Amazon Bid Is Part of Toronto's Tech Investment Push, Mayor Tory Says

Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. We are broadcasting from the Burden Real Estate Industry Executive form here at Bloomberg World Headquarters and we are on the floor Lisa, So we do have a wonderful view north of Manhattan, and if we look very closely, you just might be able to see North America's fourth largest city, which happens to be Toronto. And we have the Mayor

of Toronto, John Tory joining us. Now. Thank you very much for being with us, Sir, thank you very much. From here, I think you could almost see it. I think I think it's on a clear day. Well, one of the things that we would see if we go to Toronto, and I want to start there is um the diversity of the city of Toronto may not be very well known to those outside of Canada. I wonder if you could just speak to that and how that

helps the economy of the city. Well, one of the reasons we're here is because there's a lot of things people don't know about Toronto. I think a lot of people, especially even our American friends, who come to visit in large numbers, when they get there, they say they didn't realize it was so big, and in fact it is bigger now than Chicago and one of the biggest cities

in North America. But what's more interesting about that population is of it are people who were not born in the country, and so the city and the region has been built by immigrants, and today we still have a very open immigration policy. It distinguishes us from lots of

countries that are looking more inward. And we've done things to help the economy, like to create a special UH Talent visa that says, if there's somebody really talented you want to bring in, especially in tech, that we can bring those people in and have that visa issued in two weeks so that we're you know, we're really trying to make sure those kind of smart people can be

admitted enthusiastically to Canada because we need them. Marritory that was incredibly diplomatic, especially given the US and sort of the uproar over immigration policy here. I'm just wondering, given sort of the shift in immigration policy, at least on a rhetoric level in the US, have you seen the

immigration numbers increased substantially to Toronto. Well, truthfully, the number of people interested in coming and the number of people coming have increased, and the number of people, for example, like foreign students applying to our universities have have shot up so dramatically like that since November in the last year and a half or two years. So those are big,

big increases. Uh. You know, I can't say that we've seen actual numbers of people who have immigrated to the country from the US or from elsewhere, but we have anecdotal examples to Like yesterday at we had a bunch of tech companies here in New York and Canadian Base, and they were talking about people who had applied for visas here from other countries were having some difficulty and just shifted their gaze to Canada and came to Canada

instead because it was faster, so marriatory. How concerned are you about the high apartment prices and housing prices in Toronto. Given this influx, is that present a headwind to growth. We are having to tackle as all big cities are,

with the question of affordability of housing. But I can only say to you that when you talk about high prices, whether it's for um technology, technological talent, software engineers, AI people and so on, whether it's for rents in apartments or office rents, um, we are still in expensive relative

stay to New York. We were talking this morning about office space and and we were asking somebody in some really prime office space we were visiting how much they were paying, and they're saying seventy seventy five dollars a foot the same number in Toronto, and US dollars would be forty five dollars a foot. Wages, we have a study done to show that the wages are thirty percent lower for the same kind of talent. That's before you

take the currency into account. So um, you know, Toronto is an expensive city relative too much smaller cities perhaps elsewhere, but it's not expensive relative to American cities say that are at the peak of the tech of the technology ecosystem, like New York City or Silicon Valley, and it's one of the advantages we have that we can say we have the talent and it actually is cheaper, and the rent is cheaper, and the general cost of living, including

residential accommodation, is getting expensive and it's a challenge for the people who live there now. But but relative to some of these other cities were discussing, still not at the top by any means. We've been discussing taxes in the United States and one of the debates has to do with the deductibility of mortgage interest. Doesn't exist in Canada. No, we don't have mortgage interest deductibility, never have. What we do have is a capital gains exemption on the sale

of your principal residents. So it's it's kind of a trade off. It's kind of longer term gain for shorter term having to pay the tax on are having to use a non deductible funds to to fund your mortgage. So it's one of those things where there's a lot of trade offs. Again, I would say to you, overall, our personal coome tax rates are a bit higher, but they include healthcare. Our corporate tax rates are much lower,

but they include healthcare. So when we were able to say so we're saying to Amazon, you know, when you come here. We didn't send them a check of any or any of our promise of a check for any kind of an incentive to them. We did say to them, however, you were going to save hundreds of millions of dollars hundreds of millions of dollars on your healthcare because you

don't have to pay it separately. You will pay a lower rate of corporate income tax if you pay tax in Canada, and you will not have to pay for healthcare separately because it's included in UM. You know, the tax is paid by residents. So I think these things all kind of mix and match, But I think overall, I'm confident in being able to say it's a a jurisdiction where for businesses looking to invest, it's a lower tax jurisdiction, for individuals in some cases a bit higher.

And the stuff on mortgage interest deductibility, I think trades off when you can sell your house for capital gains tax free, but you uh, you have to pay mortgage interest in non deductible dollars real quick. What percent chance do you think you have in getting the Amazon headquarters? You know, it's like asking people ask me to grade myself in office, and I never do that. I don't kind of cartea exactly. I would that I think we have a formidable bid because we are talent rich, lower cost,

a very livable city. And so it's going to depend a lot on the consideration that Amazon gives to whether they are prepared to locate outside of the United States. And uh, you know, we'll see. We're not you know, we're not popping any champagne corks yet. We're just putting our best bid forward and we'll see what happens. Mayor John Tory, thank you so much for joining us. Mayor John Tory of Toronto joining us here in our Bloomberg eleven three oh headquarters. This is Bloomberg. Well, we are

broadcasting from the Burden Real Estate Industry Executive Forum. And one of the panelists on the panel that just can included with Kathleen McCarthy, senior Managing Director and global Chief Operating Officer for the Blackstone Real Estate Group, and she

joins us. Now, Kathleen, your group overseas one hundred and eleven billion dollars of assets of real estate assets, and I'm wondering, Uh, you've expanded very quickly, and with such scale comes certain opportunities, but it also brings some challenges, and I want you to talk about what the challenges are that you've been facing as you've sort of expanded this rapidly. Got it. Thank you, Lisa for having me very excited to be here, and this was just an

amazing panel. I would say we see really just benefits of the scale of our business and our glo global perspective. It allows us to have proprietary access to information to really remain I think, ahead of what other people can see in the marketplace, and allows us to be high conviction thematic investors globally. It's also been a great attractor

for talent everywhere in the world. Can you speak a little bit about your recent Well you did some of them last year and some the acquisitions, but I want to start off with looking at this connection with e commerce and everybody needs a warehouse in order to store all those wonderful brown boxes. And you've made some purchases I believe out in the West Coast in Irvine, for example. I wonder if you just tell us about that acquisition

and then what that means in terms of your strategy. Sure, so e commerce is definitely impacting the way people shop. And since two thousand and ten, we've been the largest most active investor in logistic success. It's all around the world, something like four hundred million square feet over a hundred

different transactions. This was just a very recent example. We see robust tenant demand like we've never seen before, unprecedented for logistics, and it's increasingly focused on that last mile or the urban locations so that consumers can get goods from retailers in a matter of hours, not days. I just want to follow up, if I was to go into one of your logistics properties, Am I going to see more robots? Am I going to see more artificial

intelligence and technology at work inside those buildings? I think certainly the tenants and particularly the ones that have the most capital and the most scale, like an Amazon or in innovating and investing behind those ideas. But it really is a combination of human capital as well as mechanical capital. Where are you saying the biggest opportunities right now? We know that the biggest metropolitan areas have seen the bulk of the money kind of coming into the country from overseas.

UH do you think that it's overvalued in places like San Francisco and New York at this point, and are you moving to other places? Sure? So, I mentioned logistics as one of our most our highest conviction themes. I think also innovation cities places where young, highly educated, creative and technology talent wants to live. So it is the gateway markets markets like Seattle, West, Los Angeles, New York, Cambridge, and outside of the US, places like Berlin or Stockholm,

Shortach in London, and Sydney in Asia. And we certainly, I think, are at a more mature point in the cycle. But we're really encouraged by the fact that fundamentals are generally quick positive for real estate in most places. What about rental properties. I know Blackstone was one of the biggest acquirers of home rental UH properties, and I know

that there was some sort of right Peter Cooper Village. Yeah, I mean there was some there were some sales, And I'm just wondering, are you at a sort of UH liquidation period or do you see that as sort of a long standing Sure. So, we are really bullished on residential both rental housing in the form of single family houses and rental housing and more traditional multi family and as Pim noted, we are investors in Stytown. It applies in New York City as well as more broadly around

the country. I think there are a lot of factors pushing people into rental housing and maybe remaining as renters longer. And so while you will see us sell assets, the nature of our opportunistic capital to sell assets once our fix it is done, we continue to have very high conviction around residential investing. Saudi Arabia is in the news for a variety of reasons. Back in May, it was in the news because I believe you want a commitment from the Kingdom of Saudi Arabia for what a twenty

billion dollar infrastructure investment fund? Can you give us any details about that? Sure? So Blackstone is in a very unique position because of our scale and our depth of experience in the markets. And Saudi Arabia did make a decade long, significant commitment to invest with us in infrastructure and and can you tell us and I mean when is this going to When are we going to see maybe some deals or some specifics. Sure, I really can't

comment on that. UM one thing that has been sort of a trend is should retail investors be able to go into some of these real estate investments? Um, I know the Blackstone has been trying to open up that opportunity. How how should that be structured given the sort of more permanent nature of real estate purchases? Sure so? Uh, real estate I think presents a compelling investment opportunity for many types of investors, and I think retail investors should

have access to that as well. When we're working with retail investors, we're trying to just provide a product that has the same institutional quality, transparency, and fee alignment that we provide to institutional investors. What's your take on the mall industry right now? We note the recent proposal by Brookfield Property to acquire g g P General Growth Partners. I think about a fifteen billion dollar attempt. Uh, you think malls are too cheap? I think retail is certainly

under pressure. We talked about e commerce before. That's definitely having an impact. And I can't comment on what g GP is doing specifically. Uh, sorry, what what Brookfields do specifically with g GP. We have been partners with with Brookfield in g GP. In fact, Uh, they own a significant portion of the company. I think it'll just be interesting to see their vision for what to do with the company as a private enterprise. All right, well, we're gonna leave it there. I want to thank you very

much for being with us. Kathleen McCarthy is a senior managing director and a global Chief operating Officer of the Blackstone real Estate Group. Thank you very much for being here and for your participation at the Burden Real Estate Industry Executive Forum. We are broadcasting live here from Bloomberg World Headquarters, and we are broadcasting at the Burden Seen Real Estate Industry Executive Forum. And here with us we have Seth Mo Laud, partner and chairman of Burden Real

Estate Services based in New York. Seth st thank you so much for joining us. I want to talk taxes with you. I want to talk about the GOP tax plan and who stands to benefit and who stands to lose in the real estate industry. UH. Com morning, Lisa. Pleasure to be here. So uh yeah, obviously there's a lot of UH talk out there the the UH. There's been plans floated by both parties and the House and Senate.

The current plan as it exists would would really there's certain key elements that are really going to hurt probably the coastal states being New York, California, the high tax states. The proposals include, amongst amongst other things, uh, the elimination of the state income tax deductions, a limitation on mortgage house uh, you know, mortgage interest, and those are really going to affect the areas where housing costs are high

and state taxes are high. So there's a lot of concern about the compression on probably the middle income and up or middle income uh, you know population of the coastal states. Uh. There's also a lot of proposals in there about the tax rates themselves being reduced as well as the you know, there's certain key things like, for example, they're talking about limiting the the carried interest carried interest

treatment to uh where now it's capital gain. And they're talking about making an ordinary income which is gonna dramatically affect the real estate industry and other industries. UM. But the current the current proposals now are really geared towards UH. The people that are really going to feel it the most are probably the people on the coasts and in the high income and high tax states. New York, New Jersey, California.

That's what we're talking about right now. Primarily, let's talk about the industry and the commercial real estate industry, because the thirty percent UH deduction right this is the limit

the limit on interest expense deduction. You have any thoughts on this, and do you know anything in terms of where they're leaning in in the in the tax negotiations right now they're talking about you talk about the mortgage interest deduction right now that the limit right now is on a million dollars of indebtedness and they're talking about having that to five hundred thousand dollars of indebtedness, and that is this kind of the sweet spot for a

lot of like I said, probably middle income and upper middle income UH families. So that is going to have a dramatic impact on the markets, UH the condo markets here in New York. And when you say going to have an effect, this means negative, negative, negative news deductions and it's gonna make it less affordable to buy condos and houses and other types of real estate that would

normally be more affordable. How about lower property depreciation? Okay, moving that from what thirty nine years to twenty five years I mean this is good. This should be good for the commercial real estate all that that accelerates things. There's a lot of rules that are very specific to

the real estate industry now regarding depreciation where it's been accelerated. Uh. Any acceleration and depreciation is a good thing for the real estate industry and makes it easier to uh pencil out deals and make sure that they're you know, the the returns are working there properly. UH. So that that's a good thing. Um, I don't know that that's going to have a dramatic impact the There were regulations passed previously whereby the deductions were much more aggressive than they

were historically. Anyway, what would you say is that to people who say that the tax bills is currently crafted seem to really benefit commercial real estate, both because of the depreciation and also because there is a provision that would allow property owners to avoid being taxed on profits from property sales if they reinvest in other real estate,

while penalizing residential homeowners. Can you weigh in on that, well, the I think you're referring to the like kind exchange rules which are have been in place for many, many years, and that fuels a lot of the activity at in the in the commercial real estate market. So there is some talk about repealing that. I don't know how how much traction that really has in the market, that would really dramatically impact the commercial real estate market in a

negative way, But they're not talking about that right now. Now, Well, there is some talk about it. It's not actually in the proposal right now, but there there is, there is talk about it. Um, you know, on the on the home market, you still have your you know, exemptions for principal residence sales. Um, there's talk about limiting that as well, so that would hurt um, you know, the residential markets.

But um, does that make sense to you? I mean, I mean, if they want to get economic growth, how does that square with the idea of more jobs, more h aster economic growth, stronger economy. How does that reconcile? It doesn't make sense. Uh, the the residential multi family development is a key driver of the economies of New York and many other major urban centers in the US, and cretailing that through tax legislation it doesn't really make

much sense. So no, it doesn't make much sense. However, you know, uh, they need to you know, generate revenues for other things that are that they're looking to pay for. So something has to give. Uh. Listen, we don't feel that that's a place where it should be, but there they have to generate revenues in some way. Well done. Alright, well, thanks very much for being with us. Seth Malady is the partner and chairman of Burden Real Estate Services. UH. We are thankful for you hosting us here at the

Burden Real Estate Industry Executive Forum. Our pleasure. Thanks pimp Elesa, thank you, thanks very much. We are broadcasting from Bloomberg Headquarters at the Burden Real Estate Industry Executive Forum, and we are very lucky to have with us. Norman Sterner, founding principal and chief executive officer of MHP real Estate Services. UH. Norman, thank you so much for joining us. So when we talk about New York City commercial real estate right now,

there are two things that come to mind. One empty storefronts as a lot of retailers struggle. And two Hudson Yards and what that will do to midtown rent properties. I want to start with a second. How concerned are you about Hudson Yards the development there and how much will lower commercial real estate values across New York. I'm not only not concerned, I'm a fan, in a favorite of what they're doing at Hudson Yards. Um, we have

four hundred million square feet. If we do not improve three to four percent per year to modern, state of the art office properties, that this city will simply dry up, as most of the other cities have. So. But but what happens to the rest of the existing properties that are modern. You're you're making an assumption that the occupancy of Hudson Yards will become only the movement from existing space.

We increase occupancy by people moving into the city. When you look at Amazon right now, they're not moving out of anywhere to move into eight million new feet. They're looking for new feet. When you see companies moving from one place to the other. UM, last month, we signed a two hundred and seventies six thousand square foot lease for the City of New York. Um, it's not necessarily moving out of one place to the other, but rather they need more space. Um. We replaced six smaller, older

properties with one brand new, much more efficient property. Uh. But it's not only Hudson Yards. It's uh, it's Brookfield, it's related. It's um L n L. It's sl green building one point six million square feet on Grand Central. UM. So no, I I'm i'm I'm a proponent of taking out some part of the old inventory and building. No. The east side reasoning is exactly why that's being done. Uh. Most of the smaller older buildings or fifty to a hundred years old, UM, it's hard to convert them to

modern norfics. Most of them are being converted when they're not being knocked down into residential or hotels. UM. No, I I don't think it will hurt. Also, it's a different marketplace. Hudson Yards to build today is somewhere between a thousand and twelve hundred dollars of square foot UM. There's plenty of competition uh to to that marketplace. UH

still in New York. So I'm a proponent. Could you share with us just a little bit of your own history, because I understand that you did not start in the real estate business. You started with a seat on the on an exchange, not the New York Stock Exchange, in the mutual fund brokerage industry. But also you ended up I believe, owning the building of the New York Stock Exchange on nine eleven. So you've kind of been through it all, haven't you. You have done your homework. I

started out as an accountant. UM. I was very young. I got into college I was only sixteen. So became an accountant because that was one of the things to do. And it was by accident that we got into the real estate business. UM. Somebody walked into our office in nineteen seventy when the city was on its back and contemplating bankruptcy, UM, and asked if we would take him out of a contract on West fifty seventh Street. UM, talking about thirty one apartments for seventy dollars. That's not

seventy each, that's seventy thousand dollars for thirty one apartments. UM. So the city changed when at Saint Goodness for Mayor Coach and big Mac. Um. But we've been in the office building business now for forty eight years, and you're right. On nine eleven, we owned thirty Broad Street, which was the home of the adjunct to the new Kak Exchange. UM. Some hard times, some difficult times, some really stupid times.

We got a call, Uh, okay, we got a call whether if the Empire State Building fell sideways, it would hit our property at fifty eight Streets. You know glad it didn't happen, and we look forward to having you back again because we want to learn much more from you. We do appreciate your time. Norman Stirner is the president and the chief executive of Murray Hill Property Really State Services. Thank you very much, sir, and great to have you

with us. Looking forward to having you again in the future. Thank you for having me. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.