WEBVTT - Bloomberg Wall Street Week - December 13th, 2024 0:00:14.200 --> 0:00:17.440 This is Wall Street Week. I'm David Weston bringing you 0:00:17.720 --> 0:00:22.680 stories of capitalism. This week, the silver tsunami of seniors 0:00:22.720 --> 0:00:25.920 looking for nice places to live, creating a two hundred 0:00:25.960 --> 0:00:29.000 and seventy five billion dollar hole that needs to be filled. 0:00:30.160 --> 0:00:33.280 Plus President Trump wants to eliminate the Department of Education. 0:00:33.720 --> 0:00:36.560 What would that mean and how much would it save? 0:00:38.080 --> 0:00:40.839 And what the next Trump administration will mean for the 0:00:40.840 --> 0:00:43.960 banking system and what it's already meant for the world 0:00:44.000 --> 0:00:48.640 of bitcoin. But we begin with a story of second acts, 0:00:48.920 --> 0:00:52.479 a story of reinvention, of repurposing, and the future of 0:00:52.560 --> 0:00:56.520 America's shopping malls in the growing age of e commerce. 0:00:57.960 --> 0:01:01.200 It's the busiest time of the year shopping, a time 0:01:01.280 --> 0:01:03.920 that in the past would have seen the Berkshire Mall 0:01:04.080 --> 0:01:07.399 in Why I'm Missing Pennsylvania packed to the gills. 0:01:08.080 --> 0:01:10.479 So the mall was built in the early seventies. 0:01:11.360 --> 0:01:14.400 It was in its heyday, especially at this time of 0:01:14.440 --> 0:01:18.440 the year, the time between Thanksgiving and Christmas. 0:01:17.800 --> 0:01:21.240 It was packed. Our police department. 0:01:20.880 --> 0:01:24.720 Would go out and assist for traffic control. 0:01:25.120 --> 0:01:28.920 As borough manager for Wyomissing, Michelle Bhaer saw the Berkshire 0:01:28.959 --> 0:01:32.200 Mall in its glory days but the story today is 0:01:32.400 --> 0:01:33.040 very different. 0:01:33.959 --> 0:01:38.440 Tenancy, I would say is about sixty percent, so I 0:01:38.480 --> 0:01:40.760 mean just the visual of walking through it compared to 0:01:40.800 --> 0:01:43.360 even a decade ago, when again, at this time of 0:01:43.400 --> 0:01:46.440 the year you would be bodying, checking people trying to 0:01:46.440 --> 0:01:50.760 get from store to store versus as of today, I 0:01:50.760 --> 0:01:53.360 would say sixty to seventy percent of the parking lot 0:01:53.600 --> 0:01:54.640 is fenced off. 0:01:55.640 --> 0:01:59.360 What's happened in Wyomissing is far from unique across the 0:01:59.360 --> 0:02:02.520 country or because love affair with shopping malls has cooled. 0:02:03.080 --> 0:02:05.680 It was an affair driven by the passion of consumers, 0:02:06.080 --> 0:02:09.520 a passion to buy, but also to buy alongside others 0:02:09.680 --> 0:02:10.800 sharing that passion. 0:02:11.680 --> 0:02:15.919 It's the emotional connection. So let's not forget why people shop, 0:02:16.000 --> 0:02:19.440 why women primarily shop right, So eighty five percent of 0:02:19.480 --> 0:02:22.800 consumption generally occurs from the she, the female side of things. 0:02:23.600 --> 0:02:26.799 Adrian Yee is a retail analyst at Barclay's and has 0:02:26.840 --> 0:02:29.079 followed the business for nearly twenty years. 0:02:29.960 --> 0:02:32.680 Back in the day, it was the social outlet and 0:02:32.720 --> 0:02:35.760 that hasn't necessarily gone away. Unfortunately, we have all this 0:02:35.840 --> 0:02:39.600 social media where people don't socialize in a public space. 0:02:39.960 --> 0:02:45.320 The US consumption is the most oversupplied in the world. 0:02:46.040 --> 0:02:49.960 So pre pandemic, or i should say actually pre GFF, 0:02:50.760 --> 0:02:54.800 so we had approximately seven square feet of retail space 0:02:54.840 --> 0:02:58.639 per capita. Now you compare that to in Europe, it's 0:02:58.639 --> 0:03:01.000 about a dollar or one square foot to one and 0:03:01.000 --> 0:03:03.800 a half square feet per capita, and then obviously in 0:03:03.840 --> 0:03:05.799 Asia it's significantly lower than that. 0:03:06.880 --> 0:03:09.760 The US hasn't lost its passion to consume, and it 0:03:09.840 --> 0:03:12.800 still has a lot of retail space, but there's a 0:03:12.800 --> 0:03:15.280 good deal less of that space than there used to be. 0:03:16.000 --> 0:03:19.320 In the nineteen eighties, there were approximately twenty five hundred 0:03:19.360 --> 0:03:24.200 malls in the country. Today fewer than one thousand, raising 0:03:24.240 --> 0:03:27.200 the question of how far it could go, whether malls 0:03:27.240 --> 0:03:29.359 could simply disappear altogether. 0:03:30.280 --> 0:03:33.320 We don't think they're dying, but the better malls have 0:03:33.400 --> 0:03:37.480 a place in the market, and we think what's left. 0:03:37.920 --> 0:03:40.480 We don't think they're all going to die. However, there 0:03:40.520 --> 0:03:43.200 are some that will probably die in the future. 0:03:44.720 --> 0:03:48.480 Egl Namdar's company owns some eighty of the malls that remain, 0:03:49.080 --> 0:03:51.680 and he says they can still be a good investment, 0:03:52.120 --> 0:03:56.080 provided they're the right malls. When you look for an 0:03:56.120 --> 0:03:58.880 investment in a mall, what's the profile you look. 0:03:58.720 --> 0:04:03.080 For, Well, look for a great location, a good market, 0:04:03.280 --> 0:04:08.000 strong market, a growing market. We look at the mix 0:04:08.160 --> 0:04:12.200 of tenants in the mall occupancy, who the anchors are, 0:04:12.640 --> 0:04:16.440 sales of tenants, the trend, and we hope we can 0:04:17.040 --> 0:04:17.720 buy more as. 0:04:17.640 --> 0:04:18.000 We go on. 0:04:19.520 --> 0:04:22.320 We may be seeing a natural correction in the number 0:04:22.360 --> 0:04:25.679 of malls pulling back from their peak, but that correction 0:04:25.800 --> 0:04:29.039 has been turbocharged by the rise of e commerce. 0:04:30.000 --> 0:04:33.640 E Commerce as a percent of sales from twenty ten 0:04:33.760 --> 0:04:38.080 to about twenty fifteen was just hugging ten percent, hugging 0:04:38.240 --> 0:04:42.000 hugging ten ten, and then from seventeen to nineteen went 0:04:42.000 --> 0:04:44.800 from ten to thirty. It was a s curve of 0:04:44.839 --> 0:04:47.719 adoption where all of a sudden it was like, oh why, 0:04:47.960 --> 0:04:53.000 because this generation demanded of Amazon and all these other things. 0:04:53.279 --> 0:04:56.760 So now we're in the era where this next two 0:04:56.880 --> 0:05:00.800 decades of consumption is everything that I picked that I 0:05:00.920 --> 0:05:04.160 want that is going to land at my doorstep when 0:05:04.200 --> 0:05:06.000 I blink my own when I sapped my fingers or 0:05:06.279 --> 0:05:09.360 I blink my eyes. Like Genie, if it. 0:05:09.320 --> 0:05:12.720 Went to thirty percent in twenty nineteen, I think you said, right, 0:05:13.640 --> 0:05:16.760 what happened with the pandemic and where is it now. 0:05:16.080 --> 0:05:19.280 In one year? So that that thirty percent, which is 0:05:19.360 --> 0:05:22.159 kind of like specialty, more like specialty like on mall retail, 0:05:22.400 --> 0:05:24.839 less so in furniture and more so in apperil, but 0:05:24.880 --> 0:05:30.719 generally that numbers thirty percent. It flipped in twenty twenty. 0:05:31.240 --> 0:05:33.080 It went to seventy thirty. 0:05:33.400 --> 0:05:36.640 Seventy percent e commerce econmo percent bricks and mortar. 0:05:36.520 --> 0:05:38.880 Because you can go to the stores. And then what 0:05:39.000 --> 0:05:41.880 happened is it sort of like kind of ratcheted down 0:05:41.960 --> 0:05:45.440 sort of in twenty twenty one, in twenty twenty two 0:05:45.839 --> 0:05:48.760 and serves now kind of at a level playing field 0:05:48.800 --> 0:05:51.600 where it's kind of more like forty forty five percent 0:05:51.640 --> 0:05:54.200 e commerce and it's heading to fifty to fifty. 0:05:54.520 --> 0:05:56.640 Can you envision a world in which actually bricks and 0:05:56.680 --> 0:05:58.719 mortar start eating back into e commerce? 0:05:59.279 --> 0:06:01.839 My view is it a fifty to fifty world is 0:06:01.880 --> 0:06:04.800 about right, because a fifty to fifty world will be 0:06:04.839 --> 0:06:07.400 about five hundred stores. So does you know kind of 0:06:07.440 --> 0:06:10.159 in that range. 0:06:09.000 --> 0:06:11.920 Which malls get hit the hardest by the retrenchment depends 0:06:11.960 --> 0:06:15.520 on the type of mall involved. Not all us shopping 0:06:15.560 --> 0:06:19.240 malls are created equal. They come in three basic classes. 0:06:20.320 --> 0:06:22.600 A Class A mall is one that makes at least 0:06:22.600 --> 0:06:26.280 five hundred dollars per square foot a year. Research from 0:06:26.279 --> 0:06:29.480 Capital One says their average vacancy rate is just three 0:06:29.560 --> 0:06:34.160 point six percent and they're largely doing just fine. On 0:06:34.200 --> 0:06:37.320 the other extreme, class C malls average less than three 0:06:37.400 --> 0:06:40.320 hundred dollars per square foot per year and have much 0:06:40.400 --> 0:06:44.279 higher vacancy rates. That leaves Class B malls right in 0:06:44.360 --> 0:06:47.400 the middle, which is where Namdar likes to be given 0:06:47.440 --> 0:06:51.159 their availability and the bigger difference between what they cost 0:06:51.360 --> 0:06:54.560 and the revenue they can generate, which investors call the 0:06:54.920 --> 0:06:55.520 cap rate. 0:06:56.400 --> 0:06:58.919 What we like to invest in is A B or 0:06:58.960 --> 0:07:02.159 B plus malls. Those are malls that they do well, 0:07:02.200 --> 0:07:05.960 but they're one level below the A, and there we 0:07:06.000 --> 0:07:08.839 feel that there's an arbitrage in the cap rates, that 0:07:08.880 --> 0:07:12.080 you could buy them at much more attractive cap rates 0:07:12.120 --> 0:07:14.840 than the A and maybe a little bit less than 0:07:14.880 --> 0:07:17.720 the c's that we feel don't have much life left 0:07:17.720 --> 0:07:18.360 in them. 0:07:19.160 --> 0:07:22.280 If I own a B mall, is it possible for 0:07:22.320 --> 0:07:24.600 me to do something to make that into an AIM all? 0:07:25.800 --> 0:07:32.280 Simply no, because the A mall designation is based on 0:07:32.400 --> 0:07:38.160 the sort of five mile radius of income density demographic. Okay, 0:07:38.200 --> 0:07:42.040 I want an income demographic in that five mile radius. 0:07:42.080 --> 0:07:44.760 That makes seventy five to one hundred thousand dollars. Now 0:07:44.760 --> 0:07:48.720 I can go look for my malls. So the designation 0:07:49.080 --> 0:07:51.960 of the A or the B is actually based on 0:07:52.640 --> 0:07:55.440 the wealth. So if you think that an area will 0:07:55.480 --> 0:07:58.520 in ten years become more more wealthy, then you're going 0:07:58.600 --> 0:08:00.720 to make that bad because these least are also ten 0:08:00.800 --> 0:08:01.240 years long. 0:08:02.040 --> 0:08:04.720 If a mall owner can't change the demographics of its 0:08:04.760 --> 0:08:08.400 immediate surroundings, what can it do to improve its investment? 0:08:08.920 --> 0:08:11.480 What can be done to save a struggling mall. 0:08:12.440 --> 0:08:15.360 Now, our main focus is to do joint venture with 0:08:15.480 --> 0:08:18.720 a developer and bring someone in and say, let's go 0:08:18.840 --> 0:08:21.240 as a partner and we can repurpose it, whether it's 0:08:21.280 --> 0:08:27.880 a for residential for you know, hospital, for you know, industrial, hotel, 0:08:28.120 --> 0:08:31.560 mixed use, other types of retail, big boxes, you know, 0:08:31.840 --> 0:08:34.840 junior anchors. So that's what we're trying to do. But 0:08:34.880 --> 0:08:38.880 in some cases we just would sell it if there 0:08:39.040 --> 0:08:42.280 isn't a demand for that joint venture. 0:08:43.360 --> 0:08:45.520 Which takes us back to the Berkshire mall and why 0:08:45.559 --> 0:08:48.880 I'm missing Pennsylvania, which has become something of a problem 0:08:48.960 --> 0:08:52.520 for borough manager Ware and for its owner, which turns 0:08:52.559 --> 0:08:56.160 out to be none other than Egle Namdar. The average 0:08:56.160 --> 0:08:58.439 income within a mile of the Berkshire Mall is close 0:08:58.480 --> 0:09:02.200 to one hundred and thirty thousand, but that's just seven 0:09:02.280 --> 0:09:06.079 thousand people. Zoom out five miles and the average income 0:09:06.160 --> 0:09:09.480 drops to seventy three thousand dollars a year across almost 0:09:09.520 --> 0:09:10.960 two hundred thousand people. 0:09:11.720 --> 0:09:14.320 I believe the highest assessed value was in the mid 0:09:14.360 --> 0:09:19.560 fifty million dollar range. That coupled with mercantile tax, you 0:09:19.600 --> 0:09:23.680 were looking at probably anywhere between four to seven hundred 0:09:23.679 --> 0:09:28.480 thousand dollars in annual tax revenue. Compare that to the 0:09:28.520 --> 0:09:33.200 most recent reassessment that dropped it down to five million dollars. 0:09:33.679 --> 0:09:36.840 So you can do the math on four hundred to 0:09:36.920 --> 0:09:41.640 seven hundred thousand lower to ten percent. I mean, that's 0:09:41.760 --> 0:09:44.800 if you're talking in terms of our overall budget. Current 0:09:44.840 --> 0:09:49.120 annual operating budget is around thirty million dollars. Four hundred 0:09:49.160 --> 0:09:52.760 thousand is the amount we spend annually on televising and 0:09:52.800 --> 0:09:57.400 repairing our water means or that's a third of our 0:09:57.480 --> 0:10:04.280 annual street improvement. So that amount could have a significant 0:10:04.360 --> 0:10:08.720 impact when you're talking about services the borough can provide 0:10:08.840 --> 0:10:10.839 and tax revenue that's being generated. 0:10:11.880 --> 0:10:15.480 Berkshire's owner recognizes the problem. He says he shares the 0:10:15.520 --> 0:10:18.600 community's goal of getting revenue from the property and tax 0:10:18.640 --> 0:10:21.800 payments up, but that sometimes the issue lies with the 0:10:21.840 --> 0:10:25.880 local government and difficulties in getting timely approval of plans 0:10:25.920 --> 0:10:27.240 to redevelop. 0:10:27.520 --> 0:10:29.920 I think that if you have a good use that's 0:10:29.960 --> 0:10:33.560 going to help the city and help the developer the landlord, 0:10:34.000 --> 0:10:36.600 maybe you can expedite things where we can make that 0:10:36.720 --> 0:10:40.760 happen quicker. I hate to see certain assets sit empty 0:10:40.920 --> 0:10:44.200 for years and years till you get the zoning approved, 0:10:44.200 --> 0:10:48.480 the entitlements. I hope that there's a way that everybody 0:10:48.520 --> 0:10:51.360 can work together and maybe expedite it, because the ultimate 0:10:51.440 --> 0:10:55.720 goal is to have that land repurpose into a new 0:10:56.080 --> 0:10:59.080 class that is ideal for the community, for the city, 0:10:59.200 --> 0:11:01.160 for us, for everybody. 0:11:01.480 --> 0:11:03.720 The intent was to redevelop it. 0:11:04.600 --> 0:11:07.960 The borough quickly found out that current ownership that's not 0:11:08.400 --> 0:11:12.640 how they operate. They instead buy properties and effectively sit 0:11:12.720 --> 0:11:16.200 on them. So the redevelopment plan that I think the 0:11:16.240 --> 0:11:19.839 community and borough council expected to see obviously has not 0:11:20.040 --> 0:11:24.880 happened much to the dismay of most everyone who just 0:11:24.920 --> 0:11:29.400 kind of sits back and watches it continue to further deteriorate. 0:11:30.760 --> 0:11:33.960 However, things ultimately work out for the Berkshire Mall. All 0:11:34.040 --> 0:11:37.000 parties recognize the need to repurpose the property for a 0:11:37.120 --> 0:11:41.000 changed world of retailing, and they all see potential yet 0:11:41.120 --> 0:11:42.040 to be realized. 0:11:42.840 --> 0:11:46.400 I don't think shopping centers as a whole are a 0:11:46.520 --> 0:11:49.160 dying breed, and twenty years from now you're going to 0:11:49.200 --> 0:11:53.000 see every single one of them repurposed. There's clearly development 0:11:53.080 --> 0:11:53.559 going on. 0:11:54.640 --> 0:11:57.000 It just takes a while, but are really our intent 0:11:57.160 --> 0:12:00.880 is to work together with the towns of ease as 0:12:00.960 --> 0:12:04.000 much as we can work together as a team to 0:12:04.160 --> 0:12:07.440 redevelop these assets into something that will hopefully be here 0:12:07.440 --> 0:12:09.320 for the next hundred some of the years. 0:12:10.320 --> 0:12:13.480 Adapting to the wants and needs of the current generation 0:12:13.640 --> 0:12:16.160 and those that come after them will be the key 0:12:16.240 --> 0:12:19.200 to the long term health of the shopping ball and 0:12:19.360 --> 0:12:24.560 the key to a successful second act. Still ahead, how 0:12:24.600 --> 0:12:28.920 America is preparing for the Silver Tsunami. That's next on 0:12:29.080 --> 0:12:42.520 Wall Street Week. This is a story about a tsunami, 0:12:42.679 --> 0:12:46.439 an overwhelming wall not of water, but of people. As 0:12:46.480 --> 0:12:49.400 our population ages and needs places to live that can 0:12:49.440 --> 0:12:52.319 accommodate their particular needs and desires. 0:12:54.520 --> 0:12:59.840 We considered probably for different residents, and that would be 0:13:00.120 --> 0:13:06.560 for COVID, and then we looked at Murano and loved Mirano. 0:13:06.960 --> 0:13:10.320 That's Marilyn Bergstrom, an eighty seven year old widow who 0:13:10.400 --> 0:13:13.600 has recently left her house in Seattle, Washington to take 0:13:13.640 --> 0:13:16.599 up residence in an upscale senior living development. 0:13:17.040 --> 0:13:21.880 My husband he got lung cancer and passed away in 0:13:21.960 --> 0:13:25.240 a year, and then I stayed in the house for 0:13:25.320 --> 0:13:28.199 another year, and then I decided it was time for 0:13:28.240 --> 0:13:31.880 me to move on. Well, I had thought years ago 0:13:32.000 --> 0:13:35.320 I wanted to live in a senior living community before 0:13:35.360 --> 0:13:36.000 I had to. 0:13:36.520 --> 0:13:39.440 Bergstrom is on the leading edge of a coming explosion 0:13:39.480 --> 0:13:43.439 in people who will seek senior living accommodations. The number 0:13:43.440 --> 0:13:46.760 of Americans over age eighty is projected to surge over 0:13:46.760 --> 0:13:50.000 the next twenty five years from thirteen million to day 0:13:50.360 --> 0:13:54.360 to over thirty two million by twenty fifty, and within 0:13:54.480 --> 0:13:58.320 the growing population over seventy five, those with annual incomes 0:13:58.360 --> 0:14:01.560 over one hundred thousand dollars are growing much faster than 0:14:01.600 --> 0:14:04.560 the rest, with the highest percentage of growth coming from 0:14:04.559 --> 0:14:07.280 those with incomes over two hundred thousand dollars. 0:14:07.960 --> 0:14:10.760 Demographics are definitely in our favor. I got into this 0:14:10.920 --> 0:14:14.679 business just over thirty years ago, and we talked about 0:14:14.760 --> 0:14:18.240 then this silver tsunami that was coming. Well, I'm happy 0:14:18.280 --> 0:14:21.600 to say that I'm actually seeing it happen now. You know, 0:14:21.640 --> 0:14:24.720 within the next five to ten years, that aging population 0:14:24.880 --> 0:14:27.560 is actually going to be moving into senior living. 0:14:27.960 --> 0:14:31.040 Tanegaal is one of those addressing the growing demand for 0:14:31.160 --> 0:14:35.720 high quality senior living. She's president of Meryl Gardens, which 0:14:35.800 --> 0:14:39.680 owns and operates retirement communities in seventy locations across the 0:14:39.760 --> 0:14:44.200 United States, including Morano, which Marilyn Bergstrom now calls home. 0:14:44.680 --> 0:14:47.560 And what her company provides goes well beyond just a 0:14:47.600 --> 0:14:48.400 place to live. 0:14:49.040 --> 0:14:52.600 We define senior living as a place for people to 0:14:52.720 --> 0:14:55.560 go enhance their lives once they're past the age of 0:14:55.560 --> 0:14:59.600 sixty two and they're ready to downsize, or they have 0:14:59.720 --> 0:15:03.120 some need that really keeps them from living in their 0:15:03.120 --> 0:15:06.760 own home and makes them want to move into senior living. 0:15:06.960 --> 0:15:11.320 So we provide help with activities of daily living. We 0:15:11.400 --> 0:15:18.840 provide meals, housekeeping, maintenance. Probably the most important and maybe overlooked, 0:15:19.000 --> 0:15:23.120 is social interaction. People who live at home alone are lonely, 0:15:23.480 --> 0:15:26.920 and we know that socialization helps you live longer, and 0:15:27.000 --> 0:15:29.240 certainly not just longer, but happier lives. 0:15:29.480 --> 0:15:33.960 Taichi, yoga, all those amenities don't come cheap, particularly at 0:15:33.960 --> 0:15:36.760 the high end of what Meryl Gardens has to provide, 0:15:36.920 --> 0:15:39.560 But today there is a growing number of seniors like 0:15:39.640 --> 0:15:41.160 Bergstrom who can afford it. 0:15:41.840 --> 0:15:46.120 I'm paying about seventy five hundred a month. That includes 0:15:46.200 --> 0:15:49.240 my car, which I like to have as long as 0:15:49.280 --> 0:15:53.600 I can drive. I feel that it's a fair price 0:15:53.720 --> 0:15:57.880 for what you get. This is far better than any 0:15:57.920 --> 0:16:00.800 place I expected to live. When I moved in. I 0:16:00.920 --> 0:16:04.000 just felt like I was in the fancy hotel every 0:16:04.040 --> 0:16:05.240 morning that I woke up. 0:16:06.040 --> 0:16:08.520 And Tanna Gall says that as pleasant as it is 0:16:08.560 --> 0:16:12.040 for residents like Bergstrom, it should also be good business 0:16:12.160 --> 0:16:13.200 for Meryll Gardens. 0:16:14.040 --> 0:16:16.360 I would not say it's a high margin business. It 0:16:16.400 --> 0:16:21.160 is a middle margin business. Our margins have been a 0:16:21.200 --> 0:16:24.320 little more compressed of recent since the pandemic. The pandemic 0:16:24.360 --> 0:16:26.800 goes really rough on our sector, for sure. If your 0:16:26.880 --> 0:16:28.840 question had been to me, Tanna, what keeps you up 0:16:28.880 --> 0:16:32.040 at night? I would have said getting enough great team 0:16:32.080 --> 0:16:36.000 members there's a couple things that we're looking at. Number one, 0:16:36.400 --> 0:16:39.600 we are trying to attract more people into our business 0:16:39.600 --> 0:16:42.680 that don't even know we exist. So, for example, we 0:16:42.840 --> 0:16:46.440 hire a lot of people from the hospitality business. It's very, 0:16:46.520 --> 0:16:49.240 very similar to running a hotel. We have also really 0:16:49.240 --> 0:16:54.000 broadened our scope in reaching out to colleges and universities. 0:16:53.520 --> 0:16:58.840 Were bused to steal robust demand that's about to explode clientele, 0:16:58.960 --> 0:17:02.120 with the ability to a high prices, a business with 0:17:02.240 --> 0:17:05.159 solid margins, all of it should make the world of 0:17:05.240 --> 0:17:09.160 senior living a truly good real estate investment. But, as 0:17:09.280 --> 0:17:13.639 Nickmaps Vision CEO Eric Morton says, there's one thing holding 0:17:13.640 --> 0:17:19.000 it back. Supply. His firm tracks senior housing inventory and demand. 0:17:19.560 --> 0:17:22.800 Senior housing is really facing a watershed moment as the 0:17:23.280 --> 0:17:27.920 baby boomers begin to turn eighty. Senior housing construction has 0:17:28.000 --> 0:17:31.400 been outpaced by eighty plus growth since twenty twenty two, 0:17:31.480 --> 0:17:33.679 and that gap is only set to continue as the 0:17:33.720 --> 0:17:36.600 boomers grow by about forty percent by the end of 0:17:36.600 --> 0:17:39.199 the decade. It's really on the supply side that the 0:17:39.280 --> 0:17:44.280 issue has manifested. So the pandemic brought inflation to construction 0:17:44.400 --> 0:17:49.200 costs as well as a historic increase in interest rates, 0:17:49.240 --> 0:17:51.720 and the effect of that has been to make the 0:17:51.760 --> 0:17:55.000 cost of development basically out of reach for most markets. 0:17:55.320 --> 0:17:59.040 And so what's happened is the senior housing inventory growth 0:17:59.240 --> 0:18:02.400 has hit all time lows right as demand is set 0:18:02.440 --> 0:18:03.399 to explode. 0:18:03.640 --> 0:18:06.639 I have been fortunate enough to watch our industry go 0:18:06.720 --> 0:18:10.240 through two very big cycles. As I mentioned back in 0:18:10.280 --> 0:18:15.040 the mid nineties, when assisted living hit Wall Street. Nobody 0:18:15.119 --> 0:18:17.600 was public before, but a bunch of companies went public 0:18:17.640 --> 0:18:20.639 in the mid to late nineties and they built a 0:18:20.800 --> 0:18:23.680 lot of assisted living. And then we had the dot 0:18:23.680 --> 0:18:26.760 com bust and things slowed down again. And what was 0:18:26.800 --> 0:18:29.000 good from that is it took all those buildings that 0:18:29.040 --> 0:18:32.159 we built and filled them up, and so then the 0:18:32.160 --> 0:18:34.639 supply demand was in a nice balance for quite a 0:18:34.640 --> 0:18:38.320 few years. And then when the recession hit in eight 0:18:38.400 --> 0:18:41.360 to ten, the same thing happened. We had a lot 0:18:41.400 --> 0:18:44.520 of product on the market and people weren't moving in. 0:18:45.119 --> 0:18:48.160 So now as we come into a new economic climate, 0:18:48.400 --> 0:18:52.360 it is probably the lowest I've seen on construction starts, 0:18:52.840 --> 0:18:56.400 maybe in my thirty years. So in some ways that's 0:18:56.520 --> 0:18:59.560 a little bit distressing to me. But what I'm seeing 0:18:59.640 --> 0:19:04.240 happen is everybody's filling up our occupancies, I'd say, is 0:19:04.280 --> 0:19:06.680 an industry are back up to about where they were 0:19:06.800 --> 0:19:07.800 before the pandemic. 0:19:08.600 --> 0:19:11.440 Occupancy rates are back up, But now there's a risk 0:19:11.560 --> 0:19:13.879 things will go too far that there will be a 0:19:13.880 --> 0:19:16.640 substantial shortage in available senior housing. 0:19:17.400 --> 0:19:19.040 At the current pace, we're on track for about a 0:19:19.080 --> 0:19:22.600 two hundred and seventy five billion dollar shortfall in senior 0:19:22.640 --> 0:19:26.200 housing development. I still think a lot of the challenge is, frankly, 0:19:26.240 --> 0:19:28.760 just projects don't pencil. So if you think about what's 0:19:28.760 --> 0:19:31.880 happened there, you're looking at construction costs that have gone 0:19:31.920 --> 0:19:34.960 up by twenty five or thirty percent, Debt that used 0:19:34.960 --> 0:19:38.360 to be three or four is now seven or eight, 0:19:38.800 --> 0:19:41.520 and so when you put those two together, your cost 0:19:41.560 --> 0:19:45.720 of development has gone up pretty substantially. At the same time, 0:19:45.800 --> 0:19:48.520 you're looking at what's happened to margins over that time. 0:19:48.560 --> 0:19:51.320 Will occupancy has been down and the cost of labor 0:19:51.400 --> 0:19:54.160 has gone up. But if you dig deep and go 0:19:54.240 --> 0:19:57.400 down market by market, street corner by street corner, there 0:19:57.440 --> 0:20:02.399 are areas where occupancies high rates are high, and the 0:20:02.480 --> 0:20:06.160 construction costs the equation pencils, and so we're really seeing 0:20:06.200 --> 0:20:09.280 people kind of sharpen their pencils and really go hunting 0:20:09.800 --> 0:20:14.320 for those areas that can work today. And the number 0:20:14.320 --> 0:20:17.160 of those areas that work are going to increase as 0:20:17.240 --> 0:20:18.119 demand explodes. 0:20:18.720 --> 0:20:20.760 But if investors are going to be in a position 0:20:20.840 --> 0:20:24.080 to move in to serve that exploding demand, there have 0:20:24.200 --> 0:20:27.840 to be enough projects in development now just waiting for 0:20:27.920 --> 0:20:31.000 the capital and the go ahead. Tena gall at Meryl 0:20:31.080 --> 0:20:34.000 Gardens says she's ready to move as soon as it 0:20:34.040 --> 0:20:34.639 makes sense. 0:20:35.560 --> 0:20:38.919 It really kind of halted our development, and so, for example, 0:20:39.000 --> 0:20:42.240 I've got two pieces of land today that are entitled 0:20:42.240 --> 0:20:44.320 and ready to go, but I can't financially make them 0:20:44.320 --> 0:20:47.160 work yet. And from an investor standpoint, there's a lot 0:20:47.200 --> 0:20:49.439 of people who want to get involved in the sector 0:20:49.480 --> 0:20:52.280 because they're seeing what's happening down the road, But right now, 0:20:52.320 --> 0:20:54.280 the cost of capital is just too much for us. 0:20:54.400 --> 0:20:56.960 At this point, we're starting to see it come down, 0:20:57.960 --> 0:21:01.640 but it's not quite where we can a project work yet, 0:21:01.720 --> 0:21:03.560 so we're always looking for pieces of land that makes 0:21:03.560 --> 0:21:04.560 sense to me. 0:21:04.720 --> 0:21:07.639 That's the kind of the scary scenario is that there's 0:21:08.000 --> 0:21:11.760 markets and segments of the market across the country that 0:21:11.920 --> 0:21:16.520 have you know, frankly no excess capacity, and so the 0:21:16.600 --> 0:21:20.760 impact that could have on seniors and our entire society 0:21:21.160 --> 0:21:23.560 is pretty significant. So I think that, at the end 0:21:23.600 --> 0:21:25.439 of the day, is the thing that I worry the 0:21:25.480 --> 0:21:26.000 most about. 0:21:26.760 --> 0:21:28.959 All of which means those in the industry see an 0:21:29.000 --> 0:21:32.520 opportunity for investors to get into the senior living game 0:21:32.760 --> 0:21:37.120 now in anticipation of that silver tsunami. 0:21:37.040 --> 0:21:40.160 At a time when the industry needs more capital, more 0:21:40.200 --> 0:21:42.640 debt financing to be able to go out and meet 0:21:42.640 --> 0:21:45.720 this need. You know, we're seeing market participants that have 0:21:46.200 --> 0:21:51.040 become exhausted or maybe been beaten during this cycle, and so, 0:21:51.359 --> 0:21:54.119 you know, really I think there's a call to action 0:21:54.359 --> 0:21:58.560 for the nation's banks, for the nation's asset allocators, LPs, 0:21:58.600 --> 0:22:01.119 pension funds, whoever they might be, to look at this 0:22:01.280 --> 0:22:03.960 not only as an opportunity to generate an incredible return, 0:22:04.400 --> 0:22:09.040 but also an opportunity to really help the industry meet 0:22:09.080 --> 0:22:12.280 the needs of society. And so I really am hopeful 0:22:12.320 --> 0:22:14.959 that that will happen. But to the extent that we 0:22:15.040 --> 0:22:17.720 have challenges there, that's something that you know, I'm quite 0:22:17.760 --> 0:22:18.200 worried about. 0:22:18.640 --> 0:22:22.119 For all the challenges the senior housing industry faces, it 0:22:22.200 --> 0:22:26.520 also offers substantial rewards financial and otherwise. 0:22:26.920 --> 0:22:30.600 When I jumped into senior living, I didn't think I 0:22:30.640 --> 0:22:32.840 would be in it for very long. To be honest, 0:22:33.080 --> 0:22:35.040 I thought, oh, I'll give this a try. I see 0:22:35.080 --> 0:22:37.080 what it's about. Everybody told me, you know, the people 0:22:37.160 --> 0:22:40.399 are really nice in the industry, and I thought it 0:22:40.440 --> 0:22:42.920 would be like a six month gig. And I literally 0:22:43.000 --> 0:22:44.520 woke up in August and I've been doing it for 0:22:44.640 --> 0:22:48.280 thirty years. And here's why I love it. It matters. 0:22:49.200 --> 0:22:51.600 I get to make a difference in people's lives every 0:22:51.760 --> 0:22:55.600 day and it's pretty significant. So for me, it's like 0:22:55.880 --> 0:22:58.480 working with the team members. If I treat my team 0:22:58.520 --> 0:23:00.640 members great, I know they treat my REDID it's great. 0:23:01.320 --> 0:23:05.280 And simultaneously it's a business. We make money doing it, 0:23:06.480 --> 0:23:08.280