch here in the office, and it's really 43 00:02:38,960 --> 00:02:42,280 Speaker 1: unclear whether whether there will be a return to normal 44 00:02:42,320 --> 00:02:46,680 Speaker 1: at all. Yeah, Okay, Well, on this episode, we're going 45 00:02:46,720 --> 00:02:49,160 Speaker 1: to be digging more into the state of the commercial 46 00:02:49,240 --> 00:02:52,160 Speaker 1: real estate industry. We we touched upon it a little 47 00:02:52,200 --> 00:02:54,760 Speaker 1: bit when we were talking about reets the other day, 48 00:02:54,760 --> 00:02:57,960 Speaker 1: but now we're going to go in depth with a really, 49 00:02:57,960 --> 00:03:01,680 Speaker 1: really special guest. I'm thrilled to say that on today's 50 00:03:01,680 --> 00:03:06,000 Speaker 1: episode we have Ethan Penner, who is widely credited as 51 00:03:06,040 --> 00:03:10,040 Speaker 1: being the father of CMBs or the guy that created it. 52 00:03:10,560 --> 00:03:14,280 Speaker 1: As I mentioned back in the ES, he's currently the 53 00:03:14,280 --> 00:03:18,680 Speaker 1: founder and managing partner of Mosaic Real Estate Partners. So Ethan, 54 00:03:18,760 --> 00:03:21,760 Speaker 1: thank you so much for coming on. Thank you. It's 55 00:03:21,760 --> 00:03:26,400 Speaker 1: a pleasure. So Ethan, I'm really curious, could you could 56 00:03:26,400 --> 00:03:31,040 Speaker 1: you maybe start out by describing the problems as you 57 00:03:31,160 --> 00:03:35,200 Speaker 1: saw it in commercial real estate in the early when 58 00:03:35,240 --> 00:03:38,880 Speaker 1: when you were first thinking about the CNBS structure, the 59 00:03:38,920 --> 00:03:41,640 Speaker 1: CMBs product. What was the issue that you were trying 60 00:03:41,680 --> 00:03:45,040 Speaker 1: to solve and how much of that do you see 61 00:03:45,080 --> 00:03:50,080 Speaker 1: paralleled in the current situation today, Well, it's not really 62 00:03:50,160 --> 00:03:54,480 Speaker 1: parallel at all at this point. Say, the situation that 63 00:03:54,560 --> 00:04:00,400 Speaker 1: existed in the early nineties that moved me to kind 64 00:04:00,400 --> 00:04:05,440 Speaker 1: of bring about the CNBS industry or CNBS solution was 65 00:04:05,520 --> 00:04:10,440 Speaker 1: a very unique situation where kind of all the lenders 66 00:04:10,560 --> 00:04:15,800 Speaker 1: who had serviced the real estate industry abandoned the industry 67 00:04:16,000 --> 00:04:19,880 Speaker 1: all at once. And so the industry, which is you 68 00:04:20,000 --> 00:04:22,839 Speaker 1: probably know this, but the real estate is the most 69 00:04:23,160 --> 00:04:27,200 Speaker 1: pendant upon debt financing of all industries, and so here 70 00:04:27,240 --> 00:04:32,000 Speaker 1: you had an industry that had its line cut off essentially. 71 00:04:32,440 --> 00:04:36,760 Speaker 1: And it's an industry that is financed not only acquisitions, 72 00:04:36,800 --> 00:04:39,840 Speaker 1: of course, with heavy debt, but the debt itself is 73 00:04:39,880 --> 00:04:44,520 Speaker 1: structured so that there was very little amorgization, and loans 74 00:04:44,640 --> 00:04:47,880 Speaker 1: mature on a regular basis and need to be refinanced. 75 00:04:47,920 --> 00:04:52,320 Speaker 1: And so borrowers were finding themselves in the early nineties 76 00:04:52,760 --> 00:04:57,560 Speaker 1: with loans scheduled to mature and their existing lenders telling them, 77 00:04:58,080 --> 00:05:00,720 Speaker 1: regardless of how well the loans were performing or the 78 00:05:00,800 --> 00:05:04,120 Speaker 1: underlying properties, that they didn't have an interest in refinancing 79 00:05:04,160 --> 00:05:07,880 Speaker 1: those loans, and they might give some short extension, but 80 00:05:08,480 --> 00:05:11,159 Speaker 1: there needed to find a way to repay them, and 81 00:05:11,720 --> 00:05:15,720 Speaker 1: so the industry was facing a tremendous crisis and existential 82 00:05:15,760 --> 00:05:20,200 Speaker 1: crisis for many borrowers. And I saw that, and I 83 00:05:20,440 --> 00:05:26,120 Speaker 1: realized that the securities markets, the bond buyer who had 84 00:05:26,240 --> 00:05:32,480 Speaker 1: come to finance other asset types, primarily single family mortgages, 85 00:05:32,600 --> 00:05:37,039 Speaker 1: but but other serbasses through the securization process that had 86 00:05:37,240 --> 00:05:40,120 Speaker 1: kind of grown significantly through the eighties and then I 87 00:05:40,160 --> 00:05:43,520 Speaker 1: had been a part of, was a very well suited 88 00:05:43,520 --> 00:05:48,679 Speaker 1: place to turn to to fill this massive need. Uh 89 00:05:48,680 --> 00:05:51,920 Speaker 1: And from that c NBS was born. I mean, there 90 00:05:51,960 --> 00:05:54,279 Speaker 1: was a lot of a lot of work, a lot 91 00:05:54,320 --> 00:05:59,040 Speaker 1: of mostly convincing. Actually, you know, when you create something new, 92 00:05:59,680 --> 00:06:02,919 Speaker 1: even though it's needed, there's a certain constituent that feel 93 00:06:02,960 --> 00:06:05,599 Speaker 1: threatened by anything new, and so getting kind of the 94 00:06:05,680 --> 00:06:09,880 Speaker 1: necessary buying is really the challenge when you introduced new concepts. 95 00:06:09,880 --> 00:06:13,400 Speaker 1: And it was a great experience for me, not without 96 00:06:13,440 --> 00:06:16,440 Speaker 1: its pains and scars, but it was certainly well worth it. 97 00:06:17,440 --> 00:06:20,880 Speaker 1: Can you just explain real quickly what it was about 98 00:06:20,960 --> 00:06:25,279 Speaker 1: the conditions that caused the traditional real estate lenders to 99 00:06:25,400 --> 00:06:30,680 Speaker 1: pull back from the market. Sure, well, real estate prior 100 00:06:30,800 --> 00:06:36,120 Speaker 1: to this period, this early nineties period wasn't even though 101 00:06:36,160 --> 00:06:39,839 Speaker 1: it's a very large financial asset, it was actial asset 102 00:06:39,920 --> 00:06:43,560 Speaker 1: that was pretty much untethered to the rest of the 103 00:06:43,880 --> 00:06:47,400 Speaker 1: financial or capital markets. It was a business that kind 104 00:06:47,400 --> 00:06:52,800 Speaker 1: of happened entirely in the private sector, so there was 105 00:06:52,839 --> 00:06:57,400 Speaker 1: no public market partition. In real estate, there were really 106 00:06:57,440 --> 00:07:00,760 Speaker 1: no weeds to speak of, and there was no capital 107 00:07:00,800 --> 00:07:05,080 Speaker 1: market printicipation in the equity or the debt financing. It 108 00:07:05,160 --> 00:07:08,479 Speaker 1: was largely financed on the debt side by banks and 109 00:07:08,520 --> 00:07:13,440 Speaker 1: insurance companies and in a very i would say backwards 110 00:07:13,520 --> 00:07:16,280 Speaker 1: way to tell you the truth, without being tethered to 111 00:07:16,320 --> 00:07:21,680 Speaker 1: the public markets. It was also being done without wellsta 112 00:07:21,840 --> 00:07:26,400 Speaker 1: traditional financial burdens, so relative value didn't play a part 113 00:07:26,480 --> 00:07:33,560 Speaker 1: in things, and pricing was oftentimes bizarre. Credit decisions were 114 00:07:33,600 --> 00:07:37,440 Speaker 1: also kind of wacky. In fact, you know, there was 115 00:07:37,480 --> 00:07:40,320 Speaker 1: a time when for a lot of the kind of 116 00:07:40,360 --> 00:07:46,320 Speaker 1: wealthiest old American real estate families gained their wealth through 117 00:07:46,440 --> 00:07:51,120 Speaker 1: the benefit of getting or more alone to costs, so 118 00:07:51,160 --> 00:07:54,320 Speaker 1: they were able to borrow the totality of the cost 119 00:07:54,400 --> 00:07:57,920 Speaker 1: of building a project, if not more and uh and 120 00:07:58,040 --> 00:08:01,240 Speaker 1: have all the upside for putting up no money themselves. 121 00:08:01,360 --> 00:08:04,200 Speaker 1: That formula tests are great great wealth and it did 122 00:08:04,280 --> 00:08:07,320 Speaker 1: for many of the legendary names in real estate. The 123 00:08:07,360 --> 00:08:10,080 Speaker 1: big problem that led to the crisis was that all 124 00:08:10,160 --> 00:08:14,200 Speaker 1: the lenders were regulated lenders, right insurance companies and banks 125 00:08:14,200 --> 00:08:19,440 Speaker 1: from this part, and regulators tend to react in a 126 00:08:19,480 --> 00:08:24,960 Speaker 1: herd like fashion to especially marketaces. And so the the 127 00:08:25,040 --> 00:08:29,320 Speaker 1: late eighties early nineties was a period that was really 128 00:08:29,680 --> 00:08:33,920 Speaker 1: a very deep economic recession, and it centered around real 129 00:08:34,040 --> 00:08:38,360 Speaker 1: estate because in the prior years real benefited from an 130 00:08:38,400 --> 00:08:42,200 Speaker 1: immense amount of bubble, amount of capital that drove prices 131 00:08:42,240 --> 00:08:46,120 Speaker 1: to ridiculous levels. And as the bubble started to burst 132 00:08:46,120 --> 00:08:49,120 Speaker 1: and people started to kind of withdraw or try to sell, 133 00:08:49,960 --> 00:08:53,800 Speaker 1: the unwinding was quite dramatic. You know, losses tend to 134 00:08:54,679 --> 00:08:58,840 Speaker 1: communicate to regulators. Risk rights are equal to risk, and 135 00:08:58,960 --> 00:09:04,120 Speaker 1: regulators react a risk by telling their constituents to stop 136 00:09:04,200 --> 00:09:07,920 Speaker 1: doing whatever they feel is risking, realizing that doing so 137 00:09:08,040 --> 00:09:11,160 Speaker 1: actually enhances the losses and the risk. It's kind of 138 00:09:11,200 --> 00:09:15,240 Speaker 1: a perverse system. In fact, regulated lending. We could talk 139 00:09:15,280 --> 00:09:18,160 Speaker 1: about that separately, because it's one of the one of 140 00:09:18,200 --> 00:09:21,839 Speaker 1: the biggest problems I think in all the finance. Regulatory 141 00:09:21,960 --> 00:09:25,880 Speaker 1: driven lending and regularly lending created its own set of 142 00:09:26,320 --> 00:09:30,320 Speaker 1: cyclical problems, the likes of which we've seen and I 143 00:09:30,320 --> 00:09:34,600 Speaker 1: think we're likely to see again. So this kind of lemming, 144 00:09:34,760 --> 00:09:40,760 Speaker 1: like the action to regulation created this entire industry to 145 00:09:40,800 --> 00:09:44,800 Speaker 1: be abandoned and uh, and it created is this need 146 00:09:44,800 --> 00:10:07,040 Speaker 1: that I was able to help build. So today we 147 00:10:07,120 --> 00:10:10,480 Speaker 1: have a big chunk of the commercial real estate industry 148 00:10:10,640 --> 00:10:15,959 Speaker 1: financed through the private market, through investors who are buying CNBS, 149 00:10:16,080 --> 00:10:18,000 Speaker 1: And we still have lots of bank loans, but there 150 00:10:18,040 --> 00:10:21,400 Speaker 1: is a chunk of it in private investor hands. How 151 00:10:21,400 --> 00:10:24,960 Speaker 1: has that changed the dynamics, if at all, or how 152 00:10:24,960 --> 00:10:28,240 Speaker 1: does it impact the dynamics when we see a commercial 153 00:10:28,240 --> 00:10:32,120 Speaker 1: real estate crisis such as the one we're in now. Well, 154 00:10:32,160 --> 00:10:37,520 Speaker 1: CNBS was born to deliver capital to a capital starved, 155 00:10:38,360 --> 00:10:44,520 Speaker 1: desperate industry. It was not born perfect, okay, And so 156 00:10:45,120 --> 00:10:51,040 Speaker 1: it's imperfections or its flaws, like all systems are revealed 157 00:10:51,760 --> 00:10:57,480 Speaker 1: most dramatically when things are tough. When times are tough 158 00:10:57,520 --> 00:11:01,280 Speaker 1: and there's challenges like downturns like the O eight oh 159 00:11:01,360 --> 00:11:05,199 Speaker 1: nine financial crisis, and I think like today, but it's 160 00:11:05,240 --> 00:11:08,040 Speaker 1: true of all loans, by the way, like when when 161 00:11:08,280 --> 00:11:13,040 Speaker 1: limes are good, they're never problems like borrowers pay their 162 00:11:13,120 --> 00:11:16,959 Speaker 1: lenders on time, and then when loans come to borrowers 163 00:11:17,320 --> 00:11:20,240 Speaker 1: pay their lenders off and uh, and the lenders are 164 00:11:20,320 --> 00:11:24,240 Speaker 1: very happy and everyone's happy. It's only when that doesn't 165 00:11:24,240 --> 00:11:28,320 Speaker 1: work out, when times are tough and borrowers can't make 166 00:11:28,360 --> 00:11:30,920 Speaker 1: their loan payments on time, well, can't make their loan 167 00:11:31,040 --> 00:11:36,480 Speaker 1: repayments on time maturity, you have stresses in the lending business, 168 00:11:36,640 --> 00:11:42,920 Speaker 1: and so not surprisingly c MBS, it's probably always crop 169 00:11:43,040 --> 00:11:46,520 Speaker 1: up uh, and it's in the shortcomes become obvious in 170 00:11:46,559 --> 00:11:51,000 Speaker 1: these challenged times and fundamental kind of unique ethics that 171 00:11:51,080 --> 00:11:54,280 Speaker 1: I think maybe you're alluding to that's worth mentioning with 172 00:11:54,320 --> 00:11:56,800 Speaker 1: regards to c MBS is kind of what I'll call 173 00:11:57,600 --> 00:12:01,760 Speaker 1: endemic laws. The ones that are that are I think 174 00:12:01,880 --> 00:12:06,040 Speaker 1: germane today most have to do with I would say 175 00:12:06,240 --> 00:12:11,199 Speaker 1: two realities. One is the typical of bond market financing, 176 00:12:11,280 --> 00:12:13,560 Speaker 1: so it's not unique to see MBS. I would say 177 00:12:13,559 --> 00:12:18,480 Speaker 1: it's true for any bond market financing. Let's pretend that 178 00:12:18,520 --> 00:12:22,839 Speaker 1: you have two different lending constructs. One where you're a 179 00:12:22,960 --> 00:12:27,080 Speaker 1: borrower and you borrow from me and I loaned you money, 180 00:12:27,160 --> 00:12:30,040 Speaker 1: and you put up something as collapsed whatever that something 181 00:12:30,240 --> 00:12:33,480 Speaker 1: is okay, And now you're calling me and telling me 182 00:12:33,520 --> 00:12:35,600 Speaker 1: that you can't make your payment on time or you 183 00:12:35,640 --> 00:12:38,400 Speaker 1: can't repay your loan. I'm your lender and I have 184 00:12:38,559 --> 00:12:41,640 Speaker 1: your loan, and I could have a conversation with you 185 00:12:42,320 --> 00:12:46,679 Speaker 1: and determine what's what's the right way go forward. You know, 186 00:12:46,880 --> 00:12:51,200 Speaker 1: is this a temporary downturn? Are you valuable to the 187 00:12:51,320 --> 00:12:54,800 Speaker 1: collateral like keeping you involved collateral? Is that a good 188 00:12:54,840 --> 00:12:57,760 Speaker 1: thing for the collateral's value or not? We can make 189 00:12:57,880 --> 00:13:03,200 Speaker 1: rational decisions together. And I have staying because I have 190 00:13:03,360 --> 00:13:05,720 Speaker 1: your loan, and you don't have staying power because you 191 00:13:05,760 --> 00:13:09,400 Speaker 1: owe me now, and we could I could trade staying 192 00:13:09,440 --> 00:13:12,760 Speaker 1: power for moments with you. I could do things that 193 00:13:12,800 --> 00:13:15,640 Speaker 1: are whatever needs to be done. I could take over 194 00:13:15,679 --> 00:13:17,880 Speaker 1: the collateral and kick you out if I needed to, 195 00:13:18,240 --> 00:13:21,040 Speaker 1: and contract would allow me to do that, And if 196 00:13:21,080 --> 00:13:24,160 Speaker 1: that was the best thing to protect my investors, well 197 00:13:24,160 --> 00:13:27,319 Speaker 1: then I should be prepared to do that. Bond market 198 00:13:27,600 --> 00:13:31,000 Speaker 1: financing doesn't actually allow for that because, as you probably know, 199 00:13:31,120 --> 00:13:35,360 Speaker 1: whether it's corporate bonds construct or a commercial mortgage backed 200 00:13:35,360 --> 00:13:41,960 Speaker 1: securities construct, bond market lending really involves fragmented ownerships of 201 00:13:42,040 --> 00:13:45,520 Speaker 1: that loan, right, it's taking that loan that was originated 202 00:13:45,520 --> 00:13:48,600 Speaker 1: by one party, let's say it was me, and then 203 00:13:48,720 --> 00:13:51,560 Speaker 1: taking it up into many little pieces and selling it 204 00:13:51,600 --> 00:13:55,320 Speaker 1: to people all over the world. And none of those 205 00:13:55,320 --> 00:13:59,840 Speaker 1: people have enough control of the loan to actually have 206 00:13:59,880 --> 00:14:02,120 Speaker 1: a conversation with you, the borrower, when you need to 207 00:14:02,120 --> 00:14:04,839 Speaker 1: have a conversation. So the problem number one is you 208 00:14:04,880 --> 00:14:07,240 Speaker 1: don't have anyone who owns the loan to have a 209 00:14:07,280 --> 00:14:11,560 Speaker 1: reasonable conversation and even make an appeal to that maybe 210 00:14:11,600 --> 00:14:14,000 Speaker 1: the loan needs to be restructured. That's in the best 211 00:14:14,040 --> 00:14:17,200 Speaker 1: interests of the lender and the borrower and the collateral. 212 00:14:17,520 --> 00:14:19,960 Speaker 1: But there's no one to really talk to. Okay, that's 213 00:14:20,160 --> 00:14:25,120 Speaker 1: problem number one in body. Problem number two is that 214 00:14:25,480 --> 00:14:30,280 Speaker 1: because the loan ownership is so fragmented, there is no 215 00:14:31,160 --> 00:14:35,840 Speaker 1: lender per se to actually act in a lender's best interest, 216 00:14:35,920 --> 00:14:40,280 Speaker 1: which is oftentimes in times that are trying to actually 217 00:14:40,640 --> 00:14:45,120 Speaker 1: protect the lenders downside and take over the collateral and 218 00:14:45,120 --> 00:14:48,480 Speaker 1: and control it and and operated to the best of 219 00:14:48,600 --> 00:14:52,760 Speaker 1: the lender's ability. But because there is no one lender 220 00:14:52,800 --> 00:14:56,840 Speaker 1: in control, there's no one really to do that. C MBS, 221 00:14:57,760 --> 00:15:00,240 Speaker 1: there was a strug. There is a something called a 222 00:15:00,280 --> 00:15:05,440 Speaker 1: special services right, and the special servicers theoretically the bond 223 00:15:05,640 --> 00:15:10,520 Speaker 1: holders representative in this process, the one who is supposed 224 00:15:10,560 --> 00:15:13,440 Speaker 1: to speak on behalf of all the bond holders and 225 00:15:13,520 --> 00:15:18,080 Speaker 1: make decisions with regards to workouts and restructurings and foreclosures 226 00:15:18,120 --> 00:15:20,680 Speaker 1: on behalf of all the bond holders. But there are 227 00:15:20,680 --> 00:15:24,480 Speaker 1: a couple of problems. Number One, the special servicer is 228 00:15:24,560 --> 00:15:29,640 Speaker 1: typically special service or for um hundreds if not lisens 229 00:15:29,640 --> 00:15:34,760 Speaker 1: of loans, and during good times, very few of those 230 00:15:34,800 --> 00:15:37,560 Speaker 1: loans are in trouble, and so they don't really need 231 00:15:37,640 --> 00:15:41,640 Speaker 1: to run a big staff two handle the fee loans 232 00:15:41,640 --> 00:15:44,160 Speaker 1: that are in trouble, And they don't because they don't 233 00:15:44,160 --> 00:15:49,200 Speaker 1: actually get to charge servicing fees to the bond holders 234 00:15:49,440 --> 00:15:51,480 Speaker 1: to the trust that the bond holders are invested in 235 00:15:52,080 --> 00:15:58,080 Speaker 1: until and unless loans going to problems status, so they're 236 00:15:58,120 --> 00:16:02,520 Speaker 1: not paid to maintain a regular staff to handle big 237 00:16:02,640 --> 00:16:06,680 Speaker 1: volume of problems as happens in times that are tough 238 00:16:06,760 --> 00:16:09,520 Speaker 1: like today or in the Great Financial Crisis. So so 239 00:16:09,600 --> 00:16:12,600 Speaker 1: they're just not staffing for it, first of all. Second 240 00:16:12,600 --> 00:16:15,080 Speaker 1: of all, and then they have to play catch up 241 00:16:15,080 --> 00:16:17,840 Speaker 1: because they have to quickly bring on staff. But how 242 00:16:17,880 --> 00:16:21,840 Speaker 1: do you find amount of talented people who can quickly 243 00:16:21,880 --> 00:16:26,120 Speaker 1: address the needs of a barber base that's in desperate 244 00:16:26,120 --> 00:16:29,040 Speaker 1: strengths and needs so much who can make decisions quickly, 245 00:16:29,080 --> 00:16:33,040 Speaker 1: It's not really possible. The second problem is that the 246 00:16:33,160 --> 00:16:39,720 Speaker 1: special servicer is also typically paid a feasttream when alone 247 00:16:39,840 --> 00:16:45,520 Speaker 1: becomes problematic and for as long as remains unresolved. So 248 00:16:45,520 --> 00:16:49,000 Speaker 1: so they actually have a financial incentive to not resolve 249 00:16:49,120 --> 00:16:53,600 Speaker 1: problems quickly, which is banistic of course to the senior 250 00:16:53,640 --> 00:16:57,640 Speaker 1: bondholders who accepted a very low rate of return for 251 00:16:57,720 --> 00:17:01,880 Speaker 1: their low risk position, and now they're kind of hanging 252 00:17:01,880 --> 00:17:05,080 Speaker 1: out longer than they want to hang out and longer 253 00:17:05,160 --> 00:17:08,560 Speaker 1: than they probably should be hanging out. The special servicer 254 00:17:09,440 --> 00:17:15,200 Speaker 1: is almost always the owner of the junior most interests 255 00:17:15,400 --> 00:17:19,560 Speaker 1: of the c MBS bond structure, and so for them, 256 00:17:19,600 --> 00:17:25,439 Speaker 1: a quick resolution that locks in losses is is literally 257 00:17:25,480 --> 00:17:28,520 Speaker 1: money out of their pockets, and so so they have 258 00:17:28,600 --> 00:17:33,600 Speaker 1: the further incentive to drag resolutions on for as long 259 00:17:33,640 --> 00:17:37,800 Speaker 1: as possible in the hope that markets recover they can 260 00:17:37,840 --> 00:17:43,480 Speaker 1: avoid locking in aucets. So there's all kinds of intricate 261 00:17:43,880 --> 00:17:47,879 Speaker 1: conflicts of interest built into the the whole cruture and 262 00:17:48,600 --> 00:17:52,320 Speaker 1: it's imperfect. Let's put that right in its current form, 263 00:17:52,359 --> 00:17:56,720 Speaker 1: it's unfair to throw CMBs under the bus because so 264 00:17:56,800 --> 00:17:59,359 Speaker 1: much of what I just said that was problematic about 265 00:17:59,359 --> 00:18:03,960 Speaker 1: CMBN is also problematic in the corporate bond world, where 266 00:18:04,720 --> 00:18:10,800 Speaker 1: ownership of loans in bond form is fragmented, and you know, 267 00:18:11,080 --> 00:18:15,439 Speaker 1: one can make a reasonable case that buying debt in 268 00:18:15,600 --> 00:18:19,720 Speaker 1: bond form is a bad deal. When you're a debt investor, 269 00:18:20,440 --> 00:18:23,040 Speaker 1: you don't have any share of the upside. All you 270 00:18:23,119 --> 00:18:26,480 Speaker 1: have is a best case to get your money back 271 00:18:26,680 --> 00:18:31,440 Speaker 1: and your coupon interests and uh and if things don't 272 00:18:31,560 --> 00:18:35,399 Speaker 1: happen as planned, it gets worse from there. Right, So, 273 00:18:35,520 --> 00:18:41,240 Speaker 1: only that loan in fragmented form called bond form, you've 274 00:18:41,320 --> 00:18:45,480 Speaker 1: given up your ability to actually enforce your lend to 275 00:18:45,640 --> 00:18:49,399 Speaker 1: protect yourself when you need protection. Which is why in 276 00:18:49,480 --> 00:18:52,160 Speaker 1: my firm, you know, the construct of Mosaic, we were 277 00:18:52,359 --> 00:18:55,960 Speaker 1: able to own bonds and we're able to own loans 278 00:18:56,440 --> 00:18:59,280 Speaker 1: in this kind of debt fund that we run. I 279 00:18:59,320 --> 00:19:02,000 Speaker 1: never would buy a bond unless it was extremely cheap 280 00:19:02,040 --> 00:19:05,960 Speaker 1: than being distressed prices. And it's sad that they are 281 00:19:06,040 --> 00:19:10,040 Speaker 1: because distressed that the whole concept of distress that and 282 00:19:10,080 --> 00:19:14,280 Speaker 1: the opportunities rise from distress that are the kind of 283 00:19:14,440 --> 00:19:18,240 Speaker 1: flip side of the same coin of the flawed structure 284 00:19:18,320 --> 00:19:22,439 Speaker 1: that creates the opportunity for distress. That right where people 285 00:19:22,520 --> 00:19:26,560 Speaker 1: just throw their hands up that own these fragmented ownership 286 00:19:26,600 --> 00:19:30,600 Speaker 1: of loans in bond form, and so I can't enforce 287 00:19:30,720 --> 00:19:33,280 Speaker 1: my my lean, I just want to add to this thing, 288 00:19:33,560 --> 00:19:35,400 Speaker 1: and then the I just want out of this thing 289 00:19:35,480 --> 00:19:39,199 Speaker 1: translates into too deep of a discount relative to the 290 00:19:39,280 --> 00:19:44,000 Speaker 1: credit and it creates the huge opportunities for opportunists. So 291 00:19:44,080 --> 00:19:48,359 Speaker 1: I think the bond format kind of creates distress that opportunities. 292 00:19:48,400 --> 00:19:51,480 Speaker 1: It's an interesting phenomenon. It needn't be that way, but 293 00:19:51,560 --> 00:19:53,520 Speaker 1: it is that way because the way it bonds were 294 00:19:54,160 --> 00:19:57,399 Speaker 1: so given that it takes a lot of time to 295 00:19:57,520 --> 00:20:02,160 Speaker 1: renegotiate leases, and given the annics and different incentives that 296 00:20:02,200 --> 00:20:05,000 Speaker 1: you just described, such as the idea that special services 297 00:20:05,040 --> 00:20:08,240 Speaker 1: might be overwhelmed with the number of troubled loans that 298 00:20:08,280 --> 00:20:11,280 Speaker 1: are having to take care of at the moment, what 299 00:20:11,320 --> 00:20:15,760 Speaker 1: does that mean for valuations, Like how long will valuation 300 00:20:15,840 --> 00:20:21,119 Speaker 1: resets actually take in commercial real estate now versus previous 301 00:20:21,240 --> 00:20:25,760 Speaker 1: real estate crisis. We're in uncharted territories in much of 302 00:20:26,480 --> 00:20:30,080 Speaker 1: the commercial real estate market today, and there is no 303 00:20:30,400 --> 00:20:36,440 Speaker 1: real basis for for insets for even taking wild guesses 304 00:20:36,600 --> 00:20:41,640 Speaker 1: on valuation. Evaluation really comes from at the very beginning, 305 00:20:42,119 --> 00:20:45,959 Speaker 1: the question of viability. And to me, the word viability, 306 00:20:46,040 --> 00:20:49,320 Speaker 1: when I apply it to real is very simply the 307 00:20:49,400 --> 00:20:54,040 Speaker 1: human beings want to be there, okay, wherever there is, Like, 308 00:20:54,119 --> 00:20:56,359 Speaker 1: you know, you have a nice office building goes in 309 00:20:56,480 --> 00:21:00,200 Speaker 1: right now, and the question is will you and things 310 00:21:00,280 --> 00:21:04,120 Speaker 1: wanted to actually go to the office in that location. Well, 311 00:21:04,160 --> 00:21:07,840 Speaker 1: it was the answer before March seemed to be unquestionably yes, 312 00:21:08,800 --> 00:21:11,080 Speaker 1: But even for a wonderful building like the one Joe 313 00:21:11,119 --> 00:21:14,800 Speaker 1: sitting in right now, it's certainly less certain than an 314 00:21:14,840 --> 00:21:20,600 Speaker 1: absolutely yes and so out knowing kind of viability, it's 315 00:21:20,640 --> 00:21:25,320 Speaker 1: really it's really impossible to to kind of arrive at 316 00:21:25,520 --> 00:21:29,280 Speaker 1: value today. I think much of commercial will stay today. 317 00:21:29,800 --> 00:21:33,040 Speaker 1: I would say it's nearly impossible to establish values for 318 00:21:33,080 --> 00:21:34,879 Speaker 1: a lot of commercial real stay today, and we just 319 00:21:34,920 --> 00:21:38,000 Speaker 1: have to see how the world plays out a little 320 00:21:38,000 --> 00:21:41,919 Speaker 1: bit more. Both the other the other part of valuation 321 00:21:42,720 --> 00:21:47,480 Speaker 1: also timing, So you can say, well, maybe that building 322 00:21:47,600 --> 00:21:50,040 Speaker 1: is going to be viable, but maybe it's going to 323 00:21:50,119 --> 00:21:53,480 Speaker 1: take two years before it returns to its prior normal 324 00:21:53,560 --> 00:21:57,240 Speaker 1: operating level. Well, then you have to discount cash flows 325 00:21:57,280 --> 00:22:00,760 Speaker 1: that are suboptimal for two years and ducts kind of 326 00:22:00,800 --> 00:22:05,080 Speaker 1: whatever shortfall there is from the evaluation. So timing and 327 00:22:05,800 --> 00:22:10,000 Speaker 1: absolute viability are so uncertain toy that it would be 328 00:22:11,200 --> 00:22:14,600 Speaker 1: it would just be more gambling than investing to try 329 00:22:14,760 --> 00:22:19,040 Speaker 1: kind of decide a value. So I loved your sort 330 00:22:19,040 --> 00:22:23,000 Speaker 1: of description about the tensions and conflicts of interest that 331 00:22:23,080 --> 00:22:27,400 Speaker 1: emerge from the bond or the CNBS structure and the 332 00:22:27,440 --> 00:22:32,320 Speaker 1: difficulty that arises so practically speaking, right now in New York, 333 00:22:32,440 --> 00:22:35,920 Speaker 1: obviously all kinds of issues. There's questions about office buildings, 334 00:22:36,000 --> 00:22:41,040 Speaker 1: there's questions about areas that are retail and very tourists dominated, 335 00:22:41,400 --> 00:22:44,399 Speaker 1: and as you say, we really just we're just guessing 336 00:22:44,400 --> 00:22:46,480 Speaker 1: at this point because we really don't know what the 337 00:22:46,520 --> 00:22:48,040 Speaker 1: future looks like. We don't know when there will be 338 00:22:48,080 --> 00:22:52,520 Speaker 1: a vaccine and so forth. How does the tension that 339 00:22:52,600 --> 00:22:57,320 Speaker 1: you described, how is it playing out right now as 340 00:22:57,680 --> 00:23:02,760 Speaker 1: retailers try to negotiate with landlords and landlords tried to 341 00:23:02,880 --> 00:23:08,600 Speaker 1: renegotiate with lenders what is the discussion and the tension, 342 00:23:08,720 --> 00:23:12,879 Speaker 1: what's happening right now in those rooms. Well, I've not 343 00:23:13,040 --> 00:23:17,399 Speaker 1: been privy to those rooms myself, so again i'd be 344 00:23:17,720 --> 00:23:21,120 Speaker 1: just reporting second hand to you from what I see 345 00:23:21,119 --> 00:23:23,720 Speaker 1: and how things out and how I knowing some of 346 00:23:23,760 --> 00:23:26,240 Speaker 1: the players, how I would imagine they're handling it. But 347 00:23:26,720 --> 00:23:31,119 Speaker 1: it's not fun for anybody. You're talking about retail real estate, 348 00:23:31,320 --> 00:23:35,800 Speaker 1: which is the most uncertain of all. You know, you've 349 00:23:35,800 --> 00:23:39,320 Speaker 1: got retailer, You've got office hotels. To a certain extent, 350 00:23:39,960 --> 00:23:43,160 Speaker 1: are the three areas where you've got the greatest uncertainty 351 00:23:43,480 --> 00:23:46,440 Speaker 1: In that order, I would imagine and and and As 352 00:23:46,440 --> 00:23:51,600 Speaker 1: it pertains to retail real there's existential issues that retailers 353 00:23:51,640 --> 00:23:55,840 Speaker 1: themselves are facing. So you know, I think, uh, it'll 354 00:23:56,280 --> 00:24:00,000 Speaker 1: will be some lawyers who do very well in this process, 355 00:24:00,160 --> 00:24:03,720 Speaker 1: because I think that you're gonna see heightened litigation. You'll 356 00:24:03,720 --> 00:24:06,840 Speaker 1: see bankruptcy lawyers doing very well, and I think a 357 00:24:06,840 --> 00:24:09,560 Speaker 1: lot of it will be centered around with retail. The 358 00:24:09,680 --> 00:24:15,399 Speaker 1: counterbalance so far is that contorically easy monetary policy, and 359 00:24:15,440 --> 00:24:19,240 Speaker 1: that's playing out not just with historically low interest rates, 360 00:24:19,280 --> 00:24:24,680 Speaker 1: but also directs straight from the Fed to the banking 361 00:24:24,720 --> 00:24:30,479 Speaker 1: community to be kind to borrowers and uh and not 362 00:24:30,640 --> 00:24:35,080 Speaker 1: press them. You know. The old need might have not 363 00:24:35,280 --> 00:24:38,600 Speaker 1: been too happy about that, because I'm a fairly strong 364 00:24:39,080 --> 00:24:43,680 Speaker 1: market advocate, but I actually think it's it's the prudent 365 00:24:43,720 --> 00:24:46,800 Speaker 1: thing to do. You know, the system itself is so 366 00:24:46,960 --> 00:24:52,159 Speaker 1: fra today had say historically fragile that it's the wise 367 00:24:52,240 --> 00:24:56,280 Speaker 1: thing to do and is creating whatever audicum of stability 368 00:24:56,560 --> 00:24:59,560 Speaker 1: that allows us to kind of breathe as easy as 369 00:24:59,600 --> 00:25:05,320 Speaker 1: we can breathing today, considering how grave the crisis. There 370 00:25:05,400 --> 00:25:09,520 Speaker 1: was some talk earlier this year, um sort of in 371 00:25:09,520 --> 00:25:12,760 Speaker 1: the depths of the crisis, of potentially seeing a CMBs 372 00:25:12,840 --> 00:25:16,600 Speaker 1: or cr E bailout of some sort What do you 373 00:25:16,680 --> 00:25:19,920 Speaker 1: think about that idea? Does Does the idea of being 374 00:25:20,080 --> 00:25:24,360 Speaker 1: um nice to borrowers extend all the way to bail out? 375 00:25:24,760 --> 00:25:26,720 Speaker 1: I don't think so. You know, I actually wrote a 376 00:25:26,720 --> 00:25:30,240 Speaker 1: piece that was picked up by some of your folks 377 00:25:30,240 --> 00:25:35,280 Speaker 1: in Bloomberg in the government can't help everybody out. I 378 00:25:35,280 --> 00:25:39,639 Speaker 1: think it should not. I think that it needs. You know, 379 00:25:39,760 --> 00:25:42,520 Speaker 1: in times like this, we need to make sure that 380 00:25:42,560 --> 00:25:47,520 Speaker 1: the people who are most fragile, most vulnerable, and his 381 00:25:47,720 --> 00:25:50,800 Speaker 1: basic needs they're not able to attend to that they 382 00:25:50,920 --> 00:25:54,720 Speaker 1: that their needs can be attended to. So that's where 383 00:25:54,760 --> 00:25:58,600 Speaker 1: I think the bandwidth of government large s must be 384 00:25:59,080 --> 00:26:04,040 Speaker 1: must be spent. I don't think um having that lost 385 00:26:04,200 --> 00:26:08,399 Speaker 1: run through the hands of corporate entities or wealthy individuals 386 00:26:08,520 --> 00:26:13,399 Speaker 1: makes any sense at all. It's just so we have 387 00:26:13,800 --> 00:26:17,720 Speaker 1: a fine legal system in this country that allows for 388 00:26:18,720 --> 00:26:24,959 Speaker 1: banksies to resolve issues, and that allows for loan foreclosures 389 00:26:24,960 --> 00:26:29,240 Speaker 1: to resolve issues and new owners can come in. I 390 00:26:29,280 --> 00:26:32,199 Speaker 1: don't I don't think that's That's not the way the 391 00:26:32,240 --> 00:26:55,159 Speaker 1: world should work. I'm pretty out of it, actually, I 392 00:26:55,200 --> 00:26:56,680 Speaker 1: just want to go back to a question you need 393 00:26:56,800 --> 00:27:00,800 Speaker 1: talking about this extraordinary moment of uncertain to the evaluation 394 00:27:00,840 --> 00:27:03,240 Speaker 1: of this real estate. Is there a market for it? 395 00:27:03,280 --> 00:27:05,800 Speaker 1: Is there even a bid ask spread right now? If 396 00:27:05,800 --> 00:27:08,080 Speaker 1: someone wanted to come in and make a bid for 397 00:27:08,920 --> 00:27:12,280 Speaker 1: a big, you know, commercial real estate location. Does that 398 00:27:12,359 --> 00:27:16,320 Speaker 1: market exist or is it just basically no one's selling 399 00:27:16,359 --> 00:27:19,520 Speaker 1: because no one has any idea. I think that there's 400 00:27:20,200 --> 00:27:23,960 Speaker 1: there is a market. There's a fairly big gap between 401 00:27:24,080 --> 00:27:27,080 Speaker 1: where sellers would like to sell and where buyers would 402 00:27:27,080 --> 00:27:29,840 Speaker 1: like to buy. I think that they're I don't necessarily 403 00:27:29,840 --> 00:27:32,280 Speaker 1: think there should be a market though, as I said before, 404 00:27:32,359 --> 00:27:36,040 Speaker 1: for many assets, because I think uncertainty is very high, 405 00:27:36,160 --> 00:27:39,359 Speaker 1: and I think that there is money burning a hole 406 00:27:39,480 --> 00:27:43,240 Speaker 1: through people's pockets, and it's not their money, it's money 407 00:27:43,240 --> 00:27:46,760 Speaker 1: they charge fees on. So that's part of the part 408 00:27:46,760 --> 00:27:50,119 Speaker 1: of the interesting phenomenon of how money is managed and 409 00:27:50,240 --> 00:27:52,920 Speaker 1: is invested in this world, not just in real estate, 410 00:27:53,359 --> 00:27:57,200 Speaker 1: but it's typically invested. It's money is kind of cooled 411 00:27:57,840 --> 00:28:00,760 Speaker 1: as it is in pools that I manage and invested 412 00:28:00,800 --> 00:28:04,679 Speaker 1: by people like my mouth who get paid to manage 413 00:28:04,720 --> 00:28:09,240 Speaker 1: the money. So the money also sometimes comes with final 414 00:28:09,840 --> 00:28:12,680 Speaker 1: maturity dates where if it's not invested by a certain time, 415 00:28:12,920 --> 00:28:17,240 Speaker 1: it needs to be checked to its original owner. So 416 00:28:17,320 --> 00:28:21,879 Speaker 1: that creates an impetus to invest okay so as to 417 00:28:22,080 --> 00:28:25,040 Speaker 1: lock in the associate with managing that money rather than 418 00:28:25,119 --> 00:28:28,439 Speaker 1: return it to the investor hund invested. So there is 419 00:28:28,520 --> 00:28:32,479 Speaker 1: a lot of money organized today that is sitting and 420 00:28:32,520 --> 00:28:37,119 Speaker 1: waiting and wants to invest, and managers who want to 421 00:28:37,160 --> 00:28:40,520 Speaker 1: invest it, and I think that there's the tug of 422 00:28:40,560 --> 00:28:46,200 Speaker 1: war between being imprudent and investing. I think sellers would 423 00:28:46,240 --> 00:28:49,720 Speaker 1: like to get near March prices, and I think buyer's 424 00:28:50,600 --> 00:28:52,840 Speaker 1: kind of would feel very bad if they didn't get 425 00:28:52,880 --> 00:28:55,920 Speaker 1: at least for real estate today and the retail sector 426 00:28:56,120 --> 00:29:01,680 Speaker 1: or the office sector at least, and hotels or more 427 00:29:01,760 --> 00:29:06,280 Speaker 1: down to March pricing, and I would argue they deserve 428 00:29:06,360 --> 00:29:11,280 Speaker 1: more because uncertainty is so high. So I think that 429 00:29:11,560 --> 00:29:14,880 Speaker 1: there is a market. There's been very little that's transacted 430 00:29:14,920 --> 00:29:18,600 Speaker 1: again because on the seller side, there's been kind of 431 00:29:18,600 --> 00:29:22,320 Speaker 1: an advance of pressure from the lending community really directly 432 00:29:22,360 --> 00:29:25,800 Speaker 1: resulted from the FEDS policies, and I think you've seen 433 00:29:25,920 --> 00:29:28,640 Speaker 1: very little selling. There was a big office building in 434 00:29:28,720 --> 00:29:32,600 Speaker 1: downtown l A that's sold at one what I think 435 00:29:32,760 --> 00:29:37,840 Speaker 1: one would characterize maybe below what it might have been 436 00:29:37,880 --> 00:29:40,959 Speaker 1: worth six months ago. That was about it. There has 437 00:29:41,000 --> 00:29:43,960 Speaker 1: been very little and there's very little activity for the 438 00:29:44,000 --> 00:29:47,840 Speaker 1: reasons I mentioned so far. You mentioned the role of 439 00:29:47,880 --> 00:29:50,000 Speaker 1: the FED just soon, and of course we know that 440 00:29:50,040 --> 00:29:52,680 Speaker 1: the Central Bank is acting as a backstop for a 441 00:29:52,760 --> 00:29:57,840 Speaker 1: whole bunch of different assets. At the moment, I'm wondering, 442 00:29:58,920 --> 00:30:01,720 Speaker 1: given the FED is there and the FED is the backstop, 443 00:30:02,000 --> 00:30:06,920 Speaker 1: in what situation would we ever see, Siri, credit spreads 444 00:30:06,960 --> 00:30:11,640 Speaker 1: blowing out again. When you say CRI spreads so there's 445 00:30:11,840 --> 00:30:16,480 Speaker 1: there's CMBs, which has almost I would say a very 446 00:30:16,520 --> 00:30:21,440 Speaker 1: bifurcated world in the sense that there's the senior most bonds, 447 00:30:21,520 --> 00:30:25,680 Speaker 1: which are triple A rated, which I think are reasonable 448 00:30:25,760 --> 00:30:31,240 Speaker 1: credits that have held up over cycles before, and those 449 00:30:31,360 --> 00:30:34,760 Speaker 1: tend to blow out at the very beginning with everything 450 00:30:34,840 --> 00:30:40,120 Speaker 1: because when liquidity tightened, when liquidity times up, it affects everything, 451 00:30:40,600 --> 00:30:44,680 Speaker 1: and then the triple A spreads tend to snap back, 452 00:30:44,720 --> 00:30:46,720 Speaker 1: and it turns out to have been a very good 453 00:30:46,760 --> 00:30:49,200 Speaker 1: trade if you could, if you could put buy some 454 00:30:49,400 --> 00:30:52,920 Speaker 1: and enough trades to make it a big trade for anybody, 455 00:30:53,320 --> 00:30:56,120 Speaker 1: And it happened here. So like triple A spreads, which 456 00:30:56,120 --> 00:31:01,280 Speaker 1: had been so certainly some one hundred spread widen out 457 00:31:01,280 --> 00:31:04,240 Speaker 1: to three twenty, and it was, you know, it was 458 00:31:04,280 --> 00:31:07,800 Speaker 1: a great and obvious trade. Not too many sellers at 459 00:31:07,840 --> 00:31:10,640 Speaker 1: three twenty and therefore not too many buyers block. But 460 00:31:11,040 --> 00:31:12,840 Speaker 1: it was obviously it was going to snap back, and 461 00:31:12,960 --> 00:31:15,720 Speaker 1: it has snap back to saw under it again. The 462 00:31:15,960 --> 00:31:20,360 Speaker 1: more junior classes, where there's concentrated credit risk, they're still 463 00:31:20,440 --> 00:31:24,080 Speaker 1: pretty wide, and I think deservedly so. I wouldn't touch 464 00:31:24,160 --> 00:31:27,760 Speaker 1: him with the tent football. You're taking a concentrated credit 465 00:31:27,880 --> 00:31:33,280 Speaker 1: risk with tremendous exposure to retail and office and hotel 466 00:31:33,520 --> 00:31:37,560 Speaker 1: properties around the tree and UH and no ability to 467 00:31:37,640 --> 00:31:41,880 Speaker 1: really enforce your lean because of this fragmented ownership in form. 468 00:31:41,960 --> 00:31:45,480 Speaker 1: So I think I'd be surprised if those tightened anytime soon. 469 00:31:46,200 --> 00:31:48,960 Speaker 1: Over time, if things hell, they will tighten because there's 470 00:31:49,040 --> 00:31:53,200 Speaker 1: money to invest and will push threads tighter. Money flows 471 00:31:53,240 --> 00:31:57,400 Speaker 1: determined pricing more than anything else, more than credit worthiness. 472 00:31:57,480 --> 00:32:01,040 Speaker 1: On the loan side, it's more an on off thing. 473 00:32:01,400 --> 00:32:05,800 Speaker 1: I think that there's no real loan money to speak 474 00:32:05,880 --> 00:32:11,000 Speaker 1: of available or office in retail today UH and hotel 475 00:32:11,240 --> 00:32:14,280 Speaker 1: very little. So there's just not a lot getting done. 476 00:32:14,520 --> 00:32:16,880 Speaker 1: So I don't know if spreads or wider. Just money 477 00:32:16,920 --> 00:32:19,360 Speaker 1: is not very avaluable, spreads are a little wider as 478 00:32:19,400 --> 00:32:21,120 Speaker 1: a result of what you have to get something done 479 00:32:21,160 --> 00:32:24,040 Speaker 1: for sure, Spreads or wider, and the loan side by 480 00:32:24,320 --> 00:32:27,480 Speaker 1: a good hundred basis points, maybe maybe even a little more. 481 00:32:28,480 --> 00:32:32,040 Speaker 1: Looking forward, this is where I think, going back to 482 00:32:32,120 --> 00:32:34,960 Speaker 1: something we talked about it earlier, which is the tie 483 00:32:35,000 --> 00:32:39,600 Speaker 1: in of everything everything. So if you look at the 484 00:32:39,640 --> 00:32:45,000 Speaker 1: gigantic debt government runs, and not just federal government, but 485 00:32:45,960 --> 00:32:50,160 Speaker 1: state and local governments and the fiscal imbalances that exist 486 00:32:50,240 --> 00:32:54,560 Speaker 1: in this kind. I often wonder how much of bank 487 00:32:54,680 --> 00:32:58,760 Speaker 1: balance sheets will ultimately be co opted to buy that 488 00:32:58,880 --> 00:33:02,920 Speaker 1: debt that happens, and I suspect it will. You know, 489 00:33:02,960 --> 00:33:06,200 Speaker 1: there was a time in America when bank balance sheets 490 00:33:06,240 --> 00:33:11,360 Speaker 1: were more than government debt in recent past, it in 491 00:33:11,720 --> 00:33:15,440 Speaker 1: the single digits. So if I'm right, and bank balance 492 00:33:15,440 --> 00:33:20,360 Speaker 1: sheets become the haven kind of to store low rate 493 00:33:20,680 --> 00:33:24,520 Speaker 1: government debt because there's no real market did for that 494 00:33:25,480 --> 00:33:29,520 Speaker 1: any near the yields that makes sense kind of fiscally, 495 00:33:30,240 --> 00:33:33,480 Speaker 1: then that crowds the bank out before forcing a lot 496 00:33:33,520 --> 00:33:38,080 Speaker 1: of the private sector, which pushes it into private funds financing. 497 00:33:38,280 --> 00:33:42,200 Speaker 1: And the rate that private funds blant is going to 498 00:33:42,240 --> 00:33:47,080 Speaker 1: be substantially higher than where benchmarks like government bonds trade, 499 00:33:47,120 --> 00:33:51,920 Speaker 1: which is where benchmarks typically are. So spreads to governments 500 00:33:52,120 --> 00:33:58,360 Speaker 1: for credit could widen dramatically over the next I would 501 00:33:58,360 --> 00:34:00,640 Speaker 1: say decade. I would not be eyes if that was 502 00:34:00,680 --> 00:34:02,800 Speaker 1: a trend that we saw for the next second, for 503 00:34:02,920 --> 00:34:06,920 Speaker 1: the reason I mentioned, let's I'm curious about, you know, 504 00:34:06,960 --> 00:34:09,080 Speaker 1: the sort of knock on effects, like let's say some 505 00:34:09,160 --> 00:34:12,680 Speaker 1: of these assets really do they don't bounce back for 506 00:34:12,840 --> 00:34:17,160 Speaker 1: years prime real estate and hotels and offices and big 507 00:34:17,200 --> 00:34:21,759 Speaker 1: cities like New York and other, Chicago and elsewhere. What 508 00:34:21,880 --> 00:34:25,480 Speaker 1: are the then following effects, like what is the who 509 00:34:25,480 --> 00:34:28,080 Speaker 1: are the pools of owners of this dead and what 510 00:34:28,120 --> 00:34:30,440 Speaker 1: does it do to them if they really have to 511 00:34:30,480 --> 00:34:33,680 Speaker 1: take in the end sort of massive marks down mark 512 00:34:33,760 --> 00:34:38,480 Speaker 1: downs on their holding. It's going to be very exciting 513 00:34:38,600 --> 00:34:43,799 Speaker 1: to that play out because they're clearly, you know, one 514 00:34:43,840 --> 00:34:47,280 Speaker 1: would suggest they're they're clearly going to be big losses 515 00:34:48,280 --> 00:34:52,560 Speaker 1: that have to be born by someone, you know, some 516 00:34:52,640 --> 00:34:57,040 Speaker 1: group of someone, and there's always been a tug of 517 00:34:57,200 --> 00:35:00,959 Speaker 1: war as to the allocation of those losses between the 518 00:35:01,120 --> 00:35:05,399 Speaker 1: equity owner of party and their lender. It's a it's 519 00:35:05,440 --> 00:35:09,080 Speaker 1: a it's an old kind of tradition in real estate 520 00:35:09,760 --> 00:35:14,319 Speaker 1: when when things go well, the property creates efficient cash 521 00:35:14,320 --> 00:35:17,839 Speaker 1: flow to pay and repay the lender, you know, when 522 00:35:18,000 --> 00:35:22,080 Speaker 1: the loan tourers. But when things don't go well, the 523 00:35:22,120 --> 00:35:25,640 Speaker 1: borrower calls a lender and says, we've got a problem, 524 00:35:25,880 --> 00:35:28,360 Speaker 1: you know, instead of utter problems, we've got a problem. 525 00:35:28,680 --> 00:35:31,279 Speaker 1: How are we going to fix it? Of course, the 526 00:35:31,280 --> 00:35:33,200 Speaker 1: way it's supposed to be is the boss is supposed 527 00:35:33,239 --> 00:35:36,960 Speaker 1: to lose everything because the lender has taken this safer 528 00:35:37,239 --> 00:35:40,719 Speaker 1: position in lieu of upside. But again, as I go 529 00:35:40,800 --> 00:35:45,320 Speaker 1: back to, because most lenders, even whole own lenders like banks, 530 00:35:45,680 --> 00:35:49,359 Speaker 1: are just not set up to own property. There's been 531 00:35:49,400 --> 00:35:52,680 Speaker 1: a long edition in real estate where when things don't 532 00:35:52,680 --> 00:35:58,360 Speaker 1: go well, the lender recreates value or economic value because 533 00:35:58,400 --> 00:36:01,840 Speaker 1: they don't have the will of the capacity to enforce 534 00:36:01,880 --> 00:36:05,080 Speaker 1: their own mean and take the barrow out. And so 535 00:36:05,440 --> 00:36:09,120 Speaker 1: lenders do lose money when they not necessarily you wouldn't 536 00:36:09,120 --> 00:36:12,640 Speaker 1: think they should because of the hierarchy of the capital structure. 537 00:36:13,920 --> 00:36:16,560 Speaker 1: So how that all plays out will be very interesting 538 00:36:16,600 --> 00:36:22,319 Speaker 1: to watch, but unquestionably there are losses in the system. UM, 539 00:36:22,360 --> 00:36:25,480 Speaker 1: I have a sort of big picture question for you, 540 00:36:25,520 --> 00:36:28,120 Speaker 1: and I know you like to to think about these, 541 00:36:28,160 --> 00:36:31,840 Speaker 1: and I've seen some of your recent blog postings, But 542 00:36:33,160 --> 00:36:39,160 Speaker 1: when you look at the economic crisis, of what role 543 00:36:39,520 --> 00:36:42,320 Speaker 1: do you see there for the federal government? What should 544 00:36:42,400 --> 00:36:45,160 Speaker 1: they be doing to to cush in the blow, if 545 00:36:45,200 --> 00:36:49,759 Speaker 1: if anything. As I said earlier, I'm a big free 546 00:36:49,760 --> 00:36:55,480 Speaker 1: market advocate, but I'm also a person who's living my 547 00:36:55,600 --> 00:37:01,040 Speaker 1: eyes open and realizing the realities of the tuation we're facing. 548 00:37:01,600 --> 00:37:06,440 Speaker 1: I think we're too far on to be have a 549 00:37:06,480 --> 00:37:10,560 Speaker 1: libertarian last affair approach to things. You know, that worked, 550 00:37:10,640 --> 00:37:14,359 Speaker 1: by the way, and you know the early nineties when 551 00:37:14,880 --> 00:37:19,000 Speaker 1: CNBS was created, that was a time when the government 552 00:37:19,160 --> 00:37:24,319 Speaker 1: largely had a last affair approach and and closed a 553 00:37:24,320 --> 00:37:27,239 Speaker 1: lot of financial institutions and liquidated their assets when they 554 00:37:27,239 --> 00:37:31,240 Speaker 1: didn't have enough regulatory capital. They actually took a harsh 555 00:37:31,400 --> 00:37:35,560 Speaker 1: stance and and a non kind of savior stance to 556 00:37:35,640 --> 00:37:41,279 Speaker 1: the world. The O A response changed everything. And I 557 00:37:41,280 --> 00:37:47,080 Speaker 1: would say the O eight response was gravely mistaken, but 558 00:37:47,200 --> 00:37:49,200 Speaker 1: it created and I knew it would, and I wrote 559 00:37:49,280 --> 00:37:57,000 Speaker 1: at the time it created a dependence mentality upon the 560 00:37:57,040 --> 00:38:01,600 Speaker 1: FED and upon the government to save us from pain suffering. 561 00:38:02,400 --> 00:38:06,640 Speaker 1: And once that precedent was set, you know, a theyre 562 00:38:06,719 --> 00:38:09,879 Speaker 1: is never going to be turning back. And so that's 563 00:38:09,960 --> 00:38:13,880 Speaker 1: too late. We've we've been running around with this crutch 564 00:38:13,920 --> 00:38:17,799 Speaker 1: of dependence for so long that our legs don't work 565 00:38:17,840 --> 00:38:21,560 Speaker 1: any As a decided we can't run around without the crouch, 566 00:38:22,400 --> 00:38:29,160 Speaker 1: and so bad behavior, running up massive debts and and 567 00:38:29,160 --> 00:38:34,000 Speaker 1: and unsustainable cystal imbalances has been the natural byproduct of 568 00:38:34,120 --> 00:38:37,960 Speaker 1: oh eight o nine and now as a society. Uh, 569 00:38:38,000 --> 00:38:40,480 Speaker 1: and I say us, it's global, it's not just America. 570 00:38:41,200 --> 00:38:45,320 Speaker 1: We're in an impossible position. And no, no, if you 571 00:38:45,440 --> 00:38:48,200 Speaker 1: really predict exactly where things are going, I have my opinions, 572 00:38:48,320 --> 00:38:52,200 Speaker 1: but but I don't think the government can walk away 573 00:38:52,280 --> 00:38:58,799 Speaker 1: because government kind of exists to help us society avoid archy. 574 00:38:59,239 --> 00:39:02,279 Speaker 1: And I think where at the we're as close to 575 00:39:02,360 --> 00:39:06,520 Speaker 1: anarchy as we've ever been in modern times. I think 576 00:39:06,719 --> 00:39:08,640 Speaker 1: we're in a depression. So I'll tell you this. I 577 00:39:08,680 --> 00:39:11,320 Speaker 1: think that we're in a depression like the nineteen thirties. 578 00:39:11,760 --> 00:39:16,040 Speaker 1: But the difference between the nineties and now is the 579 00:39:16,080 --> 00:39:19,680 Speaker 1: federal government's response. Right. In the nineteen thirties, there was 580 00:39:19,719 --> 00:39:24,120 Speaker 1: no response, so nobody got helped. The banks were allowed 581 00:39:24,120 --> 00:39:28,439 Speaker 1: to fail, everything was allowed to kind of go go under, 582 00:39:28,640 --> 00:39:32,040 Speaker 1: and where there were breadlines and there was massive homelessness. 583 00:39:32,160 --> 00:39:36,359 Speaker 1: Today you have massive government response, right, And so the 584 00:39:36,400 --> 00:39:40,640 Speaker 1: massive government response is masking over some of the natural 585 00:39:40,719 --> 00:39:45,680 Speaker 1: symptoms of the depression. And you know what, it's hard 586 00:39:45,719 --> 00:39:49,439 Speaker 1: for someone libertarian leaning to say this, it's the only 587 00:39:49,640 --> 00:39:52,880 Speaker 1: right choice. There is no other choice, and we're just 588 00:39:52,920 --> 00:39:55,000 Speaker 1: going to have to get used to it. Those of 589 00:39:55,120 --> 00:39:58,120 Speaker 1: us who are grew up lovers of the free market, 590 00:39:58,640 --> 00:40:00,520 Speaker 1: We're just gonna have to suck it up and just 591 00:40:00,560 --> 00:40:02,759 Speaker 1: say this is this is the new world that we're 592 00:40:02,800 --> 00:40:04,960 Speaker 1: living in, and it's not going to change and can't. 593 00:40:06,000 --> 00:40:08,720 Speaker 1: I'm curious. So, you know, thinking back in two thousand 594 00:40:08,960 --> 00:40:13,000 Speaker 1: two nine, that was truly a national crisis, and it 595 00:40:13,120 --> 00:40:16,719 Speaker 1: basically hit everywhere at the same time and arguably to 596 00:40:16,840 --> 00:40:19,640 Speaker 1: the same severity this time. I mean, you know, I'm 597 00:40:19,680 --> 00:40:23,080 Speaker 1: in New York and obviously, uh, people think it's going 598 00:40:23,120 --> 00:40:24,640 Speaker 1: to be pretty bleak here for a while. But I 599 00:40:24,719 --> 00:40:27,399 Speaker 1: was just in Austin, Texas for a while and people 600 00:40:27,680 --> 00:40:29,759 Speaker 1: this is booming and a lot of people are moving there. 601 00:40:30,160 --> 00:40:32,640 Speaker 1: And so I'm curious how you see the sort of 602 00:40:32,640 --> 00:40:36,160 Speaker 1: bifurcation of the economy where it's not just not necessarily 603 00:40:36,200 --> 00:40:40,200 Speaker 1: a national recession nder a national depression, but as simultaneous 604 00:40:40,280 --> 00:40:43,320 Speaker 1: boom in one place, boom in some real estate market, 605 00:40:43,680 --> 00:40:48,239 Speaker 1: boom in some office markets, and crash and others think 606 00:40:48,320 --> 00:40:51,560 Speaker 1: that that is a very accurate assessment of the way 607 00:40:51,640 --> 00:40:56,080 Speaker 1: things are right now, which makes it very interesting in 608 00:40:56,120 --> 00:40:59,160 Speaker 1: the sense that there are definitely going to be winners 609 00:40:59,200 --> 00:41:03,520 Speaker 1: and losers, right and and that's you know, it's not 610 00:41:03,600 --> 00:41:07,080 Speaker 1: fun for the losers, but it's fun for the people 611 00:41:07,080 --> 00:41:09,280 Speaker 1: who like to play the game and think they're capable 612 00:41:09,280 --> 00:41:13,080 Speaker 1: of winning. So, you know, when you talk about real estate, 613 00:41:13,600 --> 00:41:17,560 Speaker 1: when you talk about anything related to the economy, and 614 00:41:17,600 --> 00:41:23,040 Speaker 1: when you talk even about societal constructs, there's a massive 615 00:41:23,080 --> 00:41:26,719 Speaker 1: competition going on right now for all those things. You 616 00:41:26,800 --> 00:41:29,440 Speaker 1: just described it very well, and it's going to be 617 00:41:29,920 --> 00:41:33,319 Speaker 1: it's going to be something to behold to. Just sort 618 00:41:33,320 --> 00:41:37,160 Speaker 1: of describe the challenge. I mean, a, we've had this 619 00:41:37,239 --> 00:41:42,040 Speaker 1: extraordinary government response so far. We'll see what further is 620 00:41:42,040 --> 00:41:43,640 Speaker 1: going to come. But you also sort of describe the 621 00:41:43,719 --> 00:41:47,319 Speaker 1: sort of sense of anarchy. Does that exacerbated the fact 622 00:41:47,320 --> 00:41:50,920 Speaker 1: that different parts of the country are experiencing this moment 623 00:41:51,000 --> 00:41:55,400 Speaker 1: so differently. I think that what's likely to occur it's rational. 624 00:41:55,440 --> 00:42:01,080 Speaker 1: The rational things will occur, meaning investors, companies will go 625 00:42:01,360 --> 00:42:08,200 Speaker 1: to places that they feel it can deliver things that 626 00:42:08,239 --> 00:42:13,319 Speaker 1: benefit companies and the and their constituents, primarily their employees. Right, 627 00:42:13,400 --> 00:42:18,840 Speaker 1: So companies will move from places where perhaps physical safety 628 00:42:18,960 --> 00:42:24,320 Speaker 1: is not as not as certain, or fiscal imbalances create 629 00:42:24,360 --> 00:42:27,319 Speaker 1: a need for higher taxation, and they're going to move 630 00:42:27,360 --> 00:42:30,960 Speaker 1: to places where physical safety is perceived to be better 631 00:42:31,239 --> 00:42:36,799 Speaker 1: and taxation lighter. And uh, that's true for employers, and 632 00:42:36,840 --> 00:42:40,600 Speaker 1: it's true for the wealthiest of the communities who pay 633 00:42:40,600 --> 00:42:42,919 Speaker 1: a lot of the taxes. As you know, New York 634 00:42:44,120 --> 00:42:46,360 Speaker 1: of its budgets paid for by one percent of the 635 00:42:46,440 --> 00:42:50,960 Speaker 1: tax payer. So that creates his downward spiral. It's very 636 00:42:51,080 --> 00:42:54,799 Speaker 1: very hard to undo. And uh, and then a very 637 00:42:54,840 --> 00:42:59,319 Speaker 1: bullish spiral for the kind of recipients of these movers 638 00:42:59,400 --> 00:43:03,719 Speaker 1: and the states that people are coming to. So that's 639 00:43:04,800 --> 00:43:07,799 Speaker 1: how that ultimately plays out. Because if you play it 640 00:43:07,800 --> 00:43:12,000 Speaker 1: out to its logical conclusion, you're going to have dystopian 641 00:43:12,560 --> 00:43:16,480 Speaker 1: cities around this country and it's going to be really, 642 00:43:17,480 --> 00:43:21,320 Speaker 1: really weird, and the federal government have to make a decision. 643 00:43:21,880 --> 00:43:25,680 Speaker 1: I think about what is the United States? Right? I mean, 644 00:43:25,719 --> 00:43:28,600 Speaker 1: there's there's some really big questions that really have never 645 00:43:28,640 --> 00:43:32,280 Speaker 1: been asked for a couple hundred years in this country 646 00:43:32,840 --> 00:43:34,719 Speaker 1: that will need to be asked if this plays out 647 00:43:34,719 --> 00:43:38,759 Speaker 1: the way I think we'll play. Okay, well, Ethan, we'll 648 00:43:38,800 --> 00:43:40,719 Speaker 1: have to have you back on I guess in a 649 00:43:40,760 --> 00:43:43,080 Speaker 1: few years time to see how this all shakes out 650 00:43:43,200 --> 00:43:45,879 Speaker 1: and talk about it some more. But Ethan Penner, thank 651 00:43:45,920 --> 00:43:49,279 Speaker 1: you so much for being on all bots. Really appreciate it. Yeah, 652 00:43:49,320 --> 00:44:05,040 Speaker 1: that was great pleasure. Thank you. So Joe. Are you 653 00:44:05,480 --> 00:44:08,759 Speaker 1: looking forward to your dystopian city future in New York? 654 00:44:09,160 --> 00:44:12,000 Speaker 1: I am. You know what. I took a lock yesterday, 655 00:44:12,520 --> 00:44:16,080 Speaker 1: uh sort of my first day sort of really exploring 656 00:44:16,200 --> 00:44:19,359 Speaker 1: because I was doing my required two weeks quarantine and 657 00:44:20,520 --> 00:44:22,359 Speaker 1: I don't know, it didn't feel I don't know. I 658 00:44:22,400 --> 00:44:26,560 Speaker 1: was not as alarmed as as other people were by 659 00:44:26,600 --> 00:44:29,080 Speaker 1: the state of the by the state of the city. 660 00:44:29,520 --> 00:44:33,000 Speaker 1: There weren't like people driving around in weird trucks and 661 00:44:33,280 --> 00:44:38,480 Speaker 1: wearing like masks and stuff like Matt Max and flamethrowers, 662 00:44:39,040 --> 00:44:42,160 Speaker 1: like people all the news and blogs like talking about 663 00:44:42,160 --> 00:44:45,440 Speaker 1: what a dystopian anarchy is New York. Mostly, it just 664 00:44:45,440 --> 00:44:48,319 Speaker 1: sort of seemed kind of quiet. Okay, yeah, that's not 665 00:44:48,400 --> 00:44:51,000 Speaker 1: quite anarchy, is it. Um? All right, Well, I really 666 00:44:51,080 --> 00:44:54,439 Speaker 1: enjoyed that conversation with Ethan um. It's great to talk 667 00:44:54,440 --> 00:44:58,400 Speaker 1: to someone who invented uh CMBs, obviously, but beyond that, 668 00:44:58,840 --> 00:45:00,960 Speaker 1: one thing that I always find fascinating in all these 669 00:45:01,000 --> 00:45:04,759 Speaker 1: conversations about real estate is the mind, the mechanics of 670 00:45:04,840 --> 00:45:08,360 Speaker 1: it and the different incentives of all the players involved, 671 00:45:08,360 --> 00:45:10,440 Speaker 1: and I thought he laid those out really well when 672 00:45:10,480 --> 00:45:14,600 Speaker 1: it came to uh C MBS, the difference between traditional 673 00:45:14,680 --> 00:45:18,319 Speaker 1: lending versus having a group of private bond holders, and 674 00:45:18,360 --> 00:45:21,319 Speaker 1: also the interests of the special services. That's great. That 675 00:45:21,400 --> 00:45:23,480 Speaker 1: was really interesting and I haven't thought about that at all, 676 00:45:23,560 --> 00:45:27,600 Speaker 1: and it's it also seems it's extremely important to sort 677 00:45:27,640 --> 00:45:29,799 Speaker 1: of have a feel for all these different incentives right 678 00:45:29,800 --> 00:45:33,719 Speaker 1: now because of this sort of requirement at least in 679 00:45:33,760 --> 00:45:37,520 Speaker 1: the short and medium term, that um, you know, the tenants, 680 00:45:37,560 --> 00:45:40,439 Speaker 1: the underlying tenants be given some sort of break, right 681 00:45:40,480 --> 00:45:43,960 Speaker 1: because if a bunch of stores were to just completely 682 00:45:44,000 --> 00:45:46,680 Speaker 1: board up and go out of business, then that could, 683 00:45:46,760 --> 00:45:49,640 Speaker 1: you know, crush a neighborhood for a long time. Whereas 684 00:45:49,680 --> 00:45:52,520 Speaker 1: if they're allowed to hang on for four months or 685 00:45:52,600 --> 00:45:55,319 Speaker 1: six months or maybe even a year as we get 686 00:45:55,320 --> 00:45:59,120 Speaker 1: a vaccine and life returns to something resembling normal, that 687 00:45:59,200 --> 00:46:01,960 Speaker 1: maybe they can but up and some sort of normalcy 688 00:46:02,040 --> 00:46:05,160 Speaker 1: can exist. But everyone in that chain has some sort 689 00:46:05,200 --> 00:46:10,480 Speaker 1: of incentive. And do landlords hold out for maximum rents 690 00:46:10,600 --> 00:46:13,840 Speaker 1: and can the landlords renegotiate with the lenders so that 691 00:46:13,920 --> 00:46:16,960 Speaker 1: they have time to give their tenants to break just 692 00:46:17,080 --> 00:46:20,200 Speaker 1: sort of all kinds of complications just to get through 693 00:46:20,239 --> 00:46:24,640 Speaker 1: what it's going to be an extremely complicated time. Absolutely, 694 00:46:24,760 --> 00:46:26,919 Speaker 1: and again it kind of makes you, well, you asked 695 00:46:26,960 --> 00:46:29,480 Speaker 1: about price discovery in this market, and it really makes 696 00:46:29,480 --> 00:46:31,480 Speaker 1: you think about how much of that is going on, 697 00:46:31,640 --> 00:46:35,319 Speaker 1: given the timeline is involved, and given the fact that 698 00:46:36,040 --> 00:46:38,720 Speaker 1: a lot of transactions just aren't happening at the moment. 699 00:46:39,040 --> 00:46:41,880 Speaker 1: Shall we leave it there, Let's leave it there, all right. 700 00:46:42,160 --> 00:46:45,239 Speaker 1: This has been another episode of the ad Thoughts podcast. 701 00:46:45,320 --> 00:46:47,879 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 702 00:46:47,920 --> 00:46:51,440 Speaker 1: Tracy Alloway and I'm Joe wisn' though. You can follow 703 00:46:51,480 --> 00:46:55,160 Speaker 1: me at The Stalwart and follow our producer Laura Carlson 704 00:46:55,440 --> 00:46:58,880 Speaker 1: at Laura M. Carlson. Follow the Bloomberg Head of Podcasts, 705 00:46:58,920 --> 00:47:02,600 Speaker 1: Francesca Levi at Francisco Today, and check out all of 706 00:47:02,640 --> 00:47:06,800 Speaker 1: our podcasts at Bloomberg under the handle at podcasts. Thanks 707 00:47:06,840 --> 00:47:07,320 Speaker 1: for listening.