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Let's get to the other big news of the day, which was actually the ECB cut rates by twenty five basis points. The future, though really questionable downgrade their broke growth forecast through twenty twenty six. Inflation, though, is still a very big concern for Europe, particularly when it comes to services. Hugh Worthington is Bloomberg Intelligence European rate strategist. I'm looking at a two year over in Germany and boon yields up by over six basis points. What was
your take? Was it a dubbish hike a hawkish hike? The market is looking like a hawkish hike right now.
Wells obviously, but.
I think we're suffering a little bit of a hangover possibly the cut that the ECB did in June, which they signaled to the market in April, and then I think basically decided that they probably shouldn't have signaled it, you know, quite so soon. I don't think someone on the Governing Council we're clearly probably not really happy about that.
And right now I think they're they're they're very keen not to give too much away as to be pre committing themselves to do anything in October or even in December. Hence this big focus that the ECB is going to be data dependent and they're not. They don't want to give a strong signals as to as to what's what they're going to do next, the one they will say about and some.
Sort of the move from yields.
I think it was it was suppose lightly predictable if they did go down this route and decide not to give us too much of a clue as to what a they're going to do next. You know, we had a big we had a big rally in rates in Europe two yels down around seventy five basis points, you know, going into that decision over the last couple of months or so summer, and expectations where policy rates are going to be in a year's time down around two percent now and they were running at around three percent at
the time of the June meeting. So you know, we've had a big, you know, a big expectation from markets in particular that the ECB is going to cut quite aggressively.
Also, we are covering the part portions of Christina the Guard's speech here talking about slower growth really for the foreseeable future. For your peer give us kind of your thoughts and what you're seeing from your marketplace as to the growth outlook for the EU.
Yeah, I mean the growth outlook is it's pretty terrible really, particularly in core Europe and in particular in Germany. I think the Ones Bank penciled in growth of twenty twenty or zero point one percent, if you can call that growth. You know, France isn't isn't a great deal better either, But generally speaking, it's pretty sclerotic the growth outlook going forward, and actually it got downgraded slightly you know again today from those those what were previously pretty unimpressive figures.
Anyway, but I.
Think a lot of the focus this week in Europe as well as has been on this Dragi report, which is basically focusing on the fact that you know, growth in in Europe and in the EU in particular is very much underperforming. What's going on around the world particularly, but I think underforming a lot of what's going on in America and that sort of big reforms are needed in that there's this as a structural fundamental issue in terms of low growth in Europe, and obviously we're seeing
the outcome of that at the moment. And it's interesting actually obviously the you know, with the ECB saying that they that they want to keep rates in restrictive territory and focus on inflation more than anything. Well, you know, they're not too much to help that because I think, you know, one of the main things that it is driving that sclerotic growth is very poor internal demand. And the one way suppose that they can improve on that is the cut rates in prime and pump a bit.
But they don't seem cam to be to be deliving that at the moment.
So do you think that the UCV is in or headed forest tangulation about forty seconds stagflation?
I suspect not.
Actually, I think we're probably now really a little bit too negative. But on inflation, I think things like oil prices are coming down, Signs of other bits of inflation are coming down. If I give anything, you know, the signs that they may well possibly understoose. On the inflation front, what you might get is inflation playing ball. But you know, I would say the growth side of things just being you know, remaining very unimpressive, very unexciting.
Indeed.
All right, Hugh, thanks a lot. We really appreciate it. Thank you very much. Hugh Worthington, Bloomberg Intelligence, European rate Strategies. I was talking about economists earlier this morning, and basically it's like, look, fiscal spend is all all what it's about. Like, if you got high fiscal spend, your growth is going to be okay.
You know what.
Europe doesn't really have the fiscal spend. That's just super capped. And that's the problem. They don't have a physical union, they have monetary union.
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All right, let's get to the eco data. Charl McGill god says that's not a movie market, but maybe Michael McKee will disagree. International Economics and Policy corresponded. All right, so you got the producer prices for August, Mike, Did this tell us anything?
Not a whole lot.
It tells you that there's still a sort of a range bound inflation level in producer prices, some categories up, some categories down, But it doesn't suggest any major building inflationary pressures, which is what the the FED would be worried about. Interesting thing was that trade services rose six tens of a percent, a fairly large increase, and that is based on retailer and wholesaler margins. So it's good news for profits.
It appears, Oh okay, all right, very good. So you take this along with the CPI data. Does this give the Fed greater confidence that they in fact have inflation under control here and they can start easing interest rates.
They can certainly start easing interest rates. I think the fact that we saw a little bit higher PPI on a month over month basis, a little bit higher CPI core on a month over month basis tells the Fed that they are they have inflation sort of under control, but it's not. The victory is not one yet, and they still need to be cautious, which puts them on the side of twenty five basis points as opposed to fifty.
Doesn't discourage a cut.
But I think that's what the markets are pricing now, is that the FED has to has to feel like it needs to be careful.
You know, there's been a argument that if they go fifty, then it's going to set up you know, what do they know that we don't know, et cetera when you're talking to people. Is that a real argument or is it like, hey, things are actually okay, let's keep it that way and not mess about and cut fifty.
I mean think the latter is correct nowadays, at least for people on Wall Street who have Bloomberg's The FED doesn't know anything that you don't know.
I mean, like some inside super cool release the data.
Well, you know, they release the data they have. Everybody else has access to the same economic data, and most big banks have analysts who are also talking to CFOs and CIOs and talking to people about what's going on in the company, So they're getting the same sort of read on the economy on a real time basis that the FED presidents get by talking to CEOs.
All the FED.
Banks do surveys on a regular basis of companies in their in their districts, and you know, that's that's.
What the job of an analyst on Wall Street.
So I think everybody kind of has the same information, but they have different motivations. The markets are looking for ways to make more money.
Well, the FED is looking at.
Was looking at inflation alone and now they're looking at both sides of their mandate.
Right, So I mean again, if you step back, here is there when you talk to people, Michael, your sources, where are we in just the recession talk that gee, maybe the Fed's too late, and in fact, you got to pull this recession talk back onto the table. It's been kind of off the table for a while.
Now.
Where are we in terms of timing of the FED and what it means for the US economy.
Almost everybody's cut back their recession forecasts. There are some people out there who well, there's always the.
Stopped clock, folks.
You know, at some point we're going to have a recession. And then there are people who think that we are going to we might have a recession because of previous recession indicators that don't seem to be working. This time, and chief among those is the inverted yield curve story. So when you look at the rest of the numbers, and things have definitely slowed, but they haven't gone into recession. Now, the biggest thing about recess is it's a confidence matter.
You don't have a recession.
When you go to recession, people stop spending and companies stop spending because they have lost confidence in their ability to be able to pay for things going forward. And at this point that doesn't seem to be on anybody's mind. We'll fly out tomorrow what the latest Michigan confidence numbers are. But while those have been down some, they're not down in recessionary territory. And businesses aren't saying we're going into recession.
So at this point it might take some external factor, some geopolitical thing could destroy confidence.
After nine to eleven yesterday, I.
Remember what happened then, but people don't really see it and the FED doesn't see it happening.
Here's my recession data point that I sent to Tom Kinyesus yesterday afternoon around lunchtime, walking from the Bloomberg headquarters and le Avenue over to the park. Beautiful day walk around Central Park, sixtieth Street, a bunch of swanky restaurants with outdoor seating packed I mean overflowing pack for lunch. So I'm like a guy sent Tom a message. I'm like, I don't see a sload on here on thest. Sixtieth Street.
That's just that, and that's.
Also tourists and also businesses. That's definitely a combo. Hey, Mike, thanks lot, really appreciate it.
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Alex Deal Paul Sweeney live here in our Bloomberg Dinner at a broker studio. We're streaming live on YouTube as well, So check us out there search Bloomberg Podcast and that's where you will find us. One of the questions I think a lot of investors have, Okay, the economy is slowing. I get that, is that kind of a normalized slowing or is it something more than that? So let's check in with somebody who has some of these who thinks
about some of the same things. I believe is rep fixed income portfolio manager for JP Morgan Asset Management, joining us via zoom from the Big Apple of New York City. So when you look at some of the economic data here, is it concerning to you the rate at which the economy is slowing or is it seemed something more normalized to you?
Hi, Paul, Thanks for having me. So that's the key question. And as we're contemplating FED easies, I think it becomes important what level of interest rates would be contingent or would be consistent with the soft landing. You know, I think that the base of deceleration does concern me a little bit. Now, if the FED can aggressively take greates to neutral or accommodative territory, maybe that pace of deceleration can slow down. But I still think the data mixed.
You look at the layoff numbers, they are still low, they're not consistent with the recession. But then I look at other things. I look at, you know, the quits rate, the fact that the hiring rate has slowed down on the small business. You know, intent to hire has been slowing now for a while. The housing market's a little frozen, and this bace of decline that you talked about. I think you could argue it was normalization six months ago. Now it's making me a little bit more nervous that
this might be something more. But I don't want to say that this is a recession. I think we're iner soft landing right now. The question is how long can it stay and can the FED cut rates quickly enough to allow that soft landing to continue.
So that's sort of what I was asking Mike about, right because there is a school thought that they cut fifty next week, it's going to mean things are really bad, or it could also mean that they don't want it to get really bad and that that was sort of pre emptied.
What do you think. I think it's how they message a fifty. If they do fifty, I think they might go twenty five. But if they do go fifty, I think suggesting that this is risk management front loading. Governor Waller last week brought up front loading for the first time any FED official has brought it up. On the easing side, I think it makes a lot of sense.
The risks are clearly skewed to the downside. Six months ago, we were saying, well, risks are balanced, inflation might be high, inflation's not a concern anymore road based decline in inflation, notwithstanding monthly volatility. It's the growth side, is the labor side that's concerning. So if the Fed spins a fifty basis point, thud as being front loading. We're trying to
get to neutral faster. And look at the starting point, we're at five and a half on the fund's rate or real rates, given inflation is running about two percent, that's a very restrictive level of policy. So it's how they spin it. I don't think a fifty will be viewed negatively if the Fed says we're just trying to get ahead of the curve or not be behind the curve.
But on the same bend, I think if they go twenty five and we get the dot lot, and the dot lot suggests that they'll get to neutral sometime next year, I think they can finish the message and say, look, we've seen the market, we've seen the economy. We're responding quickly. We just think we can start at twenty five, but if things slow down faster, we can go fifty. I think that message the market will need to hear. Otherwise, get ready for a lot of tightening in financial conditions.
So how does one structure or portfolio given kind of that background.
You know, I would say fixed incer makes a lot of sense. We've been talking now for a year. When does the FED start to cut rates. They've told you they're going to cut rates next week. We're debating twenty five or fifty, but it's starting. Lock in yields. I mean, I think the front end look very attractive, and the
FED might have hiked you're getting five percent in cash. Well, now if you're getting six percent in a five year bond or seven percent if you move into high quality, high yield, I would say lock in yields, and I would argue for your end of cycle. We can debate how long that end can last, but active management makes sense. So one of the things we're doing, we're still buying high quality spread product. We think fundamentals are strong in many sectors, so not just concentrated in any one sector.
But we're also buying duration. We're buying ten year treasuries, We're putting on steepness. What if the economy does slow down faster and the FED lags. You know, the FED can cut rates, but it takes a while for that to show up in the economy, interstrates will be a hedge. So I would say that hedged portfolio ownspread, product, lock and yield, buy some duration or or put on gas stepnas to try and hedge that downside scenario.
Just some breaking news. We want to bring it to our listeners. US sanctions Venezuela Court chief and election officials. This is over that July twenty eighth presidential election that is questioning that many like the US, are questioning the legitimacy of that election that elevated Maduro again to the
head seat there. Just earlier today, Spain voted to recognize the opposition leader a Mundo Gonzalez, challenging Nicholas's Maduro's election in July, and Venezuela was not happy about that either, so US sanctioning Venezuelan Court chief and election officials. Prio, what's the question? How do you look at neutral? So like we can obsess over next week for sure, what to do short term, but what do you do longer term if we don't know what is going to be?
What if it's four, is it two or four? That's a huge difference it.
Is now you're at five and a half right now, So I think we have time to figure out neutral. You know, and the fact that growth is slowing despite all the fiscal easing, despite the fact that financial conditions
are easy, tells you that monetary policy is restrictive. So if I go back to basics and I look at our star estimates, they're all over the place, somewhere between zero and one percent, inflation close to two percent, so I come down to around three percent with a wide error band, maybe it's two and a half to three and a half. But I think this is why the FED might have the luxury near term. They can cut about one hundred basis points and see how the economy
is responding. And it's not just neutral rate. It's also availability of credit, it's financial conditions, it's everything else that go into conditions that help the economy, and then they can decide are we're getting close to neutral. So I think they can finish that neutral. It's unobservable to your point, it's extremely important and we can't observe it, but we can look at data and see how it's responding to interest rates. But I would say somewhere in that three percent.
But I think what's fascinating is the market's not pricing and accommodative despite the fact that the recession talk is in the air. The end point after all the rate cuts, So look at the totality of rate cuts is around three percent. So the market's essentially telling you the Fed's going to get too neutral and that's going to be enough to keep the soft landing going. I have a
bit of a question there. If the lags are long, or the FED is slow, or the economy is actually decelerating faster in terms of underlying maybe the FED will have to go into accommodative territory, so below three percent. But I think we're going to figure that out as time goes on.
All right, Prea, thank you so much for joining us.
Really appreciate it.
Pre Israe Fixed Income portfolio Manager, JP Morgan Asset Management in New York City.
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Well, some of the news on the Bloomberg News wire that's getting a lot of readership today is about two of Wall Street's largest investment banks were rolling out measures that may ease junior bankers workloads amid complaints across the industry that weekly hours are increasingly creeping past one hundred hours per week. Shreadanata Rogen joins us. He covers all the big investment banks. He's a senior financial reporter for
Bloomberg News. He joins us here in our studio, shre So, I guess bankers they've always been known, particularly the junior bankers, for working long hours. And I know that kind of during the financial I mean, you know, during the pandemic, that became a recurring issue of concern. Where are we today in terms of having to try to ease some of the workload from some of those junior bankers.
I mean, what you're saying is dejvo all over again.
Right.
It just feels like we come back to the same topic every few years. Not a surprise that it's often tied to the time than we are starting to see an upswinging deals. The last time this did become a big issue was back during the pandemic. Remember the phase probably a few months after the pandemic, when companies suddenly needed this massive funding needs. All the investment banking firms were working overtime on that. That turned into deal making opportunities.
And then you had the twenty twenty one s backpoom and whatnot, and that viral presentation out out of Golden Sacks and those junior bankers that really caused the stir in the industry. What happened back then you had pay rises across.
All of Wall Street.
All the firms were raising their base salary for their junior bankers. And these are kids right out of college who in their first, second, third year are standing to make two hundred, three hundred thousand dollars at these firms.
It's become part of the conversation again a because there has been an uptakeing deal after a bit of a lull for a year eighteen months, and then there was an unfortunate incident at Bank of America where one of the junior investment bankers died, and people have tried to draw a connection between the reason for his death with
the workload that he had. We don't know if there can be a direct connection established, but at least that has sparked conversation again, and you're seeing some of the results. The Wall Street Journal was just the latest news outlet to report on this fact that Bloomberg and everyone else has been talking about for a few months now. Everyone's talking about these rising workloads. There is tension and strain,
and banks are being forced to respond. Here you have JP Morgan coming out with sort of fixed, trying to fix some hours for its junior bankers for the first time ever. Bank of America already had that, and it's trying to do a better job of enforcement. When you read the fine print zone when they talk about some exceptions, when they talk about well except when there are live deals,
then you have to sit back and wonder. It's not that people were logging eighty hour weeks and ninety hour weeks and one hundred hour weeks just twiddling their thumbs. They were probably doing it when there were live deals. So will this really change anything or will we be having the same conversation two years from now.
Well, also, I was reading I forget where I read it, but that higher banking officials will just tell their junior bankers like just don't log the hours like work. But don't log it like you get around the requirements.
No, and that's been a problem. Either people are working longer than the hours that they're supposed to and just not to not get their bosses in trouble, which is a thing, they will try and log less than the number of hours they're working. In some cases, junior bankers will feel that they have to log more ours than they're working so that the very precious little spare time that they do have does not get allocated under some work.
But we have to take a step back and wonder, and this is this has been a conversation in the in the in the industry for three four decades, five decades, maybe longer. Now there is a cultural shift that needs to take place, right, can't you can't have There has to be a better utilization of these hours. Oftentimes you have junior bankers responding to requests from their bosses and then not hearing back till until they come back from
their dinner with their client. Notice something minor or major, but suddenly say, fine, you know I might be looking at this at nine thirty pm, but now that I'm responding to you, I want the fix in the next two us. The next three US, the next four US. That cultural change is more important in figuring out how to cap these hours out. I don't know how you solve for.
That easily, but I'll tell you technology has changed the game because part of the reason you're in the office because you had no other resources. Yet if you wanted to fix that thing in three hours, you had to be in the office. Now I can do it from I can do it for my phone at the Yankee Game. Shriana rogens, senior financial reporter for Bloomberg News, a great article today on junior bankers on Wall Street. They're working pretty hard.
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So here's a company that I find is really interesting and I feel like it's an important conversation and want to discuss. And the company is Calumet Specialty Products. Ticker is CLMT. It trades in the New York Stock Exchange. It trades about sixteen dollars and forty four cents a share. It's a one billion dollar company. It's been around for a very, very long time. It's been growing through M and A for the past thirty years. They have a ton of assets. They make things like vasoline WT forty
tire shine. They take oil and they make the products that you use every day to function. Three years ago, though, one one asset was turned into something a little bit different. It's their Montana Refinery and they now use that to process things like vegetable oil, canola oil, corn oil to make sustainable aviation fuel. That's kind of interesting, so I want to talk about it. CEO Todd Browman joins us. Now, hey, Todd, you make all the stuff that we use every day.
Walk us through your decision though, to spend all this time and money on the Montana refinery to make staff.
Yeah, you bet first. First Alex Paul, thanks, thanks for having us today. I'm super excited.
To be here with you.
Look, we're we're an entrepreneurial and innovated company at our heart. That's that's what we've been, you know, for the last thirty years. And we saw an opportunity. We had a great facility that was making specialty asphalt in Great Falls, Montana a few years ago, early on in kind of the COVID days, actually in twenty twenty, we kind of looked at the environment and said, hey, this facility is in exactly the right place at exactly the right time.
You know, arguably the fastest growing area in all of energy is you know, sustainable aviation fuel, renewable diesel, and we were a logistically advantaged facility.
We sit right on top of a whole bunch of renewable feedstock.
We have direct access to California, British Columbia, Washington, Oregon, a truck right away from from Canada.
So we looked at that opportunity and just said, hey, you know.
We can make this conversion and turn something that's a really nice niche specialty asphalt facility into a you know, leader leader in sustainable aviation field.
In fact, we're the largest in the Western hemisphere.
And we'll keep saying that for a little bit longer, but you know, just really excited about the business where we're at in the growth trajectory of both that niche of a business and Calium met as a whole.
So I guess the question becomes so here we go. If we talked to like airline CEOs and they're like, yeah, yeah, we totally want SAFF, but you know, it's kind of expensive and or the supply is not really there. When you decided to make this transformation, did you set up long term contracts with an airline where they're going to pay you a certain amount of money for your off take and if so, how did that work?
Interesting question. So what we have is a massive amount of flexibility. We can make renewable diesel or SAF And obviously we talk a lot about SAFF because that's new and you know, associated with a potential DOE loan, and we have a large potential max SAFF expansion that will take us from the largest producer of North America one of the largest, not the largest in the world. So so very excited about that. And Staff gets a lot
of coverage. But but really early on, you know, we we initially launched with almost all renewable diesel, and we were selling to you know, large blue chip companies and and on the south side we're partnered with Shell, who's one of the largest staff into wing fuelers there is. So so what we do is we provide you know, the s p K, which which Shell will then take take all across the country even into even into.
Canada, you know, blend it.
They have the last mile logistics and then they actually you know, serve the serve the airline, do the QC, do the last mile terminaling, fueling at the facilities, all of that and and sounds interesting, you know, it's it's a it's such a high growth area that at this point it's one airline, you know, one airport at a time in converting because when you think about the complexities that are involved and really changing the supply chain in the fueling of something as sensitive as an important as
an airport, you want to make sure you have it right.
So it's really one airport at a time. We sell to Shell.
Shell takes it to their facility, they blend it and ultimately inject it into the you know, fuel the airplane.
Wow, it's just me and man, you weren't kidding, Todd. Great Falls, Montana, Dude, that is up there. I mean it's north of Yellowstone National Park. You're just a stone stew from Canada, So I can't imagine that is just extraordinary out there. Todd talk to us about like the quality of the fuel. We were just talking to an
airline's analyst. It was just talking about, you know, the need to get greater efficient engines from a fuel efficient perspective, what's the quality and the performance of the sustainable aviation fuel that you guys produce.
One of the things that's that's so beautiful about both sustainble aviation fuel and renewable diesel is it's really a drop in fuel. You know, there have been a lot of technologies talked about to help with the energy transition, and and a lot of them, particularly in an airline, you know, which which we think is the hardest to debate of all of the transportation.
Sectors. You know, it's it requires a change in infrastructure.
You know, if you're doing if you're doing battery fuel, you know, you have to obviously have a have a completely different plane. Hydrogen has been talked about, completely different engine, you know. South one of the beautiful things about it is it really just drops into an existing supply chain, so it's easy. It works just as well as as
traditional fuel. Obviously, it's it's very highly monitored. The QC on it's incredibly important, but molecularly it's it's very similar to existing jet fuel that is out there today, so we can just drop it into the same you know, into the same system. There's some blending in QC work that happens kind of there at the facility from shell, but it's not something like an ethanol or biodiesel that you know requires is able to be blended at very
small amounts. It's really molecular a very similar product to the jet field that's being used today and on renewable diesel front. In fact, end users don't even have to differentiate. You can use renewable diesel or diesel and not even differentiate between the two. You know, they're molecularly the same.
So when you decided to make this transformation in the last three years with this refinery, was it expensive? Did it cost a lot?
Yeah, it costs a lot and in fact, only started at our stock was about a dollar in a depth of COVID.
So we really went all in on this.
We've had a lot of conviction about sustainable aviation, feel about renewable diesel, and most importantly, I think Montana's competitively advantaged position in that area.
So so it was a major bet.
But we were able to make that decision quickly and actually go from you know, ideation to fully operating in just a few years. So, you know, we stood it up at the very end of twenty twenty two. Twenty twenty three was kind of we were piecing together the various phases of the startup and commissioning. We worked out the kinks, and in the second quarter of twenty four we really demonstrated what a full steady state you know, production can look like at Montaney Nobles.
So incredibly exciting time.
So who do you compete against? Is there a competition? Is there a market here? Is there a competitive landscape for sustainable aviation fuel?
You know, it's interesting. So every country is a little bit different. In North America, there are really only two suppliers currently. There are a few more that are coming on because obviously this is just a major growth there are, but right now, you know, there are only two that are producing. So so and it's not, at least today a mandated market. So obviously airlines will will make commitments and try to get ahead of the game. They expect
mandates to come down the road. Same thing with with with individual entities, you know, so there's private airlines are a big either.
So there's there's certainly a big.
Market as it exists today, but the incremental supply is actually imported. Now if you go globally, that's a little bit different. When you go globally, there are mandates, and the UK, for example, just came out and they're going to mandate, you know, nearly a third of a billion gallons by twenty thirty, Singapore, you know, same thing, one hundred and fifty million gallons by twenty thirty, Japan, India.
So so there are globally a lot of mandates coming on.
And just here in our own, you know, backyard in the United States, we have the SAFF Grand Challenge, which says we want to have three billion gallons a year of saff production by twenty thirty and thirty five billion gallons a year by twenty fifty.
So you know, today we're the largest in North.
America and we're making thirty million gallons to forty five million gallons a year.
Yeah, toss, how really we are? We gotta leave it there, but that was really interesting. I really appreciate it, and definitely come back let us know how that's going on. I want to hear expansion plans or other plans along this area. Tab Roman, CEO of Calummet Specialty of Products, joining us on the future of staff and also like they make sed up like Basoline.
Also, 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 app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa Play Bloomberg eleven.
Thirty, Alex Steel, Paul Swen, you live here in our Bloomberg Directive for Workers Studio. We're streaming live on YouTube as well. That's the Internet, I'm told. So you go to Bloomberg dot com, go to YouTube dot com and search Bloomberg Podcast, and that's where you'll find this. Let's talk about housing, and there's a pronounced shortage of housing in the United States, and that is certainly true here in New York City. So let's break that down a
little bit. David Schwartz joins US Data's co founder and principal of Slate Property Group slatest, developing over four billion in real estate throughout New York City, representing over four thousand apartments, so a good source for us and aw Miguil do a little joints this markets reporter for Bloomberg News, both of them in our studio here, David at Slate,
What are you guys doing? First of all, frame out the housing challenges in New York City and the kind of how you guys are trying to deal with that.
Yeah, first of all, thanks for having me here today. I'm happy to be here to talk about housing. I mean, I think it's no surprise that we have a shortage of housing. We have a supply side issue. There just aren't enough units for people. So if you think about overall supply and demand metrics, we have more people that need housing than housing to be supplied. New York has been under supplying housing for a long time, and now
we're starting to see that around the country. But we have many, many years of under supply of housing and more people that need housing than housing available. So housing prices are going up and we're seeing a crisis.
Well before we dig into affordable housing here in New York City, and I know that you have a couple of exciting projects, one in Brooklyn and one out by JFK let's talk about the fact that, for the first time in your memory, housing, affordable housing is a core issue in the presidential election. Is it that exact, that supply issue, or what's going on nationwide that this is such a big deal.
Thanks for bringing that up. I am so pleased to see that this is being talked about at the national level. Housing is a crisis that all Americans are facing. Whether we're in New York or North Carolina, Florida, the Midwest, the West Coast, it's everywhere, and it's becoming a huge issue. And it's a supply side problem. We don't have enough units and we need a lot more. And that's why it's nice to hear we heard a presidential candidate talking
about producing a lot more housing. I think she talked about three million units. I think that's a good start. I actually think we need a lot more than that, but I'll start with three million. I think it's a good way. But I think we're talking about a problem that's in the ten million plus range.
How did we get here?
I mean, is our population surged over the last twenty or thirty years?
How do we get here? Look, it's it's slowly and then quickly. I think we've stopped producing enough units. I think that after the GFC we stopped producing a lot of units. We built fewer units, we built bigger units housing the size of houses. If you guys remember like the Levit towns for people from the New York area, we were building houses that were thirteen hundred square feet. Now,
how's it a three thousand square feet? There are fewer units, they're bigger, they're more expensive, but it's just total number of units. If you look at anywhere, New York hasn't supplied enough, but the whole country hasn't. And now we're in a place in which housing costs have increased with inflation, borrowing costs of increased, So we're adding more problems to an already problematic area.
So in terms of actual affordable housing, I know that this is an umbrella term for say, workforce housing, among other types of housing. Can you dig down into that a little bit more before we get specific on sleeves propers And we should mention we actually had your other co founder and principal, Martin Nusbaum, joined us a couple of months ago to talk more broadly about your multifamily and outside of affordable housing. But this is such an interesting topic.
Yeah, thanks for bringing that up. I think it's important to realize that this is one ecosystem. So all housing is related to all other housing. So if you know anybody who's bought a home, you might have wanted to buy a home for certain dollars, you can't afford it. You buy a home for a little bit less. So everything is related. So any housing that's produced impacts affordable housing.
So we need to produce a lot more housing. So one of the things that SLATEE is doing is we filled the role where we are providing leverage, where we're filling the gap where a lot of banks are no longer able to provide financing because of all the things that having in the banking sector. So without financing, can't build more units. So that's one of the areas that we're looking at. And then on the other side, we're looking to build lots of units, whether it's workforce housing
or all. The difference is the truth is affordable housing means different things to different people. But the fact is most people are spending the majority of their income on housing. Unless you're really really wealthy, your biggest expenditure is probably housing. So whether you're talking about the teacher or the fireman, or you're talking about somebody that works in a fast food restaurant, they're both probably having a real crisis with
affording their housing. And it's not really pitting them against each other because they both really need good quality and affordable housing, but just at different levels.
So tell me some of the projects that you had gone on, so you know.
We're doing something that I think is super innovative. We're converting the first hotel in New York State to one hundred percent affordable housing, the Baisley Park.
And a hotel to ho that's usually really tricky, right, It's not as simple as like put a door in and you're done.
Well.
It is tricky, but we made it a little bit less tricky. So I think what we liked about it is we take a hotel room, and if you have a one hotel room that's a studio, you knock down a wall for two hotel rooms and you turn it into a one bedroom. You knock down two walls and it's a two bedroom, if that makes sense. And really the key there is we can build these units in half the time because one of the problems we have
is that people that need affordable housing. If you need affordable housing, you need it pretty quickly, right, So three years or five years is probably less important to you than if we could deliver it in a year or so. I think that's something we could do around the country. So we're doing the first one in New York. We're fortunate here to have some really really smart and talented and innovative people because it was complicated. But it's something
that we are looking at doing elsewhere. We're actually working on a deal in North Carolina right now to do it, and I think there's some prospects in Tennessee, out in Utah and a few other places.
It's like building housing in New York City.
It doesn't I got lots of images.
I think the movie has been made about a TV shows what's it like building stuff in New York City?
You know? I think, look, let's not let's not pretend it's not really hard to do anything in New York. You know, I grew up here and I first started building here, So I think it's easier to start in the hardest place and go to the other places.
Right.
I think they say, if you make it here, you can make it anywhere. I'd say, that's what it's like. In housing. Look, it's really hard to build in New York. It's hard. New Yorkers are spirited, have a lot of opinions, you know. I say that if you have ten people, you'll get fifteen opinions on how to do something. But I think it's great. I do think we have the most talented people working in government sector, in financing and building in New York. I think we have the most
talented people in the country, which is great. It's hard, it's challenging, but we're up for the challenge. I'm a lifelong New Yorker, I'm a brooklyn Ie, So we're ready for the challenge and you know, having a little bit of a fight as part of it. That's kind of what we do so well.
Not only are you a lifelong New Yorker, but your family is so known New York family. Your father's Gridlock Sam and so of course we've recently had some of this controversy around congestion pricing. It was about to happen and then at the ninth hour Governor Hogel struck it down. Where recently I heard that maybe we're going to get a more diluted version of it.
What are your thoughts there?
And if it doesn't go through, do the businesses of New York have to pick up that extra revenue and doesn't get passed down?
Of course it does, yes, so if my dad does it was the first Deputy Transportation Commissioner, Coin Gridlock. So for many years I've been known as Gridlock, Saym's Sun and even sometimes nicknamed Gridlock myself. So traffic has been a big part of our life. Yeah, look, there's no question that it is clogging up our streets. We can't move. Anyone who drove in Manhattan yesterday was probably stuck in traffic room.
Oh my god. I mean, but that's unique. Yesterday, it was a unique day.
But you know, in general, I think it's slowing down the economy. I think something needs to be done. I think, you know, congestion pricing. I'm a fan of it. I know there's a lot of people that are not so happy with it. But again, we need something to make traffic work better. We need people to be able to get to places and do business. So we've got to do something because New York sometimes grinds to a halt and what I mean.
It kind of goes to the pull and push between mass transit, taking money from congestion pricing to fund what's underground oftentimes, which I'm a big fan of the subway system. It's the most efficient way to get around to the system. I'll die on that hill against anybody. So it's so much, it's so complex, I get. It's just simply a question dollars and cents. Who's going to pay for.
Look, we need a lot of investment into our subway system. A big subway guy myself. It's the fastest way to get around if I can't walk. We need a big investment into it. If you look at our subways versus other first world countries, you know they're lacking. I think our subway system was incredible. We need a lot more money for it. And yeah, that's always the problem. Who's going to pay for any of our infrastructure. It's with our affordable housing, right, we need a lot more money.
You know, affordable housing is infrastructure as well. I think that's a big point. It really is. It's it's like schools and roads and bridges and fire departments. I mean, I don't it's the life blood, you know, why do we Why does society pay for those other things? It's to make society work. And I think you know, affordable housing is infrastructure. It's all related. You can't look at it on its own.
Yeah, where's Sean Tucker when you need them? We have someone that joins us for the radio show who lives in Jersey and is like horrifically horrified by the congestion pricing is because it's gonna cost him so much more money to get to work.
Let's get them up. Let's get him on with my dad Gridlock say, oh my god.
And he also comes in at like three am or like two am in the morning, right, so we've got gonna take a train at two am in the morning. So anyway, he bemoans it quite a bit, all right, David, thanks a lot, really appreciated, great stuff. David Schwartz joining us co principal and CEO of the Slate Property Group Abagail do a little. Also appreciate you coming in for that as well.
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