Apple, Real Estate, Russia, and Carvana

comps are getting a little tougher here. But let's figure out. We got some news out there that PC shipments are down pretty big. Anna rog Rana, senior tech an also Bloomberg Intelligence, joins us, what's going on in the PC market is just us tough comps. I'm seeing minus twenty, minus thirty even Apple minus forty percent on PC deliveries, even though, as Matt Riley points out, Apple doesn't sell PCs, they sell max. But what's going on in that PC space? No? No,

I agree, I mean I think it tough. Comps is one thing, but you know, the street already had MAC revenue going down twenty two. But if the unit shipments is down forty percent. I think those numbers need to come down a little bit more, which to me tells me that the consumer spending is actually worse than what we anticipated a quarter ago, and that should bleed into other product categories as well. So I'm expecting a lot more downward revision of consensus estimates over the next couple

of weeks. So you expect down or revision of senses estimates, meaning that you also expect the stock to drop, right. That depends on if you are renting it for a quarter or if you're buying it for the long run. So that's usually, you know, truly depends on who the buyer is. But I don't expect the revenue numbers to come down now that that may mean that whoever is taking those numbers down maybe increasing it the year from now, because it's not as if you know the buyer of

that particular MacBook Pro like yourself. You know, if you're not buying it now, you're going to buy it six months from now or twelve months from now. Okay, the fact that I bought it twelve months ago because I had some stimmies and and you know, I had to work from home or had to do school from home. Now I can work in the office, I can go back to school. And plus, why would I spend money on that kind of thing now that I don't have

the government sending me checks. Well, if you know the people who the government was sending the checks, we're not buying MacBook pros in my view. So if you are a gamer and you're looking for MacBook Pro with the next M two chip, you know you will spend fifteen hundred dollars or two thousand dollars to buy it. But again, that's a that's a luxury product. That's not something that you know everybody can buy. All right, I just want to get the generic Apple call here. What do you

think they gets census calls for this stock? Right here? It's up twenty four percent year to date, still about five percent down on a trailing twelve month basis, So stick at trying to dig itself out of that twenty twenty two hole. What's the when you talk to some smart tech investors out there, what are they saying about Apple? You know, I think if you look at both Apple and Microsoft, they have been a safe stock for the past several weeks. As people are trying to figure out

where they go from here. The valuation has gone up for both these companies quite a bit in the last two I would say, several weeks. Now the question is, you know, what happens to the rest of the tech portfolio. If we do see some stabilization in other tech stocks, then you would see some kind of I would say, a sector reallocation from you know, these two safety stocks to some of the other ones. Now, having said that, this is the first time I'm seeing a clear indication

that Apple numbers needs to come down. You know, that wasn't the case. I would say in the last twelve months, what do you think about chip usage? I mean, the Samsung story and Taiwan Semiconductor as well, has really affected the US market. Today we see a jump at Micron. Does this mean that a lot of chip suppliers are going to have fewer orders or have they bottomed at this point? You see, that's a very tough call to make because a lot depends on you know, autos and

other industries. It's not so much always tied with PCs, although consumer spending you know, in PCs is a big portion of chips. But I don't think Apple has ever had an issue with supply chain when it comes to you know, they get it first before anybody else. I'm

I'm less concerned on those factors. For my biggest concern at this point for Apple is, um, you know, what's really going to happen on the on some of these products and how bad it's going to get in twenty twenty three before we see a potential bounce back next year? Do they have do they have to introduce a killer new product? Are they going to make some kind of virtual reality aar eyeglasses. Are they going to come out with new air pods that blow us away for this

new function that we never knew headphones can have? Or is the car coming soon? I don't know about the car, but Mark German said that you know, they will launch the new mixed reality headset in the summer. You know that is going to truly vibe the whole metaphors discussion. But I don't think mathematically it adds anything at least

for the next you know, this financial year. Next year, perhaps it adds a few billion dollars, But you know the big thing for Apple is going to be the iPhone fifteen launch by the end of this year and a revival potentially in the services division. So I think comps are getting easier and easier for Apple for a

bounce back next year. But before that, I think we need to have a take a step back on numbers before we can jump back and say revenue growth is going to get back again into that eight to ten percent range. So I'm looking at the PGeo function on the Bloomberg termo for Apple. I see about twenty percent of their sales are in Greater China. Are the Chinese buying watches and phones and all that kind of stuff?

What's the market like? I think this, You know, that's probably only going to be the one bright spot for Apple over the next six months, because you know, the China reopening trade and the Chinese consumer really hasn't spent quite a bit over the last twelve months. You know, we could see some relief over there to offset the

other things that we are talking about. But you know, again, I think the big jump is going to come from a new hardware design from the iPhone fifteen, which is most likely going to be in the September October timeframe. All right, Now, Tim Cook was over there right in China, and what was she trying to do. It's trying to be nice to them. That's where they you know, it's it is. It is the heart and lungs off Apple supply chain. If something happens to that, Apple's going to

be in really tough time. So he's just kind of trying to smooth things out that otherwise it's getting worse. Frankly, Hey guys, you look great today. Hey, anybody wants the new iPhone? Isn't Taiwan yours anyway? Yes, exactly, So I love to see about that. I don't know that's that's still a huge risk there, but I guess trying to

smooth it over a little bit. On agron I, senior technology analyst with Bloomberg Intelligence, joining us on the phone talking about Apple, mac shipment's PC shipment's across the industry. You're listening to the Team Cancer Line program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the I Heard Radio app and the Bloomberg Business app, or listen on demand wherever you get your podcast. Let's get

to the next company, which I find really fascinating. I was initially interested because it's called the Howard Hughes Corporation, and who isn't interested in Howard Hughes, right, But it's actually got that name in a roundabout way. Howard Hughes bought the property for one of their master planned communities. And now that's the business that they're in. But it's not all stuff they got from Howard Hughes, mostly general growth properties. David O'Reilly joins as CEO of the company.

The ticker is HC. It's publicly traded on the New York Stock Exchange. David, so talk to us first, give us the overhead view of the Howard Hughes Corporation. You have at least three master planned communities, right, These are big. It's not like a few thousands, like one hundred thousand people live in them, and there are thousands of acres. So what's the business. It's the end of the day.

We play sim city. We're developing real estate to create the greatest places to live, to have the greatest and positive impact on our residents, tenants and visitors lives. Sell land to home builders, take that capital to amenitize built office, multi families, shopping within our communities, which in turn makes it better places to live where more people want to come live there, our land values go up, and that self fulfilling cycle goes on and on. We essentially play

sim city. We decide where the roads go, where the hospitals are, where the homes are, and create what we think are the best communities to live in America. And then they have then they hopefully you know, they have the best plumbing, the best WiFi, pickleball on demand yep. And they also had a good golf course then in Houston. So all right, when I see a new company, I got right to the board of directors. I see your chairman of the boarders, Bill Ackman. Why is he the chairman?

Then I go to the HDS screen gives you the shareholders and thirty two percent of your company. What's going on there? Wise? Persian there? Why are they big? Wise? Bill? On your board? Well? Bill took over General Growth when it filed for bankruptcy. And when he went through the assets of General Growth, he saw these communities, these great places, these unique development opportunities that didn't belong in a public malread. So the Howard used corporation is Bill's idea. He came

up with it. He spun us out into our own entity about twelve years ago, and he's been an incredible supporter and incredible chairman ever since day one. So what do the numbers look like? I mean, how are you doing on the top and bottom line and give us your five year view. Things have been incredible. The pandemic has been an incredible tail winds to our business. We've sold more land to home builders, which is one of the three main areas of revenue for us, over the

past two years than we have ever before. And we see that momentum, despite a rest bite in the fourth quarter of last year, coming right back very quickly this year, despite higher mortgage rates. That's kind of where I wanted to go. We've seen that spike in mortgage rates. It's scared a lot of people out of the market. Not me, but it scared some people out of the market. What are you seeing kind of in this spike in real estate more mortgage rates. I don't think it's the spike

of rates that changes home builder demands. I think it's the change the volatility of rates forces homebuyers to pause. Once it settles in, they're right back to the market. We're looking out between a three and five million unit shortfall of housing units needed to meet the household formation of the past ten years. It doesn't exist today. People need places to look. I'll tell you what exist is

all the McMansions everywhere. What doesn't exist is starter homes because those guys can't make the same margin on it. How do we fix that problem? Do you think? Oh? Look, I think that it's tough for me to say that there's a magic wand to solve that. Across the country. Within our Masterplant communities, which are twenty thirty thousand acres plus, we're prescriptive in terms of what homes are being sold for what price wear prescriptive in terms of the setbacks.

That sizes the pricing so that we can meet affordability across every price point within our community. Look over the past year, we've seen home prices shoot up, and that part of that material prices getting higher. Part of that's labor higher, part of that's my land has been more expensive, and part of that has been home builder margins. Home building margins have been in that eighteen to twenty percent since I can remember, and last year they peaked at

twenty nine percent. So there's room. We're seeing material prices come down. We're seeing home builders except lower margins. We're seeing homes land sellers like ourselves, except slightly lower prices. Now, where do you buy land, like when you decide I want to build another woodlands, where do you find How do you identify our market that is worthy of your investment of land? So for us, we belt We bought our last master plane community at the end of last year.

It's called Terra Vallis outside of Phoenix, thirty seven thousand acres today, population zero. The characteristics that make that great it's fully entitled fore hundred thousand homes in fifty five million square feet of commercial space. It is immediately adjacent to Phoenix, just north of the I ten that connects to Los Angeles. So great transportation, great access, lower tax, business friendly community, warm or less expensive to live. Affordability

helps drive our decision. Make is that only going to be you know, the older people like Paul and Tucker or kind of young buck like Megan and on that I would tell you that we're going to see this community. I think it's going to be more starter homes. I think it's going to be more younger families coming into the market. I think this is going to be not

your age restricted community. Will have age restricted communities within the overall thirty seven thousand acres, but the predominance is starting here is going to be your young families moving into the area finding that quality of life that they can't get in La Sanford. So you're so you're now a kind of a ground zero type of situation in that community in Phoenix for that property. What's a lifespan before you get to a Woodlands where it is built

out and it looks like it's been there forever. Well, the Woodlands is celebrating its fiftieth anterimursary next year, and we're out of residential land. All twenty twenty eight thousand acres or of the residential side are gone. We're down to seven hundred acres of commercial space, which is another twenty or thirty years of commercial development. So the life cycle of Tera Vallis and Phoenix could be forty or

fifty years. Wow, I think it'll be quicker this. And you have developers, did that you know you want to work with to build the homes, to build the commercial space? Is that do you pick those? We are the commercial developer, you're the career master planning. We're just signing where those roads are gonna go. We're gonna build those office buildings, so you build them as well. Okay, we're gonna own

them forever. We'll sell the land to home builders, okay, and they'll build a single family homes and got in the residence. So you can't help us up with a good contractor. I mean I was going to ask you. I was gonna see if you had a couple of records. Everybody wants to know because that kind of labor is tough to come by. But I guess you outsourced the home building process, so you're not as worried about, you know, finding people to put it up. Our labor is horizontal development.

It is putting in the water, sewer, roads, curbs parks, and that labor is still very difficult to find. I think our competitive advantage is that when we're spending a billion and a half dollars a year, and we know we're going to spend it for the next forty years, we can keep someone's attention real time, rather than have them worry about moving to the next project in six months. So what are some of the big variables for your business?

I mean, if your business can perform presumably you know you're saying, even at these levels of interest rates, what are some of the big variables that kind of you have to manage as a CEO. I think some of the biggest thing is there's two areas. One in the

residential land development. We're trying to develop lots just to keep up with underlying home sales, right and underlying home sales are very difficult to predict, but we're watching them every day to see which size lots selling, which size homes are selling, and making sure we have those lots available for our home builders to get back into their inventory. And the other side of the equation is really just

trying to get a pulse of our residence. We're most successful when we're building the amenities that our residents want, whether that's the Kirby Ice House in the Woodlands or whether that's another multi family apartment building. Because we're full and rents are raised rising too quickly, we need to be we make sure we have a finger on the pulse of what our residents want and meet that demand. I'm telling you it's pickaball. It's pickaball. Yeah, I don't

know it has been. It's been amazing how we've seen parking garages and tennis courts being repurposed for pickaball and it gets used. So I see a big drop in revenue in twenty twenty. Was that just all pandemic driven? You guys kind of had to shut down development? It is, But we also another part of our business is selling condominiums in Hawaii, where we have sixty acres on the beach in an area known as Ward Village between Waikiki

and alamo Ona Mall. If we don't have a condo tower closed in a particular year, the revenue will drop off. You know, We're not running our business for next quarters earnings, running our business to drive value creation for the next one, three, five, ten years. Fascinating stuff. I knew. I knew the Woodlands. I've been there a couple of times. I didn't know as you guys, so very very cool Slumberland. Is it called Summerlin outside Vegas? Yes, I played their tid. Hughes

has been gone for about fifty years as well. I think he died in nineteen seventy three. Yeah, you fly into Lax you see the Hughes aerospace, which is very cool. David O'Reilly, CEO of Howard Hughes Corporation, trades on the NYC h HC talking about some planned communities, some commercial real estate. You're listening to. The tape cans are our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and

the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty twenty twenty two. There was nowhere to hide really in the fixed income space. But I look at my i nd go function on the Bloomberg terminal for the Bloomberg Index browser, and I see the Bloomberg US Aggregate fixed Income Index is up three point five percent this year. So a much much better start to twenty twenty three. Let's see if there's more

life in the fixed income space. Jason Greenblath joins us. He's a senior portfolio manager in American Century Investments, proud alumnus from Penn State University, joining us here in our Bloomberg Interactive Broker studio. So what do you do in this year? Jason, I mean twenty twenty two, let's just flush it. That's how bad it was for the fixed income folks. How'd you guys start this year and what do you think right now? Yeah, thanks for having me on.

I appreciate it. Our highest conviction this year is duration, belong duration coming in. We've certainly seen some evidence last month. We saw evidence back in September that higher rates are starting to break things down in the economy. Last month was the banks back in September, with UK pension plans having problems and so being long duration in our mind

is the economy's slowing is our highest conviction position. And at the moment, yeah, we saw, well, there's a Bloomberg story out overnight about one and a half trillion dollar wall of maturity coming due in just commercial real estate by twenty twenty five. So it started to kind of freak me out. I was worried, as had nightmares as I read this last night, because these higher rates could really break something. Right, We've already seen as you said,

the banking crisis. Are are we giving up on the idea of a soft landing? Can the Fed not achieve that? In our minds, it's a low probability. The probability recession harder landing certainly has has grown the beginning of March with the banking crisis certainly illustrated that, Matt, you mentioned series and what's going on with maturity walls. I think if you look inside the data, there are certain loans even here in Manhattan that are being marked at fifty

cents on the dollar. You can certainly see that cap rates have gone up substantially. Office vacancies, you know, are certainly playing into that, and I think you know higher rates are also causing issues with refinancings A push that blue button. Are you concerned about financial institutions banks and their real estate portfolios, because I'm not sure. Some folks are saying it had the big money center banks don't have to worry about it so much. It's more the

regional banks. How do you think about that? Yeah, I think the regional banks certainly for sure have the higher exposure. Right. It's something like forty percent of their U of small business loans are coming out of these regional banks. So we need that part of the plumbing to certainly be be flowing and working. And you know, you guys at Bloomberg had a great story over the weekend on financial conditions and loans coming down the last two weeks of March,

there's clearer evidence. I think we'll see a little bit more over the next one to two weeks with bank earnings, but we also need one to two more quarters to see if this becomes a trend or not. We talk about first of all, we're not great it running the audio today. No, it was a weekend. True, it was a long weekend too. It's a Monday. We talk about the world insurrate probability screen a lot. I'm sure you're

familiar with it on the Bloomberg terminal. It shows what the market is pricing in terms of the Fed moves right, and currently we're pricing in four rate cuts through January thirty first, twenty twenty four. Does that make sense to you? Do you buy it? Our thought is the Fed's going to raise one more time next month and early meg and then pause. If something else breaks, then maybe they will cut, but we think they're going to hold that

just to ensure that inflation is really under control. So those four rate cuts probably don't happen in twenty five bases point increments in our minds, they happen in hundred or two hundred bases point increments when something really breaks. Well, that's terrifying though it is it is, And so I think the other element we talked about being long duration. The other element is being credit risk. Credit spreads, in our mind do not reflect a recession, a hard landing.

You know, in the mid to high four hundreds and high yield credit spreads, it's kind of normal and average over the last ten years. What's not normal is eight and a half percent because treasury rate rates are higher. So in our mind, credit spreads are not reflecting that hard landing. And we like being short here and waiting for a better entry point. I know earlier in your career you looked at the high yield space. That's distressed space. Do I take some risk here and go into the

high old market? If so, where can I go in high yield? We like shorter duration, high qualities. So Doublebees that's a place that we think offers some value, some safety. There's still some names out there that we think will migrate up to investment grade, so there is total return potential. You know, we had the Citrics deal that that came price what's happened to that? So that the second lean the priced at seventy nine cents, and we had some

banks unload off their balancy a leveraged buyout from last year. Now, is that something that you guys traffick in that kind of stuff? That really looks like the banks are just kind of, you know, chucking in on the market wherever it landed. You know, I think at a price, certain investments look interesting coming at at an oide of twenty one points. Pricing at seventy nine cents in the dollar. The market certainly warmed up to it. It's it's up

about four points since it priced last week. All right. By the way, I thought, I saw another interesting story on the Bloomberg terminal over the weekend, and I wonder if I could put it to a genuine fixed income investor. Great to have you. Here. We see volatility just off the charts right in rates in the Western world. That moves are mind boggling, sixty seventy basis point moves in a day on the two year, And the Bloomberg story is that that's driving some fixed income investors to China

where they have almost volatility. Do you find that believable. I mean, look, going from a DM market to an EM market and in a more esoteric, you know, less regulated environment, to me, does not make a whole lot of sense. You know, we like transparency and being able to dig through financial statements and have a more substantial regulatory body. I think the volatility here in the US

needs to settle down. Once that settles down, we certainly will have more interest and inflos into the asset class, but we need volatility to come down. So what are some of the sectors that you guys are doing work in these days? And maybe conversely, what are some of the sectors you just staying away from? Yeah, I think to answer the latter first, I think CMBs and leverage loans are parts of the market that we're most concerned about,

probably like a lot of our competitors. The rising rates, the maturity walls that we mentioned before, those are certainly areas of of concern. What do we like We like We like short spread durations, so short maturities um particularly in parts of more esoteric areas in the securitized market, in my space and corporate credit. You know, I think there's haves and have nots in the banking sector. So that's high quality investment grade. UM. I think that there

are disclocations there. The proverbial may be thrown out. With the bathwater certainly created some opportunities last month. We're expecting more in the nearer term of these disclocations. I'm just looking through historically the matchups between Penn State and the Ohio State University. Last year it was a loss for your lions. The year before that, it was a loss. Before that, it was a loss. The year before that, it was a loss. The year before that, you lost.

The year before that, we won. So when do you think Penn State can come back and beat the Buckeyes. So so, Matt, You're you're talking like a true cynic in the fixed income world, loss after loss after loss. I will tell you I visited Columbus, Ohio for the first time in my life my career a month ago. Nice city, but glad to be back on the East coast, all right. Jason Greenblatt, Senior portfolio manager, American Century Investments,

with a zinger at the end, This is Bloomberg. You're listening to the Team Cancer Line program Bloomberg Markets weekdays at ten am, eas daring on Bloomberg dot Com, the I Heart Radio app, and the Bloomberg Business app. We're listening on demand wherever you get your podcast. I want to get right to our next guest listening fascinating discussion Alexander Isakoff. He is the Russia and CEE economist at

Bloomberg Economics based in the Middle East. Alexander, you are out with a fascinating Bloomberg Economics column today story today talking about President Putin's to prioritize his twenty twenty four reelection over the war. How can me do that? Isn't the war front and center for everything and super popular at home? Yeah, so that seems like it would be

the center of his election re election platform exact. So what are we seeing, Alexander H. We're seeing that Russian government and Pussing were able to stabilize the economy in the past months. So you're looking at an economy with inflation rate of like three percent and unemployment which is

just a bit north of three percent. Our call is that because the labor market is so tight, essentially a Pussin face the dilemma whether to try and mobilize more people, uh and take a cost of cost of this in terms of public support mobilization, I'm never too popular with people, or just try to model through until his elections XTA in March and just postpone mobilization. So I think our

call is that you will prefer the letter. So when you say mobilize, you mean draft people essentially force probably you know, young able bodied men to go to the front lines where they risk their lives. That's something that Russia hasn't done yet. What are they doing, What are they doing to you know, fill their ranks? Yeah, exactly. So they've drafted around three hundred thousand people lost October.

But this means that in six months most of those people will be back at home and Russia would need to replenish its troops and it will not be easier. So Russia needs to find a way which will be less coversive but also very effective and finding another three hundred thousand people which will be very very hard. So, Alexander, to what extent, if any, are the Western sanctions having a negative impact on the Russian economy just given some of the data you just recited, doesn't seem to be

hurting that badly. Yeah, I mean, the thing is that most of the numbers we are used to look at don't capture the pain, the economic pain that Russia undergoes. For example, if you look at imports, which were like down twenty percent, they reflect the quality of consumption and quality of investment in Russia. These both are declined pretty substantially last year. But from the GDP perspective, any decline in imports is actually neutral. Imports don't affect the GDP directly,

so it doesn't show the GDP numbers. But Alexander, from an economic perspective perspective, given you your Russian background, do the Russian people is a Russian government prepared or the Russian people prepared to be what they are today, which effectively sealed off most of the world from an economic perspective, trading perspective, all the type of stuff. Are they prepared

to do this for the long term? I think dances yes and no. If current continuitions, especially in the commodity markets, prevail, if oil prices remain north of eighty percent, then I think Russia can tellierate these functions a long time. But on the other hand, because Russian international reserves have been frozen, the country is very, very sensitive to any drop in the oil prices. So if COMMITI prices remain high, the

country can't delierate that. But it's very fragile to any downside shock for oil price and it must be very fragile and lation situation because it's been relatively low. But with this tight labor market, especially if they need to draft more troops, that means wages are going to have to rise, are they not? Yeah? All correct? And in fact, we are looking at the data on the prestability of private enterprises and the lost mobilization actually was pretty detrimental

to that. We see that the private sector margins are shrinking and I think, yeah, the labor costs will definitely reduce growth in the coming year. So, Alexander, just from you know, the consumer data, it seems like the war is having little to no impact on the consumers at home as at the case and B does it feel like that can go on going forward? I think so.

If you look at historically at the impacts of wars on the labor markets, what they typically do is they reduced the premiere for high skill labor, but actually increased the wages for those who don't. We're not earning as much, so Essentially, they are reducing the inequality and labor incomes.

This is what actually is happening in Russia. So you don't see much wage growth in the high pay success secious information technology or banking of finance, but actually you see a lot of growth in the manual labor, manufacturing and services, etcetera, etcetera. So what you see is that consumption is being supported by growth in in those UH kind of sectors where wages were low previously. All right, Alexander, thank you very much, Really appreciate your reporting here. Alexander Isakov.

He is the Russian UH and CEE economist Blomberg Economics. He's based in Dubai. We appreciate getting some of his time there. You're listening to the tape cancer live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play

Bloomberg eleven thirty. Let's talk about Carvana. Yes, well, we have my favorite headline writer in all of Bloomberg in the studio, right now, Joel Levington writes these headlines that get me to click no matter what. Even now I see them and I'm like, I know this is one of Joel's headlines. It's gonna be a bi credit report, but I'm still clicking because it's like Ferrari eats Maserati's lunch, you know. But so, Joel, thanks for coming to the studio.

You have a great story out about you know, barbarians at the gate, except for they're not at the gate, they're at the Carvanna. What do they have like vending vending machines? Um? This story has been amazing on the stock side, right because just climbed so high during the pandemic and then came absolutely crashing down, paying stilly prices for used vehicles and then apparently not selling them for um similar amounts. What's the story on the debt side? Yeah,

well it's been equally crazy. You know, it's just a few years ago that they were issuing bonds with you know, like a five handle on it or a little over five percent. Now those bonds are more like forty five percent. So it's it's been a dramatic turn, and unfortunately for for stakeholders. It hasn't been good a good run. So where I mean there's they've not, they've not. They're just proposing a debt exchange, right, right, So this is Carvana. They sell these cars market they don't or they don't

market kind of dried up. Now they've got problems with their equity, but they really got problems with their debt. They did too much debt going into this rough patch. You're totally right, Paul, And this is one of those cases where it's the balance sheet that's driving the equity story as opposed to the opposite. In this case, they've levered up. They have eight billion dollars worth of debt.

They're not supposed to generate positive ebada until twenty twenty five, So you know, like, how do you make that lending on no cash flow? I mean, you were lending on just the big equity cushion underneath, like a lot of

tech companies will do. You know, yeah, exactly over the last couple of years, you could pick out any startup tech company or in my area, Tesla where it was issuing bonds also where the five percent handle on it, and people love the equity story, and they'll tell you like, hey, there's billions of billions of dollars a cushion as opposed to you know, like, what are the fundamentals and where

can this company go? In the case of Carvana, it's in an industry where you have very thin margins and high capital intensity, and it really can't handle a lot of volatility. So when you put a lot of debt on that, you're kind of setting the stage for problems. And unfortunately they've run into it. All right, the stock on all thirteen twenty twenty one, three hundred and sixty dollars stocks training below nine? Isn't that guy? And so

I can see. I can see buying debt when you've got all this equity underneath me, even though I wouldn't do because I only lend on cash flows. That's how I was. I was taught at the Chase Front and Bank Credit training class nineteen ninety one. Um, that's how you do it. But now what happens to these debthholders?

What are they trying to do here? From credit to star that's the way it goes bossweek Okay, yes, well well really what what what Carvana is doing is trying to set the stage four there's going to be an exchange,

or they're trying to make an exchange happen. Now this is if they do this, it's really the first of many steps that they would have to do to change their balance sheet because really here you're trying to exchange about a billion three of debt for a new billion dollars offering, and essentially you're saving about three hundred million worth of debt and fifteen to twenty million of interest expense for a company that has as much debt and so little cash flow as they do. This is just

a beginning. It's really just a start to you know, like get the barbarians, to get the Apollos and the Arias out there to come up with a deal where they can restructure the balance sheet, but do it in a way where the Garcia family can we make in control. And that's really why family to remain in control. They

want to remain in control. Well, as a neutral independent party, I would say you would not want them in control because they have made so many bad choices along the way, including debt financing a two billion dollars acquisition of Edessa at a time where where the industry was starting to go down. They've missed earnings expectations for like nine of the past ten quarters. Really, what you need to do is strip out costs, reslate the balance sheet to have

a clean balance sheet. We've estimated that it should be about ninety four percent of the debt needs to get wiped out. Oh so really this is hit. I mean your point is that debt holders may be happier in bankruptcy. Yeah, yeah, exactly, Matt, because if you came out with a clean company and a story of hey, let's get back to basics, let's reduce our thirteen percent difference in SG and A, and here's a path to growth, that stock price can certainly

turn around. And our expectation is that if it was a clean balanty like bond holders might get seventy five cents back on the dollar relatives to where bonds are, which is kind of more in the forty to fifty zone. So let me ask. I look through your bank up stories that you work on, and you cover the car industry very closely. Obviously, one that catches my eye is a concern I think that we have across markets, which

is about refinancing. I think the point that you're making here is Ford needs to refinance a ton of debt. Right as rates rise, Ford credit may face five hundred and seventy million dollars headwin and refinancing debt is the headline. As rates rise, this is going to be a problem for a lot of the ending arms are the big carmakers I think so, you know, and it becomes a

game mat of where do you reduce the pain? Right when you have a captive finance company like a Forward or a GM, you can do that in the form of incentives on the you know, MSRP on on the price that you're paying for a car, so you could reduce that as a way to making things more affordable. But really that's the issue is affordability. It's forty eight thousand dollars for your average car, and when the average American makes seventy thousand dollars a year, you can't afford

a car. So how do you make that work and keep the volume in your plant going? And it's either going to be through the finance company, in the finance company eating the interest rates on it, or it's going to be through pricing on the cars. I hope it's through the finance company eating interest rates. Why just because I don't want to pay it. I don't want to pay that much. Our prices ever kind of come down in the card and Street or they resetting these new

highs because I mean, they've incredible inflation. I'm not sure with the numbers, but over the last three or four years, ridiculous increases in price. The monthly nut is just impossible to cover for the average shoe, right, It's ridiculous. And I think that's you know, it's it's a great question, Paul, and I think it if you even if you asked internally, I think our equity analysts might have a different view than I do. I personally believe that pricing has to

come down. I think you're seeing that with Tesla, right if you look at any of their models are down twenty to twenty this year, and a Model three now is about thirty six thousand dollars or thirty seven thousand dollars. So if you're saying, hey, do I want the Model three or the Honda CRV, like, that's a battle, and that's where Tesla is going to be picking up share. And I think others are going to eventually have to follow because economically, you know, they're they're they're very high

in terms of cost. I mean the four has followed with them with the Mustang Maki in terms of price cuts, but not yet with the F one fifty Lightning that you drove. What was the sticker price four large ninety four grand for a pickup truck, right, I mean, and that's what I mean, so honestly, I mean, I'm not even joking. I mean, the American pickup truck buyers already used to laying out forty fifty sixty grand. I'm sure that was you just can you do ninety I don't

know four thousand. I don't know what demand destruction is going to look like there. And that's in addition to all the software that they're trying to sell behind it, so you know, like there's a recurring revenue stream that they're trying to attach to the electric car. So you know, like something has to give, and I would think this is a case where the companies are gonna wind up

having to give. And they're starting to see it, right, you see, GM, Ford, Mercedes, they're all announcing headcut plans over the next years because they recognize, like you have to change your cost structure to be in a world that can't afford these crazy, you know, high prices. Does Lucid survive? Does Rivian survive? Do these ev startups make it? I think they survive because you find over and over again,

and maybe McLaren is a great example of it. You find these companies that find people that are willing to take a bet on a brand name, Investors in the Middle East, and in the case of Lucid, it might be an investor in the Middle East because they already old and sixty percent of the company in the case of Review, and they have enough flexibility that they can last at least a year or two before before you have to worry about that good stuff as always Joe Levington,

he is a director credit research Bloomberg Intelligence. He covers and his real day job he covers some autos and some industrial credits and things like that. The management is just a ruse. He actually does a real job and he's a real analyst. But appreciate having come into studio. You're listening to the Take Cancer our live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com and the Bloomberg Business App.

You can also listen live on Amazon Alexa from our flagship New York station, Jo Say Alexa, play Bloomberg eleven thirty. Let's talk real estate. Now, let's talk commercial real estate. And we can do that with our next guest, Christine Mastandrea Coo of white Stone Reet. That's a publicly traded reet WSR as a ticker you can load into the Bloomberg terminal about four D thirty million dollars marketap. Christine, thanks so much for joining us live in the Bloomberg

Interactive Broker Studio. So post pandemic, you get a gold star for showing up live, not phoning it in. Talk to us about Whitestone. What type of real estate do you guys specialize in? Oh, I specialize in smaller center is basically focusing on community and convenience for our retail So you so okay? So not a technical term, kind of like a strip mall type thing similar and all right,

So Amazon is a thing out there. I've actually become very very depth on Amazon since the pandemic in the lockdown, but I can't and I've heard this is not good for bricks and more to retail or retail. How do you guys approach that and deal with that? So we saw that coming a long time back, especially with a change of people in the workforce and time crunch consumers. Amazon just solved a problem for people. So we focus

primarily on services. Okay, so I go to see one of your properties and it's not gonna be necessarily selling goods that competing against Amazon. It's a services, whether it's a nail salon or something along those. So primarily around food, grocery, services such as health, wellness, medical. In addition to that, there would be you know, your financial services, ups, logistics and so what kind of markets attract you guys? And I think I know the answer, but go ahead. So

we focused on the southern markets primarily. Yeah, what's going on is the rest of this country. Everybody's abandoning us. Go ahead, So well, they came from Chicago, it is happening there, and so focused on fast growing markets. So we started in Dallas, Houston, San Antonio, then moved into Austin and also in the Phoenix market, Scottsdale all the way down to Mesic over channel all winners certainly post pandemic winners, right those are you just listed to the

names of the cities. So when you go into a market, what do you I mean, do you look for population growth? Does that kind of a good job growth, job job growth, job growth? Yeah, okayly mobile, really looking for good strong secondary school systems as well. Okay, So I'm guessing you guys are like most folks in real estate interest rates sensitive. Talk to us about the market today versus you know, a year or two ago. Yeah, that's great deal of change,

as you can imagine. But this provides the opportunity of people know how to operate real estate versus just financial engineering. So who were like, who were some of the people maybe you were competing against, you know, when rates were low versus kind of today, Like what happened to Who were those people and what happened to them? Well, in most cases passive investors that just bought the properties. In our case, we have smaller centers, so it'd be local owners.

But passive owners versus active owners like we are. So they're getting squeezed out of the market. It gives us an opportunity. So we read a lot about or at least year in New York. You know, some of the big private equity funds getting into real estate. What's been your experience do you run into them at all? If so, are they how do you compete? They don't compete in

our space. That's why we stayed in smaller centers. So okay, might be a little bit more of a hands on operation than a larger center, but it's benefit is right. So when you go look for new property, what do you guys look for? What does your team look for? Oh? In most cases and sticking us so we use place or AI and we also use as ray as digital

platforms to understand the communities. So we really dive into our users and who's the end end user and that allows us to find to find the most attractive locations. So what type of I mean, do you like to have one or do your shopping center a retail space attend of like a big kind of anchor tenant and then you build around it. How do you like that? So I don't like taking a lot of risk in bake anchors. I mean there's always a difficulty if you lose a big anchor to have to re fit somebody

moving into that space. So we have a tendency to stay in the smaller shout space. So we found that twenty five hundred square feet to about three thousand square feet is about the most interchangeable use with the widest amount of users. So who do you tend to compete against a lot? Like even now? Is it other rates? Is it just local privately owned real estate development companies?

Who are some of your competitors? So mostly local, privately owned, although we're starting to see some other reeds move into our space. So if it typically if I go up against a private, local person, presumably that person has something maybe I don't, such as local knowledge. I mean, how do you guys build that? Do you buy like said, I want to develop Phoenix? Do you just send your team into Phoenix or do you maybe buy a team that's already in Phoenix that knows how know? We usually

build our teams in our markets. So and very much focusing on location again, using as much analysis as possible that we can that we're provided with our platforms to understand. So what was your business like during the pandemic, Like how did it just impact you guys? Oh, we did great. I think it's counterintuitive to a lot of the national tenants. In our case, we had the highest recovery rates and also the highest collection rates in the industry. So what

why is that? I mean, I just I would think like just Main Street USA, Talent I live in, and a lot of vacancies, a lot of company businesses went out of business. So it was almost every third or fourth or fifth store was out of business. Now that's literally Main Street USA, not at a shopping center. Did you experience that and if so, did you get people

back in there? No? I found, especially in our markets, people were pretty active, and in addition to that we had we were pretty I'm always amazed at you know, American business and especially growing entrepreneurs. They're the ones that flex the first. They caught the opportunity with a lot of customer switching at that point, especially at the nationals when they're closed because they're dictated by you know, their

home office. Right. The other thing that I found really interesting through this whole thing is kind of the resilience of our portfolio and also the resilience of the American entrepreneur yep as We've talked about that a lot on the show. But if you go down to Electionton Avenue right there, a lot of empty retail between fifty eighth and fifty nine Street. It was once it was before the pandemic. It was full Victoria's Secret and some other box door or something I can remember. Now there's just

a chocolate store that survived the pandemic. People bought chocolate during a pandemic in the lockdown, and a bank just opened up on the corner. But you see town cities like this, you're probably like, boy, I'm glad I'm not in big cities. Right. Yeah, we've avoided the big central business districts. Again, pretty tough. The rental rates, they are pretty difficult to size space, the ability to flex to

the user. Most of those are goods. It's a little difficult to put in a service user in those type of locations as well. So yeah, interesting, all right, Last question, what's what's the growth outlook for you guys over the next one to two years. Oh, I think we're well possessioned. I mean already in our markets, were over ninety percent occupantsy in all of our markets, and I think there's not a lot of retail being built because of what happened in the past. So things look good to come.

Oh interesting, good stuff, all right, Christine, thank you. So much for joining a Christine at Most Andrea Coo of white Stone reet again, that is a publicly traded company. WSR is the ticker or the retail space, the commercial retail space. Some weakness out there and a lot of big markets, and we certainly see it here in New York City, certainly in Midtown, but a lot of the country doing very well and good for them. So it's good to see some good growth out there in retail.

The consumer remains a very strong consumer has a job that's good for all things retail. Thanks for listening to the Bloomberg Markets podcasts. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three and on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.