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So it's bringing on rog Rana. He's a tech analyst for Bloomberg Intelligence. You've been following Apple stock for decades here, how important is today?
Anurag?
I feel like Apple doesn't have the AI juice in at stock.
Is that something they care about?
No, they have to care about it because that's the most important thing investor's mind right now. So there are a few things we already kind of know thanks to Mark German. Is there's going to be most likely an announcement with Open Eyes, some kind of joint agreement with them to use their technology into the new operating system. So I would say a lot of that is already
built in. We all know that Apple doesn't have its own large language model as good as what's available with Opening I or arguably with Google, so but they can partner with these two companies. So that's that's the luxury Apple has that it does not need to do with everything in house and that's what we're going to look forward today, is what's the strategy in terms of working with partners and then using that technology to fuel the operating system.
It does it? Will it justify their one up in the stock?
How do you make the correlation between the news and what we're actually going to get and the actual move in the in Apple share price.
So, Alex, one of the things I would say is for the past one and a half to two years, there has been nothing but bad news coming for Apple. You know, that has been an issue because iPhone growth has slowed down, mostly because of China. So I would say this is the first liver of good news that has the potential to improve iPhone sales next year. It's not going to do anything this year. I mean, it's
it's very difficult to model that out. But if the operating system has enough juice for people to figure out and say I will go out and change my phone next year, I think that's the That is the gas that people are looking for, is whether that can go back and reignite sales growth.
And we were talking with Mark Herman earlier this morning and he kind of suggested that, you know, it can be taken as a little bit of an embarrassment by Apple that they do not have, you know, kind of their own AI capabilities in house, that they need to partner with open Ai. Do you think investors view it that way? They're just like, we don't really care how you get it, just put it on the device.
Yeah, but personally I don't care how do you do get it on the device? Same thing for search. What I really like about that if they partner it is then they don't have to spend billions of dollars to do it in house. If you look at the capex of Apple compared to some of the other companies, it's much smaller.
And you know, I'm.
Okay with that because it helps out in my free cash flow. As long as they can partner with people, I'm absolutely fine with it.
Well, let's go to the idea.
I mean, you can bring my daughter into this. So I'm doing a lot of reading Estrian Apple. I'm taking all my notes and doing my homework, and I said, hey, dydn't.
I was like, you know that Apple's going to have this thing tomorrow and they're gonna maybe unveil something that will help emojis and you can get better emojis when you're typing texts and she's like, that is so cool when you need to get the new phone, and I think, anurag, that's your point where like people like my daughter are like, that's awesome, upgrade your phone now, because I'm like, oh.
A few years, a few years.
She's like, no, no, you got to get the phone because I need the emojis so I can send texts to my friends. That's basically what you're talking about. There's a huge install base. You do something that even is like semi cool, and that's going to drive sales.
Yeah, I mean, that's the coolness factor. And frankly speaking, one of the things that really caught my attention is Mark German reported that the new features would be available on iPhone fifteen Pro and the newer one that's coming. I mean, that's a big deal because, frankly speaking, if that's a very small portion of the total install base, even those early adopters, if they go out and rush to increase their you know, the refresh the phone in a much quicker way, that's going to help out Apple.
All right, So what else today should we be looking for?
Anna Raga?
I mean, is there going to be a new watch and do anything or is it just getting everybody to focused on AI.
Yeah, it's all going to be AI. And I think one of the things I really like what I've seen from Apple in the last six months is now they are all focused on this product because one of the things, again Mark said that, you know, they shut down the cards project, which has been around for you know, so many years, taking out massive amount of investments, and then they you could say that they diverted that attention and
not focused on AI completely. But right now the entire company is focused on AI, embedding it every product, every operating system, every feature. And I think, and you know, one of the things we've heard even in China is consumers don't like that Apple has been behind in this particular one and that has been a reason for them not to upgrade their phone. So I think Apple's taking this a lot more seriously. I think other tech companies
are taking it a lot more seriously. Who have been you know, I would say, taking their dominant position in their respective markets for granted over the last few years. And that's what I think open ai has done for the rest of the ecosystem.
Also, honour more of the derivative plays from this. When we're hearing the announcements from Apple in your world of software, where should we be paying attention to?
I think see what we think is going to happen is over the next one to two years, every software company is going to embed more AI features into their core software product. Now, the question is some of them will have the ability to up charge for that, which means they will have a pro model or a premium model or a ProPlus model where the average revenue per user can go up. This way, they don't have to go out and look for a brand new user to
sell that software. They just have to convince the buyer that it is worth your while to upgrade that software into the one that has AI features. I think that is where bulk of the investments are going to In terms of the software industry, we think every major company will play a role in it. The ones that we have seen so far is that's coming out from Microsoft, whether it's in the Office Suite or the one that
we like quite a bit. Is there coding software where you could the software developers can actually do automated coding in a much faster way. I think that will have a massive upsell rate because the benefits of productivity are way too high over there.
All right, on thirty seconds question of the day, I have an iPhone eleven toy upgrade now or wait.
This winter when the next one comes in, which is the iPhone sixteen or so. I think you will be very happy with that particular.
One I found. Did it work? Like can you run stuff?
Yeah?
But at some point, like the apps just don't update and the software doesn't update, and like you have to turn it in.
Well, the big thing that what always prompts me to upgrade is the battery. When a battery starts, that's that's the message. All right, Honak, thanks so much for joining us. A rag ronnie. He saved me a couple of dollars today. I'm not gonna go out and buy a new iPhone. He's a senior technologyanels for Bloomberg Intelligence. Yeah, it's always the battery that kind of gets me.
The battery is rough, Yeah, but I do my thing on like low battery all day, like you don't do they do?
Yeah, which is fine.
It just means it instead of like staying up and connected for a long time, it just goes to sleep and I just have to wake it up.
Really yeah, but a last like anybody that you're the first person that.
Business track for me, though I don't know, I feel like this all makes some cheap sense. Anyway, We're definitely watching Apple and looking forward to that announcement coming there has a really big run up.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car 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.
This is Bloomberg Intelligence Radio, where we cover all the news and business and finance through our.
Lens of our Bloomberg Intelligence analysts.
They cover two thousand companies and one hundred and thirty industries worldwide. We also like to tap our guys over Bloomberg Economics, amazing men and women who do the economic side of the entire world. David Powell is senior Euro Area economist for Bloomberg Economics and he joins us now David BTP bund spread right, you have the France versus German ten year spread fifty five basis points.
We haven't seen that all year.
You have a huge, huge sell off in the bond market some of the main countries, even in Italy and Spain and Portugal, equities are getting hit. What do you make of what unfolded over the last twenty four hours in France and the European Parliament.
Well, the far right parties of Europe had very large gains in the European elections. These are the elections for the European Parliament, and that wasn't so much of a surprise in itself, because Poles were showing that was likely to happen. But the big surprise is what's happened in France is the reaction of the French President, Emmanuel Marcon to the outcome, and he announced a snap parliamentary elections.
This won't affect his role as president because that's a separate election, But soon the French will be going to polls to be voting for new members of parliament and for American listeners that's similar to the members of the House of Representatives, and then the composition of that lower house may change, and in fact polls suggest it will more in favor of the of the party that just won such a such a large number of seats in the European Parliament.
So David in the European Parliament, what were some of the contributing factors to that strong performance by the far right.
Well, Uh, discontent with with the with the way things are going. Of course that's not unique to Europe and America. A lot of voters of their concerns about inflation, what that means for their spending power, and that has the that that's that's had a similar impact on the on the electorate in Europe where people are upset about these high prices. Uh, the the the cost of living crisis
as they refer to it. But in addition to those to those developments in France, but they've also had recently is a change to the pension system in order to make it more affordable. So they've lifted the retirement age and that was done by the French president and it
was not a popular move as you can imagine. No one wants to be told that they have to work for longer in order to receive the same benefits, and that has been a source of support for this for the far right, which has come out which came out at the time opposing that that's done. They've also come out opposing recent changes that are being discussed to the system of unemployment benefits. So it is now a debate about shortening the duration of unemployment benefits that the government is leading.
So what I find interesting, David is the idea and the more I read about it, the more it's like Mattcrol's calling the far right bluff and it's like, all right, you guys want those policies, Let's see how much you want those policies that What is your assessment as to how risky or not that strategy is and the effect you could have on the economy.
Well, some of the things that Macwall's pushed through, like raising the retirement age and this debate about shortening the duration of employment benefits, Obviously they're not popular, but they're necessary because France is a huge budget deficit there under a lot of pressure from the European Commission to reduce the size of it. Their debt isn't growing increasingly large, and these reforms will reduce the amount that the government is to pay out to pensioners and the unemployed, and
they'll also boost the potential size of the economy. So it's kind of a win win situation from an economic point of view. And even though these aren't popular, macalls saying, these are necessary steps in order to get the public finances in order. And the far right has been opposed to many of these moves, but they haven't they haven't proposed other solutions. So I think one of the things Macwoll's kind of doing here is saying is you know, you like to be opposed to what I'm doing, but
you're not putting forth any solutions yourself. And while you're in opposition, I guess that's your job to oppose the government. But let's see if you can put together some policies yourselves that would solve the problems instead of just complaining about what he has proposed as solutions.
David, can you give us a kind of an overview just maybe how the economic the economies of Europe are behaving generally speaking, How are they in terms of growth, how are they in terms of inflation these days?
What are the trends?
Well, Europe, like the United States, has had an inflation problem of the last couple of years, and in Europe it was made even worse by the extreme rise and commodity prices that resulted after Russia's invasion in Ukraine. They have that inflation issue that's causing a cost of living crisis, And like the Federal Reserve, the European Central Bank very drastically raised interest rates, although unlike the United States, it
had a major impact on the economy. So when we look back to twenty twenty three, I think the US economy grew something like three percent and the r Area economy did not grow at all. So there's been a much weaker economic performance as a result of the monetary tightening that's taken place.
Yes, we got the ECB that did cut rates, we don't know when the next one's going to be. And then we get this violent move in bonn yields, and I appreciate compared the sovereign deck crisis, it's like peanuts, But nonetheless it's significant. At what point do bond yields effect everything else start to affect the economy, Like how high? How long do they have to stay for that to feel to that to be implemented into the economy.
Yeah, I mean higher financing costs for the government. We'll have implications for the budget deficit and implications for lots of other things that are used as trademark interest rates
in the economy in many places. However, as you said, these are small compared to what you're dealt with in the past in terms of the area debt crisis, and there's very unlikely to be any intervention from the ECB or anything like that, only because not only the movements small, but during a period of high inflation it's much more difficult for a central bank to intervene and to justify those moves than it is during a period of low inflation,
because of course those interventions require just essentially printing money and using that money to buy those bonds. So we have had some movement in financial markets, but nothing that's screaming crisis, nothing that is screaming for the ECB to jump in and come the situation.
All right, David, thank you so much. We appreciate that.
David Palm, he's a senior your Area of Congress for Bloomberg Economics joining us from London the HQ for Bloomberg at Queen Victoria Street via that zoom thing. So again, some big moves, as Alex was pointing out earlier, of the euro off about a half of one percent sent one spot zero seven on the euro. You had the CAC fall off pretty substantially as well the French index. They're off about one point eight percent in terms of the stock market over there on the news of these snap elections.
So my question is, then do we learn anything about how other elections will be treated like here in the US or not. We know hedging doesn't work with these things, as we learn, say with Brexit, so it's going to be very interesting to see how long these moves actually last, which might give us some insight into when they had the elections in July, when the UK has their election in July, and when we have our election as well in November.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on fo CarPlay and enroud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
And Alex Steel alongside Paul's We Need This a Bloomberg Intelligence Radio. We're broadcasting to you live from the Interactive Broker studio right here and quarters in a beautiful midtown Manhattan.
Lisa was just giving you a check on the market.
Also, Apple is down a touch, but it has a huge run up since the end of April, and Video is also down on that stock split. So we want to dig a little deeper here with Carol Pepper, founder and CEO of Pepper International. She joins us, Hey, Carol, do you want to buy Apple into today? Like, do you want to buy in Video on the stock split?
Definitely buying Video on the stocksplit. I think that that's just a great sign. And in Video is going to run right back up to over a thousand bucks a share.
It is the engine right now.
So I would definitely buy it and tuck it away and not look at it, just leave it there on fear.
Days and I'll go down. So on a fear day, buy the stock.
So can we broad that out Carol to say, continue to buy some of these large cap growth stories across the border.
Where do we try to find some value out there?
No, I definitely feel like the value is long large cap growth. Frankly, the leaders and the bigger stocks are getting bigger. They're in a position with all the cash on their ballad sheet to be very muscular to make the innovative deals, to make long term investments where other companies are struggling. So in tech, at least, bigger is much better and that's where you need to stay. And again, if you haven't fully filled out your tech allocation, it's
something to take a hard look at. In general, I think growth continue to outperform value. It has for over ten years, and I don't see that trend ending anytime soon. Although it's still very prutent to own the entire SMP, the US stock market is going to continue to outperform the rest of the world, certainly for the foreseeable future.
You, Carol, you didn't mention Apple. You know you're talking about large cap growth. We're talking about tech. I asked an Apple you didn't talk about. It makes me think that that's not in this thesis you have.
Well, I mean the problem that I've always had with Apple is I feel like their product set is not that broad.
I mean, Okay, how.
Many iPhones do people really need? Yes, you might upgrade the phone that you have, that, are you really going to penetrate.
Larger groups of new users.
I'm not so sure about that. They're very expensive. We're in a high inflation market.
I'm not as.
Excited about Apple as I am about the other big tech companies like Amazon, certainly Microsoft, in Nvidia.
We've got Google, even Facebook. You've got companies.
That are branching out into more areas of growth and expansion. And to me, Apple's fairly focused. The car thing was a mistake and now they have to backtrack on that. I mean, they're still always going to be in the top five. Don't get me wrong, you can own them. I'm just not in love with them. As let's say the leading story.
So are you in love with Microsoft and Amazon?
Yes, I've always been in love with Amazon since the beginning, since they went public. Microsoft, I think is very very
strong and will continue to be. So they have a much stronger focus on, i think, the corporate side of the business, and that's very smart because all of this AI innovation will start affecting corporate America and Microsoft will most likely be one of the main delivery mechanisms because they're embedded in so many corporate systems and so many you know, Outlook systems and all the cloud storage that they're doing.
I don't think that that's going to change.
So there was a great piece on Bloomberg that talked about how big text profit growth is going to slow. It's not going to go negative or anything. It's just going to slow from the kind of growth that we've seen. But that other areas like industrials, materials and healthcare can see roughly twenty five percent profit growth by the fourth quarter after a contraction twenty percent or more in the first quarter. So I'm wondering, are you in love with stuff outside of tech and maybe in those sectors.
Well, I certainly think those sectors have room to move, which is fantastic. Certainly, you know, the GFLP one story is going to continue and expand we're going to see new drugs coming on and that is a blockbuster category. But I also see that AI is doing tremendous work in things like cancer research and coming up with real cures in the health tech space. So I think healthcare will also always be a good core holding.
But if you were to say what weight.
To put it out, I would overweight tack more than I would overweight healthcare.
Though.
Of course, to me, healthcare is a continued growth story.
Because we have a lot of aging populations all over the world and they just simply need more healthcare. So yes, I mean healthcare is always a good sector. Anything growthy is your friend. It doesn't mean the other sectors won't touch up eventually, because a rising tide will lift all boats.
Especially when the rates start to go down. That's where I think you'll see value start to move some more.
Because with value, you know, you just have very much smaller margins to play with.
So when you have high interest.
Rates, you're more squeezed, and it's very hard to get out of that squeeze any particular way if you're not in a sector that's growing.
Hey, Carol, one of the themes coming out of the pandemic was on shoring and friends shoring, and a lot of folks are saying, take a look at Mexico.
Is that a theme you like? And so how do you play that?
Yeah?
Absolutely well, As you guys know, I manage money for ultra wealthy families with over one hundred million dollars family offices.
And they're very much looking at Mexico.
There's a huge real estate play going on now between Mexico and the United States because many many businesses are relocating their operations out of Asia to Mexico so that they can just drive goods right across the border. Into the US if they have to, So they're preparing for the next pandemic. Frankly, Mexican they had a huge election.
The election went left. Of course, the wealthy families over there are quite nervous, but the incoming president has really pledged to not mess with the economy, and so far, so good.
I don't think she.
Will question becomes how much will the outgoing president pass his agenda before he leaves. But having said that, I think they're all very happy with the way the economy has been growing over there. So yes, Mexico will continue to grow. It's only actually just getting started, and there's a lot of activity in the real estate section the section.
There's a lot of joint.
Venturing between US and Mexican family offices going on, So keep your eye on Mexico. It's also a fantastic retirement nation for Americans who can't afford to stay here with the current retirement I mean, you can live on your Social Security beautifully in Mexico and you can't do that in the US in retirement. So they were already massive communities of retired Americans living across the border. And again it's easy for them to get home if they prefer to have health care in the US.
But it's a big trend. It's going to continue to grow.
Well, my best friend's pushing Costa Rica like that's her thing, Like they're going to move her family for a year anyway. So yes, that is a trend, Carrol, for sure, just a headline that's crossing here. I feel like this is for Paul because he'll get into it. BTP boom spread ten year gap rises to fifty five basis points, the highest in a year, and that's the difference between what the ten yere yield in France versus Germany is yielding.
And since Germany tends to be looked at as the risk free rate over in Europe, it's a sign of where the stress is. Before the sovereign dead crisis, France was really thought of his stable along with Germany, and the dead crisis kind of avoid miss that got rid of the got rid of that a little bit, and there was more political risk over in France. Also, the
equity market is getting crushed. Did we learn anything, Carol, Like, I know you're a US person, but did we learn anything about what happened in the European Parliament and Macron's choice to call these elections for the lower house in relation to how we can trade and expect things here in the US in November.
Oh, that's a really interesting question.
Well, I would say that, in my opinion, the vote in the EU is a one issue vote. It was an immigration vote because literally they're intignated. Almost every country has massive numbers of people arriving on their shores by vote because very close to get to Europe from other countries.
So you know, the Europeans are sick.
Of the immigration crisis, and I think his decision to call snap elections is worrisome because he may lose even more and that's what people don't want to see.
There is a fear of.
A return to a World War two kind of fascism in Europe in reaction to immigration.
That's what.
But having said that, the souter parties still hold the majority, so I think for the EU itself, we're still set for this for this next cycle. But it's certainly a commentary on they're way more enthusiastic on climate change and they're way more aggressive on trying to somehow stop all of this incoming immigration into the your EU block.
So I think those two factors are really.
Driving that vote, because average people are not happy with what's happening in Europe. So having said that, when you come to the United States, you're definitely seeing a.
Number of voters very unhappy about immigration.
And it's something that has to be dealt with in this country as well. We just have to have a better system that functions better. So it is a big election issue. Both sides are trying to grab it. I don't know what the outcome will be. It's a split decision right now in this country. But I do think
here people are worried about fascism as well. Fascism is a scary rise throughout the developed world right now, and I I do think in America we have a real allergy to fascism, and when it comes to the voting polls, I don't think people are going to tolerate fascist talk in the United States.
That's just my opinion, all right.
Keerl, thank you so much for joining us.
Kyle Pepper, founder and CEO of Pepper International, joining us New York City via zoom.
Here 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 Business. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.
Well, you know, we love these big take stories here at Bloomberg News.
That's where our reporters a Bloomberg.
News they do some really awesome deep dives and on some really interesting stories.
Today is no different.
How about this one talent exit at Williams New York Fed stokes concern on its way. Alex Harris joins is Bloomberg short Term interest rate reporter here. So Alex, thanks much for joining us here in our studio. The New York Federal Reserve Bank, that's a big one. And so what's happening with our friends at the New York Fed because we need to pay attention to this.
Yeah, So what's kind of happened over the last couple of years is you've seen an exodus of basically senior management.
These are people who have been with the bank for decades just deciding to exit, either that they retire or that they you know, find another opportunity on Wall Street or just really but what's ultimately driving it is the environment is just not they have found just not conducive either that you know, there's been changes in the banks, in the bank under the leadership of John Williams that they have found, you know, doesn't necessarily work for them anymore.
And as a result, they're leaving. And what people are worried about is the so called brain drain. It leaves a vacuum of people who are experienced at fighting crises because remember a lot of these people have been there. They were there for the financial crisis, they were there for the repo market blow up, they were there in twenty like, they have crisis fighting experience, and so you're leaving a lot of that knowledge is leaving the bank.
But then also just their ability and the question of are they ready for whatever's next, And that's what people are really concerned is they're feeling like something must is severely lacking in the under the leadership of John Williams.
Why I love that you wrote this because Alex is usually the person that has those.
Really nerdy rebo market articles where you're like, I know this is important. I know I'm going to read it three times and I'm still going to understand twenty percent of it and I have to email Alex Harris, so thank you.
For writing an article that I understood right off the bat. What did they do about that?
Then?
I mean, is it as easy as like, hey, we're going to offer more work from home?
Is it not that at all? Is it something very different?
I think it's very different.
I think really what.
People are going to have to start looking at is taking a really serious look at the role of the New York FED. You know, for some people, they've said, look, Lourie William excuse me, got elevated out of the New York FED to running the Dallas FED. And she's taken a lot of that staff with her. She has this
experience on the balance sheet. People really trust her. So now people are wondering, well, it doesn't necessarily have to be New York that carries out, you know, the implementation of the Fed's policies when it comes to their balance sheet, like this could shift to Dallas. So people are starting to ask that question or pose that question. At the same time, though, you know, people are pushing back and saying, no, no, no, this has to be in New York. We need to
fix what is happening in New York. We need to retain talent in New York because the banks are here, and if something happens with the banking system, it's much easier to call everyone down to Liberty Street and say, hey, get in here, we got to figure this out than trying to call people all the way down to Dallas and say, hey, we got to figure this out.
So historically, the New York Fed has been the branch that manages the Treasury's balance sheet, correct buying and selling bonds, well.
The Fed's balance sheet, so there are whole things of treasuries and mbs and such.
So it's been done. And again they have traders there and stuff that do this. I mean, this is where it happens in New York.
Well, and you have other like Chicago still has you know, market analysis people. They still have all these things coming out of the other banks. But it is primarily a function of the New York Fed. Their tasked with managing their Fed's portfolio. Roberto Pearly is the SOMA manager, so he manages the FED securities portfolio. You know, so these things, and so the New York Fed really post financial crisis,
has just taken on such a larger role. They've essentially become like a giant broker dealer just given the size and the sheer size of their balance sheet. And that's you know, someone like Christopher Whalen is making the argument that you don't need an academic We don't, you know. It's you don't need an academic running the New York Fed.
You need someone who's comfortable with operations, with the nuts and bolts, and can kind of see it from a more markets oriented perspective than an academic one.
So how do they pitch that?
Because who's going to give up a job at Goldman that pays a nice tongue of change. Actually have no idea how much the New York Fed does, but I have to assume it's less.
How do I do it?
It's like I think, when I last look at the annual report from twenty twenty three, I think it's like a little over half a million dollars that the president of the New York Fed makes. But I mean, look, Beth Hammock, who ran funding, who ran the Goldman sex fundings?
Are she's elevated.
She's taking the role as the Cleveland Fed president. You know, Lorie Logan could always you know, people are speculating that she could come back to New York and run it. You know, these are the kinds of people I think that they envision when they're thinking about the role, and who could who can you know, possibly you know, helm the New York Fed after John Williams, who decides to retire a step down.
Do we have a problem with John Williams.
Is that a people placing the blame on these departures on John Williams and his.
Style, or you know, I think it's a I think it's a bit of both.
I think, you know, again, you know, when we.
Spoke to people, the message was always he is a brilliant macro economist, but just ill suited for the role. I also think culturally, the other sense I got from people is that, you know, culturally it's very different than the San Francisco Fed, which is what he was running for seven years before he came and took the role in New York. It's just very different. And you know, sometimes culturally people don't fit and that's okay, and so that's something to also think about. And so I think
it's a bit of both. I think it is somewhat of the culture and just sort of not meshing you know, they were just sort of ill suited for each other.
Right, We'll keep an eye on good stuff.
Yeah, Alex Harris, thank you so much for We appreciate it. Alex Harrish. She's a short term interest rate reporter working.
On the big Take story here today, Talent Exit at Williams, New York stokes concern on its sway in the marketplace about the New York Federal Reserve. And you can catch those big take stories Bloomberg dot Com Slash Big Take or go on the Bloomberg terminal NI Space Big Take.
Another good one today.
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Alex Steel and Paul Sweeney.
We're live here in our Bloomberg Interactive Broker studio in Midtown Manhattan, what I'm going to call an A plus building. We're also streaming live on YouTube as well, as you can head over to YouTube and search Bloomberg Podcast talking
about real estate on the commercial side. It is a hot topic for a lot of folks, particularly those in larger markets, where you're really trying to figure out how this commercial real estate, particularly the office real estate market is going to shake out here and what the impacts that will have across the economy. We have an expert with us today, Ken Fisher, joins us. He's a partner at Fisher Brothers. Joins us here on our Bloomberg Interactive Broker studio. Ken, thanks so much for.
Joining us here.
Let's just start right here in New York City office real estate.
That's your view, Well, we're looking at a really a bifurcated market. There's the class A trophy market, and there's just about everything else. What we've seen in our portfolio is a lot of activity. Tours are still fairly robust, and we have we've made some very very big deals, some of the biggest deals in the country over the last year, year and a half.
Yeah, let's get to some of Yeah, let's get to some of that, just to get perspective to the listeners. Fisher Brothers has a core commercial portfolio in New York City right that includes thirteen forty five Avenue of the America's twenty two hundred and ninety nine Park Avenue and Park Avenue Plaza like these are like big, huge centers
that are really iconic in the financial industry. Talk to us about the kind of leases that you were signing, say last year, and what kind of leases are you signing this year.
Well, that's been fairly consistent. The rents themselves have been fairly stag that they've been.
They haven't moved much.
What has moved is then effective rents, the rents after you factor in tenant improvement allowances and brokerage commissions and free rent, that number has gotten hit substantially. The amount of landlord worked has also increased. So as part of making the deal there's tenant improvement allowance. There's also the work that the landlord has to do in terms of capital expenditures to make the buildings leasable.
So take for example, at thirteen forty five Avenue of America's, which those of us who have been here for more than fifteen minutes called sixth Avenue. Paul Weiss, big New York City law firm, just took I guess fifteen year one hundred and forty three thousand, square foot lease. So is that new space? Are they just kind of repositioning space? And what did you have to do? You have to put in pool tables and ping pong tables, all that kind of selling.
I wish it was that simple. First it was seven hundred and sixty five thousands. Okay, we had a million square foot vacant see facing us in twenty twenty five with Alliance Bernstein moving out to Nashville, and so, you know, year before the pandemic, we actually looked inside the portfolio because we knew that we were competing now not only with our comp set, but also with new construction. We'd seen millions and millions of square feet of new construction
that we hadn't seen since the sixties. Wow, And so we knew we had to invest and reposition the portfolio, and so we did so. And then of course the pandemic hit. And so in the middle of repositioning these assets with you know, massive amenities like we see here in this building, we also had to modify our stance and start.
COVID proofing the buildings.
So we did HVAC work, a touchless experience, bluetooth technology, all of that stuff that we hear about we incorporated into our portfolio, and the result was, you know, while again we said that rents were fairly stable, it was the amount of work that it.
Took to get Paul Weise in.
So it was not just what we saw in the deal itself, but what we had to do the repositioned ability to get Paul Weiss.
To look at it.
So, was that a healthy commercial real estate market? Is that an investment cycle?
Like?
How would you then describe it?
Well, you know, again we're looking at a bifurcated market, so you know, we're competing with other Class A assets and so we long before the pandemic hit, we just knew what we were going to have to do. There was a stat that came out years ago that almost sixty percent of the market was over sixty years or earther, and so we fell into that concept.
We fell into that grouping, and so.
It became very very important for us to reinvest in the portfolio. And I think we will see that those who have reinvested and spent the capital expenditures necessary to reposition buildings have had some activity, and those who haven't have not.
One of my first Wall Street interviews was in Park Avenue Plaza, the old First Boston Corporation back in.
The day, and I was like, oh, this.
Is really real place.
Yes it does, Yes it does for many reasons. What percentage of.
New York City is a type of quality?
Oh gee, that's tought. I mean it's it's a It's not fifty No, it's not.
So it's less than that. So I'm just getting to the question. Bloomberg News I referenced this article many times. A year and a half ago. Two years ago, Bloomberg News wrote a story about Third Avenue Times Square to write, where we are at Bloomberg's headquarters here fifty eighth Street, what.
Do you do with that inventory?
Because that's not a inventory for most of the most.
Work, it's not if you look at if you look at the sub markets, you can you can kind of look at it from that. From that perspective, Park Avenue, sixth Avenue, these.
Are the hot market.
These are the hot places that a lot of deals are going because of the flight to quality that exists when market conditions take a you know, take a little bit of a stump. What we've seen is we have a building at six oh five Third Avenue, which straddles to sub markets, and so you know, look, it puts everything on the table. We've even examined the possibility of conversion to residential, which you know, again takes a lot of resources to do, so that's something that we've discussed.
I don't think it's going to be relevant to six oh five, but again, you know, it's it's looking at this at the market in the form of sub markets and what is happening, and you can see the data. You know where most of these deals are happening are along those.
To those markets.
You're sorry, go ahead, but I.
Guess my question is just pick a building out of thin air on Third Avenue, the Lipstick Building, because maybe some people are out of town can think about that building.
That's what we're talking about.
If that were to trade hands today, discount from pre pandemic.
Just about it, I would say, wow, pretty close.
That is amazing. That's to me. We haven't seen that market clear, have we No?
But does it have to I have to, like someone going to sell the building tomorrow.
Loans are coming up to be refinanced, and they have to do with a higher interest rate environment, so a lot of hands are going to be forced in the next couple of years, don't you think.
I think yeah, I think you're more likely to see in a lot of cases, you know, workouts where there will be more equity required, you know, be invested back in. There'll be stricter covenants, more leasing reserves and reserves in general. I think you'll see that rather than the keys being handed back, And if it's a B or a C market,
you might see residential conversions be discussed. I think you know, it's going to depend you know, in relation to that, it's going to depend a lot on when the loan matures as it relates to lease explorations.
Yeah, in terms of your reinvestment in the equity you have to put in, are you done in that cycle or are you still putting in a bunch of cash to update all your stuff?
No, we have repositioned our portfolio and I can still eat.
So that's why he.
Laughed at himself. When are you talking about it?
We have we have made a substantial reinvestment and the results are that we have you know.
We have leased, but that cycle's done for us?
Yes?
Yes, okay?
Do you feel like others are really are they also starting to do it now? Or do you feel like for everyone that cycle is is done.
No.
I think I think you'll. It depends again on the asset and the sub market. You've got to be very careful about the amount of money you have to do it surgically. You can't invest the same amount of money that you would put into thirteen forty five, say it's six oh five as an example. So I think there'll be some, you know, some buildings yet to be repositioned, and there'll be some buildings that.
Have gone through the cycle.
Would you I don't know if you have a speculative part of your company that says, I'm going to go bid thirty cents on the dollar for this building on Third Avenue because I think at that valuation, even if I have to put money into that building, I can make a good return. Are you guys thinking about that or you just kind of focus on your core portfolio?
No, I think we have enough to focus on right now.
We've actually developed over the last couple of years about twelve hundred multifamily with three hundred yet to come down and Winwood in Miami. We're developing that right now. And you know, I think as far as we are concerned. We also have a major immersive retail experiential development in Las Vegas. That's plenty for us right now.
Okay, Ken Fisher for joining us. Really appreciated, Ken Fisher. He's a partner of Fisher Brothers. For those of you who don't know it, I mean, particularly I think what I've learned about commercial real estate, it is oftentimes a family business. And there's a handful of New York real
estate families, including the Fishers. But you think about the Dursts and the Tishman's and the Rudens and all that, and the Fishers are right there, and it's kind of a family business for a lot of these pies, with substantial Wall Street support, of course in terms of financing. But you go around New York City and other major markets and you see the same names time and time again in terms of it. Fourth generation now, yeah, fourth generation,
just family business. Great stuff, Ken Fisher, Thank you very much.
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