Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
And a very good afternoon everybody Live on Radio, YouTube and Bloomberg originals. Well, the third FOMC decision, it is on the books, fed your J. Powells. We just heard from Charlie saying it's unlikely that the next policy rate move will be a hike, and that is something to perhaps tend your hot on.
Tim, Yeah, I think investors certainly did. R Jay Powell said that we've seen stocks come back around, though, as Charlie mentioned, Hire by about two tenths of one percent.
Right now, we were down at least and P ANDAZ decwenhundred.
We were down going into it for sure. The Fed signaling fresh concerns about inflation, though reaffirming it needs more evidence that price gains are cooling before cutting interest rates from a two decade high. Were you surprised by anything?
You and I were laughing, We're like so dot dot dot, the FED and Jaypowell their data dependent.
Yeah, Hi, Hi for longer, Hi for longer exactly. I made the joke higher for longer. He said, no, Hi for longer, No exactly.
So it's interesting. And in terms of the Ray curve, we've talked about this. You heard Charlie walking through the numbers. I think what's most as significant is at the shorter end of the Yeale curve that to your note, which was above five percent right before the FOMC decision. We're now seeing at four ninety four. So we definitely a
little bit lower here. So it's interesting. I think we got a lot of what we've heard, but Ja Pale continuing to talk about needing more evidence sticking to that two percent inflation target objective, if you will, but a lack of further progress there, so he wants to see more before they're ready to do something different.
I also thought or cut rates. For the first time I heard him talk politics or not talk politics. I guess and say, look, I've been through and accounted for different presidential elections. We are not a group of people who takes politics into account. That's not our job, right, That's the factor that they will. I can look at the minutes, right. I thought that was an interesting moment.
Yeah, exactly. He did say further progress though in bringing down inflation out assured inflation again, showing a lack of further progress, and the path though forward is not certain. So yeah again data dependent.
All right.
First up, let's talk markets as we should on this FED Wednesday. We've got a great guest to do it. We've got back with us Doug Cioka, CEO and partner at Kavar Capital Partners. They've got roughly one and a quarter billion in assets under management. He's with us once again from Leewood, Kansas. Doug, good to have you here.
It feels like, you know, net net after a decision and not quite an hour press conference with Jay Powell, it does still feel like there's data dependent all so, there were some nuances there, some maybe some tweaks here in terms of his message. But how did you see it?
I think so.
I think you and and Tim were correct, Carol, like it was more data dependence. Market's kind of done around trip of where it was before the menion where it stands right now, particularly it relates to stocks bomb market is a little bit better bid. He was certainly prepared. I think Tim's right for the questions related to politics. I think the timing inso much as the release over the weekend of last week that his secret committee Donald Trump that is about having more of a presidential influence
on the FED were he to be elected. I think that the FED was smart to be out in front of reinforcing the a political nature of their organization and the decision making, the process, and certainly the part about stagflation. I thought that was maybe the best answer to his whole press conference. He doesn't see stag and he doesn't see flation.
We want to do a rap song.
I wanted to carol after that, and I was like, that was like a little a little different version of Powell, this time spicy. He seems a little spicy today. I don't know, he felt a little felt a little different, felt like he went off script a little bit.
I agree.
I think he felt the consequence of the meeting merited such. I do believe like he certainly and sort of the people that are served with every many years would reinforce the fact that he doesn't feel the outside influence on his decision making, pointing at the record of your point, Tim, I think reinforces that, but I also think it's his personality that needs to shine through, and I think being
in touch with the bifurcated economy is really critical. When he came into office, all this in the investment business were so excited because he wasn't an academic right here. He was someone who had invested, started and sold businesses. So that touch point with mainstream America and Wall Street were kind of a rare combination. And if he can come through and find the personality in that profile, I think it even magnifies you more as influence.
So what are your expectations, Doug in terms of what the Fed may or may not do or shouldn't do? You maybe this year a little bit of both, you know.
I think the FED did a really good job today, Carol. The Edming Jpollo course is displaying a better understanding the complexion of the economy, right, And in so many ways, our economy is bifurcated. If you have the goods economy and the services economy. There are wealth and income lines of demarcation, there are large employers small employers, and the FED is handicapped right in my opinion because of the
limited number of tools in our policy toolbox. So if they caught rates, that's not going to impact large companies that have turned out their debt. It's not going to
impact healthcare companies, insurance companies, or educational entities. But it will meaningleslly help small businesses, particularly small banks, small real estate subcomponents, and these are starving for an increase in volume that's going to be courtesy of elevated liquidity because they've been impeded by tighter financial conditions, could see higher interest rates. So the FED understands, and I thought articulately well, today there are segments of the goods economy consumer goods
economy broadly negatively impacted by higher interest rates. Credit card debt, subprime model debt was mentioned in one of the questions. The bulk of the person of power in this country, however, is not in that subsect of the economy. They're not going to have their spending patterns impacted by fifty two hundred paces points lower than where interest rates sit right now.
So I think the Fed is do a good job of not letting the perfect be the enemy of the good, because the perfect is not coming and waiting too long could be problematic, So I think that they are still predisposed to cutting is smart and understand the two speed economy is really really healthy.
You remind me, Doug of a question I think it was Nancy Marshall Genzler Marketplace asked about the effect of higher rates on the regular consumer, those who say that mortgages are out of reach for them right now because rates are higher, and Powell was so quick to say, he was so quick to say that what hurts these folks more is inflation, and that is what we are trying to do. We're trying to get inflation under control.
Because if you're living paycheck to paycheck and inflation and you're experiencing inflation, that's an immediate price increase for your basic goods that you just can't afford it.
That's right, No, I don't disagree with that, dam It's almost like there's a meeting point in the middle, because access to capital becomes more challenging in the presence of higher rates put in position to suppress inflation. So there's a middle ground, right, And I think he made a really good point to another really good answer that kind of dovetails into both these sub points.
Is that the FED has a.
Dual mandates, and when the dual mandate, if one of the mandates is starting to be more in control of being inflation PC and out below three percent, we can focus more on job markets, fullness and stability, and that will help the consumer that it is in a subprime
lending that has an affordable mortgages. So I think that's one way he was trying to convey that they're in touch with the fact that they do have one blunt instruments, but they have a dual mandates and the way they're going to lean on the propulsion of one sector, each of that mandate at any point in time is going to address the greatest number of people in need.
Hey twenty seconds, what's your best investment idea in this market environment?
Yeah, we're kind of the minder. You want to control the controllables because there's so much variability that exists in the market, and obviously volatility has been elevated. But within fixed income, you know, finding these positive real yields with load to moderate maturities, right, whether it be Treasury's mortgage debt governed A ANDC paper, we've seen these at levels today that we've not seen in fifteen to seventeen years. Then with inequities, keep within reasonable valuations.
If the S and p's at twenty.
One times the average stocks at eighteen times, look for those in fifteen sixteen times, high free cash flows, strong balance sheets, Plenty of those in health, grantergy, financial services, and even in some technoledge and sectors.
All right, that's a nice little bucket. All right, Doug, thank you so much. Doug Cioka, chief executive officer, partner of ur Kavar Capital Partners, joining us from Leewood, Kansas.
You're listening to the Bloomberg Business Week podcast. Catch us Live weekday afternoons from two to five pm Eastern Listen on Apple card Play, and then brought auto with a Bloomberg Business at want us Live on YouTube.
As we said, Big day fed decision with some data on the economy, US factory activity contracted.
We had that.
We also had some jolts labor, you know, in terms of jobs openings, and we saw that there's more openings out there. So that kind of plays into what we got from Jay Powell in terms of maybe some softness, if you will, in the labor market. But one industry that we like to pay a lot of attention to tim Is, especially when it comes to rate environment policy. Is the home builders.
Yes, stocks in the group up slightly year to date with more homebuilders. We welcome back Brad Dillman, chief economist at RPM Living. It's the real estate services and management company and owner of multi family residential properties and developments. Brad here in our Bloomberg Interactive Brokers studio, welcome back.
How are you.
I'm doing excellent, Great to be here with you.
It's good to have you with us. Okay, So you guys are based in Austin. You've got a client list that owns a portfolio of some three billion dollars. You acquire, you build. Remind our audience though, exactly what RPM does and what insight that gives you on the home building industry.
Yeah.
So we're a manager, investor and developer of apartments, the key part.
Of the business. Management.
We manage over two hundred and twenty five thousand units. That makes us the third largest in the country according to the National Multi.
Family So multi family owners hire you to do management.
That's right, Which is you know exploded during this the.
BOLK is that like ninety percent of your business. Yes, I was trying to get nice here because you know your website talks a little bit about investing and stuff, but it's really about management.
Yeah, and we do.
We have about twenty thousand units that are invested into but that management part of me the third largest in the country. That's that's something a lot of data there too.
How do you scale management though, because at the end of the day, management is about solving problems on a very small level that can add up to something big if they're not addressed. I mean, it's responding to tenants needs.
Yeah. So you got scale for one, right, but how does that scale?
How do you scale plumbers? How do you scale scale in a market?
Yeah?
So once you do scale in a market, right, and then you could start to share resources between properties. Obviously data becomes very important, learning management systems become very important. And so these are the kind of things that you know, set us apart basically, Right, we have this thoughtful approach for looking at how we're actually going to translate our individuals on the ground into improving better. So we track peak performances. We have a bunch of KPIs in these kinds.
So maybe you'd have like a service provider on retainer for example, that would handle x number of properties for you, which would be cheaper than somebody one off calling a plumber to fix something.
Oh, we have staff too, right, so we have our own facilities staff that can handle these kinds of things. Can be work orders a zeriou.
How much is automated though at this point, like in terms of servicing.
Well, you do have prop tech, right, so prop tech can help you, you know, with an understanding of whether or not there's an issue with certain items in a structure. But it depends on whether not the structure actually has that yet and whether or not that's going to be rolled out depends on the investor. A lot of times that's large because of the cost or what that's right, Yeah, part of the costs that's going to affect their returns are interesting.
Okay, So the rate environment, how is that impacting? What can you tell us from your advantage point in terms of servicing properties, which is as you said and reminded us of the bulk of your business. How is the economic and the rate environment impacting that?
Yeah, So obviously these rates that we've had over the last several years have been critical on the cost of debt, right, so many people are underwriting properties that they purchased back in say twenty twenty one. They're now paying a lot more in debt expense than they thought they were going through and they're not hitting the rents they thought they were going to. There's also more supply than they expected.
This is an interesting new one, seriously. Yeah, So if you look at rent growth, it's some of these major markets in the Sun Belt it's down.
Is that because there has been so much development? Because I'm live in an area just outside of New York City and rents are pretty high. Yeah, and I think some of that has to do although there's been a fair amount of development.
But is it the rent is too Damn I've heard that before in this area.
WHOA stop the presses?
But isn't Are they just done so much building? Like I know some of these markets, like remind everybody we're talking about Charleston while we're talking about Austin, Dallas, Houston, Phoenix, Raleigh, Durham, Jacksonville, Tampa. These are the markets that you guys play.
In, that's right. Yeah, And so these were also markets you know, they've they've been hit by two things.
Really right.
One was the eviction mortory. This was national and related practices. Okay, so that created a tighter occupants the environment than we otherwise would have had. That took rents higher than they otherwise would have been in the context of zero interest rates, remember back then. Yeah, that's a lot of supply that's all coming to market now. So over the last couple of years, we've seen this slowing rent growth environment that's now gone negative across huge slots of the Sunbelt, Austin down.
Which is it's interesting because it's in contrast to what we hear, certainly from the FED and JPT right about the pressures because of the rental costs exactly.
And you're not the only one to notice that the Cleveland Fed put out of paper to this effect of talking about how we kind of need to be looking at new lease rent growth in some of these metrics when we think about the kind of data that's feeding into the inflation calculation. Because if you're telling me that shelter inflation is still strong at over five percent, and granted I'm only talking about conventional multifamily, that simply doesn't
jive with rents being down eight percent. Your vere in Austin down four percent, You're overe in Atlanta just down four percent, your vereen in Orlando, and so on.
Let's not look at it year over year. Let's look at it pre pandemic, because some of the places that you mentioned had incredible growth during the pandemic. And we especially with the rise of remote work, are we seeing a normalization back to rates of twenty twenty we still a higher or twenty.
H we're certainly still higher.
So that's what I mean. So if you sort of normalize this, is it as bad as you say?
I think it's bad in the sense that if we're looking at inflation as measured in the CPI, Yeah, it simply doesn't jive with what we're seeing on the ground. It doesn't jive with what we're seeing in the private, secret data.
We talked about this with one of our colleagues here who Yeah, I think it was Matt Bosler who wrote that story about how we're looking at this on a national level, but it's a regional story because in some areas that shelter component.
Is not exactly It is really fascinating to see that. So okay, so what does it mean? All right? So then when you put that into account against the national statistics. I mean, how do you describe the housing market?
Well, so now you want to get an own housing too. It's a little bit of a different dynamic. I think you know, the k Shuler data came out obviously just twenty city indexes at a new high. We've got very little volume there right an ar shows us there's not a lot of existing you know, home sales. Even the data for the k Shuler the sales pairs very low by this anders the last fifteen years. So it's sort
of a moving up on little volume. We're seeing that channel to the homebuilders, right, Pulti Group, de or Horton, some of these groups coming out with some good earnings increasing guidance as well. So I think new housing is certainly benefiting right now. In single family all you do bread is rental. We only do rental, yes.
Yeah, okay, So that's interesting because part of the other story was that people couldn't afford to buy homes because either first of all, there weren't supplies or the prices were too high in it was pushing them into rental. Is that a trend that you guys continue to see in the markets.
You play. I think we're seeing that now because you've got these high mortgage rates, right, there's just no liquidity, really, I mean, I guess there is liquid there's just not a lot of overlap. There's not a lot of volume going on, you know, in the single family market today,
in the owned housing market today. So yeah, I think what we are going to see here is a continent until long term rates come down, continued constriction in existing home sales activity, and then that channeling back towards rentals, which in any case are getting much more affordable at least if you look at these sun built markets.
Big part of the story over the last few years actually post financial crisis has really been there just aren't enough homes for Americans out there right now in new household formations, just not we're not seeing it. When does that story end? When does that story change?
In your opinion?
So in my projection, I think we're that's going to inflect here in the next couple of years, will enter systemic oversupply for the first time in two thousand and one.
Now I'm kind of alone in that outlook. Okay.
My gauge which I use is using the population sixteen and over the non institutionalized. A lot of other commentators out there talking about household which is in part weighted by the household stock itself, the housing stock itself, right, So it's a little bit of a circular reference. It's got very different figures saying, you know, we're under built by five million units, and so that's ten million people
you need to house. And yes we've had immigration of a large scale, but we've also been completing a lot of housing. Those numbers just don't work out for me. I get to a figure that we're underbuilt five hundred thousand units total, but a lot of that is on the single family side because of the distortions we had in the market for the last decade. Our underbuilding over the last decade has been in single family, no question.
It's just fascinating. Like I said to you, you know, we had too many homes during the GFC, the Great Financial Crisis. You know, people were talking about blowing up homes. Just get to some of the supply and here we are.
You know.
Once again, I mean things are you know, cyclical right or I don't know if there's a cycle in terms of the build and then the underbuild. So it's kind of fascinating to see got it run. Thanks for coming in. Brad Dillman, He's chief economist at RPM Living joining us here in studio.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station just Say Alexa playing Bloomberg eleven thirty.
Well, we don't get retail sales data for the month of April until about two weeks from now, but worth checking in with an apparel retailer who deals with a host of challenges each day, just to check in on how things are going. We have with us Chris Riccobono, the founder of Untucket. It's the men's apparel company that
designs and sells shirts meant to be worn untucked. In addition to selling online, the company also has seventy three stores in the US and Canada, and at a time when many retailers are closing stores, Untucket is opening them, with fourteen new stores set to open by the end of the year. Chris, good to have you with us. How you doing. How's business great?
Thanks for having me. It's good.
It's been a roller coaster of a ride, you know. Starting with in twenty nineteen, we had opened up ninety stores, expanded into England Canada. Things were going great. Then obviously COVID hits. Everyone starts buying at leisure, not wearing their shirts out like they do for ours or on vacation or dinner, so it was it tough to get through. We managed to get through, and then there were a few more bumps in the road, obviously with inflation and interest rates.
But how big of a bump in the road was COVID. It was a big bump because were you guys almost this is it?
Yeah?
We went from selling from fifteen letter of intents coming in for a lot of money to almost going bankrupt in April three months later. It was a three month difference. And it wasn't just because the store closures. It was the trend of moving into ath leisure.
So we hung on.
Everyone stuck with us. They knew we were going to be a great post pandemic brand with the casual shirt, and they stuck with us and we made it through. So we took on some debt deals that you know are still impacting us in some way today. And then obviously you have the interest rates and inflation. But we're still doing very well today. We had our best year ever in twenty twenty two. People wear our shirts everywhere,
so it's something they need. So even in a recession or something close to a recession, they need the shirts. They wear them to work, they wear them out to work, out to dinner, they wear them on vacation. But it's definitely been a wild ride, much more difficult than it was.
How expensive was that debt to get you through?
It was expensive. It just gone up and up and up and up. That's the problem.
Were you able to at any point though, because especially when we moved down to zero and rates, you know, were you able to access or refinance at any kind.
Of lower rates or no, we didn't refinance. We no, it did not have a variety of reasons. Obviously the cap structures are pretty complex. But it's definitely been a challenge. Luckily, we became profitable in twenty twenty two. We cut our marketing significantly. A lot of brands d two see brands when they cut their marketing, they drastically dropped because they realized they weren't really a strong brand to begin with.
We cut our marketing by fifteen million, if not north of that, and we grew and as positive Ebita once again in twenty twenty three, our Ebita also went up and we grew. So but it's a everyday challenge. As you guys probably hear, people are searching sales more than they ever have. It's a dramatic difference when you look at the stats of those people going to final sale. You know, it cost me ten to fifty to get
a Starbucks coffee the other day at the airport. So if you're spending ten dollars and fifty cents for a Grande latte, you understand why people need.
Relief, you know for sure.
So what do you do then?
Talk to us a little bit about pricing and how you think about that, you know, so that you are not ruled out by your consumer. And you know, as you know coming in here our producer, other people in the news love your product and wear your products. So how do you think about pricing and also maintain some margins so that you can keep up that profitability.
It's challenging because during COVID the consumer kind of controlled all the brands you had that. Think about Covid. Remember every day it was a wild sale going on, so the customer almost got used to that. We're trying to pull them back to more normalcy. But during a very tough time while all brands are on sale around the clock.
We're doing a pretty good job with that.
Like I said, we have what I think is biasedly a great product that people want, they need, they use in all areas of their life, so they still are willing to spend a good amount of money on our product. We just know that we have to have product available on sale, but we still you know, a lot of people buy product a full price. Keeps our margins strong. I'm coming across in a way how challenging the environment is.
But we are doing well.
We're opening twenty stores. We hope to have another eighty in the next three years. Not a lot of brands are doing that.
That's amazing in an environment right tim where everybody's like, Eh, just go direct to consumer, Why do you need to the expense of stores.
I think we just do it incredibly efficiently. In twenty fifteen, everyone said retail was dead. Our buyers said if you don't open a store, we're not buying from you. We need to touch and feel the product. Even during COVID people ask me, are you mad that you have ninety stores. I said, it's the best thing we ever did. Your LTV long term value goes up when people come into your store. It's more efficient. Your upt's go up. People get more attached to it's how many items you buy, Okay,
got it. People get attached to the brand we serve Scotch.
We have Scotch there.
There's couches, people compare their fits, they try on the shirts, you leave and you want to come back, So we love it.
It's also a billboard in a way.
You're it's very I'm not sure if you have had anyone who's talking about how hard it is to acquire customers online these days. The cost has gone up dramatically, So we see it as an advantage while these other brands, these small brands that are eating at you online, they can't open up another eighty stores, so it kind of separates us out.
So on the stores.
I was as I was preparing for this, I saw on a story recent a Wall Street Journal story, you were mentioned in the context of how you choose locations for news stores using essentially phone numbers and location data from cell phones. Talk a little bit about how you do that and how that determines where you open your next store.
It's called placer Ai. It's pretty amazing. So basically, I'll give you an example. We just opened up at what Whitman Wall in Long Island and it was fairly close to some other malls we were in, so we weren't sure is it going to be the same demo? Is are they gonna have the same habits? Are they going to pull from the malls that were already in, and just showed that it was different. People who had the
same demographic did the same things. What time they went home, where they went Did they go to Lululemon before they came in us?
So?
Did they go to Starbucks? The people at this mall do the same things at the people at this mall, but they're not currently buying from you. Incredibly detailed information that just confirmed with what the mall was telling us. So it's like another level and it seems to be working. We were able to identify, you know, seventy five more stores down the road that we can open up and not eat into our current customer base and have the same type of customer behavior.
First of all, I'm terrified, yeah, but I'm not surprised, and I assume that all of that information is just getting so specific. We talk about dossier's that are on all of us, but it's really down to incredible detail. But it does help you make smart decisions in terms of opening up stairs. I mean, how quickly does a store become profitable for you guys? Are they profitable?
They are profitable, So about ninety two percent of our stores are profitable. The ones that are not profitable are in cities that have just the landscape has totally changed post pandemic, like whether it's crime, homelessness San Francisco, but that's shifting, Boston, Chicago, it just depends the main Sorry Walnut Street in Philly, Yeah, it's shifting, but it's just it'll never be what it was where we are right. Everyone's in a different location.
But you won't shut them down.
Even New York.
If you look at certain areas and lower fit there's less traffic right than it used to be. We will shut them down in the next two to three years, and we'll funnel them out into the malls. That works a good for us.
What's the exit plan here? You were talking. You started by talking about you had an exit plan right before COVID. Then COVID happened. What's the exit plan?
The exit plan is to continue to grow, focus on stores wholesale.
We have no wholesale.
There are no brands our size that have no wholesale. We decided to go about it opening stores and spending money to bringing people online. Most brands that start go wholesales, so we have a massive wholesale opportunity ahead of us. We just did a partnership with DXL, Big and Tall. They had incredible sell throughs on the small tests we did. International expansion, will be announcing some different countries that will be going into licensing deals come at us all the time.
All of these things we had to kind of add on pause. We wanted to get through COVID. We wanted to make sure everything was okay with our cap table and now focus, so we're not going anywhere for a while.
My partner and I love doing this. There's tons of growth ahead.
My belief is that a lot of these brands and at twenty to thirty forty million dollar range. When they have to become profitable pullback marketing, they're going to run out money and not be there. Yeah, and we're going to kind of be left with some of these other great brands that exist.
But you want to remain private.
Well, we'll see what the exit is. You know, it would either be a sale or going public. It's whatever kind of presents at the time. We've got to get the environment change better first. It's just not a listen, it's not a great environment for any business in my you know, if you have high interest rates, you can't recapitalize.
You can't.
Yeah, it's hard to raid money, it's hard to you know, increase margins. All these different things that we know will kind of turn soon and hopefully and we're kind of just keep doing the things we're doing in the meantime because it's working ten.
Or fifteen seconds. I know, you're all about the dudes.
Anything for women or we actually have women's sign which which I have friends who don't know that because we don't market it, and that's that's in the works. And our women's line is significant. It's you know, I don't want to share the percentage of the business, but it does very well. Repeats are there, and one of our plans in the future is to market these other products outside of shirts.
Interesting well, Chris, just FYI, we women shop.
We had I understand their.
Percentage, all right, Chris, thank you so much for joining us. Chris Ricobono, founder of Untucket. Here in our Bloomberg Interactive Brokers studio.
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