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Let's get a look at where the action is in the equity markets with.
Billy Billy Lipschotz. Thank you're sitting right next to.
Me, Billy Lipschotz. You can talk all you want about stocks. I only have one question. Few Can you explain to me what our good friend Bill Akerman is doing here?
Nothing now, nothing as of now? Walk us through this story here. So earlier in the month, well, I guess now in August. So in July he filed to launch and price a closed end fund that would trade in the US. It would be similar, in his words, essentially mirror their European offering, which currently trades under the ticker PSH.
Space NA trades at a twenty percent discount to what it actual the assets that it owns it's invested in, Alphabet, Chapotle, Howard Hughes, Universal Music, a handful of stocks beating the drum. He kind of said, you know, we see this as a potential twenty five billion dollar offering going to court retail. We're going to court institutions. Basically, I have a lot of very wealthy friends. They're going to give us money. It's going to be awesome. It's only going to be
a two percent fee. We won't charge that for a year. Then a couple days later, he wrote a letter to investors in the hedge fund saying, hey, demand's not as strong as we would have expected. Initially. We're thinking that maybe we'll raise between two and a half billion and four billion dollars, so a sharp drop off from the twenty five billion dollar number. He actually name dropped Seth
Clarmen's bow post. He named dropped Putnam among others, kind of alluding to people who are already in for the book, saying, get yours in soon. It's going to help us build this out. Didn't realize that that had to be filed publicly. So the next day we see that in a public filing, or at least that's what we're told through the filings. Seth Carmon and Bloomberg is reported isn't super happy about that.
They withdraw their order, they opt out. We see just a few days later the fun coming back saying, you know, we thought two and a half to four billion, now we're actually gonna go after two billion, but don't worry, it's gonna price next Monday. So we're still kind of full speed ahead, two billion dollars, feeling great, perching squares
in for five hundred million dollars. Then yesterday we get the filing that because to kind of oversimplify, because they couldn't answer the question that investors wanted to know, why would I buy this at IPO when I can buy it at a discount, We're actually gonna pull the offering, rework it potentially, and try to come back with a
different model. So going from twenty five billion to potentially four billion to two billion to now nothing as of now, though again he did say they plan on coming back in some potentially different formation.
I don't know what to even ask about that. That was a great explanation by that one, but it's such a nightmare.
But at Mike angle is there's an angle here. He's a really smart guy. How do you misjudge the market? How do you misjudge demand? How do you make that mistake of putting out a letter. These are things Bill Ackman doesn't do well.
So to start at a high level, the largest closed end fund in US history was just over five billion dollars. Okay, So he was coming in with the ambition to four x that because he has a million and change followers on X and he has a strong track record. If you even look at and invested in the European offering, you've done pretty well over the last few years. But to your point, there's so many snags that came out
of this. And when I talk to people who operate in the closed end fund space, they initially were kind of saying they don't this has to go through a seasoning period. The SEC is going to hold it up, which Pershing Square came out and said was actually playing a factor in the delayed pricing to the extent that I talked to a couple of advisors. You said maybe September, just because you need this to cool off. The way this is structuring, you can't just kind of ignore these
warning signs and keep your pedal to the medal. And it does seem like a number of miscalculations have kind of ended up throwing it into a tailspin. Well, it's a fact.
I mean literally, like yesterday, he was on the exact same time. We were talking about the different evolution of the story. All right, Billy, you'll be coming back at the top of the eleven as well. Billy lipschealz A joining us. Bloomberg Senior Equities reporter Joining us.
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Okay, let's go to the individual movers here. One of them is meta. That's not popping ten percent. Did you listen to the earnings call on the beach?
He did part of it, part of it, but then then my swell came in, so I had to drop an out.
I understand.
I mean this priority.
Mandy pp sing was not at the beach on the earnings call. And I know this because he was on set with me when the numbers came out. Mandy Singh, Bloomberg Intelligence Senior at Tech Industry analyst, you were pretty positive on Meta earnings in the street really agrees with you. This is AI delivering on helping more targeted ads, meaning more revenue straight.
I mean, look, with all the other AI spend that we are seeing from the cloud vendors, they're saying the revenue will come in twenty five twenty six, Meta is actually delivering AI revenue right now. And that's the big surprise that all the large anguid model investments they have done, they have infused their apps with AI and it's actually yielding tangible returns. And there was a good Macro read too. I mean my sense was e commerce spending is strong,
Gaming spending is strong. That's why their advertisers who are spending on Meta platforms. So overall, I think Macro looks to be much better than what people talk about, and ad spending is strong and that's why Meta did well.
Is this a cross for Amazon for Google in terms of the ad spending angle?
Absolutely, I mean Amazon is que towards e commerce. In fact, anybody who is an e commerce provider on Amazon's platform has to spend on ads for you know, slotting, and so I do think you know, and certain pockets when it comes to ads aren't doing well, which is why Google didn't have that sort of a lift, because they are sort of equal across different sectors. Automotive, insurance, those are the weak sectors, so they're probably not spending as much on ads, but e commerce, retail, these are the
pockets where the AD spending is strong. And I think Snap should do well.
Tonight, so the cap X spend also, So they narrowed the range specifically to come in for thirty seven to forty billion rather than thirty five to forty billion. They didn't raise it, yeah, which is not what some of the peers have done. Was that also positive for the stock?
Absolutely? I mean they've learned their lesson last time around. They raised the CAPEX by three billion, the stock reacted negatively. This was more of weight and see approach. They did say twenty twenty five CAPEX will go up like every other hyperscaler. But for this quarter they actually came out below consensus, a billion dollars below consensus when it comes
to CAPEX for this quarter. And like you said, you know they reinformed the guide and overall, I feel like everyone keeps talking about how they are gpu constrained and they need to spend more Capex. Meta didn't say that that they are GPU constrained in anyway. At the same time, they expect AI infrastructures spent to go out and they're able to monetize it. WhatsApp to me was the real bright spot.
I mean, nobody has any monetizing that yet.
Actually, yes, So they did give a data point yesterday where family of apps other revenue grew seventy three percent. Most of it is WhatsApp. So WhatsApp actually is a four hundred million dollar rund reread business.
Now really okay, yeah, and taking ten years.
And that's where I think they called that the US adoption. So WhatsApp now has one hundred million active users in the US, and that's where they see AI infusing in WhatsApp being a revenue generator.
All right, market likes it stacks up nine percent today of forty seven percent year to date. All good in metaaland tonight after the closed Amazon and Apple, let's start with Amazon. What are you gonna be looking for there?
I mean cloud aws growth adds growth. I think the one thing that stands out between Google, Microsoft and Meta versus Amazon and Apple is Amazon and Apple don't have their own large anglid model. One thing we realize with Meta is because they own their large anglid model, they've been able to deploy it so quickly. Well, Amazon is relying on Anthropic to give them the large anglid model. Apple announced Apple Intelligence, but they're delaying it. They don't
have their own large anglid model. And what everyone is realizing is owning a large anglid model like Microsoft, OpenAI, Google Gemini, that's a big advantage, and that advantage may continue, I think, given everyone is so bullish on generative AI.
So how is that going to wind up showing up in the numbers?
So, I mean, look at Meta's ad pricing. The reason why ad pricing grew so much is because they actually applied the large anglid model on their own products. Same thing with Microsoft. The reason why their Microsoft's cloud revenue has accelerated is because the workloads are getting deployed, the copilots are getting deployed in their own products. So Amazon has to somehow one leverage the large angliine model in
Tropic or somebody else's. In fact, Meta said they are warming up to Amazon more and more to deploy their Lama large anglid model on AWS. That'll be an interesting partnership if that pans out, because Meta doesn't have a cloud facing business, whereas Amazon AWS is the largest cloud provider. If they can leverage Lama model, which Meta owns, that could be a huge, huge driver off revenue for both Amazon as well as paying a licensing fee to Meta.
But obviously that nobody called that out, so that's a speculation at this point.
Fascinating. All right, really good stuff. Can't wait.
It's not just selling ads anymore.
It's other stuff.
Well, it is about selling ads, but in a more efficient way. I took my notes for those coming out after the closing bell. And you've seeing Bloomberg Technology, Bloomberg Intelligence senior technology analyst.
There we go, I got it.
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That im number, that's ugly.
That's got my attention there yet.
Also the job's number, the employment number in there with forty three, that's definitely that's definitely something interesting that we're seeing the buying really coming in though to the bond market.
On that.
All right, let's get more into the data because this feels icky. Tim Fiory is chair of the Institute of Supply Management, a manufacturing business Survey committee, and he joins us, Now, okay, we are at an eight month low near any We are contracting the most in about eight months for the m manufacturing. You really had that weak employment data. What is leading this? Does this data surprise for you?
Yeah, Alex, So, yeah, this is a disappointment. So the last couple of months we've been stuck, stable, stagnant. We're no longer stuck stable or stagnant. We're declining at a faster rate. We're off almost two points from last month. We're off almost more than two points from expectations, twenty one months into a contraction, and we haven't seen a number at the headline level this low since November twenty two.
So, first off, the.
Good news, supplier deliveries are starting to stiffen up. It's a little bit harder for them to deliver. That price index number is a marginal expansion, very weak. Happy to see that, Glad to see that if you're looking for a rate activity that supports a rate reduction, no doubt. On the demand side, we still can't find demand. The demand is non existent, backlog is still extremely low, new export orders very weak, and no real end in sight.
Our top six industry sectors all showed declines, significant declines like forty five. In the demand side, new orders and production. The big story here for the month is really the production number. We've been talking for the last year and a half. That look, as long as the production number stays around fifty, revenues or expectations are being met, profitability
is probably okay. Just have to deal with the out the input side, Well, that's so long in the case here, we've fallen down to a forty five to nine, big drop, disappointing lowest since May of twenty twenty two. And then coupled with that, we've got the employment numbers sagging really strongly. So what it really says, and we've indicated this last month the month before, is that without new orders, we're gonna see a decline in production slash revenue, and we're
going to see a decline in employment. And that's exactly what we've see in here from a sentiment standpoint. You know, I track headline sentiment month to month, running at a one to one point four. So I think we're in for a ride here now.
You know.
The one last thing is we've been looking for a soft landing. That doesn't necessarily mean that manufacturing is going to see a soft landing. We could actually have a moderate landing or even a hard landing. And it doesn't mean that the economy is going to see a hard landing or a moderate landing. So we're at a real strange spot here. I mean, if you're looking for data facts for the fat to support a ray cut, don't look any farther.
Don't look any farther than this, right, all right, Tim, thanks for the breakdown, Really appreciated. Tim Fury, Chair for the Institute for Supply Management on their business survey. Again, numbers coming in. Wee can then expect it for the manufacturing front.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecar Play and Android Auto with the Bloomberg Misus. You can also listen live on Amazon Alexa from our flagship New York station, just Say Alexa playing Bloomberg eleven thirty.
Bloomberg Intelligence, Alex Steel, Paul Spooney. Youre live here in our Bloomberg Innactor Broker studio, streaming live on YouTube, so that means video too, So go to aur YouTube dot com and search Bloomberg Podcast and that's where you'll find us. One of the stories that you know, Alex ly like to continue to focus on is commercial real estate. It's undergone a tremendous change over the last four five six years, obviously with the pandemic and longer term trends here that
still need to be understood and worked out. So we like to talk to smart people to get a little bit smarter on this. Hillaryspond joins us. She's executive vice president at b XP. BXP is a publicly traded real estate investment trust. B XP is the ticker handily market KAP eleven point two billion dollars stock's pretty much unchanged today, up about two percent year to date. Hillary, thanks much for joining us in our studio New York City. Let's focus on on New York City. That's your remit here.
A lot of empty space here in New York City in the offices. Tell us where we are and how we're going to get out of this. If at all, explain to us how the commercial real state environment is in New York City today.
Sure well, First of all, Alex and Paul, thank you for having me this morning. I think that it's fair to say that the market is bifurcating itself, and that means.
That there are groups of properties that are.
Performing quite well actually, and others that are performing less well. Those properties that are newly constructed, that have been reinvested in by their ownership, and that are well located are generally doing pretty well. And as evidence of that, if you look at the vacancy rate in the Park Avenue sub market of Manhattan, it's less than ten percent, which
is quite tight by historical standards. You're seeing landlords there with the ability to push rental rates to reduce concessions like free rent, like capital that's associated with new leasing, and so therefore net effective rents are actually increasing in that sub market. The weaker sub markets and some of the older buildings, landlords have had more trouble attracting tenants.
But for those businesses that are generating revenue that have clients that need to come visit them, that want to attract talent, being in a great building in Manhattan is a really good bet for them, and you're seeing strength in that segment of the market.
So we've had some.
Property people in here who've talked about those older buildings and over the last few years, I spent a lot of money retrofitting them and updating them to make them more appealing. Are we seeing a lot of that still, and like, what's the cost profile for that?
Is it payoff? Like how does that work?
So I think it's also a little bit location dependent. You're certainly seeing some buildings spend money that are would be classified as older or maybe less well amenitized, just not a newer building. But if they're in a great location, they can actually do quite well. And I would point to the Grand Central sub market as evidence of that. A lot of people who commute in the city are really looking for a one seed commute, meaning they get off of Metro North or they get off of Long Island Railroad.
They walk to their office.
So those buildings, despite the fact that they're somewhat older in that submarket, are leasing quite well. And a lot of the landlords that own in that district are amenetizing their buildings to great effect.
The cost of construction have gone up.
Radically over the last call it five years, and that does definitely have an effect. It tends to favor the landlords that are better capitalized, but for those that can do it, it really does benefit their leasing velocity.
How about like I'm going to reference this once again I always do when having commercial real estate discussions in New York. Bloomberg News put out a piece maybe eighteen months ago and just focusing on Third Avenue between Grand Central and here we're at fifty eight to fifty ninth Street. You can't give that stuff away or talk to us
about that market. I'm thinking, like the Lipstick Building. When I see one of those buildings, trade is there going to be a thirty percent discount, forty fifty sixty percent discount? Talk just about that kind of market because those are more I guess b properties as I understand it.
Well, So there actually has been some activity on Third Avenue. Memorial Song kettering, I believe took some space in the Lipstick Building. One of the office buildings that is on Third Avenue was recently announced to be a conversion to residential. So folks are getting creative with that space. For us in our sub markets, we're focused on attracting large corporate tenants and investing the capital that's required to attract and
retain them. But I think there's I think that third avenue has hope.
So let's just game this out for a second.
So swaps markets pricing in three fed rake cuts now for September, right, I mean, excuse me, for the rest of the year starting in September, let's say that happens. What's the trickle down to the commercial real estate market in a short term.
So the transaction volume acquisitions, dispositions has been somewhat muted, not so much as a result of where treasuries are trading, I think, but how quickly they went from practically.
Zero to where they are today.
Any relief on the ten year I think would tend to support higher transaction volumes in our space, which is again the sort of higher end of the market. There's been very very little transactions because in general, landlords are not distressed and are not willing.
To sell at depressed prices.
So I think it would tend to tend to support a higher transaction volume going forward.
You guys, BXP well capitalized, well experienced owner of real estate. Are you buying in New York City today?
At the moment, we don't have active acquisitions, but we're constantly looking for new opportunities.
The real gating.
Issue for us is quality. So if we cannot find something that is at least equal to the quality of what we already own, we are not buyers. And the fact of the matter is there's relatively little available in the market for purchase that is consistent with our quality. That having been said, we do have a couple of development sites in New York City, the most active of
which will be three forty three Madison this year. It is it's between forty fourth and forty fifth on Madison, and it will we will begin constructing the east side access to the Long Island Railroad in Grand Central between now and the end of the year. Solk will actually see cranes and construction on the site.
So I live in Brooklyn, What about in Brooklyn?
All the good kids? No, but they're like retrofitted, like that sugar factory. Not you guys, but sugar Factory is retrofitted. Like they're there, we go dominoes. Well, it is Brooklyn becoming a place where commercial real estate can truly thrive.
So I would say that the demand for Brooklyn right now is a local demand. People that need to be in Brooklyn for a reason. Their manufacturers are located there, their talent base is located there. Those tend to be
the companies that are expanding in Brooklyn. We own a building called DOC seventy two in the Brooklyn Navy Yard and we've had success in that building with leasing two Huge, which is a marketing company that was formerly based in Dumbo, has moved to the Navy Yard, the Pratt Institute, and other large sort of Brooklyn based institutions. I would say that DOC seventy two has attracted the majority of the large tenants that are active in the Brooklyn market now.
But no question, it's sort of a local demand market at the moment.
You guys own the General Motors Building, one of the most iconic buildings in the city. Tell us about that building.
So the building is ninety six and a half percent least. We recently had a client expand by one hundred thousand square feet in the building, taking up most of the availability in the building. We recently spent a lot of time and effort of minetizing the second floor of the building with wellness, with food and beverage options, and with conferencing, which I think is increasingly important to clients today. And it's really borne itself out in the leasing that we've
been able to achieve there. So the building is basically full.
So what's when we say wellness?
What does that mean?
We have a seventeen thousand square foot gym that has personal training, it has physical therapy, it has massage available, It has locker rooms that are like a spy.
I'm in a massage. I didn't any time you want to? So there we go. What would you guys like?
Not?
What doesn't make sense right now?
Like if people, I'm clearly sellers are going to want to be out there selling their property.
It's obviously the price is going to be a problem.
What have you been pitched to that You're like, no way, Why would anyone think that's a good idea?
Or is it just a price situation?
No?
For us, Again, I think it gets back to quality.
There are certain assets that we would not want to own just because we don't think that they can be made into a premiere workplace, which is where we're focused.
That's our segment of the market, and so.
We are gating issue is is it already premiere or can it be made to be premiere through reinvestment? And those are the assets that we're interested in nothing else.
Are your clients where are they in terms of back to work? Are we now at the new normal? Whether it's three days a week or Bloomberg's four days a week for example, are we added new normal? Is that what your clients are telling you?
So in our space again, our buildings tend to have people who are revenue generators for their company occupying the space. They have been back to work, and it's really not so much a topic of conversation in our office at all anymore. We are at or above physical occupancy that existed pre pandemic.
Today. Now it's off a little bit.
On Fridays and Mondays, but in the middle of the week we actually are right back where we were before the pandemic.
You guys also own the five ninety nine Lexington that a beautiful building has like a like a tower.
It's like, well that's six oh one, I think on five Nimes right across the street.
Yeah, how are those doing?
They're great?
So six ZHO one Lex has nine thousand square feet available. It's a two million square foot building. Plus remind us and five nine Lex is where our offices are actually and that building is very well leased as well. We do have a little bit of space coming available in that building and there is a lot of demand for it. People are calling us and saying we want it and can we have it now?
But you know, right here Election fifty eighth and fifty nine, all these stores are empty except the chocolate store because that everybody needs chocolate. Yeah, what's going on in your buildings? Do you have that ground floor retail is out a component of your buildings?
We do.
We have lots of retail in our buildings. We built out of food Hall and six someone Lex, we also have street level retail. Look, we think of our retail as complementary to the office experience and for our clients that have office space with us, we want to make sure that they have a great experience going out and grabbing something healthy and fresh and convenient for lunch.
And so we've really looked.
At our retail as a way to complement our premiere workplace and not just as a revenue generator. In and of itself, and we've been able to attract really really great options. So I think you know, our approach has been very successful. But it's very it's very much done with our clients in mind.
Really great stuff, really interesting. Thank you so much for coming in, come back, keep us updated. We love touching on this topic.
It's all so important.
An architectural oddity along Park Avenue.
Sound like my husband, but yes, no, it's true.
Because the lobbies are all raised kind of if you go down there, and that's because the lack I suppose the lack of elevator wells because underneath the buildings you can't go down there are railroad tracks.
You are exactly right.
John Tucker, bringing out some mercy college.
Just did you research time while we were there? Was different?
Just now he saw a YouTube video and that's all his knowledge.
Lobbies are wrong, but you're exactly correct.
That's very okay.
Thank you, very John Tucker.
The brilliant city all my life. Thank you very much for join us. Hell respond Executive Vice President b XP joining us live here in our interactive broker studio talking about commercial real estate again. I guess the story I'm learning as if you've got your properties are in good shape. If you have something less than good, then perhaps still a struggle out there.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, car Play and and Roight Outo with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Busy earning cycle Here for the tech games.
We had met a last night, some good numbers that stock trading up, and big big afternoon today after the close Apple and Amazon report, let's check in with one of our go to tech folks, Dan Ives, managing director and senior equity analyst, What Bush Security. He's not in your studio and he's not even zoom, so we can't even see what is outlandish outfit.
He's probably wearing like a black suit at this point, and I mean, we can't see it.
It's upsetting exactly, Dan, thanks so much for joining us here. Let's start with Apple here. I kind of feel like they need some more explaining to do in terms of, you know, some of their strategies here in terms of the market in China, what are you going to be looking for from Apple.
I mean, it's really about the China growth. We think it's the last negative quarter for China and then that starts to now have a tailwind going into the AI driven supercycle. And I think this is this is the beginning of what's going to be a historic period for Apple and I think broader tech as this week's Nowaday, the AI revolution is real and now the consumer piece comes to Apple.
So this is still going to be a show me story though, Dan, because all the indications we've gotten from China from any sector is not good.
Well, our I mean our checks in terms of units, which originally five phone sixteen was what's called eighty four millions, which is now up to ninety. So the point is like for iPhone sixteen that continues to wratch up, but it speaks to our point. The haters hate Apple at one sixty, despise it at two hundred, and will absolutely hated at two fifty. So as we're going into this phase, it will be proved. Me but betting against Apple and Coupertino has been the wrong movie.
So talk to us about the services side of the business, Dan, because for you know, a long time, a lot of bulls were saying, you got to focus on services because that's the high margin business and it takes you away from the replacement cycle risk and all that is. Service is still a key story for the Apple stock.
Oh, I mean me, and you've thought about it a lot. I mean services is key to the valuation of Apple. It's been big to the sum of the part story. And actually, I'd say the biggest way that maybe people have missed Apple is not recognizing that this essential was a reading story wed by services the last two years.
So when it comes to their indications on their own Apple Intelligence, you know, Man Deep saying are from Bloomberg Intelligence was pointing out that, you know, Apple doesn't have its large language model.
So what do you think we're going to What are the.
Questions that you and other analysts are going to have on the call about LLM.
Big focus is really developers. Developers now will start the process of building hundreds of apps on the Apple ecosystem. So I think Cook talking about what initial feedback is from developers maybe given some breadcrumbs into iPhone sixteen, that's going to be the important thing. But if you take a step back two hundred and seventy millions have not upgraded their phone. Paul could be included in the last four years. And I think now you go into what should be is an AI driven supercycle.
So from your perspective, Dan, has Tim Cook and Apple? Have they allayed the concerns of investors or some investors that Apple's really not going to be a prime beneficiary of AI? Have they allayed those concerns? Do you think?
Oh?
I think they have. I mean book goes back to WWDC stock was one ninety, right, yep, everyone thought it's over the din't showing it look at today. And the point is because I think now the street recognizes that the AI revolution on the consumer side goes to Apple Park. On the enterprise side, it's godfather of AI, Jensen and Vidio as well as Madella, But on consumer it's Apple.
Yeah, it's such a good point.
And I think you made that point with us on our show a few weeks ago, and that was a good distinction, right, which kind of brings us then to Amazon because Amazon has the consumer side when it comes to e commerce, and then it obviously has the cloud. Then that AI side, what are you expecting after the bell that's not as flat now on a pretty heavy tape.
Big focus is AWS. Look at the cloud strength we saw from Alphabet by the knee jerk react right to continue to be as the adscratcher. Look at the Microsoft cloud number. I think Amazon's going to be on AWS and that's important for them to show. Don't forget about us when it comes to the AI revolution. That's what Jassi is really going to be focused on the call.
So give us a sense, Dan about how how investors should position, you know, Amazon Web Services in the context of the AI play. How do they fit in?
Really that's a great question. I view it as if Apples could show, and I believe they can, that they can monetize that leadership position in cloud and actually monetize from an AI perspective very somewhere what Microsoft's doing to Google. That that then all of a sudden from some of the parts could add significant value some of the parts of the Amazon stories. So that's really what they need
to focus on. Consumer is what it is. I don't I mean advertising and margins and you could kind of you there's some focus there, but it's really about cloud improven that they will be an AI beneficiar.
How did we see that in the line items When it comes across.
It's really around the eight I WUS strength. We expect upside. And then on the call, walking through not just anthrophics, but like the overall AI strategy and what they're starting to see in their customer base. You triangulate that with alphabet Microsoft AMD. It's nine pm in the AI party, goes to four am.
There we go.
There's the headline for you. What about cap X for Amazon?
I want to see them continue to accelerate it. To me, it's an arms race that's going on. So as much as you could fret about some of maybe the cap X, that's what you want to see from Meta. You want to see Microsoft. You want to see from Amazon. Now Investors be like, Okay, where's the payback room? Wasn't built in a day? This is going to take six, nine, twelve, eighteen months. But at the end of it Fourth Industrial Revolution, Amazon wants to be a huge part of that, and
that's what investors want to see. Even though bad is good, good as bad.
Microsoft just you know one segment on that, Dan, how do you how's the Microsoft story shaping up for you? I know you've always been very supportive and of the stock where are they right now?
It was a validation movement. I mean the reason tech went green yesterday and all the white knuckle fields were alight, it was because in Thedella it's talking about the acceleration and azure and talking about AI monization is now here because there's two people that everyone in the world's focused on. What they say on AI, godfather of AI, Jensen Nadella.
And when you heard from Theadella that n Rubik's cube that you're trying to figure out, that was bullish in terms of AI validation combined with the Elisha shoe talked about from me and be very polish.
So before I let you go, Dan, we're looking at a day where stocks are selling off. We definitely had a bad news is bad news when it came to the ISM manufacturing dat at the top.
Of the ten o'clock hour, how much how much.
Leg do you think this maybe next move of the tech selloff can have.
I think this rotations big tech, the small cap we think is very short lived. Said next move to cut in that cycle with big big tech earnings that we're saying, I'm not saying that you're not going to have some speed bumps here. We weive we are still in the early stages of this techical market and that's how we've handheld investors through some of the roller coaster.
All Right, Dan, thanks so much for joining us. Dan I've C's a managing director senior equity analyst at web Bush Securities, giving us his thoughts on big tech again after the close today, Amazon and Apple, I'll be paying attention from Yeah, I.
Think it's been really fun. I was really surprised about Meta.
I mean, you know, I was really skeptical going in in terms of they don't have the same kind of cloud plus AI to deliver, but that ad impressions and that in terms of the quality of the ads was really quite impressive. So I was surprised, and that's not holding up despite the sell off in the equity market.
Yeah, so, I mean, I think for for Meta and for Google as well, anybody who's advertising, what AI does is allows you to target better target your audience, which is important for advertisers because they don't want to waste their advertising dollars. They want to make sure every advertising dollar is going to someone who they really want to reach, and that's one of the advantages of digital advertising overall, versus say, buying a TV at or buying it at
the newspaper or something like that. You're getting everybody people you don't want as well. Digital does it better. Targeting AI just makes it even better.
Yeah, so has a premium? Does digital have a premium to TV?
Oh?
Yeah?
Okay, all right, so well it always has, hasn't it last ten years or so?
Yeah?
I mean it's it's interesting. It's they target different advertisers. But the CPI is the cost per point is really interesting. So it's just a premium. You're taking share across the board.
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Let's continue our conversation on commercial real estate. I heard from someone earlier today, I guess who really is focusing on the New York market In New York. If you've got a list of properties, you're fine. If you've got B and C not so fine. Here let's broaden it out a little bit. We can do that with Greg Friedman, managing principle and CEO of Peachtree Group. I'm just guessing it's Atlanta. He joined us live here in our Bloomberg
and Arrective Brokers studio. Abigail do little joints as well. We appreciate that. Abigail Dottle, markets reporter for Bloomberg News. Greg, thanks so much for joining us here talk to us about Peachtree. How do you guys play the commercial real estate business? Equity, debt, regional? Where do you guys go?
Yeah, so we invest across the US, so it's just domestic, but we invest up and down the capital stacks. We invest on the credit side as well as the equity side of commercial real estate. So we're a little bit unique in the sense that we do as part of our company. We have different verticals that go out and actually lend to commercial real estate. We buy a lot of debt from financial institutions and banks and regional banks.
We also buy and develop, you know, real estate. We buy and develop primarily hotel assets that are you know, select service, limited service type hotel properties on the equity side, but the CREDITSIBE, We're diversified.
All right.
I'm trying to get a sense, I think a lot of people are trying to get a sense is how bad is a commercial real estate out there? And where are we going to see it? Where are we going to feel it? Where are we in the kind of this nine innings of trying to normalize this market when people's behavior has really changed, whether it's working or traveling and that kind of stuff. How do you guys think about that?
Yeah, I think commercial real estate's very bifurcated today. If you have like a long term fixed rate loan, you bought an asset several years ago, you feel really good about where you sit in life, assuming that loan's not maturing here, you know, in the near term. If you have loan maturity issues, if you're you know, if you're dealing with you know, loans that are floating rate, that are on hedge, you're dealing with a lot of that
balance sheet stress. You hear a lot of the headlines talk about the stress that's going on in office, which is really just that secular stress. You take office out of the equation, you know, real estate with loans that are maturing are under heavy pressure right now because these rates are resetting in most cases, you know, double or even trouble what they were paying, you know, from the previous loan.
Well, let's talk more about that, because by the end of twenty twenty five, let's call it, more than one hundred one trillion to one point five trillion cnbs coming due. Because you are on the credit side, you're really seeing the plumbing a little bit more closely. It's interesting there's this debate among some of the commercial real estate people that we speak to, and some are a little bit more optimistic saying it's just office, and then there's others.
And Josh Ziegan is coming to mind strictly on the credit side, very close to the banks, saying it's much much more negative than people think.
Where do you stand on that?
Do you think it's a much more difficult position than say some of the Blackstone activity might suggest.
Personally? I think it is. I think it's it's a lot more negative. There's a lot of negative leverage. So if you're buying assets today, in a lot of cases, you're having negative leverage because rates are so much higher than where a lot of these assets are trading on
a cap rate basis. Even though cap rates have moved up, and not to mention, if you bought an asset pre twenty twenty two, especially during the pandemic, cap rates had compressed down to this like unsustainable level where a lot of assets, if it was like a multifamily asset industrial, we're trading in this three to four percent range, in some cases a little bit higher, but renal growth rates haven't really allowed for those cap rates to grow enough
to sustain interest rates that are you know, again, in most cases you're in the you know, mid single digits at a minimum, if not higher single digits. And that's what's causing you know, a big challenge across commercial real estate.
All right, So what I'm sitting on a piece of real estate down in Peachtree Street, Southwest and Atlanta the worst city in the country for naming streets by right, I mean it's a bunch of second graders. I'm sitting on a piece of property. My mortgage is coming up. I got a refinance it twice or maybe three? What do I do?
Yeah, I mean, there's so there's definitely dead out there today. The reality is regional banks, community banks, the national banks make up fifty percent of the commercial real estate lending market. They're not lending at the same level that they once were. Groups like us on the credit side, we're doing lending today. We've done about a billion dollars of loans this year so far. So we're actually providing loans to groups that
need to recapitalize or refinance as loans are maturing. In a lot of cases though using that example, they're going to have to come in with additional liquidity, so they're gon'n have to do it potentially cassion exactly, don't have to come in with capital to allow for that refinance. SI curd that equity.
So speaking to the other side of your credit business, you also buy, and during the pandemic, you were one of the biggest buyers of loans. I would imagine there's a lot of bargains out there today. Are you super active?
Yeah, so, I mean we bought over one hundred and eighty loans during the pandemic, so we were super active. As you mentioned today, we've bought you know, this year, we bought close to about a dozen loans since the end of last year to you today, so we haven't bought as much paper as I would expect.
Where are you buying that on the dollar, although I know some folks say that's not a good way to look at it, but like in terms of what kind of bargain are you.
Guys, Yes, so what we filned and what assets? Yes, So it's not huge discounts because what we're finding is unlike during like the Great Financial Crisis, because we bought a bunch of loans, then we got huge discounts. And you know, back then banks had done higher leverage lending, you know, going into this cycle and even into the pandemic, you know, leverage levels were much more i would say conservative by most you know, banks and financial institutions. So
the discounts weren't as large. But we're finding that the banks that are trading paper, they're usually selling off their better paper, which means that it's loans that were the asset values greater than the loan balance, and so the discounts just aren't as large given that factor.
So how hard is it to come to agree on pricing?
It's it's very challenging because it easier or harder now than like I don't know, eight months ago or something.
It's still hard. Yeah, it's still very hard.
I think that's going to change towards the end of this year because part of the challenge the losses that different banks need to take. They don't have the reserves to take them, and they're not will want to take those losses today. I think that's going to change as our lone loss reserves are increasing over the next couple of quarters. And I wouldn't be surprised if you saw a lot of regional banks sell off a lot of paper in the fourth quarter this year.
Do you think the commercial real estate business, I don't know to pick however you want to answer this. Has it found its bottom yet? Or are we still searching for a bot of evaluation?
Yeah?
So I think a lot of people believe we found a bottom. I question it just because we don't have a very active transaction market. It's very muted on the transaction side. I do think you're probably closer to the bottom, although I wouldn't be surprised depending on where rates settle over the next six to twelve months. That will be
a big indicator. When I say rates, really the ten year treasury rate, I mean the ten year treasury rates come down below four percent today but that's still double where we were pre twenty twenty two when you look over that decade, where we average closer to two percent. So that's putting a lot of pressure on the underlying values of these assets, and that potentially means values could potentially reset higher the ten years stays above four percent.
So in terms of that bottom no matter who you talk to you whether they think that things have already bottomed out or if they're going to bottom out in six months or twelve months, one thing that everybody, everybody involved in commercial real estate, seems to agree that this is going to take a long, long, long time to work out.
Do you agree?
And if you do, how long is it is? Are we looking at a couple of years just scuttling along the bottom of and why is everything so logjammed? When does it break up?
Yeah?
So I'm a big believer that we're going to have a sluggish It's been sluggish over the last couple of years, so starting you know, going back to the end of the first quarter of twenty twenty two, so now for commercial real estate, it's been a very sluggish period and
I think we're going to continue to have that. Unfortunately, that sluggish period for commercial real estate over the next several years, and it's just going to take time as these loans are maturing, asset values continue to sort of you know, recal or really ownership groups have to recalibrate to where the new interest cass is. So it's just going to take time to get through this slug.
Well, that's not really interested in because let's just say we get seventy five basis points it cuts this year right as swaps market are now pricing. And how immediately does that affect what you see?
Yeah, I personally, I think it doesn't really move the needle that much. I mean, I think it helps a little bit, but it doesn't really it's not as impactful as you think. I mean, it obviously brings down debt service costs, you know, floating rate debt, you know by call it fifteen percent, which is helpful. You know, if it went down seventy five BIPs, you know, roughly about
fifteen percent. But your interest costs, if you think about pre twenty twenty two, you're still up caught seventeen x because I mean you're next to zero, right like what people are paying off of sofa and now all of a sudden, you know, you move down seventy five BIPs, it's not going to be you know, probably as helpful.
The so going a little bit more macro.
I know that about thirty percent of your portfolio on the equity side hotels, mid scale, mid level hotels you own, I think ninety of them or so, although some of that might be credit. Sean Hair of Trinity Investments joined us last week and also joined Alex and Paul, and he was saying, for luxury hotels right now, the growth is eight percent, but for lower level hotels it's down
two percent. Are you seeing this and what does it say about the consumer because we continue to see this bifurcation on the consumer between the high end and the low end. Are you seeing that relative to your hotels?
Yeah, I think without question, I think consumers that are you know, on the lower inside obviously are impacted by inflation, higher debt expense. You know, the luxury segment hasn't been as impacted. And that's you know, that's because consumers held
up much better, you know, this time around. I do believe, you know, when you look at our portfolio, we're in the mid you know, the mid segment and so we have a lot of Selex service hotels that are like Marriott Hilton branded assets, and those hotels are continue to have positive rep par growth. So we're up about three percent, you know, year to date. But you're definitely seeing you know, I can see slow down a red pars.
I know, I know, revenue for an available room.
That's right.
I'm just going to show it out to Alex and Abigail just real quickly. If you were to go buy a piece of commercial real estate and office park in suburban Atlanta, what kind of discount do you think you'd get off of the pre pandemic evaluation.
That's I mean, it really depends on this because it's only seventy I've seen his property thousand times in a thousand towns.
It's seventy percent occupied, it's parking lots half empty, all that kind of stuff.
I mean, you're if it's going to trade, you're getting like fifty percent discounts. Wow, is my you know, just high level number without going through the nuances, and potentially you're even seeing larger discounts for some of these assets to trade. I mean, there's one big asset in Buckheat, Atlanta right now, that's you know, coming to market. That's or at least the debt's coming out to market. It's going to trade out a pretty substantial discount to where it was.
You know.
Buckhett still bucket, buckets, still bucket. Yeah, it's just it just shows you that it's called a buckhead.
They loved me back the love they loved you back.
Yeah, now not so much. This is a really fun conversation. Thank you both so much. Greg Freeman, a Peachtree Group managing principal and CEO. Abigail do Little Bloomberg News markets reporter who also has her real estate beat as well.
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