We're Going To See An Implosion In High-End Condos: Guterman

He joins us here as an expert in all things real estate and Gerald Government. I wonder if you could just describe a little bit for people that may not be familiar with your history and your company, what achievements and accomplishments, because they are many, What you can just describe to give people a little idea of your background. Sure, we're in business now a little over forty nine years. Our year will be in a few months as a matter of fact, that we have the same partners we

started in nineteen nine. Next year we're going to celebrate the fiftieth year. We're actually going to sign our agreement. We never got around to signing it. Because we simply couldn't afford the legal fee for an attorney to do it. But we are all each other's lifetime friends, and I'm very lucky to have this kind of relationship with five other guys. UM to know what we do, we are in the real estate business. Obviously, we are developers, builders,

owner operators. On the development side, my company was the original owners and developers of the residential portion of Roosevelt Dialect called Island House, and we owned it, we operated it. Uh. We owned the Glen Oaks Village, which was three thousand apartments and queens. We owned a number of properties around Manhattan, the Park Vendome to seven Street, fifty Sutton Place South for twift Street. UM and the numbers. He's got a list, and it adds up to condiment apartments and rental and

rental apartments owned and managed. The largest condo owner and operator at least in New York, if not in the in the country. We finished now sixteen thousand and eight departments through last year, which they tell me is about three and a half times the next largest in the New York area. So let's talk about the New York area because we've seen cranes still up and bringing up more buildings and more buildings. Uh. We were just talking ahead of time about how the biggest problem for local

or residential real estate markets is overbuilding. Are we overbuilt in New York? And what is the consequence if we are, we're overbuilt to the price level that we're trying to sell or rent to. Uh. New York now has a reputation that's shared by Miami and Houston, Texas. The reputation is, if you give a builder in New York a mortgage, you will build in the desert. There's just no limit to the amount that will be built as long as they can borrow the money. You know, it's a funny

thing about borrowing money. It's tax free, and a lot of the building that goes on throughout the country has to do with something called the first draw. The first draw is exactly what it seems to be. It is the first amount you get from a lender. It is tax free because it's alone, but it's also unaccountable. Because it's unaccountable. Can you imagine all of the things you can cover, all of the mistakes you can cover. And consequently, the first draw forces builders to build more because they

can't cover the course of what they built previously. So are we heading toward the crash here with respect to the high ends, the mid to high ends condominium markets or or or. I am convinced that UM, and a reason that I've brought my people back to New York because we work in a number of other states, UM, is that we are going to see an implosion of these ridiculously high priced condominiums that have no reason to have been built in the first place. They weren't based on,

in my humble opinion, sound and reasonable thought. They were based on hopes and dreams of being able to attract folks from other countries who either had flight capital or were simply trying to establish something for ego in the United States. And I think you couldn't see from some of the prices that have been paid fifty million, seventy five hundred million dollars, what does that have to do with the time of day? That's simply an outsized ego

trying to be self satisfied. You have written about something described as sleight of hand and magic, and it's not about Whodini tell us how slight of hand and magic factor into real estate investment. Oh yes, it's some of my favorite things. What I have found over the years is that when I noticed funds buying portfolios of properties, they were buying them for different reasons than what I originally thought. I thought they were properly investing the money

and looking for a return. What I found was they were looking for magic. What they would do is they would buy a portfolio of maybe three, four, or five or more properties, and the seller would agree to take the funds in total as one number, without apportioning the sale price to each property. So what was happening is the buyer was now deciding on what the pro rata share of purchase price would be of this total each

one of the properties. And when he did that, if you think of it this way, it's really what happened. He could take his best property he was buying and put the lowest basis, and he could take the worst property he was buying an increase that basis out of all reasonable thought. And consequently, when he went to sell first, his return on the on the best property became astronomical. When he went to sell, he was selling at a

full spasis. Yeah, well, there are a lot of people who are looking for magic, they might get something else. Gerald Gotterman, thank you so much. That was fantastic. Gerald Gotterman a senior principal partner at Government Partners, overseeing thousands and thousands of apartments. We get to speak to one of the fifty most powerful women in New York. She

is sitting with us, Leslie Himmel. She is co managing partner of Himmel and Marrying Off Partners, private investor, private ut landlord in in New York City and with more than thirty years of experience. Leslie, thank you so much for being with us. Where are we right now with the New York commercial real estate market? We've heard a lot about cooling off and pricing. How far is this going to go? First of all, thank you for having

me on your show. Just to Contexas UM. Steve Marongolf and I have been investors in Manhattan secondary office buildings for the last thirty four years. We've been through many cycles. We feel like we've been at a tipping point for actually a few years, waiting for interest rates to start to rise. I was just on a panel where there was a reference on oak Tree saying that there's a correlation to cap rates of about point eight to one. As interest rates go up, so as interest rates rise,

pricing should come down. There's been way too much money chasing goods here. Cap rates were at three and four for a few years, three three and four percent, maybe even negative yields. And you've seen the bid ask spread changing a lot. So it feels like there's going to be repricing. Although New York City is still the best capital in the world and lots of international capital is still coming here. I wonder if you could just take a step back and tell us about Bernard Mendick and

what influence Bernie Mendick had on your career. Well, that's a question I didn't expect. Bernie Mendick was the chair of Redney and I knew him in my first real estate board in New York. Yeah, yes, the real real Estate Board of New York. And UM, I had been integrated resources in my start after Harvard Business School, and he told me I was going to be nothing unless I started my own business. And and um that was

pretty brave. That was thirty five years ago for a woman to try to start our own business as an owner and developer, and um I did it. Was the right advice. It was a great advice, and I've picked a great partner. We've been partners thirty four years. He made fun of me in a way because that was Bernie's style, and um, he was a great influence and I'm very grateful he passed away many years ago. But he was a real entrepreneur and I've been able to

follow a little bit in his footsteps. You know. I want to pick up on a point that you were talking about with respect to foreign money coming into New York. Have you seen that slow with possible capital restrictions from China or just the slowing of the economy there. Canada has increased they're investing in New York particularly was my sub market that I focus on. Um, there's definitely been a slowing down in Asian money, but there's still enormous

amount of capital coming here. UM also from Europe at this point. So it's really just an interest rate story from your perspective. The cooling it's there was interest rate and also alternative investments as one can invest again in bonds. You see, even like Black Rocky had three three billion dollars go out from their stocks in the last quarter, so you're seeing money flow from stocks into investing in bond investments again, and and therefore, you know, real estate

we should catch up eventually with inflation. I think you you'll still have a steady flow. We're not going We're not going off a cliff this time. You've been quoted as saying that Midtown Manhattan will look really different, but it will take five years most likely ten. Tell us how it will look different. Okay, but Lisa and I were talking before the show about our strategy for thirty

or four years has been buying in emerging neighborhoods. We bought in Harlem, we butt in uh Soho, we bought No Hoo, we bought a Longan City almost thirty years ago. Midtown East is the new emerging market, and it's so out right now. Tenants are paying more to be like Netflix paid hundred and twenty dollars a foot to be on Little Broadway in eighteen Street. Nobody wants to be

in Midtown. The new zoning that we finally got after eight years of fighting is going to help kickstart the renovation and rebuilding of properties, and it's just going to reimagined. It's going to take at least five, maybe ten years for it to come back. It's still an epicenter of New York. Are you buying right now in Midtown East or are you sitting on the sidelines for a while. We're waiting for pricing to get a little bit more realistic.

But we have a word chest of a few hundred million dollars ready to pounce with institutional partners to back us up. How much do prices have to come down to get in? They just have There has to be more volume on the market and I think about ten percent maybe fifteen rebuilding the rebuilding of Park Avenue. Do you see that calculus changing at all? Well, I think Fisher Brothers had this fabulous contest where they had everything

being reimagined. Um, they're doing a great job in getting creative and I think there'll be something happening in the next five or ten years and it's necessary to make it cool again. The recent announcement that JP Morgan is going to tear down their building on Park Avenue build a new bigger, better, brighter, taller, is that what's going to happen. That's gonna be one example of many that you're going to say they're the air rights transfer that

you can have from landmarks. That's happening in multiple buildings right now. Is there any neighborhood in New York City that you think could even see values appreciate going forward in the next say two years, The boroughs really even after Brooklyn already like well, the Opportunity Zone legislation is going to bring a lot of money to the to

the Boroughs. All right, well done, Thank you very much for being here and having us here at the Eisner Amper Global Leaders in Real Estate a Summit, and want to thank you very much Leslie Himmel, co, Managing partner at Himmel Marong Golf Properties, telling us all about New York real estate. Well done at congratulations, Thank you so much for having me right now. I want to introduce

a very special guest. We are privileged to be able to speak with Don People's, the chairman and chief executive of the People's Corporation, long time experience in the markets, a real good bird's eye view over what's going on. So let's start there. We got more disappointing housing data today. Where are we in the housing cycle? From your perspective, um, I think that we are in a more in the bottom half bottom of the cycle. Right now, I think

that the markets catching his breath. I mean everything's healthy. I mean job growth, employment, everything's very healthy. I mean cost have um had a big impact on affordability, and so fewer people are able to buy right now because not because of income issues, but because of the rising and run up and cost and so the markets now got to find its way back down. I mean developers, you know, my company included, we were extremely optimistic that

this big run um of price increases would continue. And it's it's not, and it shouldn't have. I mean what happened is that we had the Great Recession. Development came to a screeching halt up until say two thousand, late two thousand, two thousand twelve, and there was huge pent up demand. Well, the market has now satisfied that pent up demand and now we're back on a more equilibrium level. So we can't have these big run ups on prices I mean cast of materials and cost of run up

significantly because of this big rush to develop. So now things gonna settle down a little bit, and I think we'll see a much more healthy market, barring some catastrophic event. The market is gonna level off. There'll be a normal growth as opposed to this extreme volatility UM in the in the real estate market. Just to step back for a moment, Uh, you left Rutgers pre med to go into real estate. Yeah, you did a major development in d C that was successful. Then something happened. You decided

to go You want to go to Miami. Now you're based in Coral Gables. You've got properties all over the United States. But your tagline of the company is affirmative Development, and that's not by coincidence. Can you tell us about that? Well? Thank you, m'm and PIM. We like, you know, as a company, we like geographic and product type diversification. So I like to um do go into other markets, urban gateway markets with big barriers to entry. UM. But you know,

I quit Rutgers to go work in real estate. And I was exposed to real estate by my mother. UM. My mother raised me and my parents were divorced when I was five, So she was a breadwinner in our household, and she was knocking down you know, um and confronting barriers throughout her career. Uh. And so I wanted to create an environment in my company that recognizes that we

need to make this a more level playing field. And so how to do that is to make sure by my company that we provide access to equal opportunities for minority and women entrepreneurs. So as a whole, throughout our company UM, we since the history of our company, twenty five over of all of our contracts for our projects

have gone to minority and women owned businesses. I mean, so think about this New York City six or seven percent minority and as we stand today and as fifty three percent female, and if we stand today, the city does less than three percent of its contract with minority and women own businesses. So I'm very proud of that. And so that's a big part of what our company UM does is we create environments of our opportunity. We

are a capitalistic democracy. A capitalistic democracy means that businesses lead, entrepreneurs innovate and lead. And so we cannot advocate this responsibility of a of a of inclusiveness UM to the public sector, and the private sector has a key role

to do that. Larry Thinks set that in his annual letter to shareholders that UM, you know, black Rock has to do more than just make profits, but invest UM in an impact investing and I think big part of that is that, you know, opportunities ought to be reflective of the demographics of our society and they're not, and especially in the business sector, and so businesses have to accept that responsibility. And so that's what why we do

what we do. Businesses lead so to politicians, and the Washington Post reported that you're considering running for New York City mayor. Is that still in the carts? Yeah, I mean, look, I'm considering it, UM. I did before. UM. I don't have a personal ambition UH to be in politics or personal ambition to be a mayor of New York City.

I never have had that kind of personal ambition, but I do UM have a personal commitment to UM balancing a system that you know makes our country great and entrepreneurship and business is what makes America a great nation amongst its people, and so we have a responsibility as a business UM to do that. So I'm interested in that regard. I'm curious as a business owner, do you think that the policy is currently in place at a

national level are very supportive of business? Yes, but they create UM unfortunately, how how they're being presented unfortunately, UM are creating a great deal of divisiveness. And yeah, I think less regulations good for entrepreneurship. I think, uh you know, um, more free flowing capital is good for entrepreneurship. I mean, but there are I mean, there's a there's an their institutions also that are very important for our country as well, such as I mean the Federal Reserve. I mean that

should be immune from politics. UM. So so it's a double edged store. Well, just to to amplify that, I mean, you are a congressional page, so you've seen it from the inside, and now you see it from the other side as well. Yes. In fact, I was a page my last and an intern um my last few years of high school. And so I have um watched UM multiple presidents, every president since Carter. I've actually met them,

and I've seen them in action. And I've been a student of politics and and the ability to be transfer of politics be transformative, and also how the nation has changed and evolved. Civil rights movement happened in my lifetime, UM, Women's rights, Um, you know, happened in my lifetime early in my early in my adult life. UM. And so I've seen a lot happen. So in twenty seconds, are there any areas in the United States that you think still could see price gains? You see US opportunities? Yes,

I think Los Angeles is gonna see price gains. I think uh, Charlotte UM is gonna see price games. Miami and South Florida as a whole is gonna get another run, and Central Florida is gonna get another run. Those will be in in Tennessee. UM. Those are where people are moving to in businesses are moving to UM for different reasons, mainly for taxes, and so we'll see some more growth

in those markets. And of course you'll announce whether you're gonna run from mayor with us, right, I mean, if you decide to do that, if I decided to do that, I would certainly do that. All right, well done, Thanks very much for being with us. Don Peebles he is the chairman and the chief executive of the People's Corporation. They are based in Coral Gables, Florida. Joining us now that way, we have Jim Bianco. He is the president and founder of Bianco Research. He is also a Bloomberg

Opinion columnist. Jim Bianco, let's begin with President Donald Trump and his attack on j Pal chairman of the Federal Reserve. Your reaction, I don't have a problem with it. I know a lot of people do the Federal Reserve. I kind of put in this kind of a parallel with the Supreme Court. We always criticize the Supreme Court. Yes, the President could remove a Federal Reserve chairman for cause, but the hurdle is very, very high, and Trump has said to the point so far that he doesn't want

to do that. But there's nothing wrong with the President of the United Space expressing his opinion about monetary policy in making the Federal Reserve explain themselves. If they believe his criticism of monetary policy will affect it, then we should frankly look for new Federal Reserve personnel that are able to stomach somebody questioning what they're due. They are not allowed to live in an ivy tower without criticism.

And there's nothing wrong with what the President is doing. Now, maybe the words he's chosen, I would have chosen different words, but I don't have a problem with with what he's attempting to do here. Do you think that he's right? Do you think that the Federal Reserve is raising rates too quickly. I do think he's right, and I do think the Federal Reserve is raising races too quickly. But I also would have said, even if I didn't believe that it was okay for him to uh to do this.

And I do think that the Federal Reserve should be asked, as J. Paul was in the first question of his press conference in September two, only six the history of the Federal Reserve is you raise rates too much, something breaks, and then it's too late, we have a recession. There is the leading cause of recessions over the last time of years. Hold on a second, Jim, there is a whole school of thought that at a certain point keeping

rates too low is harmful for the economy. That if you raise rates and actually people can earn some money on their cash, they can actually use it to go out and spend and it actually boosts growth. What do you say to that. I absolutely agree with that that monetary policy in the extreme either way creates dislocations in the economy. Too low can create problems, too high can create problems. The question is whether or not they're going too high. One of the leading indicators that says the

FETs move too much is an inverted deal curve. We don't have that now, but we are on our way towards one. Especially if the FETE intends on raising rates four more times between now in the end of next year, we could very well be at an inverted deal curve. And when the FETE is asked about this, they dismissed the yel curve. We've done that every cycle. They dismissed it, and it always turns out to be a good indicator. And um, when asked, yeah, just back to my thing.

When I asked that, the first question of the presser in September, uh, are you gonna go till something breaks? How uncharacteristically did not have any answer for that. He just basically said, you know, we're smart people and hopefully we'll figure it out before we get there. They don't know where the breaking point is. So that's why I think it's fair to ask those questions. This is dangerous stuff. When you raise rates eight times, planner raising rates four

more times. History has shown you cause problems when you do this. That's your history, and there's got to be a better answer than hopefully we won't create another problem again this time we'll see. That seems to be what they said. They're saying right now, Jim Bianco. If you happen to be an investor that is long stocks, what's the best hedge against the market sell off? If you

don't want to sell them. Um, that's a good question because what's happening in the marketplace now, excuse me, is that the relationships between stocks and bonds and all the other assets is becoming very correlated, meaning they all move up and down together. Meaning if you want to look, what do I do with my money if the stock market is not working, the answer is there's not much

you can do except for cash. If you want to move to cash, that's always a safe instrument to put your money in your you you earn two percent because that's about where cash is, but you don't take any downside risk. If the question then is why anything but cash, the answer is there is no option. That has been the biggest problem with the market this year is the

recorrelation of all of these markets together. Your cover story in Bloomberg magazine about what's happening at a q R and the problems they're having is a direct result of this. Is that all of these markets are becoming very correlated, and it's been a very difficult problem a lot of people. Jim Bianco, we love having you on. Thank you so much for being with us. Jim Bianco is president and founder of Bianco Research Research, as well as a Bloomberg

opinion columnist. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio