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It's Nathan Deana Bloomberg Intelligence.
Look Look, look, look, look see there in the I see him lower the right hand corner, I see him. Indeed, are streaming live on YouTube dot com. By the way, so if you type in Bloomberg Radio on the search on YouTube dot com, you can see us. You see me my bright green shirt there, and you'll see Nathan Dean in a moment, Nathan.
We got headlines.
Across the terminal that the SEC is going to finally impose these new hedge fund and private equity rules fee disclosure treatment of certain investors, and the hedge fund industry has threatened to sue over this proposal.
What do we know?
So, essentially, this is a proposal that would require the hedge funds and private equity funds private funds to disclose a lot of information including compensation, fees, performance and so forth like that expenses, and this is a standardization or a standardized disclosure so that an investor can essentially compare and contrast the performance of one fund versus another. In addition to this, it would also prohibit certain conflicts of interests.
One of the more interesting aspects of the proposal is if you're going to cash out an investor and you're going to give a certain rebate or allow that investor to cash out at a certain percentage, you have to make that available to all different types of investors. Now, like you said before, the Managed Funded Association and the trade associations hate this rule. It's going to be significant
costs in terms of compliance headaches. The big funds should be okay, but this is really also going to increase competition amongst the smaller funds. We certainly anticipate the funds will sue. They've said that they could sue within the first two weeks. In fact, the Managed Funds of Associations comment letter before it was finalized said that they were attacking the cost benefit analysis of the rule. For those of us in Washington, that's essentially a keyword. We're going
to sue you. Now, the SEC did make some changes. They actually took out some language that made it a little bit easier for people to sue funds, but I certainly don't think that's going to keep the MFA and the other types of fund industries from taking this to the courts.
So again, just give us the history here, and Nathan, is this a solution in search of a problem or is there really concern out there about disclosure from the hedge funds.
So I think what this is that they took a consumer level initiative, which is disclosures to consumers, and thinking, you know, just not sophisticated investors, but just disclosures to individual consumers, and then they applied that to the private fund industry. Now, the SEC will say, look, there's eighteen you know, trillion dollars in assets under management in these funds.
Investors need to know what's happening here. But the funds come back and say, look, we're dealing with sophistic get investors. We already give them these types of disclosures anyway. So I'm not exactly sure that the you know, this was really like, I think the most important rule that the SEC should have been working on, but obviously it's one of the biggest and more dramatic impacts to the fun industry.
This is something the SEC has wanted to do for a while now, and you know, we will see when we get the final language, when these funds have to start complying with it. I should also note that if you are a non US fund, as long as you take in US money or US clients, you're gonna have to adhere to this as well.
I mean, if they already give them these disclosures, I can't imagine why compliance costs would climb, right, If you already are transparent about your fees and expenses, then you should just be able to publish that. It seems like they might be fighting back more Nathan, against rules that would prohibit them from allowing favored investors to cash out more easily than others.
Yeah.
Absolutely. I mean for the big funds, the compliance costs looks they already do this, But for a lot of smaller funds out there, they don't have this type of legal compliance expertise. They're certainly going to have to ramp up there. But like you said before, I mean this the biggest issue here is the comparison angle. You know, if there is some type of secret deal that's going on out there, well that deal now needs to be
made public. And if you're going to compare against one fund versus the other, and some of these comparisons also have to go down to the portfolio levels, so not just the entity level. You know, if you're looking to invest in a hedge fund or a private equity fund, anytime soon, you're going to get a lot more information on how to make those decisions, and competition is going to increase as a result. You know, we've seen some
economic evidence. I'm not sure if I actually buy into this, but we've seen some economic evidence cited by the SEC that fees will go down as a result of this. But you know that will have to be played out over the next few years.
Yeah, exactly, all right, Nathan, Hey, thanks so much for joining us. Nathan Dean, He's a senior US policy analyst with Bloomberg Intelligence. Absolutely spot on this news.
Here.
You're listening to the team Ken's are Live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or listening on demand wherever you get your podcasts.
Eric Adelberg, mortgage backed security strategist for Bloomberg Intelligence, joins us Erica. We had some new home sales data come out today. What's what's your sense of what we saw builders are building?
It looks like, yeah, you know, it actually surprised me, we saw I mean, to be fair, this is actually reflecting mortgage prices probably that were maybe prior to the latest jump up. Yep, but we're still seeing the share of new homes increasing. They're about sixteen percent of total sales now. And what the things that surprised me today?
So sixteen sorry a round sixteen percent of total sales? Is that higher than average? Lower than average?
Were we?
Yeah? It was down to like six percent like a couple of years ago.
Right, and so the long term average new homes built maybe ten percent of the stuff being bought and sold. Yeah, okay, so now it's higher. Yeah, because Matt's not going to sell his west Chester retreat because he'd have to.
Goes I locked in at three and a quarter percent?
Are right?
So that's the problem, right, or that's the issue.
Well, the other things that surprised me were the fact that the home prices actually, and these are a bit of more of a jumpy series than existing home prices. But existing home prices and new home prices in the last month's report were more like median prices, call it, were more or less equal. Usually new homes traded about twenty five to thirty percent higher than existing homes, and
then this month that completely reversed. So the median price for the new homes is now like four thirty six and for the existing homes now back to four h six. The existing home price fell a little bit, as you'd expect season late, but new home prices actually jumped a bunch from four to fifteen last month to four to thirty six this month, So that's interesting. So it's not just that they're cutting prices.
Erica, what is the your mortgage rate you look at, because obviously it varies depending on a borrower's credit quality and you know, the asset, et cetera. But I can see, you know, in official Bloomberg stories, a much lower rate sited than I see on the bank rate thirty year mortgage right, So we're saying seven point three percent right now and sounding an alarm. Meanwhile, the bank rate is over seven point six. Yeah, what's the rate that you look at, and why.
I do like to look at bank rate because it's available daily Mortgage news daily also. But the big difference when you're looking at mortgage rates is looking at what they call effective rates, what you're paying if you hadn't paid points, versus what the contract rate rates, which is where a lot of people actually take out the mortgage because they are paying points. So once you adjust for the points and look at a no point adjusted rate,
it's always closer to the bank rate number. So even even on the NBA thirty year fixing an index that they released today, we have an index in Bloomberg that they also release called MB thirty er effective rate and similarly we back out and no point freddimack rate and those are all above seven and a half percent. Now, so yeah, mortgage borers might be able to get a lower rate, but that's because they or somebody else is
paying points. Now, one of the reasons new home sales has been doing as well as it has is because the builders have come up with this great strategy where they're actually buying down the mortgage rate for a lot of their buyers. So until recently, some buyers were able to get mortgage rates closer to five percent. It's a good deal for the home builder. They don't have to reduce their prices, and you know, make other people who
want prices on homes that higher prices mad. But at the same time it makes it more affordable for new home buyers.
So the builders.
It's not like the builders are extending lines of credit to buyers. They're not giving mortgages to buyers. They're just turning to the bank and saying, we'll buy points for them.
I mean, in some cases they have a relationship with a lender. In a few cases they actually can probably offer them mortgage. Have their own financing arms, they have their own financing arms.
It's been a tough month for fixed income, really tough month for mortgage of backed securities, off two point six percent. What's it like out there in the NBS market these.
Days, It's it's probably pretty tough for some investors. It's an interesting time for strategists. But one of the things I'm looking at this morning is actually just how different the current coupon, which is kind of where things are being issued, is versus the mortgage index. And while the mortgage index has underperformed because it's very long duration now, because people are just sitting on their mortgages forever.
Matt I will be on it for years.
So from a duration standpoint, it's going to trade pretty similarly to the tenure treasury, if you will. In fact, mortgage spreads for the whole index aren't widening that much. The same divergence between what you said about where mortgages are being issued right now versus what most people have is reflected in the mortgage index right now. The current coupon or where the yield egals to the coupon around par is about six percent for the first time again
for many, many years. But the mortgage index coupon is below three percent. All right, So that yeah, I mean, I'm not saying it's not underforming, but yeah.
All right, Erica, great stuff again, Erica Adelberg, NBS Strategists, Bloomberg Intelligence joining us here.
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So it looks like BAA slash Merrill. They're trying to make a push on across their trading business. What did you find out?
So it's funny baa second largest bank by assets, but when you talk to folks cross Wall Street about trading, they're not the first name that comes up in conversation. And really that just comes down to their risk tolerance. Since the financial crisis, since they bought Merrill, since there's
been so much integration, they've kind of held back. And while they're still serving clients and they are one of the largest firms that is trading with buyside investors, they're not taking as much market share as let's say JP Morgan, But that's starting to change. About three years ago they named a new head, Jim Damar. He took over for Tom Montag who was really running that trading business along
with investment banking. And in the last three years they've added some talent, some key talent from those firms that take risk your bets, from Goldman Morgan Stanley, and they've also been able to get more capital. They went all the way up to CEO moynihan to their head of
risk to ask for basically more room to run. And while they're still in a narrower risk tolerance than others with more capital and with these key hires, they've been able to slowly chip away and gain more market share over the last two three years.
So have they built up a bigger team? I know there is a speech at least I read in a Bloomberg story that there was a speech last year where Damar said, listen, if you're not willing to give it your all and you work your butt off to build this business, you might want to work somewhere else.
Yeah, exactly So about a year ago is when he gave that speech, and it was after second quarter results where some of the other banks had posted pretty impressive results within fixed income. Especially this was after the war in Ukraine had broke out, and you had banks on Wall Street taking advantage of all the volatility. They were helping clients place bets tied to Russia. Bank of America did not. They had a mandate from high up that said, you guys got to hang back. You can't get involved
in these types of trades. You can help clients unwind their positions, but you can't help people profit and we can't profit off of this war. So this was why Jim was getting up and saying, hey, we have progress
that we still have to make. And that comment was made to his group, the entire trading team, to say, if you're not willing to put your best foot forward and to act, maybe not aggressively in the form of taking more risk, but you got to be willing to be top three, then yeah, maybe you should look elsewhere. And he's not making this statement to say here's the door and you should be going to somewhere else get
out of here. He's just saying we want to have people that really want to be here and that we want to make headway. And one year later they have. They've shown that their second quarter results this year, so this is one year after the the kind of tepid results they saw year ago. They were up ten percent when all the other banks on Wall Street were down. Now that's also because you're comparing it to the record quarter again a year ago post the war in Ukraine.
So it's it's.
Really going to be a story that we'll keep tracking and if this group can continue to maintain the growth and the market share that they have chipped away at again, then it might be something that they are able to sustain. But that's still a question mark. It's not a foregone furgone conclusion.
You know.
When I was at Meryl, we were going to go pitch a company, a public company, on a follow on offering, and that one of the things was we wanted to be a top trader in stock. We want to say we were your number number one trade, which we weren't really like three, third, third or fourth. So I went down. My job was to go down and talk to the trader.
It was probably my same age, young and they said, you know, if you can, we'd appreciate it if you could take a bigger profile on XYZ stock from that day forward until we pitched the IP in like two months. Number one, every you're singing every single day trading the stock and not just a commitment of capital, you know, So that trader that desk was willing to put up to capital to make our jobs of getting the follow and offering easier, which we did get and made a
big print. Looking at the comp function, No for the stock, Bab's kind of flat over the last five years, Morgan Stanley up fifteen percent, Goldman Sacks up nine percent. So if you go to Brian moynihan, now do you feel like if I'm a trader and I asked for some more capital, you think he's going to be more open to that.
So there's a lot that's.
Changed in the last year and capital has become more constrained across Wall Street. But the bank, if if you were to ask them, I'm sure that they would say, we have enough cash on the balance sheet. They will show you that with the numbers, and they will say that if the capital is needed and the group, whether it's the trading group or the investment banking group, comes to us and has a good pitch and they explain why they need what they need, we'll give it to them.
But I think that that's probably getting harder to do. Those pitches need to be pretty clear, pretty persuasive. But what you just described is exactly what they're trying to focus on, which is making sure that the groups within
this huge organization are working together. So if you have someone in investment banking that's working with a client, it's a corporate client, and then they need to hedge their risks whether it's their currency risk or their rates, They're going to want to say, hey, you should talk to our trader who can help you out. And I think that when you have such a big organization this is not specific to be of a but anywhere often communication
lines can break down. So they're just trying to communicate better in order to either get clients to interact with them more or to tap new clients that they might not even know that they can be working with and that they should be working with.
So who's the best and biggest trading desk on the street and.
What do they do right well, right now, JP Morgan does have the most market share and that's been kind of the same for as long as I've tracked.
It's really which is in the long time, No, it's long, but yet they have the big capital behind them. It's all about how much capital you can put up. So JPM Morgan gold and Sacks Morgan Stanley, you know, those are things. And if you're Merrill Lynch and you've got the Bank of America balance sheet, but Catherine is just reporting less less ready to put up you know, some incremental capital here, but maybe that's changing a little bit. So,
but it's good stuff. I remember, it just took me like a forty five minutes to find where this kid sat on the trading floor. That's how big the Maryland's trading floor was and how many people were there. I had to find it. You know, it's crazy, but anyway, that was a good, good story. Catherine, thanks so much for the reporting here. That's story just jumped off the
termino for me this morning. Katherine Dherty, Finance reporter for Bloomberg News, Bank of America, Merrill Lynch, the thundering Herd of Merrill Lynch, maybe stepping up a little bit more on the margin.
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The question I have is, why is all these countries tripping over themselves to get to the moon. Did we do that like more than fifty years ago? I don't know what the big deal is, but our next guest will help us out here. Lauren Grush, Space reporter. That's right, Bloomberg has a Space report. Why because we have twenty four hundred journalists accrown around the world.
We cover everything and fifty countries.
But also, I mean it's a huge and emerging.
It's a business industry. I mean, look, I think.
It's not just NASA anymore.
Let me ask Lauren. I'm pretty sure, Lauren. First of all, hello, welcome to the program. Thanks for joining us. Didn't Elon Musk and SpaceX just raise new money at an even higher evaluation in what is for most startups of down market?
They did, But they also have quite a lot on their plate in terms of what they're trying to develop. You know, they're working on Starship, which is this massive vehicle supposed to take humans and cargo into deep space and to the Moon, as you guys have been talking about. And they're also expanding when it comes to their Starlink initiative as well.
So they have quite a lot to work on.
And so that's ultimately why part of the reason why they did that raise.
All right, Laurence, So help me out here. What's the attraction to the south pole of the Moon? We had Russia crash didn't quite do it, but India today reported a successful landing. What are they after right.
So, the south pole of the Moon has been a bit of a tantalizing place for scientists over the last few years because more and more research has come out and evidence has come out that the region might have large quantities of water ice and these permanently shadowed cratered regions, so areas that never see the sun, they get extremely cold, and that's tantalizing for people, especially those looking to send humans to the Moon, because there's the possibility that we
could mine this water ice and use it as resources. We could use it as drinking water, could use it as water for plants if we wanted to grow crops on the Moon for lunar habitat, and it can also be used as rocket fuel. You can break apart water into its constituents and to make it into fuel that could be used to send rockets off of the Moon.
The issue is we just.
Don't know what kind of form the water ice is in, how much is there, So we need to get there in order to prospect and to see, you know, is this a viable option to use for future exploration initiatives.
So older listeners, Lauren are going to be wondering, is this the dark side of the moon. Nice, I don't know, like about the polarity, and apparently one side of the moon never what never faces the Earth or what's the.
Story with this?
So it's not the dark side of the moon. There actually is no dark side of the moon. I hate to break that news every what. Yes, you are correct, though, there is a far side of the Moon that we never see from Earth because it is tidally the Moon is tidally locked, and so it is constantly facing our planet in one direction. So you might be very familiar with the face that faces us.
You may not be so.
Familiar with the face and the south pole is where is that? Do we see that one? Or do we see parts of it?
But yes, it is within our part of it is within our site.
All right.
Listen, Tucker's laughing at us because he knows all this stuff.
He does two videos on this. Yeah, yeah, all right. Lauren, you're a space reporter. What are the big stories that you're kind of following. What are the themes that you're following as it relates to your space beat.
Well, you know, there's quite a bit going on.
As you've mentioned, the moon is a very popular place these days, so you know, it's not just India, not just Russia that are looking to go back. The US is actively looking to go back to the Moon. A lot of those efforts stem from the from NASA's Artemis program, which is a concerted f to send the first woman in the first person of color to the surface.
Of the Moon.
Right now, they're targeting landing in twenty twenty five. I think that is extremely ambitious and doubtful that it will be achieved, but that is the outward goal at the moment. And then through that initiative, there are a lot of private companies that are also hoping to send their robotic spacecraft to the Moon. So we have astrobotic and intuitive machines who are also trying to reach this region of the Moon with their own uncrude landers, and those are
supposed to happen. Those are supposed to launch before the end of the year.
So hard, I don't get you know, by twenty twenty five, couldn't we do it next week?
We did it in the sixties.
I hate to breakage everyone, but it's still quite hard to reach the Moon.
You know, Yes, it is.
Something that we did in the sixties, but you have to understand we were we had increased NASA's budget significantly. At the time. There was an extreme focus on reaching the Moon during that time. You know, we put a lot of resources into it, and so now we don't really have that same sense of urgency and NASA is working with a much lower budget than it had at the time the space race was going on.
But my Nintendo, we has more computing power than NASA did back then.
I mean, that's true, that's.
True, and that's and that's ultimately why we're making a lot of strides in terms of, you know, who is able to reach the Moon with these with those companies I just mentioned, they're hoping to be the first commercial companies to reach the surface of the Moon. That title has not been claimed yet so far, it's only been Nation States. But ultimately, you know, we are getting there.
It's just taking a while, and we're trying to do it in a in a smarter way that doesn't rely on, you know, that big influx of cash.
So Lauren, of all the private companies out there, because that's what's different When I was a kid and we're all fixated on NASA and we all want to be astronauts. Back in the day, private space travel. Are there viable economic models out there? I mean, how do any of these companies? Is it space tourism? Is it just taking garbage out there? I mean, what are we doing?
I mean, I think that's ultimately the prime question right now, as more and more companies are trying to turn space into a business. Can these businesses make money? The answer we're getting from the few companies that have gone public is not a lot. You know, they're bringing some are bringing in revenue, some are not even bringing in revenue.
It's a very hard market to break through in because it does require a lot of capital upfront, and to develop these vehicles and these capabilities takes many, many years. It's besought with delays, and so you know, we are in an era that we're trying to prove that we can, you know, make these companies into viable businesses. But there's going to be a lot of casualties along the way,
business casualties, not human casualties. And you know, it's I think it still remains to be seen if these companies can really turn a significant product.
And Elon Musk, Jeff Bezos, you know, a couple of gajillionaires. They're all in on this business. I guess it kind of feels for a lot of to a lot of critics that it's just kind of a billionaire's game out there for for space. And you know, is there any other real model out there?
Well, you have to understand, we've been we've been in the business of space for a really long time. The earlier models, uh, focused more on defense contractors, you know, building these vehicles and helped with NASA, but they were not as vertically integrated as some of these newer players.
You know.
That seems to be one of the bigger changes that and Jeff and these other companies are implementing his vertical integration, so keeping everything in house. But as I mentioned, you know, these companies require a lot of capital, and so that's ultimately what they are able to help with, you know, the billionaires is being able to give that kind of big cash injection up front and to help out whenever you know, money is tight.
All right, Lauren, you're a graduate of the University of Texas. Are you one of those crazy Longhorn alumni?
I'm sorry, are we crazy?
I think.
Regular college graduates?
Okay, because we have a Jess Metton who comes in here and does a lot of work with us reporting on the equities at Texas A and m GRAD. So she's the only in her family.
I can't I can't speak to that.
Okay, Hey, what's the next cool launch you're gonna go watch?
Do you go down there and watch those?
I do.
I've I've been to quite a few, you know. Kennedy's Space Centers kind of my second home sometimes. I'm in Austin, Texas though, and SpaceX has been building their Starship vehicle down in Bocachica, which is on the border of Texas and Mexico, and I have been there to see their first test launch. We're gearing up for that second test launch. SpaceX is going through the motions of kind of fixing
what went wrong during the first one. They're undergoing tests, but signs seem to be pointing that we could be seeing another test launch from Texas in the near future. So we're just getting ready for that and seeing how that will go.
All right, Lauren Grushy, Space reporter, Bloomberg News. Hook them horns, right, another big football season coming up, and I'm sure they're all fired up down there. I love that we have a space reporter that's so cool.
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Matt Miller, Paul swing here in a Bloomberg Interactive worker studio. Want to get right to our next guest, because there's a million ways we can go. Ronnie has set Home Joints us. She's a managing partner of set Home Law Group. A lot of things to talk about, Ronnie, but I like to start with something near and dear to my heart, which is the media companies in the Hollywood studios strikes with the writers and the actors, and where are we on this thing? Because it seems like both sides are
really entrenched. Although I believe the studios did come with a proposal that seemed reasonable to me, but I'm not in vob so well.
I think that both are holding pretty steadfast in the direction that they want to go. I don't think anything has been resolved at all since I've last been here or since the strike went underway. It is true that the studios did propose some changes. However, I believe the union wouldn't come to the table, which is, you know, a way of rejecting it outright.
Yeah, and so these so there's been no talks. They haven't been in the same room officially, I don't believe.
So, no, no, But they came back with what I thought were certainly I don't know what the word is, but they were substantive. They addressed a lot of issues. Whether they went far enough as the union, I don't know. But if I were the studios and I put this on the table, I would certainly expect a professional response, wouldn't I? You would, And I'm not a negotiator.
Yeah, the negotiating table has to be went to in good faith. Under the National Labor Relations Board rules, you can't just refuse to engage in any kind of discord. However, if someone comes back to you with what you deem is a wholly unreasonable solution, you can take the position that I guess that's what the union is taking at this time. But you're right, everything was addressed, whether or not it was addressed properly or thoroughly enough for the union.
I guess the answer is no, Ronnie.
Let's just reset for listeners who haven't been following this very closely. You work with the actors side, and what are the demands that they've made, you know, just you know elementary in sort of the elementary demands.
What exactly do they want?
Well, I think some of the celebrities who I represent their individuals, just to be clear for the listeners, they want to protect themselves and their image. They don't want you to be able to take whatever image you've seen in a movie, a TV show or whatnot and just change it, right. I mean, AI can do so much we don't even realize as the viewers. But you don't
need to take additional takes. For example, you can just use whatever take was provided and then make whatever changes you want to change, as long as you have the image of the person, the motion of the person, and the tone and sound of the person, which clearly you would have when you take your first take. So I think they want to protect themselves from being seen incorrectly, right because who knows what you're going to do with
the image. But also it's about money as well. Every time their image is used, they want to receive a royalty. And I think that's like a huge debate right now, you know what are we paying for exactly? And typically contracts do state we control this image that you've provided us with whatever it is for the show, for anything in whatever medium exists now or shall exist. So we don't even know what else is coming after a hour.
Well that's even that's an I would say most content areas. So for example, as a research channels Stall Wall Street, I did not own my research. It belonged to the firm I work for the models I created, the earnings
models belong not to me but to the company. And so what you'd see before any analyst went from company A to company B is he or she would take their earnings models which they created, download them to the little floppy disc so they could take them to the next spot, which was a no no, But everybody does it.
If you do that, I might send you a nasty letter.
Yes, Paul should maybe hire you.
Yes exactly, But so that's isn't that kind of is that law already created and aren't exists, We're just now applying it to a different medium. I guess yes, in.
A way, that is true. But no one anticipated what you can do with this technology. So for example, if you sent me research and I, let's say I discarded it or I changed it, I may not attribute it to you. And so your your your research findings, if they were not what I wanted, You're you're left out of it. Nobody knows about it.
Here.
It's your picture, it's your voice, it's your movement, and we're doing something with it and you may or may just may or may not agree with.
It, right, So that's something that's one of the things that they want you to change. Then on the money side, you know, there's I think we don't understand exactly how much money. For example, sag Aftra estimates that these streaming companies are making. Their representative was telling Paul that she thinks they're making thirty billion dollars a year in profit, but when we look at these earnings reports, that's not
readily apparent. So is that something that needs to be solved how much money they're making off streaming, or does it just not matter to your clients they want a bigger take anyway.
Well, honestly, money's always a factor. So I think, of course that does matter, and I think that there's I don't know if it's a worldview, but certainly a US view that the gap between the owners and in this case they're not employees, but we'll just use that analogy should be smaller.
All right, So is this something like when we think about AI and all the uses and therefore misuses that could be had of AI. Does law need to be created, do you think? Or just existing laws applied to a much wider view now because of AI.
I think laws should be created, but I think it's also too early. Who really can stand up and say I thoroughly understand this technology and how it works. You can't create a law around something you don't comprehend.
And what makes these discussions with the actors and the writers is you know, I think an executive could stand up. I would defend a media executive standing up saying I don't know what this stuff is worth. I don't know how we're going to generate revenue off of this stuff. All I can tell you is when we think it up, you'll get your cut. So you write up the language that does that is what.
I would do.
Yes, that could be one way, but it's always the devil that's, you know, in details, and everybody wants those details. But I think you can start from a contractual position moving forward that says, I'm not giving you rights to my entire likeness. I'm only giving your rights to this particular season movie.
Whatever.
We can define it and slice it differently.
I don't know. I think it's something well, I don't know. I think there's language. I think there's language out there that they can get things done, but it seems like they're not a lot of movement there. So we'll keep on on top of this thing in Hollywood, the whole AI issue, which is just you know, mind numbing to think about where this could all go and the applications of AI across a range of industries, and the lawyer's got to figure it out.
Rania set Home, like Ronia exactly great to have you in the studio. Ronia, thanks so much for joining us.
It's awesome. Ronnie set Home managing a partner at set Home Law Group, live in a Bloomberg Interactive broker's studio.
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Scott Kelly joins us. He's a founder and CEO of ATOS Capital real Estate. But Scott, thanks for coming into our Bloomberg Interactive Broker studio. But I want to this dude. Was that Morgan Stanley, Morgan Stanley, Dean Witterard, Dean Whitdter. Now, for people who don't know of the investment banks, Morgan Stanley has always been is the biggest player I think in commercial real estate. When I think about investment banks swinging and around in commercial real estate, I think of
these guys. So you were there during the heyday. You're now at Ato's Capital. Thanks for joining us. You're welcome, all right, commercial real Estate. I walk to Penn Station every day. Nobody's in their office. It's dark. I've never seen it like this. Nobody's ever seen it like this. But at some point some smart people are going to come in and say enough, this is where you start banking. You talk to us, how you guys view the commercial real estate business.
Well, I think there are a number of factors that are cutting against any kind of rapid improvement in the commercial real estate.
And we're talking specifically office here, right, Well, yeah, and.
More generally, but basically, real estate's a cyclical business. Office is probably the most cyclical of all of that in retail, and I think everybody agrees, whether it's a soft landing or hard landing, we're at a difficult time in the economic cycle. Second, there are huge secular and demographic shifts. One of the reasons New York offices are emptier because a lot of people are leaving New York. And again,
those shifts impact different real estate classes vastly differently. So as an example, office and retail have been hurt by the secular shift to work from home and online shopping, and warehouses logistics facilities have done well.
So Scott, let's throw in rates because it's not just these demographics. It's also you're making the point that the cost of capital or the Fed fund rate has basically gone up five hundred percent. I mean, that's got to create a lot of pain.
Well, I think there are two aspects. So that one you've got an unbelievable amount of commercial real estate debt maturity, something like set one hundred and fifty billion in the next year and something like one point seven trillion in
the next four years. And a lot of those loans were made in essentially a zero interest rate environment, and they're not refinancible at seven percent, so there's just not So you've got this enormous amount of debt maturity coming very high interest rates, and it's going to create a I think a great investing opportunity.
In a reset.
I mean, I have happened to be involved in a small family real estate company in Columbus in Columbus, Ohio, and we have a lot of office space, mostly medical, thankfully, and we have also a lot of student housing for the Ohio State University. But I know that, you know, our refis are going to be very difficult at these levels, and I'm hoping that, you know, we can get through it. But there's going to be the other family real estate trusts that are not going to be able to refine.
They're going to have to sell to somebody who has money.
Yes, And interestingly, when you're talking about Columbus, which has a very strong economy, because of the university, because of the state, because you know, it's a good place to work and live. There are a lot of cities like that that continued that will be okay. You know, the demographic shifts don't cut against the Columbus Ohios. They don't cut against the big cities in Florida, you know, but they do cut against the high tax, increasingly crime ridden
big cities of the North. So certainly they're going to be different. Real estate is still a local game, and they're going to be different impacts on different property types and markets. But certainly they're going to be lots of people that aren't going to be able to refinance the debt. And interestingly, in previous crashes in the late eighties and early nineties, that was driven by the essen else which were essentially put out of business in the big money
center banks which had too much exposure. In eight it was Wall Street, which had a lot more leverage than anybody thought because of essentially derivatives and other matters.
Are the regional banks going to have I mean, I know, well, Huntington just got a big bond.
Issue out yesterday, right, But there are some regional banks that have been downgraded by S and P and Moodys.
There's some regional banks that probably have too many whole to maturity bonds in their portfolio.
I mean, they're going to be tightening their credits.
That's exactly the right point. You know that the big money center banks are okay. If you look at their commercial real estate exposure relatives to their loans, you know they've kind of learned their lesson. The problems are going to be in the mid size and the smaller banks, where, particularly during the COVID era, there wasn't a lot of commercial loan demand, and they made a heck of a lot of real estate loans and they made them in a lot of cases to people unlike your family, but
a lot of people that weren't particularly good. So they're going to be the problem is going to be not as concentrated as it was in the crisis of the late nineties the late eighties early nineties, as concentrated into as it was in two thousand and eight, but very widespread because of the fact that these loans sit in medium to smaller size banks around the country.
So you're making some really big comparisons there from a cyclical standpoint. So going back to the idea that you think that there's going to be this huge opportunity, some of the dominoes have to start to fall. When do you see that happening? How long does this distress cycle happen? And is your firm.
How do you actually go about this?
Are there properties that you're identifying, modeling out and then you're ready to jump on when they potentially go into distress.
Well, we've formed a new company called Waivertree Property Partners with a group called PTM, guys that I've worked with for a long time. They're great developers because and they've developed twenty two billion and invest in twenty two billion with their predecessor companies and now as an independent company, very strong, you know, kind of dirt under the fingernail
type real estate folks. And we think that a lot of these opportunities are going to involve not just buying things cheap, you know, not just you know, we buy it at ten cents of the dollar, hold it out for a little while, and send it'll sell our twenty cents on the dollar. But because of these projects needing real work, because a lot are ill conceived, a lot of buildings are going to be have to be repurposed.
We formed this venture to really both be a partner to existing financial institutions which have problems, and to you know, raise additional outside capital to augment our capital and investing in.
These So you believe in this so much that you're raising capital for. And what's so interesting about it, Scott, Because of course I know that Atos, you've only been in Asia over the last twenty years, ten billion dollars of real estate over there. But you think that this opportunity is so attractive, as painful as it could be, that you're forming this.
New Yes, exactly. Look, I think Japan. We have really scaled our Asian operation to invest solely in Japan. We put you know, six hundred billion of equity into China over the past fifteen years. Every deal we did made money. I wouldn't do another one of them year, which too painful. Japan is a place I think where in a slow growth, stable economy, they don't have the work from home mentality
that we have here. The people go to the office more. So, you know, we think that that's kind of, with reasonable risk, a good place to earn kind of load to mid
teen returns. Which is a good thing. But we see this opportunity in the US as being exponential, really bigger, with the possibility of making really significant money if you can combine the financial acumen of being able to underwrite this stuff with the operational skills to reposition, to to repurpose in a lot of cases properties that need to be significantly changed.
So, Scott, do you think this new group will be acquiring properties, real properties or the debt of distress properties or both. How do you think you're going to play a capital you.
Know, just over my whole career. In doing this, you have to be flexible as to what the seller wants. In some cases, the seller wants to just sell alone, be done with it, move on you guys, you know, take them through bankruptcy or do whatever you're going to do, and we've done a lot of that. In other cases they're like just bid as the debt or the asset, and we'd like to get rid those. In some cases it's a big portfolio. We want to take care of
everything in one fell swoop. You have to be able to be flexible to what the seller.
Are This is just a personal question that I'm dying to know. In a city like New York City. If a big trophy property on Fifth Avenue or Lexington commercial property were to trade today, what percentage haircut would it be from pre pandemic, do you think?
Well, again, I think a lot of that has to do with the quality of the asset.
The trophy property. They're still going for, not a discount, right.
Right, Yes, B and C.
How about the Benz Third Avenue all that stuff on Third Avenue from Dunk, No, it's not junk. It was, it's not. My question is like on that stuff from Grand Central up here, that's you know, the last twenty thirty years construction. Yeah, no, hedge fund hotels them until fifteen minutes ago.
You know, I think it's interesting. They're really high quality buildings. One of the things I was just said an event over the GM building a couple of weeks ago, heavily amendetizing office cookings. Now if you look at one Vanderbilt, you know, yeah, that's all great restaurants. They have great amenities for the you know, for the tenants, and I think, you know, I think that's the way you really compete. Hudson Yards would fall into that Chameter streat.
And see something a big property trade. I don't know if it's gonna be thirty cents on a dollar, fifty cents on the dollar, sixty cents on the dollar.
When do you think we see the trade, because that's exact the anticipation.
Yeah, it's when the dead comes due, yep, and it can't be refinanced. That's when you see the trade.
All right, Scott, thanks so much for joining us. We got to go, but the fascinating we want to hear back when you get this seeing role in. Scott Kelly, founder and CEO of Atos Capital Real Estate.
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