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Malex you alongside Paulsweenian. Finally back John Tucker. This is Bloomberg Intelligence Radio. We're broadcasting to live from the Interactive Brooker Studio right here in midtown Manhattan. But maybe one day we should actually broadcast from Industry City in Brooklyn.
Paul's never been there.
I don't do Brooklyn.
He doesn't do He's going to do Brooklyn. So I live in Park Slow. Industry City is a go to place. It's good for adults, it's good for kids. They have games, they have free things on the weekends. They got salsa classes, they got concerts, they have ice skating in the winter. They have a lot of stuff. It is a very popular place to go when you have kids. Joining us now is Jim Simosa. He's managing director of Industry City and he joined us there right now. Hey, Jim, are
you are you surprised? It just how successful industry city has become.
I'm not surprised.
I think that, you know, we have a lot of history doing adaptive reuse projects like this, like Insery City, like Chelsea Market, which at one time, just like this project, was you know a number of older buildings that were past their prime. But people really like classic old buildings that you take and redevelop into offices and retail and things that are fun. So we've seen this before, and
we've done it other locations. So look, I'm surprised we took on something as large if you really want to know, that's six million square feet. But we've been able to do it so as far. But from a success standpoint, I'm not surprised.
Jim talked to us about how you're thinking about real estate, mixed use, real estate, office, real state in the context of what appears to be a post pandemic, you know, different way people work and live and go to the office and all that kind of stuff.
Sure, you know we've been doing We've been at this since doing exactly what we do, which is adaptive reuse and activation and fun place, you know, creating a fun place to work.
For a long time, we didn't know a pandemic was coming.
It just so happens that it came and what we do was more attractive to people. So what we do here is create a place that people like to come and work. And so we've actually been at eighty percent of the employees that work I see have been back in the office regularly for several years now, and so you know, that's kind of what we do is create fun places to work that are not commodity real estate.
I worked and by the way, I worked in many classes steal office buildings in my career, and these are just more fun places to work.
And people like coming to work and when they come to places like this.
So how do you keep how do you know when a project's going to work?
Right? Like you mentioned Chelsea Market and then Entry City, Like, what's the secret, Sauce.
I will tell you the secret, Sauce is.
So what you first do is you start with the ground floor and the place making. And for us, when you do something like this, when you have a project, you need retail, you need food and beverage, you need shopping, you need things like that. But how do you do that without any foot traffic? Nobody wants to come and
do retail with you when you do that. So what we did at Chelsea Market and the same thing here is we went to wholesalers and commissaries and bakeries and things like that, people that really were interested in the production space more than retail.
But they had to retail with us.
That was part of the deal, you know, and we gave them a favorable rate in the beginning to do that. But they needed ground floor space. They needed space that had plenty of loading. Getting priced out of New York City was something that they didn't want. They wanted to be near their customers. So we would go to those and you go back to Chelsea Market. Lobster Place was a classic example wholesale fish a seafood place for us.
It was other bakeries such as Colson's and Lilac Chocolates and things like that, companies that really were interested in production space, but we wanted them to do retail.
So that way there are two businesses.
You don't have to worry about the foot traffic in the beginning while you're getting this going. But you're starting, what you do is you start to get retail and amenity type tenants on the ground floor and placemaking, and that's how you start to lease the upper floors. Once you start to do that, then you have tenants in the building that are just happy to be right next door to those retailers, and then the retail takes off. And if you're to answer your specific question, how.
Do you know?
You know when those folks who, by the way, didn't really want to do retail with you in the beginning because you didn't have foot traffic. You know, when those folks come to you and say, can you do more marketing for me? And can you get me more foot traffic?
This is fantastic because they're doing you know, retail margins instead of wholesale margins in their space.
As soon as that happens, that's when you know you got something.
So, Jim, how about on the on like the corporate tenant side, what type of companies want to be in a space like yours?
So we tend to have more creative type companies, lots of designers, architects, marketing firms, things like that. You know that that's kind of very consistent with the Brooklyn market.
And Paul, we're going to have to get you out here.
So I grew up By the way, I grew up in Manhattan and I now live in Brooklyn, and if you told me back when I was in high school, I'd be.
Living you see me.
Okay, okay, But so anyway, but we have a lot of that.
We are starting to see some more traditional type of companies like finance firms and law firms and things like that, which we we we did not see in the beginning, but we have a lot of that. We have a lot of industrial. We're six million square feet first of all, so that's a lot of space to fill up with, you know, with just one or two types of industries. So we have a lot of distribution and warehouse still. But but our office itself focuses more on creative companies.
And then we have people like the Brooklyn Nets, you know, so the Brooklyn Nets there headquarters and players, players, player personnel, and back office are all here. So it's really it's a much wider range of types of companies than you would normally see in a project, partially because we are sick million square feet and sixteen buildings, so we have the ability to do things differently building by building that you may not be able to do if you were one or two buildings.
Okay, so what are you going to do next? Like what's on the gym's list of.
Things to do?
We are looking at a lot more retail. We One of the things that we've been very successful with is our home furnishings. So we've got ABC Carpet and Design within reach and restoration hardware and places like that, and we have city foundry or antiquelace, so we've we've really done very in West Elm, we've done very well. And Cohler see I keep I keep I'm going to keep remembering as we keep going along. But we've done very well with the home furnishings and and home goods sector.
So we've become known as the place where if you want to come and shop for furniture and things like that in Brooklyn, this is where you come because you can you can go to six different places. So we are continuing with that. That's very interesting to us. We are are very design centric type of property. If you walk around, you'll notice that we do specific design elements that you may not see elsewhere. So that's kind of who we are and it kind of makes us happy
and we enjoy doing that. That's what gets us, you know, sort of out of the bed in the morning, So we're going to continue to do that. We're going to continue to do more retail food and beverage. We are continuing to grow japan Village, which everybody which is one of the things that we are known for, which is a large Japanese eating, drinking, but now hard goods and cultural center. We started with them at twenty thousand square feet.
We've now gone to sixty thousand square feet. We've got karaoke and Japanese barbecue and Japanese cooking school, Japanese bakery coming, so we're.
Going to continue to do that. We continue to.
Use our courtyards, which is one of our best assets, and that is just large outdoor space to kind of function like city parks, but they are not city parks.
We own and operate them, so we do a lot of concerts and things like that. So I think that.
Nothing really that different than what we've been doing from an activation standpoint. We are also very much getting into renewable energy. We have Equinor as a major tenant and a large piece of property just adjacent to us, which is the staging area for a large wind farm. That's going on in the south coast of Long Island. So that is really sort of charged us up and made us attractive to other renewable energy companies and industries, and we're very interested in doing that as.
Well as biotech.
You know, biotech is something that we are very interested in, you know, I think, and we're hearing this from a lot of people. You know, some folks that when they get out of school, they're not that interested in working in an office park the middle of New Jersey.
Nothing wrong with New Jersey. I go there a lot.
But disclaimer, Jim, we appreciate.
The disclaimer, right.
I actually have a house there on the Jersey Shore, just to be clear. So, but but you know what we're hearing a lot of and we we knew this. This is how we started doing this years even before the pandemic. Is people want to work in places where they enjoy and they have fun and they meet people and there's a social life to it as well. And it turns out people, highly educated people coming out of school that are going into biotech want the same thing.
And so we are looking into a lot of industries like that, which frankly was not originally something that we really thought about that much when we first started it.
But that's how projects like this evolve.
All right, Jim, great stuff really interesting. You have to head over.
There, so you're never going to come.
My daughter lives in Brooklyn, so I've been.
There, but just begrudgingly coming out.
In the eighties.
Well, nobody very different stories. But the best part for those of you who like.
To things in the design within reach the super expensive mid century Modern furniture as an outlet store there, and if you go on Friday Saturday, there's like an extra twenty percent discount.
Like you can get an Eames chair for like six gram five grams for a chair, a cheer Eames chair, EMS chair? What's an EMS chair?
Yeah?
What?
Look what I'm dealing with you guys?
Eight twelve thousand dollars. Like they're right, they're really really comfortable. Anyway, it's super fun.
You get to go.
It's like a scavenger hunt, ABC car Fish. I'm like basically shilling for industry City Emes E A M.
E S chair c h A.
I R got it.
Those chairs. Don't know what Eames chair is? Is this a Jersey thing? I don't understand?
Okay, anyway, you're listening to the Bloomberg Intelligence podcast.
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All right, I've got interest rates coming down. I don't know if it's twenty five or fifty basis points this week, but I know they're going down. I got an earnings backed up. That seems pretty good to me. We had a good quarterly earnings. Geena Martin Adams from Bloomberg Intelligence tells me that, So isn't that constructive for stocks? Brian Levit joins is here. He's a professional. He does this stuff for a living, global market strategist for Investco. Dudes
on the road all the time. We got him in our studio here today, so that's a good thing. Brian, What are you telling your clients these days about kind of where to be in this market?
It's interesting because the leading indicators of the economy are pointing lower, so they're pointing towards below trend weaker growth, which is when, of course, you then need to follow through on the policy side. So in the short term, you're getting more of a signal to be a little bit more defensive, a little bit more higher quality in your investments. And you've seen that in government bonds, not necessarily as much in stocks, given how overvalued some of
the biggest high quality names were. But we are getting more of a defensive signal in here. What you hope for and what you're alluding to is as the FED starts to normalize rates, do you get the proverbial soft landing and markets doing well over the next couple of years. And I'm in that camp. I think the markets will do well over the next year's intermediate term, given that we're past peak inflation and peak tightening.
So there's a great chart on Bloomberg that showed if you go back to the top that we saw I think in June, what's led since then has been anything but tech. Yeah, and which is quite interesting, And I'm just wondering which area of anything but tech can continue to lead.
Yeah, it's nice to see the equo weight. It's nice to see some broadening out in these markets. Look, if you're defensive in the short term like we are, than the type of sectors that tend to do well, or things that are a bit more rate sensitive, like real estate, healthcare has done well, staples when you start to think about the recovery. So I want to be clear here,
our tactical indicator says more defensive. We would expect as you move into twenty twenty five to see more of a recovery feel, meaning that growth is below trend but starting to pick up on the back of easing. That's when you want to be more exposed to cyclical sectors. That's when you want to be more exposed to you know, international markets, full risk on in the portfolios. I think
we're going to get there right now. Though again our tactical indicators suggesting to be a little bit cautious here.
Well, when you take cautious, how then do you manage that, Like what's the best kind of allocation?
Well, we would we would increase duration in the portfolio, which has certainly worked. Right, So we've seen rates come down pretty significantly higher quality bonds and within equities. Not that we're saying you need to eliminate your equity exposure, not at all. It's just where inequities do you position and typically in a growth slowdown, you will see more defense sectors outperform. You'll see higher quality, low volatility tends
to win. It's more recovery phase again, as we either get this soft landing or come out of an economic downturn, where you tend to see more cyclical parts of the market outperform.
How do you feel about valuation broadly defined here, Doo, I have to pull out those MAC seven and then just the market for valuation. How do you think about it?
The first thing I always say about valuations is they're not timing tools, and I think too many people get caught up thinking that markets can't do well because stocks are trading above average. So that would be point one. I don't view it as a timing tool. Point two. You're right the S and P five hundred and aggregate is trading above valuations, but the average stock is not all that excessive, and the valuations on the equal way
compared to its average is about fair. So I wouldn't view this as an environment where stocks are particularly expensive. And I'm also looking at it from an environment where rates are going to come down, and as rates come down down, that should be supportive evaluations.
What do you do with, Well.
What do you think will be done with all the money and money market funds? As in like first cut, zoom, they come out and go to other things. Or is it like once we get the cycle going, is there a threshold rate where that money finally starts to move.
Some of that money came out of bank deposits, so it was money down no one of them, right, yeah, So if you're getting zero in the big money center banks, going to money markets at you know, five and a quarter makes sense even at three, even at three, right, So does all of that find its way into the equity market or the high yeald bomb market? Probably not. Some of that is still going to be considered a
cash like instrument. But I would advise investors to think about quickly, and we've been saying it for a while, how you're going to take advantage of the yields that presented themselves, you know as well as I knew as I do. In twenty nineteen, people were begging for four percent. They used to ask me, how do I get four percent? I would say, you either have to put it all in high yield or you have to lend money to
the Russian government. So that was a difficult conversation. Today you could get close to four percent in or you can get four percent municipal bonds in high quality corporate bonds. So I would advise investors to take advantage of it. Unfortunately, I think a lot of that money still sitting there with the reinvestment risk that it's had for a while.
Small and mid cap, what do you think about looking there for value?
It's interesting, so I mean small So small cap has become four percent of total market cap. I think it used to be ten. So over the next number of years, small cap should see performance, should see good performance as that reverts to some type of mean. What's interesting is in a growth slowdown, which we're forecasting, small cap tends to not do well. Small cap has performed well on the expectation of lower rates, and you know, lower rates
across the yeal curve. So I'd be a little bit cautious on small cap while we're maintaining a defe posture. But again, the recovery phase of this, the recovery phase of this should benefit small and I would think over the next few years benefits small again just because of how undervalued it is to the to the megacap names.
This Saturday, USC comes into the Big House. How you're feeling about you Wolverines this year?
Well, it's a little bit mixed. I think we're playing a little bit with house money. After winning a national championship last year, new coach, new quarterback, a nice win against Arkansas, but the Texas overhang is still there, so we'll see. I don't know if if my confidence is anywhere near what it was in the twenty twenty three seasons.
USC. Are they in Big ten?
Now they are in the Big ten.
This is ridiculous.
It's hard to follow it.
It's silly. Okay, all right?
Well I got Stanford coming in to play my dookies at some point this year, so we'll see how that goes. You're going to send you the field hockey team from Piscatowy, New Jersey, Rutgers all the way to like Los Angeles to play field hockey.
It feels out long?
Is that what we're doing? Brian had Brian Leviy, global market strategist for Invesco, joining us here in our studio today, given us his thoughts.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Afocarplay and Android Auto with the Bloomberg Business app, Listen on demand wherever you get your podcasts, or watch us live on YouTube.
All right within the markets, there was some really interesting commodity positioning. And I don't just say that because I'm a commodity's nerd, but oil has seen such a strong rerating, and it's so interesting because hedge funds are net short on oil for the first time since the data started being collected back in twenty eleven. Oils up by about two to three percent today. Joining us now is Mike mcgloon. He is Bloomberg Intelligence senior commodity strategist from London.
This is a new background.
I can't believe they took us passport. He got into London amazing after all the last they put him on where we're doing good.
Well, good to see you.
Let's just start with oil for a second. I mean, at this point, are we so short sort of the market that there's no way we're not going to get some kind of snapback.
I think that's a good response. The first way you look at it as a commodity trader, yes, it's mostly it's really prent that's short, twelve thousand contracts. It's never been short, and that's most ever, as you mentioned, since twenty eleven. Like WG, I still somewhat long, but I think Brent's more reflective. But everybody sees what's going on with China excess supply and the fact that you need Opec to stay to keep oil off the market, or market's going to do what it usually does and get cheap.
And it just kind of hit tilting the words there. But to me this is indicative overall commodity is a bearer sentiment, and I think it has good reason. Just look at that ten note yield in China two point zero seven percent. It's the lowest ever. I mean, compare that to US at three sixty six. At the moment. To me, it's just yeah, you said, I have a
bounce from here. But I think the responsive traders are going to be looking for rallies to sell, which I put for good resistance WTA around seventy five, and I'm still expecting to do what it has been since two thousand and eight, get really cheap, which Rowbury means around forty dollars a arrow.
My favorite indexes is BCom are you guys celebrating a BCom kind of anniversary or something coming up?
Exactly what. I'm glad you mentioned. That's why I'm in London. We having the becom indict Advisory Committee. I think I've been going to these for about twenty years, particularly when the Become was at F and P and I managed it there. But now it's a get a better place at Bloomberg. But it's a bit of an anniversary. It's also where everbody gets together and we talk about how the properly managed and boundary bouncy index.
So how do you do that?
Yeah, well it's off of the methodology, but you have to take advice and council from the people who are involved in actually tracking it. I used to actually do that math, but it's very systematic. It's mostly based on the becomes, based on total volume, and it's broken up between the three sectors energy, metals and agriculture, keeps them somewhat equal rather than having too much of a weight and energy.
All right, I want to go right to one of my favorite commodities. Corn. It's thirteen today, people.
I love.
You don't need corn?
I love.
I can see that and like, so it can be hard to digest like some of those guys. Okay, I will go into detail.
All right, give us a smart call on corn here.
Mike, you do, but you don't know it. Corn is the most significant global agricultural commodity in terms of dollar value metric production. That's part of the methodology we'll be talking about on Wednesday. But it's in everything, and actually it's animal feed, corn syrup and everything. But the key thing is corn got way too expensive in twenty and
twenty two. Now it's getting towards really cheap. It got down below four The last two contracts closed around three eighty or so, which is right around the US cost of production. And to me, the significance of corn is that's what all commodities are doing. They have to get below that cost of production. I have to shut down those accesses supply and reinvigorate that demand. And corns is elite. It's the most elastic of the commodities because you can
bring on that supply in about a year. So to me, that's part of the reason I'm still bearish Crudel. And actually one of those indicators in middle space was natural gas. Why because natural gas is a top form of fertilizer.
For corny See it all comes back.
What about coffee, so on the flip side, corns low of four dollars a barrel a bushel. At one point coffee is just crushing to the upside, I mean Robusta or Arabica.
Talk to us about it.
Yeah, we don't track it too much. I think is significance of coffee and cocoa's they're both born right around are grown sown right around the equator. And climate change, I think it's directly affecting those commodities, despite things like corn and soybeans and wheat which are more born in the northern country, potentially in Brazil and US where's the weather's still been quite productive for production.
All right, let's go over to the metals here. Copper up about ten percent year to day. What's the call here on copper?
I think the risk of copper goes down partly because just look at bonio, so one good way to look at copper. The price of copper on the screen right now is about four dollars and thirty cents a pound. If you overlay the pounds of copper with the percentage yield. The tenure note that's usually where they've been traded almost the last ten years. So I pointed out China's tenure notes two point zero seven percent US is three point sixty five. I think copper is just on the custom
breaking lower with most other commodities. Last few weeks it's been crudel just kind of catching up to the grains. And the key thing for copper to state to stay resilient is US stock market has to stay strong. But yet we've priced in so much by the rumor into the studies. To me, the risk is sell the fact and copper to have to mention the same sentences China. China is in a pretty severe deflationary trajectory at the moment.
Yeah, I have somely was reading City put out like a quarterly note on commodity outlook, and then for copper, like longer term they still see that structural shift, energy transition and all that demand. But then in the near term you just can't escape sort of the downdraft in China there and then how you kind of manage that. But there's still broad growth in like the trough maybe being like eight to nine thousand versus four to five thousand, which it might have been in different cycles.
All right, what else you got? What else you're looking at?
Well, the number one commodity that's going up on the planet, it was more of the store of he was gold. I got to stick with something to my space that's going up on a year today. Well, there you go. On a year today, Basis golds up about thirty four percent. To compare that to the total return of the S and P five hundred and twenty eight percent three years now, the rock is beating stocks. The risk is it continues.
I think it will. And the thing is you have to just look at the macro one thing and manage money net positions. We pointed out early hedgephones are quite long, but etf have been in significant outpows. They're really just starting to turn the inflows. So I think that's going to continue. You could should get some bucking of that bowl. But overall, to me, that's the market that's heading towards three thousand dollars an ounce and it's probably backing up.
Maybe you'll see good supporter on twenty four hundred.
All right, Mike, thanks so much for joining us. Hey, Mike, you go across the street from the Bloomberg headquarters, the old Wattling pub mention my name. They'll take care of you over there. Okay, thank god. Mike mcglohane, senior commodity strategist for Bloomberg Intel. It's a great pub.
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 at You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Joining us now in studio is Uma Moriarty, senior investment strategist and Global ESG lead over at Center Square, and she joins us for her outlook on the market.
Uma, the moment is here.
We're like twenty four hours away from that first rate cut, whether it's twenty five or fifty.
How does that impact the space you cover?
Yeah, I think this is probably going to be the most widely anticipated rate cut of all time, definitely in the space that we cover here at Center Square, in real estate across the red market. I think this has been a big catalyst that we've been waiting for. If you look at just where the rates are trading compared to broader equities. In terms of multiples, we're trading a lot cheaper than we typically do compared to historical averages.
And I think this has been the catalyst that we've been waiting for in the red market to really see some good momentum. We've been seeing it so far this year. Reads have had a bit of a bid and I think that's going to really continue as we see further further rate cuts on the horizon from the FED.
So we're in the rebusiness, do you guys prefer to play commercial residential? Where within? I know there's a lot of subsectors even within those two broad categories, where do you guys typically like to play?
You know, what we're really focused on right now is looking at not only the things that are going to be benefiting from rate cuts, but also things that are going to be winners in a secular way. Right, So, there are a lot of different opportunities within the REP market to find secular growth. One of those areas is
in healthcare seniors housing. For example, you have aging demographics that are really going to create an insane amount of demand I think for the senior housing space, and couple that with the fact that you see you just put it.
He just read in his bathroom. He doesn't need senior living space anyway, Go ahead anyway.
Yeah, So we've got some great demographic tailwinds here for the senior housing space. Kind of couple that with a few other things, right, So during COVID, we saw margins really being impacted because of labor costs in the senior housing space. You're seeing recovery from that. Plus you're seeing that space being institutionalized, right, and so there is a
massive opportunity from an acquisition perspective there as well. So all of those things playing into senior housing data centers, I mean, another great play within the commercial real estate sector. So those are the types of things that we're looking at. We're not only benefiting from the rate cut environment, but also really benefiting from secular tailwinds.
So based on that, okay, but the senior housing, the data center, et cetera. I hear that a lot from read people. So is the market really crowded?
There is still be a little bit of crowding in some of those areas. The other thing we were just talking about here, right, A couple tactical opportunities within the office sector. I think could be really interesting here for investors. I think within the broader commercial, rural state world, office is a part of the real estate world that is really troubled, especially on the private market side. Whereas the
rates have top tier assets. When you think about the best assets here in New York City, they're really owned by the reads. The reads have great balance sheets, low leverage, access to capital from the unsecured bond market, from the equity market that you just don't have across the private market. So I think in some areas, the office market within the read space is going to benefit here and be a capital solution for what's happening on the private market side.
Because we really haven't seen that much activity in the office space to really get a sense of where value is have we We just haven't had a lot of transactions to say, hey, is the discount fifty seventy percent? We really don't know that. Are the reads going to be the ones that set those levels?
Do you think?
I think they could be?
And I think the reason you really haven't seen that is because there's been such a bifurcation between the haves and have nots in the office market. Right One Vanderbilt here in New York City leasing up at really really topy rental rates, whereas if you try to go lease a commodity office space, it's probably sitting vacant. You're going to continue to lose vacancy. So I think there is a big differentiation between quality, and so you'll see the
reads in it. In general, the market really open up as we see a bit more stability on the rate side, as we try to figure out what happens from the debt perspective here as well.
Is it like one rate cut that makes a difference, or is it just the cycle that we're starting, or is it how many cuts we're expecting is going to be a catalyst for the market.
I think just the fact that we're getting rate cuts and we're kind of out of this potential type situation right exactly, and you get a little bit more clarity in terms of where things are going. So I think this week, when we get some economic projections from the Fed, will be important to see where that dot plot sits in the end of this year at the end of next year, to see where they're going from a rate perspective.
That being said, a lot of real estate also really prices off of the long end of the old curve right, and we've seen that kind of a little bit range bound around the three and a half to four and a half percent range, and so you'll see a bit more price discovery as we kind of accept that that's where long rates end up staying versus where we have been seeing those rates kind of POSTGFC through COVID at significantly lower levels.
All right, Let's say I'm a real estate investor. I've got some equity behind me. I'd strike a deal to buy one of these office towers on Third Avenue forty sixth Street at maybe fifty cents on the dollar. Can I go to a bank and get money to do this? Will they lend me money for that type of transaction?
Currently, I think the banks are really relationship driven. It's based on whether you have an existing relationship.
For you TVD. Yeah, they'd probably definitely lend a Paul.
But I think a lot of where the debt capital is coming from currently within the marketplace is a lot of alternative providers of debt, private lenders. Banks in general are still a little bit over exposed in the real estate space. As you're going to continue to see banks needing to pull down their real estate exposure. Office definitely is not one of their top priorities in terms of
increasing exposure at this point. Right, So it's not really clear in terms of whether bank lending might exist for something like that without a relationship, But I think the private markets are starting to get a little bit more interested in opportunities within the office space at the right price.
All right, Uma, thanks a lot. We really appreciate thanks for coming in. Umer Moriarty joining us, Senior investment strategist at Global ESG lead at Center Square, joining us on the remarket, thank you very much.
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.
Okay, this is Monday, and usually around this time we check in with our folks at Bloomberg BNEF. They cover all the data, They have all the analysis on everything from transport, industry, commodities, power buildings, AG sectors, anything that you need in the energy transition they do. So joining us now for more is bo Chin, lead US carbon analyst at Bloomberg b n EF and she joins us
now in the interactive Brooker Studio in midtown Manhattan. Okay, so first of all, what is the carbon market in the US right now?
What does that mean? Let's done this down.
Yeah, carbon markets is one of the most exciting markets right now because it quantifies energy transition, which could be quite fluffy, and having a carbon price, it basically shows to you where are the opportunities and risks for industries, lawmakers as well as investors.
So we say carbon market like it means the price of IMIg a smet maker and I am a one ton of carbon. What that price of that carbon is?
Yeah, exactly. So there are two kinds of carbon markets. So there's compliance carbon markets and voluntary carbon markets. You probably heard quite a lot of news about forestry at carbon offsets this year, but there's also that compliance carbon market, particularly in US that has been a rising star this year,
the compliance carbon mark. So what it is, it's basically regulators setting a scope and a target for the carbonization and this market decides the price and it decides who are the cheapest to abate, And what is the We call it a marrit order, but what is the order in which the polluters would reduce their emissions and the chiapist would reduce first and the most expensive work first buy the allowances and later reduce their emissions.
So California, I just I don't know that much about this market, but I know California is kind of out in front. And number two, I know it's a kind of a big state. So what's happening in the price of carbon in California.
Yeah, the California has been really in the news right now because of the reforms that are going on in California carbon market. So California carbon market is just one of the pieces that California, one of the tools that
California uses to direct their energy transition. And this whole story really started from the Scoping Plan of twenty twenty two, where the new target of net zero by twenty five it has been set and the California carbon market has been selected to guide this transition amidst other policy tools.
So yeah, good, Okay.
Yeah, So there has been it's been kind of we have been watching us open here, so it's kind of been watching a long set of that tennis game where we have been seeing how this target been translated into a cap trajectory. So what cap means for compliance market
is basically supply complace. Carbon market is very commodity based, so you would look at supply which is the allowances, and then demand which is emissions, and the supply has been in this reform process that has been given a lot of different guidances which have been kind of exciting
the market but also confusing the market. So looking at just the prices, the price have gone up since from nineteen dollars per metric down in twenty twenty one and shooting up to this year in February hitting a four four dollars per metric ton, So investing in this asset has been a massive rally. However, the prices have come down now, so we're now around thirty five point six.
Is it better for the energy transition to have higher prices or lower prices as in like if it's higher, companies are gonna be like ACT, I don't want to pay that, I'm going to go upset my emissions or lower, meaning that it can be a more robust market.
Yeah, exactly, that's a good question. We typically want a gradually increasing price so it shows an incentive for industrials and compliance entities or just entity in stents in general to decarbonise. But we don't want big price volatility because that could make it difficult to direct strategy and make those big investments to killan tech. And this is why also we do think like in US, it's important to make sure that we have big enough carbon markets. So
we mentioned California. California is the biggest carbon market right now and it's linked with Quebec Quebec in Canada, and there is actually another carbon market that started last year which was very exciting for US. It was Washington State and it hit a carbon price of seventy three dollars per metric tile in the futures market, which was very
exciting for US. This is the record price ever in US and it's right next to California, which there has been also bills proposed to link these carbon markets together. And we do see that this would be great for both of this carbon markets. One is because it would reduce that price volatility, okay we mentioned, but also bring the carbon leakage down as.
Well as but we gotta leave it there, Robings to break, but Butch and thank you Bloomberg the any f carbon analysts joining us there.
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