Bloomberg Audio Studios, podcasts, radio news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple card playing and Broid Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
So lion Elbasel. If you don't know the company, takers lyb It's basically a chemicals company. It's thirty billion dollar chemicals company, think things like plastic. It is also doing a lot of shift into sustainability, retrofitting certain plans to make greener stuff. And this stuff is important because it's things we use every single day and the most mundane things,
and it's difficult to really decarbonize those sectors. Joining us now is Tracy Campbell, Executive VP of Sustainability and Corporate Affairs, but she's held many positions within the company.
Tracy, great to see you.
Thank you. It's a pleasure to be here, and who doesn't want to be in midtown Manhattan on a day like today. Thank you.
That means it's nice out right. Okay, we'll take your reustry. So let's just start with the macro for a second, because for those for those viewers who don't know. Devis Hell makes all the stuff we need, plastics, ethylene, all the things. How's it going, like, what's demand like right now?
You know, demand has been very steady, certainly in the Americas, and I think demand got a bit of a boost yesterday the economy did as well. So we're excited about that. And while yes, some of the global markets are substantially weak. China, for example, is an important market, but we're not as exposed there as others. And of course you're up's a bit slow to recover as well. But no, we're really excited about about the demand that we're seeing here in
the Americas. And I've been in the industry for more than thirty five years. I've lived through this cycle of low demand and strong demand, and we don't subscribe to this doom and gloom that you hear out there. So we're excited about the recovery that we're going to see because, as you said, Alex, we make the materials that people count on every single day, and that's fundamentally not changing.
How does a company like yours and any global petro chemical company, plastics company, how do they balance the business requirements, grow the business, invest delivered profits for shareholders, and then make this transition to maybe a cleaner business. How do you guys balance that?
In general, we see it as an end When you think about the value play that we have for more sustainable products, whether they're more circular, perhaps they're low emission products. We believe that that's a value proposition for the company as itself, and we have a play there because we can bring these products to market at scale. We're not doing it for the greater good of society, while that's an added benefit, We're doing it because we believe it's
a creative to earnings in the long run. So there are consumers and brand owners out there that are looking for those materials.
So in what sense does this happen.
Is it like we're going to use greener feedstock to make stuff, Is it we're going to use alternative energy, renewable energy to run our plant? Or is it we're going to capture any sort of emissions? And then with it, like what's the strategy?
There are multiple strategies there, and I think you hit on quite a few of them. If you think about our strategy as a company. We still believe that our core petrochemical business is here to stay. However, we can change the way we operate the feedstocks we use the type of like you said, renewable energy and things like that to lower the emissions that are being generated as
we make these materials. You know, another core piece of our strategy is to really again leveraging our core business to fund a much less capital intensive ecosystem for circular products, for things waste materials being brought back into our system and using those as the feedstocks essentially for the products of the future. So really, there is renewable energy, there is low carbon emissions, There is technology out there for
carbon capture and utilization. All of these are part of the transition, including hydrogen for example, to bring either fossil based materials or renewable and recyclable materials to the market that we're looking at all of those.
I know, I mean, your company is truly a global company. Roughly half the revenue in the US, half your revenue outside the.
US, roughly, right, How is it?
How are the requirements or the environments for maybe migrating your company to a more eco friendly business model. Is it different in the US and it is outside the US?
I think the pace of change is different in different parts of the world, but we see that change happening on a global scale. For example, in Europe earlier today, fact in Germany you'll see our press release soon. We are laying the foundation stone of our advanced, our first scalable advanced recycling unit, and we see the Germans sort of and the Europeans advancing quickly right with respect to
embracing circular and low carbon. But it is we are seeing the same trends here in the United States and even with our joint ventures and our activity in Asia. So it's just happening at a different time scale, but the momentum and energy and the excitement around those products is really not different. The policies might be a little bit different depending on what country we're operating in, but our direction is still the same. So we're very excited about that announcement today in Germany.
So talk me about costs for a second.
So the working theory is that when you make stuff green, it costs more. So a is that even true? And if it is, how do you offset those costs? I mean, yeah, and how do you offset it? Like do you wind up having the cost end user have to pay more, or there are different ways it's offset, even if it's from policy like tax credits.
You know, when technology it's new, and when you're transitioning technology, yes there are investments that need to be made, need to be made to accelerate that transition. So you know, I don't think in the long run the materials will cost more. But the transition, of course is what where the investment is tricky, right, and we need to look at that. But if you look at consumer demand for these materials, if you look at the governments programs that
are out there to accelerate the transition. The unit that I spoke about that we're laying the foundation stone in Germany just this morning was a recipient of a European Innovation Fund, you know, millions of dollars to help us with transition. But we really see the consumers stepping up, the brand owners stepping up, and I think over time the technology to make this transition. Tax credits for example for hydrogen production, for hydrogen consumption are important as well.
So I really see a lot of activity in that space to help us transition.
Jason from Omaha, Nebraska Rights and how have ocean Freight costs affected the US ability to export our cheaper plastics to the rest of the world ocean.
You know, I'm not an expert on ocean rates anymore. Okay, at one point in my career, I can still plan on radio. Yeah I can still Yeah, pretend. But you know what we think about as our company, we really focus on differentiating our assets in terms of feedstock advantages, technology advantages, scale advantages. So do we have assets in regions that depend on ocean freight. Absolutely, we have JVS
in the Middle East, We're growing there. We have owned assets in the United States, and yes, we do export these materials and we stay on top and we actually have a supply chain organization and is constantly looking at the optimization of freight to make sure we can deliver those materials to market very competitively.
In terms of all of it, the transition, dealing with current slowdown in Europe and Asia, etc. And this comes from Ryan Hornan. So see, I'm going to ask your question, do you think that animal spirits will awaken and we get more M and A in the chemical space with those low rates? And I would add on, are you kind of forced to make acquisitions or even boltons as you're.
Also making this energy transition.
You know, growth is important to us, and I talked about growing and upgrading our core and even growing this circular and low carbon economy that we're looking at. So I think M and A is always part of our part of our optionality.
Right.
You've seen us grow our footprint in the Middle East. I lived in Asia recently where we grew some footprints, we grew some joint venors over there. So I think M and A is always going to be in the cards for us. And we do see ourselves as a consolidator and a very efficient, scalable provider of these circular
and low carbon solutions. So there's a lot of activity that we're doing there to consolidate feedstock acquisition, to build these integrated hubs in order to have a very scalable and optimized delivery system for these materials of the future. So M and A is always an option for companies of our size for sure.
Again, as a global company, I'm guessing you guys have a vested interest in all this talk coming into Washington to various degrees various parties about tariffs and things like that. Does that impact your business? Has it impacted your business over the last four or five years.
And you know, tariffs to me are I'm a believer in a free market economy, right, and I think tariffs in the long run tend to hurt to hurt that. So you know, we really are positioning our company need to be resilient no matter the outcome of any election in the world. So you know, we're making sure that we've got the right products, the right assets. We have that differentiation to really be successful regardless of whether a particular person wants to have tariffs or not.
So that was a very That was an SVP answer.
I try to be an enterprise thinker.
It's fair.
It's fair when we talk about the cost situation. And this also plays into Paul's tariff question. Do you secure customers for your products and that then help you build the product, or after it's done, you have to go out and sell them And what is both?
What do both of those processes look like?
We work with brand owners and with customers to build the future materials and to help design those applications, so.
They have to commit to stuff. They have to be like we will give you this much money for this much product.
We work with them right from the early stage of concepts through designed through perhaps a long term contract for example. But yeah, having that being solutions provider requires us to really develop those materials together.
Is it hard to come up with those numbers right now with your customers in terms of pricing?
You know?
I don't think so. I think it's always been. We've always worked with our customers and with downstream, so the entire value chain to really design the materials that you know, consumers like ourselves are looking for. So yes, as we work through that process, we're looking at our cost to deliver the material, the intermediate, the converter costs, the custom consumer costs. But I don't think. I don't think the uncertainty is any more, you know, is any higher than
it's ever been. Frankly, I think it's just something that we're always making sure that we design for all options and we have the flexibility to pivot if we need to.
All Right, Tracy, so great.
I've been trying to get Tracy on for like since what February March LA here. Yeah, yes, it's great to be Thank you so much, really appreciate I know you're here for Climate Weeks. I'm looking forward to what will come out and yes as well, Tercy Campbell joining us.
There your titles long is SVP of No, I'm trying to find it.
I've got executive stainability over affairs.
Oh, come on an email, Alex, come on, all right, trades, appreciate that. Joining us from mine elvisl on all things energy transition when it comes to petro chemicals.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Markets at a record there's some serious volume coming into play. I was talking to one market technician who was like, we get options expiration tomorrow. You gotta reshuffle your delta, which I guess is a fancy option word. So that's why you're seeing a lot of the flows here. Emily Rowland is co chief investment strategist for John Hancock Investment Management, and she joins us. Now, Emily, do I just blame technicals an options expiration or is this some serious, real fomore.
Yeah?
No, I think that that's probably some noise that does a curve periodically. You know, Look, markets are celebrating today. We're near new all time highs or kissing them, as you said earlier, and I think there's a lot of relief around this Dubvish pivot that the Fed has taken.
Here.
There was a bit of confusion in the markets yesterday after Powell came out and told us not to get too excited that more fifty basis point CODs aren't coming. But I think overall, it was a Dubvish FED meeting and it looks like markets can continue sunning themselves on soft Landing Island.
Very nice Netflix Season one.
Hey, we've actually got a yield curve that's steepening here. We got the two year at three point five eight percent, ten years three point seven two percent.
What does that tell you?
Yeah, I mean you're bond yields came a long way prior to this Dubvish FED meeting yesterday, So I think you're seeing a little bit of repricing there across the curve. You know, I think that we could see some chopping rates from here as we kind of navigate through this environment where there's kind of some better than expected economic data.
You know, maybe we're continuing to see some broad deceleration, but again, this deceleration is happening slowly enough that it's sort of providing this perfect backdrop for the Fed to, you know, to continue to implement rate cuts amidst a decelerating economic environment. It's going to happen in choppy fashion, but for now, I think you're kind of going to see rates hold steady. As yesterday was a big event. We've gotten through it and we'll see what happens from here.
So do you chase here or is there something on your shopping list or is it just a rotation at this point?
Yeah, I mean we would look at any backup in bond yields is a nice opportunity to lean in income.
There is still elevated.
Of course, yields have come down a lot over the course of this summer, but we still don't think that bonds have fully sniffed out this disinflationary, lower growth environment. So we'd like higher quality areas like mortgage backed securities, investment great corporate bonds, sprinkle in a little bit of treasuries there. So we think there's a buying opportunity there. You know, stocks are fully reflective of this soft landing backdrop.
We continue to embrace higher quality stocks, and we're looking for areas that provide quality at a reasonable price as well, so we would be leaning into things like healthcare stocks. We're legging into more defensive areas of the market like utilities and infrastructure equities. And we continue to see US mid cap stocks is a big beneficiar area of onshoring activity and the fiscal spending that's still happening against this this this decent economic backdrop.
Emily, when you get big moves into market like we're seeing today, that kind of just raises the valuation flag for a lot of investors. How are you kind of thinking about valuation any equity markets?
Yeah, I mean it's not great, I'll tell you. You know, certainly with markets you know, bumping up on twenty one twenty two times forward earnings, I think are well priced for this soft landing scenario that we've been talking about. You know, and you look at areas like technology stops which are trading at thirty times forward earnings, which is about as high as we've gotten over the last cycle. It's not the fifty times forward earnings that we saw
in the late nineteen nineties. So I think the froth is is a bit of a concern. But I would tell you that valuations just simply aren't a catalyst for a market rotation. They haven't been historically. I think you'd need to really see some kind of shift in the economic regime. You'd have to see a big shift in earnings trends to really see that market leadership change. And you know, you can blame a lot of things on the multiple expansion that we've seen in technology, but you
can't blame the denominator. The earnings have been there for these companies, which makes us continue to be constructive there.
Which also the reason of the question, how where do you go in terms of large, mid small? So I've been reading a lot about, particularly from Bank of America, how maybe this is the time for midcaps? And mid caps hit a record high yesterday, they outro foot today, they outperformed yesterday, Like, is not the sweet spot for that environment that you're talking about?
Yeah, midcaps are the sweet spot for us. You know, when you go down into small caps, you're looking at companies that are unprofitable, they have higher interest burdens. You know, the Rustle of two thousand is comprised about forty percent of that index is comprised of companies that don't make money. They could do really well in an early cycle environment, but we just don't think that we're there yet. And you see these little rallies in small cap equities based
on the idea that rates are coming down. But remember rates are coming down because there's a challenge with growth, and we think that that does not benefit the most cyclical areas, namely small caps. Moving up into MidCap equities, you get a big overweight to the industrial sector. So think about the relative sector composition there, and we think mid cap industrials are massive beneficiaries of the spending that's
happening in the US. There's a manufacturing renaissance happening right now in the US Midwest due to onshoring and due to things like the Chips Act and the Infrastructure and Jobs Act. So we want to look to mid caps as a way to capture that. They're also trading at the deepest discount to their large cap counterparts since the late nineteen nineties, so you're not overpaying for this theme.
Emily, how do you feel about the earnings backdrop here for the.
Market, Well, I love it going into the third quarter because the bar is low. It's actually analysts are penciling in four point three percent earnings growth as we look forward to the next quarter's earning.
Season, So we love a low bar there.
I think we should enjoy it while we can because Q four earnings growth is penciled in to be about fifteen percent, and then analysts are looking at fifteen percent into next year. So not only is the market trading at an elevated valuation, but that's also against expectations that we're going to see about fifteen percent earnings growth next year. That's probably a bit optimistic, so we may see a
challenge to that right now. Multiple expansions helping as we continue to embrace the fad pivot here and the soft landing, but ultimately the earnings need to come through as stock prices over time, we're going to follow profits and follow earnings, so we think that's going to be critical to watch as we look forward.
Emily, great stuff.
Really good to see you, Emily Roland, co, Chief Investment Strategies for John Hancock Investment Management, joining us.
You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at ten am Eastern on Apocarplaying and Broyd Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
It's a good moment to check in on media stuff and media deals. And I read that really interesting article in the Wall Street Journal about how there's going to be a show on Amazon where people get to basically compete to get a slot in the in their big Amazon dot com store. So they're describing it as like Shark Tank meets Home Shopping Network, which.
I don't know. For me, you would actually watch this one hundred percent? Would you not? Okay, you're not gonna watch it. Paul, No, that's not his thing. KEITHA helped me out.
Keithan wrong or not them, Boomberg Intelligence US media analyst. This sounds brilliant to me. Did you see this article?
I did not, but it definitely sounds intriguing.
So it's a new competition show next month. Entrepreneurs are going to pitch their products to a studio audience as well as to judges including Amazon executives and some celebrities. Like Goop founder Gwyneth Paltrow and designer Christian Siriano, and then finalists will have their inventions sold in a new Amazon Buy It Now online store.
That's synergy, That's what I'm saying.
Yes, whether or not you watch it, that has some synergy. So she's not gonna watch it. I'm I the only one that gonna watch thinks, So all right, fine, fine, all right, you talk now, Paul.
All right, Keitha, thanks so much for joining us here. What I want to talk to you is about is just kind of where are we these days, Githa on cable networks, staying on cable systems like the old days. I know, Warner Brothers Discovery. They have a new deal with Charter. Talk to us about that and why it's important.
This was a really big deal for Warner Brothers Discovery. And the reason it's such a big deal is, of course, one thing is ninety percent of Warner Brothers Discoveries profits actually come from its television networks. But the reason it was so critical, and especially from a timing perspective, was because Warner Brothers has just lost its rights to NBA programming.
And remember NBA is one of the main draws for TNT, which is their most expensive channel right now in their network lineup, and so there's been a lot of fear, you know, amongst investors that Warner Brothers TV revenue, especially it's affiliate fee revenues, is going to be a tremendous risk.
And so this deal actually with Charter, it was actually coming up for renewal only next year, but I guess David Zaslav wanted to go ahead and assuage investor fears, and so he signed this deal a whole year in advance, maintaining the same affiliate fee revenue trajectory. So it's kind of it's definitely provides some temporary relief from an outlook perspective for Warner Brothers.
All right, fine, see, but you know they're struggling because there's cool shows like this like Shark Tank and a home shopping network on Amazon now whatever. Fine, all right, so what are their questions? Are still a bubbling up in the media community. There was a great piece on By your Succession a couple of weeks ago talking about that what else are you focusing on?
The carriage continues to be a big, you know, a big bone of contention across the whole TV space, Alex. I mean, yes, we had this Warner Brothers Discovery each Other deal, which was somewhat of a low drama deal, but there was one that was high drama, and that was actually Disney with Direct TV. Those two companies were fighting it out. There was a blackout of all Disney programming on DirecTV systems for almost two weeks until finally
both of them caved. And you know, Disney obviously wanted to have carriage free increases, which I think at got. What Direct TV was really looking for was more flexibility and you know, programming and packaging, and they got that. So we're seeing kind of all these deals become really contentious as kind of the whole video A landscape keeps shifting,
so carriage continues to be a really big thing. And then the other thing is, of course, we have you know, the M and A chatter coming up every now and then. The most recent one, of course, was direc TV with Dish that will obviously have huge implications for the entire TV landscape.
So let's switch gears a little bit to a business that I think is actually investors still like, and that's just a theme park business. We think theme parks, we think the Walt Disney company. I'll be down a Walt Disney World in a few weeks doing some due diligence. But Comcast also has a big theme park business. Talk to us about their theme park business and the investments they're making and how important it is to that company.
Oh, absolutely so with Comcast. I mean when we think of Comcasts, we always think of the cable business, and rightly so. Cable actually makes up eighty percent of their ibadah. But the one area that has kind of been ignored for Comcast I think over the past few years has been their NBC division, and NBC through Universal of course, not only owns TV Networks studios, but also the theme parks.
And the big thing for Comcasts and its theme parks is they're actually opening a whole new theme park next year, which is Epic Universe in Orlando. It actually doubles their entire Orlando footprints, So they go from about eight hundred acres right now in Orlando to almost sixteen hundred acres with this park, and it's going to obviously do you know, so much for their attendance. So right now, Universal attracts
about thirty million subscribers domestically to their parks. Of course, the big behemoth is Disney with about eighty two hundred million almost domestically. But with this we think Comcast actually kind of gets closer to Disney, right, they can get about forty forty five million visitors to their domestic parks on an annual basis, so it's going to do a
whole lot for their attendance. And really, Paul, as we kind of see the business going out, we think, you know, theme parks almost it used to be a few years ago, theme parks was about twenty five percent of NBC's profit. In a few years, we think theme parks can actually be fifty percent of NBC's profit.
That's fascinating. Well, it's it is and it's not.
It's good because the theme bark business is growing, but it also reflects the fact that their cable network business is declining dramatically and that's the cashal historically.
A good point, I guess. I wonder though too, that is that also more recession proof or not? Like what goes first? Ad spending for a linear TV or people not taking their kids to Disneyland.
Is there an Avengers theme park. Do we note? I don't know why am I asking Paul? All right?
Anyway, thanks Ethan, We appreciate you. Geith the wrong and not then. Bloomberg Intelligence US media analysts.
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 playing Bloomberg eleven thirty.
All right, let's get to David Koodlan now, a founder and CEO and chief investment strategist, I should say at Mainstay Capital Management, He joins us. Now, hey, David, are you buying into this record rally?
Here?
We're buying into this record rally.
I know that there are many who are still concerned about a recession, that are worried at that price, the price of stocks at these levels, we're at new highs. But look what we've seen here now, with this cut yesterday and what we have going forward, we're you know, if there's such a thing as a Goldilocks scenario, we're about as close as we can be to it. So you know, I've had the expression for the last two years, the recession that's always six months away. The recession is
always six months away. GDP now right now Atlanta GDP now for the third quarters at two point nine percent.
We had three percent growth in the second quarter.
We're looking for We're still looking for that soft landing that the FED rarely pulls off, so more of a mid cycle slow down and then we slowly reaccelerate and we don't get that recession. And if that's the case, twelve months later after a first rate cut, stocks are higher and significantly higher. If you get a recession after a first rate cut, stocks are lower. So that's what we're pivoting on. But we're still optimistic and constructive on stocks at this point.
So, David, I think when I listen to some folks that are still constructive on the market, they just kind of I think they hang their hat on a couple of things, which is one, I've got to fed the cutting rates, and I've got a pretty decent earnings environment.
That's pretty good. But one of the things that we.
Just don't know it's an election year, and I don't know what that means for the markets. How do you guys talk about that to your clients.
I'm glad you brought that up.
You know, we get preoccupied with politics as it relates to our investment strategy. And when I say that, I mean at average investors out there. You know, there are investors that believe if so and so gets elected, it's the We're it's doomsday.
If so and so gets elected, it's nirvana.
What we find out is, and this is why we'll have volatility over the next couple of months until the election, is the market's hate uncertainty. So it's about getting that uncertainty out of the way. But then it's not as much about whether it's Democrat or Republican as far as where we invest. As tactical asset allocators, we want to
look at the difference in policies. There's differences in policies and energy and a lot of areas between these two candidates, and depending on how the House and Senate go in terms of taxes and everything, So that matters as far
as technically how we invest. But the people that go to cash because they're scared, concerned, wait and see end up typically in election years, end up suffering an opportunity costs, and that's exactly what's happened this year so far for people that have stepped to the sidelines.
Is there a risk by pivot back to the fit per second, so put elections on the side. Is there a risk that we're going to see kind of more growth and demand resurface in a particular way because we're in that rate cutting cycle, because we got that jumbo rate hike. And is that a risk eventually for resurgence and inflation?
It is.
It is a risk. But what we've seen so far is inflation is on this glide path to the Fed's target. If anything, I think with the disinflationary forces that will come back into effect as we get by all the effects of the pandemic. You know, we may overshoot the two percent, but we're certainly on a glide path to two percent. And right now, you know where we are with the labor market.
We had some good news today.
You know, there's still some concern out there about credit card debt, credit card industry, auto loan delinquencies, things like that, But we balance that all out and we think the inflation problem is gone. It's now about labor unemployment. We get to the point where that needs to be rates come down to, you know, if it's the long term neut rate of three percent here through twenty twenty five for the Fed funds rate. We're in a good environment
for stockstill. We know they're expensive, but stocks can be we know, overvalued or undervalued for a very very long time.
All right, David, So what sectors are screening well for you these days? Again, we've had an S and P five hundred index move about twenty percent year today. But I know not everybody's participated. So how are you guys approaching maybe like sector selection.
Right, So you know one area for sure that that's been troubled for quite a while, you know, especially a while back here with some of the a few of the bank failures. But banks, financial services look very good. As the yield curve continues to steepen. NIM improves net interest margin for the banks. We're finally getting that yield curve steepening. So we like the financials a lot. We
still like technology a lot, the AI story. But what we're able to do now we can broaden into value, we can broaden into cyclicals, we can broaden into small caps and diverse, diverse fire portfolios from the Magnificent seven to these other areas. You know, small cap companies are far more reliant on debt and with interest rates coming down, their costs of capital coming down, maybe coming down a
lot over the next year. That's good for small caps and that's what we've been seeing recently in IWM or the Russell two thousand index.
Mid caps sweet spot.
You like them mid caps as well. Mid caps the same thing. Small and mid caps just become more attractive, and mid caps a kind of that sweet spot in between. You know, it's been a large cap dominated stock market for quite a while.
We've had a lot of headcake at fakes.
With small cap in MidCap, but we think they now have a runway with raids coming down.
All right, David, thank you so much for joining us. Always appreciate getting a few minutes of your time. David Kudlap, he's the founder, he's the CEO, and he's a chief investment strategist at Mainstay Capitol Management.
I call him the boss.
There.
I guess basically.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on applecard 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.
All Right, the FED cuts rates.
One of the beneficiaries I would think.
Would be real estate people.
People if you want to build a building, develop a building, if you want to rent in a building, buying a building. I mean, it's got to be good for them, right, Money's cheaper. Let's talk to somebody who actually does it for being. Mickey enough Tally, chairman and Sea of the Naught Tally Group, joined by Abigail Dulo, our market's reporter for Bloomberg News, got them all here in a Bloomberg
Interactive Broker studio. Let's talk luxury condos. I'm asking for a friend here Mickey talks about the luxury condo business. I know that's an area of the market that you know very well.
You're very active.
It's a sense of how the market is in New York City these days.
Right, So the market is actually good.
We opened last week three sales offices at the same day in the same week, which is the right quote for us, and all.
Three so we have three new projects starting three new projects.
They're already under construction, but we we launched sales Upper west Side, Upper east Side, and Williamsburg on the waterfront.
All three are doing very well.
There is not much inventory in New York City and buyers are looking for the right product.
So the FED cut reads yesterday, of course by fifty basis points. That certainly helps you, I imagine with some of your carrying costs. But given the fact that you are catering to a high net worth individual, how many cash deals do you see or does this really help you know your buyers as well?
Right, So it's very interesting the more expensive apartments we see cash type of deals. But when we do it, for example in Williamsburg, we have a lot of the inventory trading between two to five million. Those are buyers that usually take mortgage and the cut, the rate cut is obviously helping them a lot, and I suspect that we'll see much more activity in the market in the next twelve to eighteen months.
What is the competition like to get the apartments?
Like?
Is there the kind of competition that we would have seen, say five years ago for these kind of properties.
Yes, so there is not much inventory and definitely there is not much of quality inventory. The reason is that it was very and it's still very difficult to get construction loans. So for example, developers are just on the sideline they can get the construction loans. There are not too many projects under construction in New York.
That's number one.
Number two, construction cost insurance costs are just really almost doubled then five years ago, So it's very difficult to get to a point that the project make financial sense, which means that there is very low inventory.
So you're saying that there's very low inventory. And yet I've certainly been a part of the speculation. Other people have been part of the speculation that some of these massive buildings out here on Billionaire's Row, or even some up on the Upper east Side, one of which I know for a fact a few years ago, a big bulk of it was empty, even though you never would
have guessed that from the website. So as all that inventory that would seem to be floating out there in these fancy buildings, has that been eaten up?
No? So well, no, no, no, yes, But it's all about quality. First of all.
Whatever someone decided to call this fifty seven billionaire Row, this is a different market, really mainly relying on foreigners. How many New Yorkers really want to live on fifty seventh Street. Think about schools, think about kindergarten whatever, right, you need the infrastructure. It doesn't feel as a residential neighborhood. Beautiful views, big buildings, right, So those are cater to foreigners.
So we had the Russians, they're not buying anymore.
We had the Chinese, they're not buying anymore, and so on and so forth. And every time there is a wave of foreigners that are coming to New York. Because New York is still the capital. I see it as the capital of the world, right, but this is a very different market.
It's also about quality.
Yes, there are a couple of buildings that are not selling well. But when you dive into the detail and you walk those buildings and you look at those apartments, they're not good. They're not well designed, they're not well esthetically, they are not good, you know whatever. Maybe they're in a busy area. So it's all about the buyers are
very sophisticated. Buyers know what they want and when they see a product that is well designed, were located, and reasonable price to the market to whatever the market they're buying.
There's not much inventory in this segment of the market.
That's really interesting to hear about a divergence within the high end. There would not have necessarily anticipated that.
All Right, So you call me up and you want a construction loan. Why am I making a loan to you? And maybe I'm not making them to other people?
You're right, and I have an answer on the two sides. Because part of our business is debt business. We are lending to other developers, so we're running also a debt fund. And it's all about reputation, and it's all about can this developer can really get the project done?
And the commercial lenders are looking at you.
Okay, if you ask for a loan and they look at your reputation, what you have done? I mean, are you capable to do it? Do you have enough equity? And if you're underwriting make financial sense? And if you are dreaming dreams and the project that you have in mind is not going to make financial sense, you're not going to get financing, definitely, not from the commercial lenders.
You might be able to.
Get financing at ten over sofa, right, Okay, you're not going to make it right.
So you really want to be in.
The mid threes to low force over soffur and that's the only way you're going to make it.
Are there any deals you think to taking office buildings and converting them. I know, I feel like this is a pretty sensitive topic. Like some are like, yeah, I can totally make money up of that.
No.
Others are like no way, right, So.
There's a lot of hype about that. And from two thousand to two thousand and seven I converted a lot of buildings in New York from office to residential, so I have a lot of experience doing so.
Most of the office buildings.
Their floorplate, each and every floor is just too big, too deep. Residential you have for each and every bedroom. You have to have light and air. You have to have a window, you have to have legal.
Light and air.
There's a certain distance that it needs to be from the neighbor a building. And when you have a very for example, here, this floor is very deep, so it's very good for office, it's very good for studios. It's not very easy to convert it to residential. So there's a lot of five.
A really nice floor through the apartment, right, I mean from both right.
So when you are close to the window, right, that's great. Here is the problem now when you when you try to convert it and you have a lot of space that is not usable, what.
Are you going to do with it?
So it goes back to yes, you can convert those buildings, but most of those buildings need some type of incentive, either tax or some type of incentive to help the developers to convert their And if you really stop for a second and you ask yourself, how many of those buildings are really being converted versus all the talk around it, there are not too many that are doing well.
Speaking of office in terms of the overall commercial real estate space, I know that you don't do office, but other developers told us that the weakness from that one space, that there is an impact on the rest of commercial real estate.
Do you feel that at all?
So I don't do it for a reason because I think the residential space, to me, is the most safe kind of a space of sector in real estate.
But what we see in the office space is very interesting.
The brand new, truly class A office buildings are doing well. Those that are new with all the amenities and the state of the art systems, mechanical systems, those are doing well. But if we look at New York, and not only in New York, every major urban city does a lot out of inventory of what we call B and C type of office buildings, those struggle a lot. Some of them will need to be converted from one use to another.
But does that weakness there in the possible the faults that could be coming and just everybody's talking about, you know, extended pretend values. Does that impact.
Your area at all?
Do you see it pushing out in any way, like on the financing that sort of right?
No, because because the residential construction lenders are not they mostly focus on the residential sector, the same as when we on our that side, we focus.
Only on the residential sector.
I don't lend, I don't I don't know enough about the office or retail to really make a judgment if one location or one building is better than either. I have a general review, but you know it's so specific. Real estate is so specific, and it's so it's it's quite sophisticated. I better know what I'm doing before I land money, so much money, before.
We let you go here. It give us your thoughts on South Florida, and you've got experience there as well. Is that are we overdone there?
Is?
It's still right, So so South Florida.
Let's zero in again, because every every market is different. I think Miami is actually doing well. Of course, it's all about the very delicate between inventory and demand. But Miami mature to a point of no return. There's so many great things. This is not only anymore just okay, I want to be there a couple of months during the winter time. I mean there are amazing restaurants, museums, sports, you know, whatever you want is they're not not too exactly the level of New York City, but very close
to it. So the market is doing well. We have we have a very big project in Miami. This is the fourth sales office that that is open for us and and and the product is selling well. So what we see over there, we see different buyers than we see in New York City.
Just for a cookie thirty seconds, who's your buyer?
Who's your best buyer to walk through the door where?
Yeah, I mean it's not the Russians, it's not the Chinese.
Who's a good buyer for you?
Just someone that really wants to buy and really looking for for a product in a specific area, and I want them to step in and look at my product, and if you know, if they like it, that's fifty percent.
Of the sale. Right.
They might it might be too expensive for them, it might be whatever, not the right size for them. But if they step in and they like the product, it's fifty percent of the world.
All right, Mickey, thank you so much for joining. I really appreciate it. Love getting your perspective. Mickey Natally, chairman and CEO of Naftali Group, talking about the residential real estate business in Manhattan.
Abigail Do, a little.
Market reporter for Bloomberg News, also joining us, helping us kind of spend some more time on the real estate business. I find it fascinating and there's a lot of different pockets. I'm learning some are doing better than others.
I wasn't there you interested in luxury apartment buying in his New.
Jersey those days Thursdays River I sold everything I owned and now safely sconced down the Jersey.
Yeah, no, that's a that's definitely something.
This is the Bloomberg Intelligence Podcast, available on Apples, Spotify, and anywhere else you get your podcasts. Listen live each weekday ten am to noon Eastern on Bloomberg dot Com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal