WEBVTT - Dollar General Shares Sink, Nvidia Earnings 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.440 --> 0:00:12.320 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:00:12.400 --> 0:00:15.480 weekdays at ten am Eastern on Affle Card playing Android 0:00:15.520 --> 0:00:18.600 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:18.680 --> 0:00:22.520 you get your podcasts, or watch us live on YouTube. 0:00:23.600 --> 0:00:27.080 Under those retailers, I mean Dollar General, the numbers came in, 0:00:27.160 --> 0:00:34.400 blow expectations, guidance, blow expectations, stock well, blow expectations of 0:00:34.479 --> 0:00:37.440 socks down twenty eight percent today, hitting an all time low. 0:00:37.520 --> 0:00:40.239 My question, Emily and will talk to Jen Bartashes, She's 0:00:40.240 --> 0:00:44.320 a Bloomberg Intelligence. My question is is the consumer versus 0:00:44.600 --> 0:00:48.760 Dollar General specific? So Jen Bartash's Bloomberg Intelligence. Thank so 0:00:48.880 --> 0:00:50.600 much for joining us here. I'm trying to get a 0:00:50.640 --> 0:00:52.599 sense Jen of kind of how much of this is 0:00:52.680 --> 0:00:58.200 just the lower end consumer facing economic headwinds versus Dollar 0:00:58.240 --> 0:01:01.520 General just doesn't have it together in terms of good stores, 0:01:01.560 --> 0:01:03.200 good product, good inventory management. 0:01:03.640 --> 0:01:04.520 Help us break it down. 0:01:05.280 --> 0:01:07.840 Yeah, good morning, Paul. So when we look in at 0:01:07.920 --> 0:01:10.800 Dollar General, we do think a lot of their current 0:01:10.840 --> 0:01:14.160 troubles are self inflicted. There's no doubt that the low 0:01:14.200 --> 0:01:17.240 income consumer is under pressure, but this is their core 0:01:17.280 --> 0:01:19.880 consumer that they know better than anybody else. And the 0:01:19.920 --> 0:01:23.600 fact that they're misreading where that consumer is and not 0:01:23.959 --> 0:01:26.240 you know, not ready to serve them in the way 0:01:26.240 --> 0:01:28.320 that they need to be served is a little bit concerning. 0:01:28.720 --> 0:01:31.280 So we're looking for you know, they're saying that they're 0:01:31.280 --> 0:01:34.319 going to increase, you know, spending on promotions, they're going 0:01:34.400 --> 0:01:37.640 to mark down prices, try to get customers back into stores. 0:01:38.280 --> 0:01:40.039 But we'll be really watching them for the rest of 0:01:40.040 --> 0:01:42.200 the year and how they execute against those plans. 0:01:42.880 --> 0:01:46.400 So John Tucker was talking about how Dollar General needed 0:01:47.080 --> 0:01:51.480 to improve their store experience, perhaps take up a get 0:01:51.520 --> 0:01:52.880 a mom, get a mom. 0:01:53.400 --> 0:01:55.960 I'm just like once a week, maybe somebody clean the store. 0:01:56.520 --> 0:01:58.640 How much of this is actually about the products that 0:01:58.680 --> 0:02:02.800 they're offering versus the in store experience. When we talk 0:02:02.840 --> 0:02:05.520 about Dollar General trying to lure customers back in. 0:02:06.440 --> 0:02:10.079 It's a great question. And having clean, safe, well lit 0:02:10.080 --> 0:02:13.399 stores is a basic of retail. And you know, when 0:02:13.440 --> 0:02:16.480 Dollar General says they're executing on a back to basic strategy, 0:02:16.560 --> 0:02:20.320 that should be part of that strategy. We've all seen 0:02:20.360 --> 0:02:23.240 reports of just you know, boxes piled in the aisles 0:02:23.280 --> 0:02:26.520 and unable to navigate and consumers, you know, not having 0:02:26.880 --> 0:02:30.040 a great experience in store. I think that that is improving, 0:02:30.200 --> 0:02:33.160 it's just not yet at the pace where it's consistent 0:02:33.200 --> 0:02:36.880 across their entire chain and where consumers are really responding 0:02:36.919 --> 0:02:37.240 to it. 0:02:37.840 --> 0:02:38.560 Hey, Jen, if. 0:02:40.040 --> 0:02:43.040 Consumer doesn't go to Dollar General, where does that consumer go? 0:02:44.360 --> 0:02:48.040 Well, you know, it's interesting, but we're seeing big market 0:02:48.040 --> 0:02:50.800 share gains at the likes of Walmart also in the 0:02:50.840 --> 0:02:54.760 hard discount grossers like Aldi. So you know, consumers are 0:02:54.800 --> 0:02:56.840 looking for where they're going to get the best deal, 0:02:56.919 --> 0:02:59.360 and whether that's on an everyday low price it's something 0:02:59.360 --> 0:03:01.720 like a Walmart or an Aldi, or are they're doing 0:03:01.720 --> 0:03:04.640 more cherry picking of deals, you know at regular grocery 0:03:04.639 --> 0:03:09.600 stores or other types of of retail stores, buying things 0:03:09.600 --> 0:03:12.960 specifically on promotion in order to save money. So, you know, 0:03:13.040 --> 0:03:15.960 Dollar General talked about not getting enough of the available 0:03:16.000 --> 0:03:19.680 share that's up for grabs, But part of that is 0:03:19.680 --> 0:03:23.120 is that other companies like a Walmart are really executing 0:03:23.160 --> 0:03:25.920 well right now and are capturing more of those consumers. 0:03:26.280 --> 0:03:29.440 Let's talk about the stock because it is down twenty 0:03:29.480 --> 0:03:33.720 eight percent right now, the worst inter day drop on record. 0:03:33.960 --> 0:03:36.280 What do you make of that move? Is that really 0:03:36.400 --> 0:03:37.200 justified today? 0:03:38.000 --> 0:03:40.760 Well? That's a very very steep drop. And I think 0:03:40.800 --> 0:03:43.320 part of the reaction is that in the second quarter, 0:03:43.960 --> 0:03:48.040 the the the kind of sentiment was that the turnaround 0:03:48.080 --> 0:03:50.680 plan was gaining traction, and all of a sudden, the 0:03:50.680 --> 0:03:52.880 bottom sort of fell out of that. And that's the 0:03:52.920 --> 0:03:55.720 response that you're seeing with the stock today. You know, 0:03:56.280 --> 0:03:59.040 is it as bad as you know, as the stock 0:03:59.080 --> 0:04:02.520 price might might be saying. It's hard to say. I mean, 0:04:02.560 --> 0:04:04.800 they still had positive same store sales, they still had 0:04:04.840 --> 0:04:08.240 positive traffic into stores. You know, they seem to have 0:04:08.280 --> 0:04:09.760 a plan for how they're going to build on that 0:04:09.800 --> 0:04:12.720 in the second half. But it really at this point, 0:04:12.800 --> 0:04:15.520 the message is that people want to see execution by 0:04:15.560 --> 0:04:16.440 the management team. 0:04:16.839 --> 0:04:18.720 Hey, Jen, thanks so much for joining us. Really appreciate it. 0:04:18.800 --> 0:04:22.560 Jen Bartashes, she's a senior retail analysts for Bloomberg Intelligence. 0:04:22.640 --> 0:04:25.240 Let me tell you, folks, Jen, we asked Jen Bartashes 0:04:25.279 --> 0:04:27.640 to join us, I don't know, twelve thirteen, fourteen years 0:04:27.640 --> 0:04:31.520 ago Bloomberg Intelligence. She was already a season Bloomberg executive 0:04:31.839 --> 0:04:34.000 and she's like, I'm not a research analyst. We said, no, 0:04:34.080 --> 0:04:36.160 you're really, really smart. We'll teach you how to be 0:04:36.200 --> 0:04:39.520 a rechannel analyst, and sure enough, here we are, and 0:04:39.560 --> 0:04:41.240 she's one of the leading voices on Wall Street. We 0:04:41.240 --> 0:04:43.080 appreciate getting a few minutes of a time. She really 0:04:43.160 --> 0:04:45.919 knows the retail space, helping us break down the dollar 0:04:45.960 --> 0:04:46.599 general stuff. 0:04:46.800 --> 0:04:47.680 So we appreciate that. 0:04:48.720 --> 0:04:52.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:04:52.720 --> 0:04:56.240 weekdays at ten am Eastern on applecar Play and Android 0:04:56.240 --> 0:04:59.400 Auto with the Bloomberg Business. You can also listen live 0:04:59.480 --> 0:05:02.240 on ammaz on Alexa from our flagship New York station 0:05:02.600 --> 0:05:04.960 just Say Alexa playing Bloomberg eleven. 0:05:06.720 --> 0:05:07.880 Let's check in with Dan Morgan. 0:05:08.120 --> 0:05:12.120 He's a senior portfolio manager Sonova's trust company. Joining us 0:05:12.200 --> 0:05:16.120 on zoom from Atlanta. Hey, Dan, what did you make 0:05:16.279 --> 0:05:18.640 of the Nvidia. 0:05:18.360 --> 0:05:20.360 Earnings last night? The conference call? 0:05:20.480 --> 0:05:24.040 All event, Well, I have kind of a little bit 0:05:24.080 --> 0:05:26.440 more of a positive bias view towards the stock and 0:05:26.520 --> 0:05:28.160 maybe the rest of the street. Does. You have to 0:05:28.200 --> 0:05:30.440 bear in mind that we added in video to our 0:05:30.480 --> 0:05:34.640 buy list back in about twenty eighteen, twenty nineteen, when 0:05:34.640 --> 0:05:37.560 they were, you know, really gaining a lot of momentum 0:05:38.160 --> 0:05:40.720 in the data center space, kind of gaining market share 0:05:40.760 --> 0:05:43.479 against the likes of AMD and Intel. And up to 0:05:43.520 --> 0:05:46.360 that point, as you know, they were construed as a 0:05:46.400 --> 0:05:49.680 company that produced chips that were going into you know, 0:05:49.760 --> 0:05:51.920 various video games that people played, and you know, they 0:05:51.960 --> 0:05:54.440 had a big spike in their demand during COVID and 0:05:54.440 --> 0:05:57.320 then it kind of pulled back on that, and then 0:05:57.320 --> 0:06:00.479 obviously the whole thing flipped where their data center revenue 0:06:00.520 --> 0:06:03.640 became far greater than the gaming unit. And then the 0:06:03.640 --> 0:06:06.520 AI thing exploded about you know, a couple of years ago. 0:06:06.560 --> 0:06:09.919 It's the rest is history. So you know, overall, to 0:06:09.920 --> 0:06:12.120 be honest with you, I think this is a stellar report. 0:06:12.800 --> 0:06:14.560 I think the street has just gotten a point where 0:06:14.560 --> 0:06:18.400 it becomes so spoiled with these huge, you know, colossal 0:06:18.440 --> 0:06:20.600 beats that Nvidia's put together the last four or five 0:06:20.680 --> 0:06:24.279 quarters that their expectations have just gone off the you know, 0:06:24.360 --> 0:06:26.120 off the ray. I mean, even if you look at 0:06:26.120 --> 0:06:29.279 this number they did on the third quarter, you know, 0:06:29.360 --> 0:06:33.279 they topped the consensus essmate. Obviously there was Whisher numbers 0:06:33.279 --> 0:06:36.520 at thirty three and thirty four billion, but you know, 0:06:36.880 --> 0:06:40.440 let's face reality, it was a strong, strong number thirty 0:06:40.440 --> 0:06:43.280 two point five billion. So I think everything is still 0:06:43.320 --> 0:06:47.200 on track with Nvidia to ship the Blackwell chip. Out 0:06:47.279 --> 0:06:51.560 next year in volume, and I would expect margins to 0:06:51.600 --> 0:06:54.120 continue to rise because the average selling prices on these 0:06:54.120 --> 0:06:58.000 Blackwells are anywhere from twenty five you know, the thirty 0:06:58.040 --> 0:07:00.679 five thousand, far greater than what they're on the hopper 0:07:00.720 --> 0:07:01.520 of the H twenties. 0:07:02.440 --> 0:07:04.960 Talk a little bit about some of the production issues 0:07:04.960 --> 0:07:08.120 that Nvidia is having with the Blackwell chips and what 0:07:08.320 --> 0:07:12.200 did you learn from this earnings report about how quickly 0:07:12.240 --> 0:07:13.320 those can be resolved? 0:07:15.160 --> 0:07:17.480 Emily, that's been one of the big issues, also supply 0:07:17.600 --> 0:07:21.320 constraints that they try to build out this network of 0:07:21.440 --> 0:07:24.720 suppliers to kind of ramp up for Blackwell. I think 0:07:24.720 --> 0:07:28.640 it was kind of expected that this upcoming October quarter 0:07:28.840 --> 0:07:31.520 that there would be some shipments out, but it's not 0:07:31.560 --> 0:07:33.200 going to be in volume. There's still going to be 0:07:33.760 --> 0:07:36.200 relying on the H twenty and the H two hundred 0:07:36.240 --> 0:07:39.760 like they did in this quarter really to really post 0:07:39.840 --> 0:07:43.600 huge gains. I just think it's growing pains. I really 0:07:43.720 --> 0:07:46.000 am not concerned about it. I think they'll work through it. 0:07:46.040 --> 0:07:49.520 They've done a dynamite job back when we're having huge 0:07:49.560 --> 0:07:53.720 supply constraints in the overall chip sector. You all probably remember, 0:07:54.320 --> 0:07:56.240 you know, trying to buy a new automobile and you 0:07:56.240 --> 0:07:57.920 can get a chip to go in a new car. 0:07:58.360 --> 0:08:01.480 I mean, they worked through that and still did very well. 0:08:01.560 --> 0:08:04.640 So I think they'll get through this hurdle and they'll 0:08:04.680 --> 0:08:07.320 start doing volume probably, like I said, first half of 0:08:07.400 --> 0:08:10.240 twenty five. So again, you know, Emily and Paul, you're 0:08:10.240 --> 0:08:13.840 asking the wrong guy, right, because I'm an eternal n 0:08:13.920 --> 0:08:14.480 Vidio bull. 0:08:15.400 --> 0:08:17.160 Hey, Dan, farbe it from me to call you an 0:08:17.160 --> 0:08:19.320 old man, but you've been covering his tech industry for 0:08:19.360 --> 0:08:20.160 a long time. 0:08:20.840 --> 0:08:23.720 Where are the competitors here? That's kind of my question. 0:08:23.760 --> 0:08:26.320 I would think with this we'd see the AMDs of the. 0:08:26.320 --> 0:08:30.280 World and some others, really Intel, even Intel, Maybe why 0:08:30.320 --> 0:08:32.760 does Nvidia have seemingly. 0:08:32.360 --> 0:08:34.800 Such a stranglehold on this part of the market. 0:08:35.960 --> 0:08:38.480 You know, it's interesting, Paul. When I started really you know, 0:08:38.600 --> 0:08:41.280 diving into the stock and covering you very closely, sitting 0:08:41.320 --> 0:08:44.000 in on the developer conferences and all the conference calls, 0:08:44.480 --> 0:08:48.800 they would mention AI. They talk more about omniverse, and 0:08:48.840 --> 0:08:50.760 then of course the AI thing took off, and that, 0:08:50.880 --> 0:08:53.160 by the way, we're seventy percent of the AI market. 0:08:53.480 --> 0:08:55.800 They would mention that in their public release and nobody 0:08:55.800 --> 0:08:58.959 would care. But you're right, you know, everybody else has 0:08:59.040 --> 0:09:02.360 been extremely late getting to the table. You've got AMD 0:09:02.559 --> 0:09:06.280 with their Mi three hundred chips. You've got Intel rolling 0:09:06.320 --> 0:09:09.040 out their Dotty two, Gotty three and their Falcon shores 0:09:09.080 --> 0:09:12.120 next year, but again that's in twenty five. Marvel has 0:09:12.160 --> 0:09:16.040 the pam DSP chip. You probably covered on your show 0:09:16.080 --> 0:09:20.800 about yahweh coming out with their Ascend nine ten C 0:09:21.040 --> 0:09:23.480 chip to compete against the H twenty. But you know, 0:09:23.600 --> 0:09:26.160 Paul and Emily, where the real competition may come in 0:09:26.280 --> 0:09:29.679 is from the hyperscalers, who are their top purchasers, right 0:09:29.720 --> 0:09:32.240 about fifty percent of their revenues coming from them with 0:09:32.360 --> 0:09:35.600 their own internal chips. You know, we know that Meta, 0:09:35.760 --> 0:09:39.319 We know that Google has the TensorFlow chip that they 0:09:39.360 --> 0:09:42.800 developed with Broadcom. They have version six right now. I 0:09:42.800 --> 0:09:45.960 think there's a dual chip coming out called Athena that 0:09:46.000 --> 0:09:50.280 they're working on also. So there's there's a lot with AMD. 0:09:50.400 --> 0:09:52.720 There's a lot of things going on internally where these 0:09:52.920 --> 0:09:56.960 hyperscalers are trying to become rest reliant on Nvidia. But 0:09:57.040 --> 0:09:59.640 quite frankly, guys, the chips are coming out with still 0:09:59.679 --> 0:10:02.520 aren't going to pop the performance they're going to get 0:10:02.520 --> 0:10:04.400 out of blackwell, but I think I'd use it for 0:10:04.559 --> 0:10:08.679 lesser capability, you know, task so to speak, and try 0:10:08.720 --> 0:10:10.880 to save some money from as I mentioned, for the 0:10:10.880 --> 0:10:13.520 average selling prices are very higher on these newer chips. 0:10:14.679 --> 0:10:19.760 So revenue doubled in the quarter, Dan, but yet the 0:10:19.800 --> 0:10:23.080 stock is down this morning. I'm just wondering. I know 0:10:23.120 --> 0:10:25.280 you said that investors might be getting a little spoiled. 0:10:26.600 --> 0:10:29.680 What do we need, like, what does the street want 0:10:29.720 --> 0:10:33.240 to see out of Nvidia then to move this stock 0:10:33.320 --> 0:10:36.440 up higher? If revenue doubling isn't isn't enough? 0:10:38.240 --> 0:10:40.240 Yeah, I mean again, Emily, it's perplexing for me. I 0:10:40.640 --> 0:10:43.200 Like you said, you look at the revenue year over year, 0:10:43.559 --> 0:10:46.920 it was up you know a huge amount, one hundred 0:10:46.920 --> 0:10:49.200 and twenty two percent. You had the data center group, 0:10:49.200 --> 0:10:52.599 which one hundred and fifty four percent. I've got the 0:10:52.720 --> 0:10:56.600 data center group going over one hundred billion dollars in 0:10:56.640 --> 0:11:00.320 revenue for twenty five compared to forty four billion them 0:11:00.840 --> 0:11:03.840 in twenty four. So that's more than a double just 0:11:03.880 --> 0:11:07.400 in that unit. So again, this has become such a 0:11:07.400 --> 0:11:10.800 momentum stock, right, I mean, trades, it's sixty times price 0:11:11.360 --> 0:11:15.440 to book. The Philadelphia Stock Exchange Index trades at six 0:11:15.520 --> 0:11:19.040 times book. You know, it's a trailing seventy five times earnings. 0:11:19.360 --> 0:11:22.160 So you have this massive multiple, this huge momentum, you 0:11:22.200 --> 0:11:25.960 have this situation where you can't make any errors at 0:11:26.000 --> 0:11:29.160 anything that you're reporting, otherwise you're bringing the stock down. 0:11:29.360 --> 0:11:33.120 So again, I just think quite frankly, and Vidia has 0:11:33.160 --> 0:11:37.640 kind of spoiled investors, you know, since that Dynamite quarter 0:11:37.720 --> 0:11:40.640 about two and a half years ago, and people just 0:11:40.720 --> 0:11:42.640 keep raising the bar and raising the bar and they're 0:11:42.640 --> 0:11:45.800 never satisfied, but they're still doing really well. 0:11:46.360 --> 0:11:48.720 Hey, Dan, you know you raise for me what I 0:11:48.800 --> 0:11:52.400 think would be the biggest risk, which is my customers 0:11:52.920 --> 0:11:55.040 are going to develop their own chips. 0:11:55.200 --> 0:11:57.400 Frame that risk out for me, and how do you 0:11:57.400 --> 0:11:57.920 think about that? 0:11:59.480 --> 0:12:03.240 Yeah, I mean that is a risk. Every single hyperscale, 0:12:03.559 --> 0:12:06.559 as I mentioned, has their own chips. Probably the best 0:12:06.640 --> 0:12:10.160 chip out there is going to be coming from Alphabet 0:12:10.280 --> 0:12:13.360 and the Broadcom joint venture with their Tenser version six 0:12:13.440 --> 0:12:17.920 what they're bringing out. So you know, that's the worry. 0:12:18.040 --> 0:12:20.960 Even Apple has their own chips now. So the worry 0:12:21.160 --> 0:12:23.880 is that instead of buying all their chips from the 0:12:23.960 --> 0:12:26.120 video or eighty ninety percent of chips from the video, 0:12:26.200 --> 0:12:28.400 maybe a little bit from AMD, let's say, or Marvel. 0:12:29.160 --> 0:12:31.960 They may start, you know, keeping thirty forty percent in 0:12:32.080 --> 0:12:34.560 house in saving money and using their own chips. So 0:12:35.080 --> 0:12:38.160 that does potentially slow demand down for nvidio chips in 0:12:38.200 --> 0:12:41.360 the data center space. However, if you're a you know, 0:12:41.440 --> 0:12:43.840 probably the man, you know, someone in charge of this 0:12:44.120 --> 0:12:46.600 or a video, you're saying, well, guess what we're We're 0:12:46.600 --> 0:12:50.079 starting to get demand from other sources, right enterprise, We've 0:12:50.080 --> 0:12:53.160 got demand from Tesla. They talk about different governments who 0:12:53.160 --> 0:12:55.480 are now buying data center chips for their own use. 0:12:56.360 --> 0:12:58.679 So you can make a case that yeah, maybe you're 0:12:58.720 --> 0:13:01.360 going to lose a little bit from the homegrown stuff 0:13:01.400 --> 0:13:03.839 coming from the hyperscalal, but then you're going to be 0:13:03.840 --> 0:13:05.520 able to grow it out by the fact that you're 0:13:05.559 --> 0:13:08.240 going to get greater demand from these other markets that 0:13:08.320 --> 0:13:13.000 you're not getting right now. So you know, it's great 0:13:13.040 --> 0:13:14.840 to Yeah, I mean there's a lot of moving parts, 0:13:14.840 --> 0:13:17.080 but I mean I still feel u Paul Emily, that 0:13:17.080 --> 0:13:19.760 we're at the beginning of this this ride out and 0:13:19.800 --> 0:13:22.000 you know, the key to making money and technology and 0:13:22.320 --> 0:13:24.000 all you alluded to the fact that I've been in 0:13:24.000 --> 0:13:26.480 this for a long time. I've been writing, research and 0:13:26.559 --> 0:13:31.880 following and buying tech stock since nineteen ninety. The key 0:13:31.960 --> 0:13:34.120 is to ride a wave, and if you ride away, 0:13:34.720 --> 0:13:38.360 it always goes up and then rides out. And you know, 0:13:38.360 --> 0:13:40.440 in the early nineties you had the big you know, 0:13:40.720 --> 0:13:43.720 move towards the internet, everybody going to a mobile phone. 0:13:43.800 --> 0:13:45.720 If you caught one of those waves at the right stock, 0:13:45.760 --> 0:13:48.040 you did great. So exactly you're on an AI wave 0:13:48.080 --> 0:13:49.600 in the chip space right now with n video. 0:13:49.880 --> 0:13:51.840 Very good, Dan Morgan, thanks so much for that. We 0:13:51.880 --> 0:13:53.800 really appreciate gating a few minutes of your time, Dan Morgan. 0:13:53.800 --> 0:13:57.079 He's a senior portfolio manager Sonova's trust company down there 0:13:57.679 --> 0:14:01.560 in Atlanta. He was early on in video, he was 0:14:01.800 --> 0:14:05.880 right on in video, and it's been a heck of 0:14:05.920 --> 0:14:07.679 a run this stock. 0:14:07.559 --> 0:14:10.920 Just this year, up one hundred and forty two percent year. 0:14:10.960 --> 0:14:16.200 Today, you're listening to the Bloomberg Intelligence Podcast. Catch us 0:14:16.240 --> 0:14:19.320 live weekdays at ten am Eastern on applecar Playing and 0:14:19.400 --> 0:14:22.320 broud Otto with the Bloomberg Business app. Listen on demand 0:14:22.360 --> 0:14:28.240 wherever you get your podcasts, or watch us live on YouTube. 0:14:27.680 --> 0:14:30.080 Like yourfeos sitting in for Alex Steel on Paul Sweeney. 0:14:30.120 --> 0:14:32.640 We're live here in our Bloomberg Interactive Brokers studio. We're 0:14:32.680 --> 0:14:36.080 streaming live on that internet thing that Gene Monster keeps 0:14:36.080 --> 0:14:37.760 talking about. I think you go to YouTube dot com 0:14:37.760 --> 0:14:39.480 and search Bloomberg Podcast, and I think. 0:14:39.360 --> 0:14:41.960 That's where you'll find us. I'm not really sure you'll 0:14:42.000 --> 0:14:42.360 know that. 0:14:42.440 --> 0:14:44.360 One of the topics that Alex Steel and I like 0:14:44.400 --> 0:14:45.520 to talk about Emily. 0:14:45.320 --> 0:14:46.360 Is commercial real estate. 0:14:46.720 --> 0:14:49.360 So it's just fascinating how that industry is adapting to 0:14:49.400 --> 0:14:52.480 a post pandemic world, particularly in the office, but also 0:14:52.640 --> 0:14:54.800 just across the border commercial real estate and what it 0:14:54.800 --> 0:14:57.320 means for the banks and all that kind of stuff. Fortunately, 0:14:57.760 --> 0:14:59.920 we've got a lot of good folks to help us figure. 0:14:59.680 --> 0:15:00.680 Out what going on. 0:15:01.040 --> 0:15:03.600 And Abigail Doolittle, I mean, she covers all the markets 0:15:03.600 --> 0:15:05.960 for Bloombergers, but she's been really helpful in bringing some 0:15:06.000 --> 0:15:09.800 smart commercial real estate people into Bloomberg Radio, and we 0:15:09.840 --> 0:15:11.920 appreciate Abigail. She joins us here in our studio along 0:15:11.920 --> 0:15:14.360 with Scott Kelly. He's a founder and CEO of Ato's 0:15:14.400 --> 0:15:17.480 Capital real Estate. Scott's one of these guys. He's part 0:15:17.480 --> 0:15:21.560 of that Morgan Stanley real Estate mafia. They're everywhere. Anytime 0:15:21.600 --> 0:15:24.600 you see a commercial real estate person come in here 0:15:24.800 --> 0:15:27.520 with some money in their pockets talking to investing. They 0:15:27.520 --> 0:15:30.120 did a stint at Morgan Stanley real Estate and they 0:15:30.400 --> 0:15:32.720 just the best on the street as long as I've 0:15:32.720 --> 0:15:33.240 been on the street. 0:15:33.280 --> 0:15:34.920 Scott, thanks so much for joining us here. 0:15:36.040 --> 0:15:39.240 I guess my question is simply, where do you guys 0:15:39.280 --> 0:15:43.360 see the best value and opportunity in commercial real estate today? 0:15:43.440 --> 0:15:46.080 Are you going to the Lipstick Building or something like 0:15:46.120 --> 0:15:49.160 it on Third Avenue that's dealing with occupants issues. 0:15:49.160 --> 0:15:50.440 Are you looking at other places? 0:15:51.080 --> 0:15:55.920 Well, I would I'd make two points one. People have 0:15:56.000 --> 0:16:02.280 been us included anticipating this stressed wave of real estate 0:16:02.360 --> 0:16:06.200 which has not come as quickly as folks thought. But 0:16:06.280 --> 0:16:12.320 it's also inevitable just because the refinancing rates are totally 0:16:12.880 --> 0:16:16.479 disconnected from the underwriting of a bunch of these properties. 0:16:16.480 --> 0:16:21.440 So the answer is no, We're focused on places we 0:16:21.520 --> 0:16:24.920 can add value. And we've got a new company called 0:16:24.960 --> 0:16:29.200 waiver Tree Property Partners, which we've got development capabilities from 0:16:29.480 --> 0:16:35.720 guys that were with the Fract family for a long time. 0:16:35.760 --> 0:16:39.680 I mean, they're good developers. We think that the combination 0:16:39.760 --> 0:16:43.960 of financial expertise and development. Redevelopment is going to be 0:16:44.080 --> 0:16:45.800 the key to making money going forward. 0:16:46.280 --> 0:16:48.320 So a question that I have, Scott, is that we've 0:16:48.360 --> 0:16:50.920 all been waiting for this crash and commercial real estate, 0:16:51.080 --> 0:16:54.520 and there were some big headlines in twenty twenty three, 0:16:54.640 --> 0:16:57.240 there were some big office buildings that were defaulted on, 0:16:57.800 --> 0:17:00.480 But since then there really hasn't been that much. It 0:17:00.520 --> 0:17:03.600 seems like properties are still not trading maybe a couple 0:17:03.720 --> 0:17:06.679 here there, Is that true? And is there going to 0:17:06.720 --> 0:17:08.520 be a moment where all of a sudden a ton 0:17:08.560 --> 0:17:10.720 of properties are going to flood the market or is 0:17:10.720 --> 0:17:12.439 it just going to take a really long time to 0:17:12.480 --> 0:17:13.280 work this thing out? 0:17:14.240 --> 0:17:17.480 Well, your observation is absolutely true. You know, again, people 0:17:17.520 --> 0:17:20.280 have been waiting for the tidal wave of stuff to happen. 0:17:20.320 --> 0:17:23.160 And there's a where is it there's a billion Well, 0:17:23.160 --> 0:17:27.080 there's a billion dollar loan portfolio on the market right 0:17:27.160 --> 0:17:30.560 now from a foreign bank that's just getting out of everything, 0:17:30.600 --> 0:17:32.720 and some of it's performing, a lot of it's not. 0:17:34.640 --> 0:17:39.200 There are a couple more coming later this year. But interestingly, 0:17:39.240 --> 0:17:43.240 as we discussed previously, so much of this bad debt 0:17:43.440 --> 0:17:48.360 is held in you know, regional and community banks, and 0:17:49.320 --> 0:17:52.760 they're just extend it's extended and pretend you know they 0:17:53.040 --> 0:17:57.760 they're renegotiating the terms, they're they're putting out the maturities. 0:17:58.200 --> 0:17:59.639 They're never going to get repaid. 0:18:00.119 --> 0:18:02.280 Can they do that for Well, I think it's a 0:18:02.320 --> 0:18:06.880 regulatory matter. I think the regulators don't have they don't 0:18:06.880 --> 0:18:09.640 want to cause a banking crisis in an election year. 0:18:09.880 --> 0:18:12.760 So I think the thing that changes is after the 0:18:12.800 --> 0:18:17.280 election the regulators start to and again, this bank that's 0:18:17.320 --> 0:18:20.240 selling a billion dollar portfolio is because there is a 0:18:20.280 --> 0:18:24.240 European bank, and it's because the European regulators are saying, 0:18:24.280 --> 0:18:29.159 get rid of this trash. And so I think that 0:18:29.200 --> 0:18:32.600 doesn't happen until after the election. But after the election, 0:18:32.720 --> 0:18:33.760 I think it really does. 0:18:33.920 --> 0:18:36.000 Interesting, So twenty twenty five could be kind of painful. 0:18:36.160 --> 0:18:39.000 Yes, we've been talking a lot about Nvidia today and 0:18:39.040 --> 0:18:42.719 this hunger for AI and demand. I'm wondering how that 0:18:42.840 --> 0:18:47.200 is impacting commercial real estate. Are you seeing opportunities in 0:18:47.680 --> 0:18:48.440 data centers? 0:18:49.119 --> 0:18:52.000 Well, yes, I mean data centers are one of the 0:18:52.119 --> 0:18:55.720 data centers are one of the big Again, real estate, 0:18:56.720 --> 0:19:00.639 if you want to go by category, office has got issues. 0:19:00.800 --> 0:19:07.080 Retail got issues increasingly apartments due to some extent, but 0:19:07.200 --> 0:19:10.399 data centers have just been on fire, and you know, 0:19:10.520 --> 0:19:15.040 and there continues to be an almost unquenchable demand for 0:19:15.480 --> 0:19:19.879 data center capacity. So yeah, I think, I mean, I 0:19:19.880 --> 0:19:23.680 do think the bigger opportunity with AI and real estate, 0:19:23.720 --> 0:19:28.720 which we're working on with a partner, is to really 0:19:29.560 --> 0:19:32.720 synthesize the information in a way to help you make 0:19:33.200 --> 0:19:38.679 not just good commercial judgments, but informed commercial judgments, data driven. 0:19:39.200 --> 0:19:41.480 Scott, You've been in this business for decades, you and 0:19:41.640 --> 0:19:44.639 your team, everybody knows you, every banker knows every lender 0:19:44.720 --> 0:19:47.639 knows you. When you go out to buy a you know, 0:19:47.680 --> 0:19:50.600 a property today, you're the equity. Can you get a 0:19:50.640 --> 0:19:53.560 loan for your capital structure? Are the banks lending? 0:19:53.960 --> 0:19:57.000 Well, that's I mean, that's that, honestly is the big 0:19:57.080 --> 0:20:00.920 issue that yes, the banks are lending, but at terms 0:20:01.080 --> 0:20:06.720 which are radically different than most of the current owners anticipated. 0:20:06.840 --> 0:20:10.400 So you know, somebody that has borrowed money at three percent, 0:20:10.640 --> 0:20:12.160 all of a sudden they get a term sheet back 0:20:12.200 --> 0:20:14.840 from the bank and it's seven or eight percent at 0:20:14.840 --> 0:20:20.520 the same loan to value ratios. So that's what inevitably 0:20:20.640 --> 0:20:23.919 is going to cause a big turnover in a repricing 0:20:24.119 --> 0:20:27.159 of the industry. It just hasn't happened yet. And the 0:20:27.200 --> 0:20:31.040 subordinated lenders are you know, are in control of all 0:20:31.040 --> 0:20:35.000 these situations when that debt matures. It's just that, you know, 0:20:35.400 --> 0:20:39.880 rather than pull the trigger right now, the banks I think, 0:20:39.920 --> 0:20:42.320 have been encouraged to push it out for a year 0:20:42.400 --> 0:20:48.760 or two so that the problem is profound, it's identifiable. 0:20:49.080 --> 0:20:52.560 It's just going to take a while to come to fruition. 0:20:52.800 --> 0:20:54.439 I'm so interested in what you were saying about the 0:20:54.440 --> 0:20:57.760 regional banks because when you joined US about a year ago, 0:20:57.800 --> 0:20:59.240 you were saying that you thought that there could be 0:20:59.280 --> 0:21:02.520 a crisis once we put this election past. Us has 0:21:02.720 --> 0:21:05.560 enough extend and pretend to happen that twenty twenty five 0:21:05.720 --> 0:21:07.639