Businessweek Looks Ahead to 2023

on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com. Well earlier this month, Bloomberg News came out with a story noting that muni bond sales this year down around nineteen percent at about three fifty one

billion dollars. That's according to data compiled by a Bloomberg So with a look at the muni market and credit market overall, we welcome right now Yafa rat and your senior Managing director and head of municipal Credit at Hilltop Securities, joining us via zoom two. Not a great year for at least sales of munis. Yafa, what store, Well, we're super excited about three as the fixed income markets of

finally yielding some interesting returns on attacks exempt basis. However, we also similarly encourage significant vigilance as you evaluate which

potential securities you might want to be constructive on. There are going to be some mind fields out there as we head into well, let's talk about that here, because there did seem to be a little bit more enthusiasm in the munity space, particularly, I think because expectations and one was so dour for a lot of these cities and states, and then of course we saw that the pandemic actually helped a lot of these cities and states, if not get back into the black, and at least

certainly our right size some of the issues here, what pulls people back into this market? What sort of wets investors appetite. So I do think that if we're heading into some sort of economic or any type of recessionary pressures, I do believe that we should be constructive on essential purpose revenue bonds, particularly waters who are power where in excess of I D percent of the transactions are rated

A or higher. And if people are looking for more yieldy opportunities, uh, we would definitely be looking at charter schools where about two thirds of the ratings would be Chippleby or double B, and frankly, about a third of the market is not rated. What about thinking to please continue now, I was simply going to say that the rates um and the the risk adjusted rates right now are actually attractive for the first time in a number of years. What are you anticipating in terms of new issuance.

Can you get kind of a good feel in terms of what kind of market environment it will be for for that, Yeah, that's a great question. And frankly, we know that new issue market volume last year was down close to twenty percent, and we've seen estimates for three ranging from a similar number about three fifty billion, two all the way up to five hundred billion. My instinct tells me it's probably be closer to two levels, maybe

slightly higher. We'll see some new money opportunities we've learned how to structure high yield deals in the current environment, as well as there will be more refunding opportunities. So my guest is somewhere um slightly higher than yeah. But one of the interesting things I think coming off of the pandemic was that we realized we could kind of almost work for many of us work anywhere in the country, you had a lot of movement for the first time,

you had a population that was stuck. You didn't see a lot of movement or mobility for decades finally moving around. How does that impact you think potentially where we see that new issuments are where the UNI market looks more interesting,

the returns better because of some of those pandemic movements. Yeah, there's no doubt that that we've seen movements, particularly to the southeast, where people are quote unquote moving to Florida thirty forty years earlier than had been and originally anticipated. It's certainly a tax positive climate. And what happens as a result when you're seeing demographic shifts is you're seeing the need for more roads, more bridges, more schools, hospitals,

and public service type building. So definitely we're going to expect to see additional volume in the states that are absorbing the demographic shift. Yeah, I'm wondering about opportunities. You talked about opportunities from the perspective of you know what we'll see next year, right talking about infrastructure projects, utilities, what are areas of concern areas to avoid, so I'm particularly sensitive about senior living, healthcare, and project finance. Let

me unwrap a little bit the senior living issue. Frankly, senior living occupancy, which is your primary determinant of revenue, has not restored fully back to pre COVID levels. At the same time, senior living operators or deal with inflationary increases, particularly as it relates to labor and food, which together account for more than two thirds that they're operating budget.

I guess I'm just surprised to hear that from a demographics perspective, because we hear so much about you know, older generations aging into the senior living homes, so it's surprising for me. Yeah, ten thousand baby boomers are aging into sixty five and older per day at this point. Completely agree with you the it's the funding paradigm that

needs a little fixing right now. Your revenues are not growing at the same rate that your expenditures are growing, given pressures only on labor and food, and as a result, it's creating a whole lot of headline noise. In fact, half of the defaults in the muni market this year we're in the retirement sector alright, We're gonna leave it

on that note. Yeah though, thank you so much. Yea A. Ratner, Senior Managing director and head of Municipal credit at Hilltop Securities, joining us on this last trading day of the year. So about when another chart when it comes to economic growth and talking about the way that we're thinking about economic growth in a post COVID environment and environment where interest rates are no longer at zero, where inflation is high, where pandemic recoveries are losing momentum. Check out this one.

Global growth what close to six percent. We're looking at pretty anemic growth over the next few years globally sub three and projected that's that's normal. And I know there's gonna be a lot of hay made over these projections because I think you know, most of the projections are wrong three percent to two percent. We're not just about being wrong, but everyone's fretting because everybody sort of wants

to put it back. You have that big spike up in You have a lot of distortions on these averages. But when you talk to older investors, people have been through multiple cycles, they'll tell you, look, if you can get two to three percent growth in the at least in the major economies for markets. That's how pretty darn good. Much better than a recession, right, much better than negative growth. And part of the problem is that growth gets certainly tainted.

And it's a whole different story when you're dealing dealing also with high inflation rates right in terms of our purchase see power and what it ultimately means. But this is the question for three, do we get that soft landing, even if we get a little bit of growth, that's much better than any kind of recession. Any other charts out there, yep, interest rates? Interest rate? Did they go up? Did they go up? Yes? India just talked about what's going on in uh, you know, Latin America. I mean

they have been on a tear. Here's a chart for you guys on radio. Again, no surprise, Central Bank benchmark rates broadcast on radio. Yeah, well this is a simulcast. Man, I'm not so glad you realized what day by Friday he gets anyway, when we do traffic and again to ignore the boys, let them do their things. But if you look at two for you guys on radio, it's just you know, a straight mountain up, if you will, in terms of what we've seen for global interest rates.

But I do wonder too as what yeah, well, I mean, I mean this chart really says it all. I mean, you talk about the end of what was effectively a zero bound world, and let's face it, really a negative yielding world when you consider that so many nations that were actually uh have negative sign in front of their benchmark rates. Here, that's it, easy money, it's over. But what's the anomaly? Like, keep that chart up, everybody on TV. You're going back to we know we had easy money

for so luch. You put that chart out back before the financial crisis, and you get a better sense here of this house sort of things. I mean, if this is a that's what I was going to say, a reversion to a reversion to the man I want to hear. I have to say that I am I allowed to

give opinions. I want to hear J. Powell and at least disclaimer, please for roomain talk a little bit more about the normalization a policy, because remember they did start to talk about that prior to the inflation really getting out of control and they had to pivot and just focus on inflation labor market. But there has been this sense and The FED did a lot of papers on this, saying you cannot stay at the zero bound forever and

there has to be normalization. But the problem that you referred to earlier this week romane For anyone under the age of forty, they've they've never lived in an environment where we've essentially been adult says I have no friends under the age of I'm your friend. Are you under feel good for your age? Okay, we have a great guest to talk about. What is normal? Uh as we are in this final trading day or let's get to it.

Let's bring in Caleb brun Sheese, an economic analyst at the Decision Intelligence Company Morning consult She joins us from Washington, d C. Kayla, it is good to have you here with us. What is normal in a world where, for a decade or so prior to the pandemic, everybody was used to very low rates, easy money, a very different environment. Was that abnormal, as Metty would say, versus what we're seeing today? So good afternoon, Thank you for having me. And that is a great question and I think a

difficult one to answer. Um. Definitely, we had settled into what felt like a period of normalcy pre pandemic, and what we've been experiencing since the start of the pandemic is definitely not normal um. As you can see from two what what what what we've seen with inflation. I do think in some ways may bring about a bit of a rebalancing. Some of these crazier dynamics that we've seen lately may um start to reshuffle a little bit.

Maybe some of the the stories that have been going above trend in this recovery are now starting to normalize a little bit, and some others may still be catching up. So I think potentially this could be a year like that. I am curious, Kayla about when we talk about trends, because there are a lot of people that sort of are looking or at least hoping for some degree of being reversion, at least when it comes to certain asset classes.

And I'm wondering if there has been so much damage from the pandemic, from inflation and from the fits and the central banks fight against it, that it's almost impossible for us to go back to that, at least not in the short term. It varies a lot depending on

which market you'd be talking about. Take housing, for example, Right now, we've had this very dramatic collapse, but that's coming up against many years of kind of chronic under supply that we've sort of seen since the last housing collapse. Uh So, in that case, even though we are seeing this very dramatic correction, I do think that there's sort of a floor there that's going to present values from falling too much because it's up against this long term,

longer term trend of chronic undersupply. So it varies a lot from market to market, but you know, it's different with labor markets. To there are certain industries that still have some room to grow, to recover to their pre pandemic level, which are constituting some of the growth. Okay, that's exactly where I want to go. Is the labor market. One area of frustration I think for J. Powell has been the resilience of the labor market. He mentioned several

times this year that it's unsustainably hot. When will we start to see some sort of cracks when it comes to labor in this country? And are those cracks can actually get so big that they're going to start to be a concern where we do see widespread jobs just argue, is it his frustration or is it also some of his saving grace because it allows him to keep you know what I mean, doesn't fall on apart. That is

a really good point. I mean, and I don't want to be you know, looked at somebody who's like cheering for job losses here, but he's called the job market

unsustainably hot several times this year. Yeah, And I think a lot of the concern with that comes from the wage games that come along with it when we still have labor force nticipation below where it was pre pandemic um and certain of these sectors, a lot of a lot of them tend to be sort of lower paying services sectors like leader and hospitality, health services, things like that that lost a lot of jobs in the pandemic

and are still growing. Those are the ones that are still contributing to jobs games the most um and where we're seeing a little bit stronger wage games. And the concern with that is that those wage games stick into that services component because it's a cost input for services and keeps inflation elevated. So that's kind of a concern with that. We to the start of your question that we have started to see definitely some cooling in the

labor market. But I think because these sectors that are still growing are bigger ones, I think it's UM not making it show up at the top line as much. And that's an interesting point. And I and the focus Carol, I think on wages, I understand why. But those that wage growth spiral, if you call it that, you know that's also fueled, of course, a lot of the consumer spending as well. And last time I check, that's little,

huge component of this economy. Yeah. Huge, Well, and let's go to it because you know, one of the things when we were planning on our planning call this morning, kalas you know, Romaine was pointing out, you guys have so much important data. What are you seeing when it comes to consumer spending? That is the backbone of our economy. Absolutely, and that's really the area that I actually spend the most of my time watching UM and I'm definitely keeping

a close eye on it. At the start of UH, my big concern is that consumer budgets are just starting off in a much weaker position than they did in two UM. We've see in our surveys that we collect from among consumers that there's a it's been rising all year the share who are saying that their monthly expenses total more than their incomes, so they've been working away

at their savings. Debt debt levels have been increasing and getting more expensive with interest rates, so all of those factors I think are making the consumer a bit weaker. What's been surprising is how resilient spending has been so far. But um, the question now is kind of our income is going to close the gap enough with inflation to kind of allow them to keep spending or you know,

we're seeing more price sensitivity. The holidays were a big toll on many, so are they going to be able to sustain positible growth in Well, I'm curious, Kayla, when you look at the data that we've gotten so far, and I'm particularly talking about some of the ratios with regards to credit balances, debt servicing, household debt servicing, and things like that. Here, have any of those ratios given

you concern? Because when you point those out to certain people and you say this could be bad, they say, well, you have to compare to you know, the financial crisis and other sort of recessionary periods that we went through, and they say, well, it's not bad. When you stack it up against that. Yeah, I agree with that, and I think that certainly was what helped us throughout two. We've kind of only just gotten back to you know, pre pandemic debt levels UM or debt utilization as a

share of income. But what worries me is that, you know, you think about how what the consumers used to spend. They have incomes, they have savings, they have debt uh and and where we are now is they've worked their way through the savings through their savings to a larger degree than they did at the start of last year. Incomes are still not keeping up with prices. If that changes, that could help, But for now, purchasing power is going

down UM. And then debt levels is that final piece which has not been a big concern in twenty two. I'd say we're kind of back to neutral now it could be a bigger piece in Can we just mention for our radio and it was an incredible chart, let's throw it up again for TV. It was inflation adjusted wages falling for nineteen months. So we saw that individuals, you know, based on the inflation picture for a long time, we're doing okay based on what they were being paid.

But the last nineteen months that's not been the case. And this is a brutal chart. And and and I know that a lot of the data we get we don't it doesn't have that the luxury of being inflation adjusted. Obviously, you can kind of do the map yourself here, but I think if you see more of these charts on an inflation adjusted basis, it would cause a little bit more concerned I think out there. Yeah, I think so too.

But if if if inflation does indeed come down then and we you know, sort of purchasing power essentially increases, then we could start to see a difference that that could be if you know, if it's the key that could be, and what's the lack of time? And when we talk about just the psychology of these markets and and more important psychology of the consumers. It's not just whether they have the capacity to do things, that's how

they feel. Right, I'm still here, I mean, I mean, in all series is I mean, I don't remember who said it, but I remember I don't remember years ago, was you know one of the some political Kennedy was talking about how the economy really is a feeling for most people. They're not looking at charts like that. That's how they feel. And if they feel things are bad,

it's going to be bad. I'd say we certainly saw that with our index of consumer sentiment this year UM, which is interesting because it's been it was way down. It came down below you know what it got to in in the height of when everything was going crazy. UM. Our index of consumers enement had been recovering, but it's been like really down all year UM as inflation went up. And I think that chart that you just showed, I agree that was a great chart showing inflation adjusted wages

UM that that declining purchasing power. Consumers are feeling that, and because of other forces, it hasn't necessarily showed up in in certain parts of the economy, like the labor market, like consumers spending to some extent UM. But absolutely that's reflective of what consumers are feeling. It's the power of the Bloomberg Kala. Yeah. You know, if somebody was running from your point out morning console, they have some a lot of great data to I'm just saying, you're running

for office. That's the kind of chart you show, right, Yeah, exactly. Hey Caleb Brun, Thanks so much for joining us this afternoon and really appreciate your time. Cayler Brune is economic analysts at morning consults. We're going to continue to look ahead here any recent big changes in Washington as well, awesome departures out of the Biden administration we're learning today, and of course a new Congress coming in in January three.

So a big set up here for investors as we move out of two into Please to say, joining us right now to talk a little bit more about this is Bryce Stode, old friend of the program, joining us here on the stay as a senior vice president we should point out, and senior portfolio manager over at SIT

Investment Associates. Uh, all right, let's get right to it. Bryce, you go back to the beginning of this year and you look at some of your worst fears, some of your worst predictions here, did the markets actually meet that? Did they come in higher than that or lower than that? It was incredibly difficult. A year in twenty two, we were very pessimistic. We saw the Fed is way way way behind the curve. You know, just just over a year ago their twelve month forecast for FED funds was

less than one percent. I mean we we knew they were going to have to pivot them, but not to this degree. No, we we thought it could be the worst bond market in history, which we're thinking maybe down

five percent, not not thirteen to fifteen percent. And it's just an incredibly terrible year because you know, the FED was so far behind the curve that by the time they did try to catch you up, it was just so extreme that in such a short period of time that just really blew everyone away, and so that obviously bled over to the stock market and caused the combined market stocks and bonds to just be shockingly bad. That having said that, it does set up for a much

better the FED can't raise rates another four percent. You know, there's so many things that are you know, saying from the afterlife you watch me, you know I could do that. Well, there is that, And as a as a bond person, you know, we're just naturally paranoid. We're always thinking about the downside. So it's been kind of strange lately to have this sense of optimism. Fore, I'm like, what was that. I forgot what it felt like to be optimistic as a bond RS. The one thing I would say is, yeah,

I hear you. I mean it felt so miserable to see both the stock and bond market just take a big hit to see that correlation. You know, that's not what's supposed to happen. Having said that, you know, what is it that gives you certainty that you feel like you can start to predict at this point? Well, I think inflation being at ten percent in twenty two is just just horrific, and twenty three people are equivalent about it being somewhere between two and four. I'm like, hey,

you can buy investment great bonds at five. You will. We're automatically at least within the UH. You know, you can conceive a real yield as a complete game changer. So I and I see inflation coming down um much quicker than I think other people do because they are really The way the math works is if oil is that e D and stays at eight, that's zero inflation. So I'm not calling for deflation like a lot of people think it has to go back to where it

was in Dwayne one. No prices could just stabilize where they are, and we have zero CPI. So those kind of things are are are what give me a lot of optims. I think the Fed's got two more rate increases in them, and that's it. Two more rate increases of basis points each fifty basis points. What do you see now, you're I'm trying to not be pinned down.

I think it will be fifty. And a very wise man said to me earlier today that you know, everybody's speculating about what's going to happen in terms of the FED and market outlooks. You know, a lot of them got it wrong this year. So what is really the smart conversation is there's something that you can really kind of hang your hat on here. Who is this wise man? Did you just make this person up? You know him? Well,

it's not man. Well, the economy is transitioning from stay inflation, you know, zero growth of temper cent inflation to stag nation. We're gonna have another year zero growth, but we're not going to have timber cent inflation. Um, so it's a different animal and that's a tough tough market for stocks. Fine for bonds, but stocks we're getting earnings boost by

purely inflation. They're not going to get that lift. So the first half of the year is going to be little tough um, and there's gonna be some misinterpretation about what's going on. One real, real problem with the way Powell is looking at things is that he sees this cost push inflation from wages is just not gonna happen. Wage inflation was or wage increases were trailing CPI for

the last eighteen months. So that's a rare situation where you have negative wage growth, it's gonna flip back to positive. That's what normally is. It normally outpaces inflation because of productivity. And he's gonna misinterpret that. He's gonna think, oh no, that is that means it's going to feed into forever inflation, this this vicious circle cycle, which it doesn't. And so that's what's really going to cause, uh, the stock market headaches because people that will wait for the pivot will

get disappointed, back and forth, back and forth. But by by the time they finally capitulate and say, oh wow, wages have been going up and it hasn't been showing up in CPI And in fact, when you use new rents for core CPI, CPI is pretty darn lull. People will start to look at a three month annualized CPI rate instead of the CPI rate instead of the year

over year. And when that transition happens, and they'll be like February March, you better be fully invested in stocks because they'll pop. All right, We're gonna leave it on that note, Hey, Bryce, thank you so much. Bryce Dody, senior portfolio manager at SIT Investment Associates, joining us there via zoom. Many people are not laughing about the housing

market right now. Those mortgage rates. I don't know if you noticed, but in the US rods for the first time, uh, since mid November, we've seen them kind of pulling off some of those highs. But nonetheless we've seen a slow down difficult for buyers and both sellers when it comes to housing. So we thought, as we get ready to flip into a new year, let's check in on the housing market. We've got a good guest to do that, Jason Kern. He is the president of the investment management

at over At Courtland. He joins us from Atlanta. Jason, welcome to the show. So the housing market, Um, let's just go for it. What's to hold for those in housing industry and for buyers and sellers? Yeah, figurey much.

An happy new year to you all. Um, Well, you know, our our business are at Cortland is in the multi family housing sector, so we own manage develop multi family apartment buildings basically, so the single family housing market is a bit of an adjunct and almost a competitor in some ways in the sense that not of our residents and our apartments leave our units in order to make

a first time home purchase. And so ironically, even though the rising interstate environment that you all were just talking about three fifty basis points of FED funds raises over the last six months, that has certainly negatively impacted our business. But the slight silver lining actually for us is that it has increased the you know, the expensive inaffordability of

single family housing. So in a in a weird sort of way, it keeps a lot of our tenants in place, just because unfortunately it's harder for them to buy that first time home when there are mortgages have gone from three percent to seven percent almost overnight. Jay, think you talk a little bit more about that, because I thought one of the more interesting things about some of the housing data we got this year. Of course, we saw the big drop off in housing starts for single family

homes and permits as well. Of course, the trend line, as I'm sure you know from multi family has been a little bit more an upward trajectory at least in the second half of the year here, and I am curious what's driving that. Is it short term issues driving at or are there longer term structural issues driving that? Yeah, truly, I mean there's a long term, very beneficial supply demand dynamic in the in the multi family and the single

family housing area. As an owner, as a landlord like Courtland is, you know, there is a fundamental undersupply to this day as we speak of housing across single and multi family are our research sort of shows that we're probably a million and a half homes short of the demand that's out there. There's others of a prognosticate that it's more like three or four million. But that puts you in a pretty positive place in terms of demand

for your housing units or homes. Now that obviously that gap can be shrunk by a lot of new supplies. You just talked about the home builders building a lot of single family homes. Developers like ourselves and our competitors building apartment units and certainly there was a lot of development going on, which is really kind of an appropriate

response to all that demand for housing out there. The current interest rate environment impacts obviously all aspects of the US and the world economy, but one place it does impact is that development activity. And we have seen new development starts in our space drop off precipitously since it's

just rates have started to go up. To us, help us quantify the birds depending on debt finance to get those projects, well, Jason, help us quantify that just for for your business alone, I mean, how much has it cost you to develop a project that, uh, you know a few years ago you could have developed for for less. I mean, how much more are you having to pay as a result of higher interest rates? And at what

point it become not worth it anymore? Even if there is the supply and demand issue that you talked about with what between one and a half and and formally in housing units being short, it's gonna very much depend by market obviously as always, but I mean generally speaking, you know, the Sofer rate, which is our base rate that we used for floating right debt, has gone at least four hundred basis points spreads. I've gapped out fifty basis points on top of that, so you're talking about

five basis points of extra interest costs. Also, the banks at the moment are very stingy in terms of lending, particularly on higher risk development lending, and so the sort of access to that debt and the level of leverage that you can get on a project has been impeded, and so it just makes it much more difficult. I mean, our of our business is a you know, a spread

yield business. So you know, we are assuming a certain amount of rent income that we can earn on an asset after we build it or when we own it. And when your cost of debt skyrockets like it has, it just makes those margins shrink and sometimes disappear. Makes a lot of development projects simply untenable from the financial Well let's go there, let's go down into your business. So are you guys planning to build new units? Um, talk to us about the environment for that. How do

you finance it? Our banks willing to lend the money? Is it easy to come by? Give us an idea? Yeah, it's it's become more challenging, and we're we're in a bit of a hold right now. We are incredibly busy, as you might imagine, for the eighteen months leading up

to June of this year. I guess I can still say that in the last couple of days here so we were we did probably seven billion of new apartment acquisitions during that eighteen month period and have done little to nothing in the last six months, not surprisingly h not starting new developments at the moment, really taking a wait and see attitude. It's part of what the overall

industry is doing. There's a there's a wide bit ass spread whether you're developing or whether you're buying and selling apartments, to see what buyers are willing to pay given higher interest rates, given a lack of price discovery, just not a lot of transactions are happening. That tends to create a little bit of rigor mortists in our industry, and people that are selling aren't yet capitulating in terms of how much they're willing to cut their cut their prices.

Um So I expected to be quite slow going back to the original question for the first half of three. But like all financial markets, uncertainty is the big bugaboo that is keeping people on the sidelines. I expected by the middle of three, we're gonna see some clarity at least in terms of what j Powell and the VET are doing. Our estimates that we might actually start seeing

rap cuts in the middle of the year. And once you have that clarity, you're gonna have a lot of capital that's currently sitting on the sideline come back into the market. I think it could be a very busy and very interesting second half as that as that as that potential capital though also sort of adjusted to the potential reality that even if you do get a VET pivot a cut, which I think at least based on market pricing, is still a bit of a long shot.

But if you do get it, it's not like they're going to take it back down to you know, the zero bound where we were at the start of the year. Can they live with five percent, four percent or even three percent on a FED funds rate and whatever that feeds into with regards that acrost the capital, Yeah, you can. And you know, the price adjustment that we're currently experiencing um will increase the going in yields and returns on

assets on labored basis. So then if you add on leverage that is more expensive and maybe to lower LTV. Those two things can balance out. Especially in multi family. We have a couple of great advantages. Number one to supply demand dynamic I talked about Number two. We were able to do a lot of our borrowing from the

government agencies. Freddie Mack and fannie May may have some very good programs that are very helpful for accessing more attractive finance and the multi family sector UH specifically UH. And thirdly, it's just just the fact that it is really sort of one of the bell weathers of the real estate industry. Investor capital over the last few years as gradually and now dramatically been going from office product,

retail product to both multi family and industrial. So that's I think a booty the market and great transaction volume that will actually, I think surprise a lot of people second happen next year. Jason, what can you tell us about the rents that are being paid to to your firm right now? Are you seeing delinquencies? Are you seeing them being paid on time? Is anything shifted over the last few months as as consumers cash cushion has gotten smaller? Yeah,

we haven't really experienced it. Even during COVID, we didn't experience significant delinquencies. Our occupancies stay relatively stable, um you know. I think that's partly reflective the fact that we're in some of the stronger markets in the US were very Sun Belt focused, where there's a lot of immigration, a lot of job growth out of wage growth, and our apartments tend to be they're not luxury apartments, um. Are average rents or somewhere an eighteen hundred dollars per month.

Our average resident is paying about of their income in rents are quite sustainable. From that perspectives, that gives you an ability to increase rents, which we we certainly did, like all of our competitors, when rents were rising dramatically. That those rent increases, as we all know, have decelerated dramatically. Still in positive territory, we're still rolling over rents at higher than what we charged a year ago, but really

not seeing a lot of delinquencies. And again I think that's down to the fact that our communities have a good credit quality, Our rents are attainable, affordable, uh, and our residents are able to sustain um you know. And then you know, a lot of cases they're income to have actually increased as well. As inflation has h has been a big part of the picture. Hey, Jason, we talked earlier about the adult living communities that are out there in the context of the municipal bond market or

municipal market. Um, I believe right, that's what we did. Yeah, just a reminder, give us an idea of your mix of your business and what you're seeing in terms of demand there. Yeah, go ahead. We're not in the We're not in the act of adult business anymore so. Our our properties are straight traditional, no age restriction whatsoever. So couldn't comment. Okay, forgive me. I think it was on your website. That's why I was a little confused. I've

seen it on the website to return on investments. Give us an idea of that in terms of what eats away at our o I for your investors specifically, is it labor costs, is it materials? What is it specifically? Is it the higher rate environment overall? Yeah, I would say inflation is not as big an impact on our

business as interest rates, which is hugely impactful. Inflation really hits us in terms of the cost of materials and we're developing or renovating assets and obviously it's our labor costs a bit, and it can impact us if you know, the sort of disposable income of our residents starts to get hipped away by massive inflation. Again, I think wages

have kept pretty good based with those across our portfolio. Um, well, what I would say is that multifamily is actually quite unique in the sense that a lot of the returns that we generate for our investors don't rely on us kind of sitting around waiting for the capital markets to increase pricing. We can add a ton of value by renovating units, by going in and you know, renovating, putting a new appliances, you know, swapping out counters, cabinets, uh,

you know, taking out flooring, that sort of thing. So we can, if we're smart about it, we can spend

capex that has a really good return on investment. And even on the operating side, multifamily is operationally intensive by its nature, and we pride ourselves on when we buy a new asset, we go and there we're branding and Cortland, we're putting our team in place, all of our technologies, all of our service models in place, so that we can hopefully generate higher occupancy premium rents just by providing a better service closer to hospitality than sort of traditional

apartment living in one money vision. So I thinks are all good are alive endeavors. Jason, We're gonna have to leave it there. Thank you so much for finding us. That's a Jason Kern from Cortland. Really appreciate it. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio or stream us live on YouTube and Bloomberg dot com.