WEBVTT - Commercial Real Estate Set Up For 'Profound' Recovery: MMI CEO 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penl podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.760 Along with my co host Lisa Brahmas. Each day we 0:00:07.880 --> 0:00:10.440 bring you the most noteworthy and useful interviews for you 0:00:10.560 --> 0:00:12.640 and your money, whether at the grocery store or the 0:00:12.680 --> 0:00:16.000 trading floor. Find a Bloomberg Penl podcast on Apple podcast 0:00:16.160 --> 0:00:18.079 or wherever you listen to podcasts, as well as at 0:00:18.079 --> 0:00:22.320 Bloomberg dot com. We continue to dig into the economic 0:00:22.440 --> 0:00:25.119 ramifications of some of the closures, and we've seen a 0:00:25.200 --> 0:00:29.800 number of retailers furlow or layoff whole hosts of workers, 0:00:29.800 --> 0:00:32.400 the latest being Macy's today saying that it was going 0:00:32.440 --> 0:00:35.919 to close after closing all of its stores in March eighteenth. 0:00:36.320 --> 0:00:38.920 Now it's going to furlow most of it's a hundred 0:00:39.000 --> 0:00:42.000 and thirty thousand workers. This has led a lot of 0:00:42.120 --> 0:00:44.680 led to a lot of questions about commercial real estate values, 0:00:45.040 --> 0:00:47.960 rent payments and the like. Joining us to say I'm 0:00:48.000 --> 0:00:50.560 really pleased to say is Hassam no G He's president, 0:00:50.680 --> 0:00:53.440 chief executive officer of a major commercial real estate from 0:00:53.440 --> 0:00:58.279 Marcus and Millichap based in Calabas's, California, and Hassam, I'd 0:00:58.320 --> 0:00:59.960 love to get your take first of all, given the 0:01:00.080 --> 0:01:02.880 Macy's news, given the fact that we've seen retailers across 0:01:02.920 --> 0:01:06.720 the board just closed down stores in mass will this 0:01:06.880 --> 0:01:10.360 have a permanent effect on commercial real estate values that 0:01:10.440 --> 0:01:15.080 have not even yet been priced in? Good morning. Thank 0:01:15.120 --> 0:01:17.640 you for having me on the program. First of all, 0:01:17.680 --> 0:01:20.720 this is unlike anything we've all experienced, and at the 0:01:20.800 --> 0:01:23.120 risk of sitting the obvious and that it's really a 0:01:23.160 --> 0:01:26.600 health crisis, and most of our clients and everybody participating 0:01:26.640 --> 0:01:29.480 our industries first and foremost concerned about the health of 0:01:29.880 --> 0:01:33.360 their their employees, and their and their families. So it's 0:01:33.520 --> 0:01:36.760 very difficult to separate the emotional component of that with 0:01:36.800 --> 0:01:39.760 the business component at this minute, which is unusual, uh, 0:01:40.000 --> 0:01:42.560 from anything we've seen in the past. But to answer 0:01:42.600 --> 0:01:45.480 to your question, what's happening around us right now is 0:01:45.520 --> 0:01:48.800 hastening the trend that was already playing out for retail. 0:01:49.360 --> 0:01:52.400 As you know, e commerce has really profoundly changed brick 0:01:52.440 --> 0:01:56.880 and mortar retailing, and a lot of the obsolete older 0:01:56.880 --> 0:01:59.760 shopping centers and a lot of shopping centers that relied 0:01:59.800 --> 0:02:03.360 on department stores have been heard badly by what was 0:02:03.400 --> 0:02:06.880 already happening. This is just speeding that up. I think 0:02:06.880 --> 0:02:09.760 there's going to be more short term pain because of it. 0:02:09.880 --> 0:02:12.960 Clearly there is no way around that. But I also 0:02:13.040 --> 0:02:15.680 want to point out the rebirth of retail, where we've 0:02:15.720 --> 0:02:20.840 seen so many examples of renovations, repositioning, and re tenanting 0:02:21.080 --> 0:02:25.000 of retail that has been widely successful and has become 0:02:25.040 --> 0:02:28.120 a great investment vehicle. And there are components of retail 0:02:28.240 --> 0:02:32.280 like the stable grocery anchored type of retail that is 0:02:32.520 --> 0:02:35.079 of course doing very well right right now, but was 0:02:35.120 --> 0:02:38.400 doing well even before the health crisis began, and fast 0:02:38.400 --> 0:02:42.400 food restaurant, drug store, single tenant retail where you have 0:02:42.560 --> 0:02:46.799 one tenant on a long term lease and is much 0:02:46.919 --> 0:02:50.360 less risky. Those are doing very well and in great 0:02:50.400 --> 0:02:54.639 demand by investors. Some taking a look at the two 0:02:54.639 --> 0:02:57.360 trillion dollar fiscal stimulus package, what was in there for 0:02:57.680 --> 0:03:01.320 real estate? From your perspective, I think the most important 0:03:01.360 --> 0:03:04.799 part of the package is the fact that there's three 0:03:05.000 --> 0:03:08.880 d and fifty billion dollars allocated for small business forgivable 0:03:08.919 --> 0:03:13.000 loans and five billion for a large companies. As as 0:03:13.120 --> 0:03:15.920 much help as can be delivered to companies to stay 0:03:15.919 --> 0:03:19.040 afloat during the worst of this health crisis in order 0:03:19.080 --> 0:03:24.360 to limit employee layoffs is the most important component because 0:03:24.440 --> 0:03:27.080 that has to do with tenants, and tenants have to 0:03:27.080 --> 0:03:30.520 do with the octancies of commercial real estate. In addition 0:03:30.560 --> 0:03:32.880 to that, the way that the BED has stepped in 0:03:33.440 --> 0:03:37.920 at an unprecedented speed and scale very different from two 0:03:37.920 --> 0:03:40.880 thousand and eight two thousand nine. While we absorb, you know, 0:03:41.000 --> 0:03:44.080 the lack of a playbook, taking months to come up 0:03:44.080 --> 0:03:48.480 with solutions, has now resulted in their ability to be 0:03:48.560 --> 0:03:52.600 much more nimble and much more bold in the ways 0:03:52.640 --> 0:03:56.880 that come in to basically backstop liquidity and assure the 0:03:56.960 --> 0:04:00.040 functioning of the of the credit markets. That's a a 0:04:00.200 --> 0:04:02.920 found help for not just commercial real estate, but but 0:04:03.080 --> 0:04:07.040 all businesses. And I think it really lays the groundwork 0:04:07.640 --> 0:04:10.360 for a rapid recovery. Just as much as this is 0:04:10.400 --> 0:04:14.680 going to be a very deep, painful downturn and hopefully 0:04:14.720 --> 0:04:17.680 a short term one, the recovery because of the action 0:04:17.760 --> 0:04:21.520 that's being taken, should therefore be just as just as profound. 0:04:21.880 --> 0:04:26.280 Because some there's some talk about the defreezing of corporate 0:04:26.400 --> 0:04:29.760 credit markets as the FED steps in and uh says 0:04:29.760 --> 0:04:33.440 it's going to buy certain securities. They're given the fact 0:04:33.560 --> 0:04:36.280 that you're one of the largest commercial real estate financing 0:04:36.320 --> 0:04:40.320 companies close a lot of transaction. What's your sense of 0:04:40.400 --> 0:04:46.080 how much we are looking at possibility for just a 0:04:46.120 --> 0:04:53.560 complete shutdown or freeze in the commercial transactions going forward. Well, 0:04:53.600 --> 0:04:57.120 we're seeing deals continue forward. We're seeing deals closed in 0:04:57.160 --> 0:04:59.960 the last two weeks, in the last few days because 0:05:00.000 --> 0:05:02.200 they still make sense and the buyers and sellers are 0:05:02.320 --> 0:05:05.400 comfortable with the execution, and lenders are still coming through. 0:05:05.640 --> 0:05:08.560 Many deals are not moving forward. Uh. Some lenders have 0:05:08.600 --> 0:05:11.360 stepped out of the market. There are a wide variety 0:05:11.360 --> 0:05:13.240 of reasons for that and the locations for that. It 0:05:13.320 --> 0:05:16.640 isn't one or two trends. But the most important thing 0:05:16.640 --> 0:05:19.600 to remember is there will be a short time window 0:05:19.680 --> 0:05:23.240 where pricing will be difficult and being able to kind 0:05:23.240 --> 0:05:25.880 of read the market will be very difficult. But we 0:05:26.000 --> 0:05:27.960 expect as soon as the market kind of gets this 0:05:28.080 --> 0:05:32.560 putting on evaluation and begins to see the bottoming of 0:05:32.600 --> 0:05:37.080 the health crisis first and foremost, and then secondly the uh, 0:05:37.120 --> 0:05:41.160 you know, the beginnings of some kind of an economic normalization. 0:05:41.680 --> 0:05:43.800 I think the market is going to move very fast 0:05:43.960 --> 0:05:47.599 with a significant amount of pen of demand and transactional activity. 0:05:47.640 --> 0:05:52.400 I think the FEDS backstop is critical during this uncertainty 0:05:52.480 --> 0:05:56.560 window of uncertainty because it's kind of prevents, uh, you know, 0:05:56.600 --> 0:05:59.280 a lot of loan defaults and a lot of if 0:05:59.279 --> 0:06:04.120 you will, fire sale expectations that really aren't justified. You know, 0:06:04.240 --> 0:06:06.560 we have to remember, prior to this crisis, commercial real 0:06:06.640 --> 0:06:08.960 estate was in great shape. We hadn't over build it, 0:06:09.240 --> 0:06:12.960 we hadn't over leveraged it. The economy was in great shape. 0:06:13.800 --> 0:06:16.720 That added added to the all the actions that are 0:06:16.720 --> 0:06:18.800 being taken by the FRET and the government really spells 0:06:18.839 --> 0:06:22.400 it pretty uh, you know, pretty good shape. Samnogi, thanks 0:06:22.440 --> 0:06:24.279 so much for joining us to snog is the CEO 0:06:24.320 --> 0:06:27.080 of Marcus and Millichap talking to us about the commercial 0:06:27.120 --> 0:06:31.080 real estate business and clearly some tough times coming up 0:06:31.480 --> 0:06:33.719 for that business. At Lisa and again we just saw 0:06:33.800 --> 0:06:36.040 some you know, it's gonna be really really difficult on 0:06:36.120 --> 0:06:38.560 a lot of you know, small and mid sized businesses, 0:06:38.600 --> 0:06:41.080 and obviously that'll be that'll trickle down to the real 0:06:41.160 --> 0:06:47.120 estate as well. Looking at w T I crewed twenty 0:06:47.640 --> 0:06:51.400 twenty cents a barrel just extraordinary here. So when we 0:06:51.440 --> 0:06:55.640 talk about commodities like oil, we talked about supply and demand, 0:06:55.640 --> 0:06:58.119 and it doesn't look good on either side for oil 0:06:58.240 --> 0:07:00.600 right now. That's why we're fortunate to have our next guest, 0:07:00.640 --> 0:07:03.200 Ellen Wald. She's a president of Transversal Consulting and a 0:07:03.240 --> 0:07:06.800 Bloomberg Opinion contributor. Ellen, thanks so much for joining us. 0:07:07.160 --> 0:07:10.600 So we know the demand picture is bad and seemingly 0:07:10.640 --> 0:07:13.480 getting worse by the day. But let's start with supply. 0:07:13.840 --> 0:07:18.840 What are the Russians and the Saudis thinking about today? Well, exactly, Well, 0:07:19.080 --> 0:07:22.560 the Russians are probably thinking about the phone call that 0:07:22.680 --> 0:07:25.720 President Trump says he's going to have with President Putin 0:07:25.840 --> 0:07:30.160 later today, during which he plans to discuss oil. But 0:07:30.400 --> 0:07:33.320 the interesting thing is that the real problem is actually 0:07:33.520 --> 0:07:37.560 Saudi Arabia. In fact, there's been indications that Russia is 0:07:38.000 --> 0:07:42.320 at the very least not increasing production and possibly interested 0:07:42.360 --> 0:07:46.160 in cutting it. We heard some indications of this from 0:07:46.160 --> 0:07:49.400 some of the Russian oil companies last week. Meanwhile, Saudi 0:07:49.440 --> 0:07:52.080 Arabia is coming out and saying not only are they 0:07:52.160 --> 0:07:55.800 increasing their production to twelve million barrels per day, uh, 0:07:55.800 --> 0:08:00.560 it's starting April one, but they're also planning, starting in May, 0:08:00.600 --> 0:08:05.160 of making ten point six million barrels per day of 0:08:05.200 --> 0:08:09.600 oil available for export, So essentially they're taking their drop 0:08:09.640 --> 0:08:11.800 in domestic demand and they want to put that on 0:08:11.880 --> 0:08:16.360 the market to Alright, this has been leading to fears 0:08:16.480 --> 0:08:20.480 and the reality of storage space being filled up. Literally 0:08:20.520 --> 0:08:22.720 there is nowhere to put all of this oil. And 0:08:22.800 --> 0:08:26.080 we saw in the US here a driller actually paying 0:08:26.320 --> 0:08:28.520 someone at one point to just take their oil because 0:08:28.560 --> 0:08:30.320 they had too much of it and needed a place 0:08:30.400 --> 0:08:34.720 to put it. What's the end game here? The end 0:08:34.760 --> 0:08:38.239 game is that production is going to have to decline. 0:08:38.800 --> 0:08:42.120 That's that's really the only option here. Dwellers are going 0:08:42.160 --> 0:08:44.920 to have to start plugging wells. Uh, they're going to 0:08:45.040 --> 0:08:49.280 have to start reducing recounts. We've already seen recounts going 0:08:49.320 --> 0:08:53.480 down in the Permian. But the reality is unless they 0:08:53.480 --> 0:08:56.960 want to fill every ship on the sea with crude 0:08:57.000 --> 0:09:02.080 oil and products and every idle jet with jet fuel, Uh, 0:09:02.120 --> 0:09:06.160 they're going to have to calm down with this production because, Uh, 0:09:06.480 --> 0:09:11.840 the demand problem isn't going to be resolved immediately. Demand 0:09:11.880 --> 0:09:14.800 is going to take some time to come back. Gasolene 0:09:14.800 --> 0:09:18.880 demand could come back pretty quickly once social distancing and 0:09:18.920 --> 0:09:22.000 lockdown restrictions are eased, But it doesn't seem like we're 0:09:22.040 --> 0:09:27.319 going to be getting that anytime soon. Alright, So give 0:09:27.400 --> 0:09:30.559 us a sense ellen of what the Saudis are thinking 0:09:30.679 --> 0:09:33.240 about here. What do you think is their mindset? Here? 0:09:33.800 --> 0:09:36.319 They can see where global demand is and is not 0:09:37.080 --> 0:09:38.800 h and they can look ahead and just see where 0:09:38.800 --> 0:09:42.640 the storage capacity issues are. What are they really thinking here? Yeah, 0:09:42.720 --> 0:09:45.440 this is this is the big question. When when this 0:09:45.480 --> 0:09:49.200 whole issue got got started in the beginning of March 0:09:49.520 --> 0:09:53.520 this nowady has actually had a pretty good plan before 0:09:54.080 --> 0:09:59.880 UH the coronavirus lockdowns started across the US and then 0:10:00.320 --> 0:10:04.440 in UH, in Europe and now in India, demand was down, 0:10:04.559 --> 0:10:07.720 and particularly from China, but it wasn't bad, and so 0:10:08.040 --> 0:10:11.760 their plan to increase production was actually had some merit. 0:10:11.840 --> 0:10:15.760 The idea would be increased production, you'll increase revenue even 0:10:15.840 --> 0:10:18.680 if you send oil prices down by a bit. The 0:10:18.760 --> 0:10:22.240 problem happened when, first of all, they got into this 0:10:22.360 --> 0:10:26.520 price more kind of narrative, and that sent prices down 0:10:26.640 --> 0:10:28.920 further than they probably would have liked. And then on 0:10:29.040 --> 0:10:32.760 top of that you add in the coronavirus lockdowns which 0:10:32.840 --> 0:10:37.680 were just killed demand almost immediately, and that sent prices 0:10:37.720 --> 0:10:40.800 down further. So now even if they're producing and selling 0:10:40.840 --> 0:10:43.040 a lot of oil. If they're only selling it at 0:10:43.080 --> 0:10:48.040 you know, dollars a barrel, they're not making more revenue. 0:10:48.320 --> 0:10:50.520 And sooner or later they're going to have to realize 0:10:50.520 --> 0:10:53.120 that this is a serious problem. And I think we're 0:10:53.120 --> 0:10:55.640 going to start to see that in April as we 0:10:55.720 --> 0:10:58.640 see the big question is Ken Saudi MAYBEA actually sell 0:10:58.760 --> 0:11:02.360 all of this oil that have buyers? They say they do. 0:11:02.640 --> 0:11:06.160 Anecdotal evidence suggests that maybe they don't, but we're going 0:11:06.200 --> 0:11:09.520 to have to watch this play out basically in the 0:11:09.559 --> 0:11:12.560 tanker space. Are we going to see these tankers filling 0:11:12.559 --> 0:11:15.640 with oil leaving Saudi Arabia and then unloading it? And 0:11:15.679 --> 0:11:19.679 if we don't, then that's going to expose Saudi Arabia's problem? 0:11:19.720 --> 0:11:21.679 And what does this mean for the shail patch when 0:11:21.720 --> 0:11:25.280 we see pipeline operators actually saying to drillers just stop, 0:11:25.360 --> 0:11:27.080 just keep it in the ground guys, because we don't 0:11:27.120 --> 0:11:29.840 have any space. Are they all going to go bankrupt? 0:11:31.000 --> 0:11:33.320 It's likely that a lot of them will go bankrupt, 0:11:33.520 --> 0:11:36.040 They'll be bought by others. There are going to be 0:11:36.080 --> 0:11:38.800 a lot of consolidations. It's not going to be pleasant. 0:11:39.000 --> 0:11:42.920 We're going to see production slow down, in the United States, 0:11:42.960 --> 0:11:46.120 and we were already looking at somewhat of a production 0:11:46.120 --> 0:11:48.880 slow down coming on by maybe this is going to 0:11:48.960 --> 0:11:51.959 be a much more dramatic drop. The good story in 0:11:52.040 --> 0:11:54.520 all of this is that the oil is still there 0:11:54.880 --> 0:11:58.240 and when this is all over, when demand picks up, 0:11:58.280 --> 0:12:01.200 which it will then, and that oil is still going 0:12:01.240 --> 0:12:03.840 to be there. And even if the same companies aren't there, 0:12:04.160 --> 0:12:08.520 new ones will likely form or the few that kind 0:12:08.520 --> 0:12:10.600 of brought up the assets of the others will start 0:12:10.600 --> 0:12:14.920 producing again. So the Americus future as an oil producer 0:12:15.280 --> 0:12:18.040 is not over. This is not the end of that story. 0:12:18.559 --> 0:12:20.439 Ellen Wald, thank you so much for being with us. 0:12:20.679 --> 0:12:24.320 Ellen Wald, president of Transversal Consulting, and a Bloomberg Opinion 0:12:24.400 --> 0:12:27.400 Calumness joining us. I gotta say, Paul, my favorite quote 0:12:27.400 --> 0:12:29.400 that I've read over the past few weeks has been 0:12:29.720 --> 0:12:32.240 rocks don't go bankrupt. That that's one of the silver 0:12:32.559 --> 0:12:35.320 that's the silver lining for the show patch right now. Yeah, 0:12:35.320 --> 0:12:37.440 there's still oil in the ground, and as ellen said, 0:12:37.480 --> 0:12:40.120 when the market comes back, there will be some some 0:12:40.720 --> 0:12:43.680 oil people out there drilling and bringing it out for Yeah, 0:12:43.720 --> 0:12:46.240 although I do have to think, what does it say 0:12:46.360 --> 0:12:49.320 if you have pipeline operators literally saying just keep it 0:12:49.360 --> 0:12:51.880 in the ground. It's not going anywhere good right now, 0:12:51.920 --> 0:12:54.960 guys looking right now at Brent Crew, that's really what's 0:12:54.960 --> 0:12:58.040 taken on the chin this morning. It's down to two 0:12:58.200 --> 0:13:04.280 dollars and sixty a barrel, the lowest in seventeen years. 0:13:08.320 --> 0:13:12.160 Interesting to see what's going on right now in credit 0:13:12.200 --> 0:13:14.520 in the meantime, because you have sort of dual forces, 0:13:14.600 --> 0:13:17.120 given the fact that oil prices are falling to the 0:13:17.160 --> 0:13:19.960 lowest and seventeen years, and then you also have concerns 0:13:20.000 --> 0:13:23.000 about growth, and then you have the FED trying to 0:13:23.080 --> 0:13:25.680 backstop the whole thing, which is leading to this jumble 0:13:26.280 --> 0:13:29.120 with a lot of dire predictions, and yet people still 0:13:29.160 --> 0:13:32.439 saying it's time to buy Paul. Sort of this odd 0:13:32.480 --> 0:13:36.160 moment where there seems to be an opportunity here, but 0:13:36.200 --> 0:13:38.440 people aren't sure whether they're going to get just to 0:13:38.559 --> 0:13:42.000 quote to quote, walls speak, their faces ripped off in 0:13:42.040 --> 0:13:45.439 the process. Um And someone who's been attracting this really 0:13:45.440 --> 0:13:48.520 well and which has been frankly on the ball every 0:13:48.559 --> 0:13:51.360 time we speak to him is Greg Hahn, who wasn't 0:13:51.360 --> 0:13:55.720 necessarily as enthusiastic earlier about the enthusiasm we were seeing 0:13:55.720 --> 0:13:58.320 in the markets and now joins us chief investment officer 0:13:58.360 --> 0:14:02.959 for Winthrop Capital Management. Greg I'm curious from your perspective, 0:14:03.360 --> 0:14:06.000 is this a time of opportunity in the high yield 0:14:06.040 --> 0:14:10.480 space or is this a time of growing risk. So 0:14:10.480 --> 0:14:12.320 so in the high yield space, we have to separate 0:14:12.360 --> 0:14:15.120 it from the high the high yield basis. In the end, 0:14:15.200 --> 0:14:17.280 we take the energy sector out because of what's going 0:14:17.320 --> 0:14:19.360 on with oil prices. We think the energy sector is 0:14:19.360 --> 0:14:22.320 going to go through some turmoil. Um and it's a 0:14:22.560 --> 0:14:24.480 it's uh. I think at the end of the day, 0:14:24.480 --> 0:14:26.040 it's a buyer's market. But you've got to do your 0:14:26.040 --> 0:14:28.120 homework and you've got to be selective. But there's some 0:14:28.160 --> 0:14:30.960 good companies out there that are on sale. So what 0:14:31.000 --> 0:14:34.160 are some of the sectors? Are the companies that are 0:14:34.200 --> 0:14:37.800 on your screen at the moment. So we've been focused, candidly, 0:14:37.800 --> 0:14:40.040 we've been focused on the up and quality trade. So 0:14:40.280 --> 0:14:42.920 in away from high yield and the investment grade sector. 0:14:43.000 --> 0:14:45.960 The new issue market has been extremely active and where 0:14:45.960 --> 0:14:47.760 we can buy in the short end. The short end 0:14:47.800 --> 0:14:51.440 has had some serious dislocations. So we were buying two 0:14:51.440 --> 0:14:53.680 in three year paper that had yields of six percent, 0:14:53.800 --> 0:14:57.480 which was just from force selling. We're also seeing opportunities 0:14:57.520 --> 0:14:59.680 in the CMBs market, and that's where the problems are 0:14:59.680 --> 0:15:02.440 gonna or is is we see you know, we expect 0:15:02.720 --> 0:15:06.200 um rent payments on the corporate side. We're gonna miss 0:15:06.200 --> 0:15:09.120 rent payments for April, We're gonna probably miss them for 0:15:09.280 --> 0:15:12.640 May um and so we're going to see some deterioration 0:15:12.680 --> 0:15:15.480 in some increase in delinquencies and CMBs, so that there's 0:15:15.520 --> 0:15:18.120 force selling of the CNBS sector. That's put a lot 0:15:18.160 --> 0:15:21.560 of paper out on the street and that's kind of yields. 0:15:22.000 --> 0:15:25.000 What are your baked in assumptions, Greg, I'd love your 0:15:25.080 --> 0:15:28.240 sense as you extrapolate out of how deep and long 0:15:28.280 --> 0:15:31.200 the recession will be and whether that even matters in 0:15:31.320 --> 0:15:35.040 terms of where things are being valued in the opportunity therein. Yeah, 0:15:35.080 --> 0:15:36.880 So for us to make sense of this, we have 0:15:37.000 --> 0:15:39.880 to separate what's going on the economy and what's going 0:15:39.880 --> 0:15:42.160 on in the financial system with what's going on in 0:15:42.200 --> 0:15:44.960 the capital markets. So we put those into it all 0:15:45.000 --> 0:15:48.320 gets pushed together. But if we if we focus on 0:15:48.320 --> 0:15:52.960 on the capital markets piece of it, Um, just specifically 0:15:53.000 --> 0:15:55.960 to your question, we think the ret the re sector 0:15:56.080 --> 0:15:58.000 right now is going to be challenged, but the way 0:15:58.000 --> 0:16:01.160 that it flows through in the commercial mortgage loan space, Uh, 0:16:01.240 --> 0:16:04.040 what we expect businesses to miss their April first you know, 0:16:04.040 --> 0:16:06.480 we're gonna see, you know, a decline in April first 0:16:06.480 --> 0:16:08.680 rent payments. We're going to see a decline in May 0:16:08.760 --> 0:16:11.400 first rent payments, and then we'll start to see some 0:16:11.680 --> 0:16:15.080 um improvement after that as businesses just get back to 0:16:15.200 --> 0:16:17.720 up and running. And that particularly isn't that strip mall 0:16:17.760 --> 0:16:21.200 space where you see restaurants, mail salons, barbershops, that kind 0:16:21.200 --> 0:16:24.320 of service stuff that's effectively shut down for this period 0:16:24.360 --> 0:16:27.520 of time. So, Greg, what kind of economic assumption are 0:16:27.520 --> 0:16:29.240 you guys kind of working on. We had a bunch 0:16:29.280 --> 0:16:31.760 of Wall Street investment banks over the last week coming 0:16:31.760 --> 0:16:36.200 out with GDP forecast quarterly for twenty twenty, and most 0:16:36.360 --> 0:16:39.520 had I would characterize as kind of a V type 0:16:39.520 --> 0:16:42.360 of recovery with a sharp, sharp contraction in Q two, 0:16:42.400 --> 0:16:44.720 but then it rebound in Q three and four. Is 0:16:44.760 --> 0:16:48.400 that what you're modeling in Yeah? So we I can't 0:16:48.400 --> 0:16:50.360 put numbers to it, but we if we look at 0:16:50.360 --> 0:16:53.760 shapes of letters, um, we're not looking at a V 0:16:53.840 --> 0:16:56.280 shape recovery right now, this one's gonna be it's gonna 0:16:56.320 --> 0:16:59.520 be shorter than the financial crisis of two thousand and eight, 0:16:59.560 --> 0:17:02.560 but this is going to be extended. Um, this is 0:17:02.560 --> 0:17:05.879 gonna go on for two quarters. Greg, I want to 0:17:05.920 --> 0:17:09.640 talk more about speculative grade credit in general, and you're 0:17:09.640 --> 0:17:14.480 talking about the opportunities in higher rated junk bonds. I'm 0:17:14.520 --> 0:17:18.480 just wondering about investment grade down grades, the fallen Angel 0:17:18.640 --> 0:17:22.280 kind of syndrome. We've seen an escalating number of down grades. 0:17:22.440 --> 0:17:24.760 I'm just wondering at what point that's going to cause 0:17:24.840 --> 0:17:28.399 forced selling that bleeds out into the top tier of 0:17:28.480 --> 0:17:32.119 high yield. How worried are you about that? Well, it 0:17:32.280 --> 0:17:35.960 absolutely will the I mean, we saw Ford get downgraded 0:17:36.040 --> 0:17:37.639 last week, I think it was last week or two 0:17:37.680 --> 0:17:41.240 weeks ago. Um, we're going to see it. This happened 0:17:41.240 --> 0:17:44.480 in the late nineties early two thousands, where we saw 0:17:44.480 --> 0:17:48.560 Georgia Pacific Board GM a number of investment grade companies 0:17:48.600 --> 0:17:51.399 get down graded. With with low interest rate and tight 0:17:51.480 --> 0:17:54.760 credit spreads, it's not going to have a fundamental impact 0:17:54.840 --> 0:17:56.639 on the company that doesn't it's not going to increase 0:17:56.640 --> 0:18:00.399 their bowering costs as long as they can access the markets. 0:18:00.440 --> 0:18:02.960 It's going to have a bigger effect in the capital 0:18:03.000 --> 0:18:06.160 markets for those of us who navigate where we want 0:18:06.200 --> 0:18:09.480 to allocate dollars. So a big, big amount of a 0:18:09.560 --> 0:18:13.520 large amount of credit coming from investment grade into high yield, 0:18:13.560 --> 0:18:15.920 we're gonna have to digest that into the high yield space. Yes, 0:18:16.480 --> 0:18:19.280 it's a great challenge. Yeah, what's your sense of the 0:18:19.280 --> 0:18:21.920 financial system, the health of the financial system, maybe say 0:18:22.000 --> 0:18:25.880 now versus two thousand two nine. Right, So in two 0:18:25.920 --> 0:18:28.400 thousand and eight, two thousand nine, we were dealing with 0:18:29.000 --> 0:18:32.080 UH growth in the subprime loan space that worked its 0:18:32.160 --> 0:18:35.959 way into UH structured product different types of product. We 0:18:36.040 --> 0:18:38.880 don't have from our view, we don't have those kinds 0:18:38.920 --> 0:18:44.159 of accesses UH in UM, the residential space. UM. We 0:18:44.200 --> 0:18:48.200 thought the commercial mortgage loan space was a little bit extended. UM. 0:18:48.400 --> 0:18:50.800 And so there's been a lot of development over the 0:18:50.840 --> 0:18:55.639 last eight years. The but the financial system is significantly 0:18:55.680 --> 0:18:58.480 stronger than it was twelve years ago, because we're talking 0:18:58.480 --> 0:19:01.480 about banks now that have capital levels and excessive eight percent. 0:19:01.960 --> 0:19:04.720 And a context for that is back in the financial crisis, 0:19:04.720 --> 0:19:07.760 I think the banking sector was close at four So 0:19:07.800 --> 0:19:10.040 I think the banks have enough of a shock absorber 0:19:10.119 --> 0:19:14.760 to to absorb this much better than they had. And 0:19:15.119 --> 0:19:17.800 part of this is the FED has responded so quickly 0:19:18.080 --> 0:19:20.919 to put programs in place to help support commercial paper 0:19:20.960 --> 0:19:24.720 and repurchase agreements, and it really does support the financial system. 0:19:24.800 --> 0:19:28.000 So it's got the shock absorbers it needs to help 0:19:28.040 --> 0:19:31.880 absorb these um this this crisis. So one thing I've 0:19:31.880 --> 0:19:35.040 been struggling with just taking a step back the entire 0:19:35.440 --> 0:19:37.720 there's a theory out there anyway that there's a big 0:19:37.760 --> 0:19:40.639 shift going on that's getting accelerated by the coronavirus to 0:19:40.680 --> 0:19:44.920 a digital economy. You're seeing slack, you're seeing zoom all surge, 0:19:44.960 --> 0:19:47.840 you're seeing sort of anything having to do with online 0:19:47.880 --> 0:19:50.400 delivery do well. And a lot of the high old 0:19:50.440 --> 0:19:54.520 market is tied to the old economy and industrial companies 0:19:54.640 --> 0:19:58.240 that are struggling arguably the most. What do you say 0:19:58.240 --> 0:20:00.560 to people who just argue that you have all these 0:20:00.640 --> 0:20:04.680 over leveraged companies that are going to not be able 0:20:04.720 --> 0:20:07.360 to grow into their capital structures. It's going to lead 0:20:07.400 --> 0:20:10.760 to a whole host of defaults with bigger loan losses 0:20:10.960 --> 0:20:13.600 on them, with loan loss recoveries than during the two 0:20:13.640 --> 0:20:16.040 thousand and eight crisis. I keep hearing more about that. 0:20:16.760 --> 0:20:21.119 Is that a real worry? Um? Yeah, the difference between 0:20:21.160 --> 0:20:24.080 the new economy and the old economy. The old economy, 0:20:24.160 --> 0:20:27.199 if if there are assets tied to those businesses, there's value. 0:20:27.520 --> 0:20:32.040 In the new economy where you've got technology based businesses, 0:20:32.119 --> 0:20:35.800 there's there's just from a credit standpoint, there's fewer assets, 0:20:36.040 --> 0:20:38.240 so that your your asset is actually your client base. 0:20:38.359 --> 0:20:43.439 It's not necessarily your website the technology to support it. Um. 0:20:43.600 --> 0:20:45.880 But it's a it's a valid point. I mean, it's 0:20:45.880 --> 0:20:48.800 we've got this whole shift. Every industry is going through 0:20:48.880 --> 0:20:51.639 some tectonic shift right now. And I always joke, we 0:20:51.680 --> 0:20:53.920 never saw we never got a memo when the typewriter 0:20:54.080 --> 0:20:57.359 left the office back in seven or whenever it left. 0:20:57.440 --> 0:21:00.159 You know, it's like it just starts to happen and 0:21:00.200 --> 0:21:02.639 then the typewriter repair shop goes out. So some of 0:21:02.680 --> 0:21:05.160 this is going to have an impact on literally how 0:21:05.200 --> 0:21:08.359 we do business. Greg Han, thank you so much for 0:21:08.560 --> 0:21:11.240 joining us and hanging on there. Greg Han, chief investment 0:21:11.240 --> 0:21:16.600 Officer for Winthrop Capital Management. Well, there's been a lot 0:21:16.600 --> 0:21:19.959 of back and forth between President Trump and General Motors 0:21:20.000 --> 0:21:23.440 about ventilators. Are they making them, are they being are 0:21:23.440 --> 0:21:26.600 they charging too much? Let's get the latest with David Walsh, 0:21:26.640 --> 0:21:29.639 Bloomberg Detroit Bureau chief. So David, give us the latest 0:21:29.680 --> 0:21:33.440 on what's going on with General Motors and switch pivoting 0:21:33.440 --> 0:21:39.280 into the manufacturing of ventilators. Yeah. So they've actually started 0:21:39.640 --> 0:21:43.840 tearing down the original machine at Ventech, which is GM's partner, 0:21:43.920 --> 0:21:46.440 turning the machine down at an auto parts plane Cocomo 0:21:46.480 --> 0:21:50.560 and rebuilding it and really kind of perfecting the called 0:21:50.560 --> 0:21:52.399 it an assembly line, but it's really a roomful of 0:21:52.400 --> 0:21:55.720 people assembling these things, uh, the factory that will make 0:21:55.760 --> 0:21:58.399 these things. So they're they're getting to the final throws 0:21:58.520 --> 0:22:02.840 of really setting up the whole process to make thousands 0:22:02.880 --> 0:22:06.040 of ventilators. And this is important because a vent check 0:22:06.520 --> 0:22:08.879 which which makes this critical care event or later that 0:22:09.000 --> 0:22:12.200 can be used for COVID nineteen patients. They were used 0:22:12.240 --> 0:22:15.440 to making a hundred and fifty maybe a good month 0:22:15.480 --> 0:22:19.360 two hundred and fifty units, and working with GM, they're 0:22:19.359 --> 0:22:21.240