This is Wall Street Week. I'm David Weston bringing you stories of capitalism. This week, the silver tsunami of seniors looking for nice places to live, creating a two hundred and seventy five billion dollar hole that needs to be filled. Plus President Trump wants to eliminate the Department of Education. What would that mean and how much would it save? And what the next Trump administration will mean for the banking system and what it's already meant for the world
of bitcoin. But we begin with a story of second acts, a story of reinvention, of repurposing, and the future of America's shopping malls in the growing age of e commerce. It's the busiest time of the year shopping, a time that in the past would have seen the Berkshire Mall in Why I'm Missing Pennsylvania packed to the gills.
So the mall was built in the early seventies.
It was in its heyday, especially at this time of the year, the time between Thanksgiving and Christmas.
It was packed. Our police department.
Would go out and assist for traffic control.
As borough manager for Wyomissing, Michelle Bhaer saw the Berkshire Mall in its glory days but the story today is very different.
Tenancy, I would say is about sixty percent, so I mean just the visual of walking through it compared to even a decade ago, when again, at this time of the year you would be bodying, checking people trying to get from store to store versus as of today, I would say sixty to seventy percent of the parking lot is fenced off.
What's happened in Wyomissing is far from unique across the country or because love affair with shopping malls has cooled. It was an affair driven by the passion of consumers, a passion to buy, but also to buy alongside others sharing that passion.
It's the emotional connection. So let's not forget why people shop, why women primarily shop right, So eighty five percent of consumption generally occurs from the she, the female side of things.
Adrian Yee is a retail analyst at Barclay's and has followed the business for nearly twenty years.
Back in the day, it was the social outlet and that hasn't necessarily gone away. Unfortunately, we have all this social media where people don't socialize in a public space. The US consumption is the most oversupplied in the world. So pre pandemic, or i should say actually pre GFF, so we had approximately seven square feet of retail space
per capita. Now you compare that to in Europe, it's about a dollar or one square foot to one and a half square feet per capita, and then obviously in Asia it's significantly lower than that.
The US hasn't lost its passion to consume, and it still has a lot of retail space, but there's a good deal less of that space than there used to be. In the nineteen eighties, there were approximately twenty five hundred malls in the country. Today fewer than one thousand, raising the question of how far it could go, whether malls could simply disappear altogether.
We don't think they're dying, but the better malls have a place in the market, and we think what's left. We don't think they're all going to die. However, there are some that will probably die in the future.
Egl Namdar's company owns some eighty of the malls that remain, and he says they can still be a good investment, provided they're the right malls. When you look for an investment in a mall, what's the profile you look.
For, Well, look for a great location, a good market, strong market, a growing market. We look at the mix of tenants in the mall occupancy, who the anchors are, sales of tenants, the trend, and we hope we can buy more as.
We go on.
We may be seeing a natural correction in the number of malls pulling back from their peak, but that correction has been turbocharged by the rise of e commerce.
E Commerce as a percent of sales from twenty ten to about twenty fifteen was just hugging ten percent, hugging hugging ten ten, and then from seventeen to nineteen went from ten to thirty. It was a s curve of adoption where all of a sudden it was like, oh why, because this generation demanded of Amazon and all these other things.
So now we're in the era where this next two decades of consumption is everything that I picked that I want that is going to land at my doorstep when I blink my own when I sapped my fingers or I blink my eyes. Like Genie, if it.
Went to thirty percent in twenty nineteen, I think you said, right, what happened with the pandemic and where is it now.
In one year? So that that thirty percent, which is kind of like specialty, more like specialty like on mall retail, less so in furniture and more so in apperil, but generally that numbers thirty percent. It flipped in twenty twenty. It went to seventy thirty.
Seventy percent e commerce econmo percent bricks and mortar.
Because you can go to the stores. And then what happened is it sort of like kind of ratcheted down sort of in twenty twenty one, in twenty twenty two and serves now kind of at a level playing field where it's kind of more like forty forty five percent e commerce and it's heading to fifty to fifty.
Can you envision a world in which actually bricks and mortar start eating back into e commerce?
My view is it a fifty to fifty world is about right, because a fifty to fifty world will be about five hundred stores. So does you know kind of in that range.
Which malls get hit the hardest by the retrenchment depends on the type of mall involved. Not all us shopping malls are created equal. They come in three basic classes. A Class A mall is one that makes at least five hundred dollars per square foot a year. Research from Capital One says their average vacancy rate is just three point six percent and they're largely doing just fine. On the other extreme, class C malls average less than three hundred dollars per square foot per year and have much
higher vacancy rates. That leaves Class B malls right in the middle, which is where Namdar likes to be given their availability and the bigger difference between what they cost and the revenue they can generate, which investors call the cap rate.
What we like to invest in is A B or B plus malls. Those are malls that they do well, but they're one level below the A, and there we feel that there's an arbitrage in the cap rates, that you could buy them at much more attractive cap rates than the A and maybe a little bit less than the c's that we feel don't have much life left in them.
If I own a B mall, is it possible for me to do something to make that into an AIM all?
Simply no, because the A mall designation is based on the sort of five mile radius of income density demographic. Okay, I want an income demographic in that five mile radius. That makes seventy five to one hundred thousand dollars. Now I can go look for my malls. So the designation of the A or the B is actually based on the wealth. So if you think that an area will in ten years become more more wealthy, then you're going to make that bad because these least are also ten years long.
If a mall owner can't change the demographics of its immediate surroundings, what can it do to improve its investment? What can be done to save a struggling mall.
Now, our main focus is to do joint venture with a developer and bring someone in and say, let's go as a partner and we can repurpose it, whether it's a for residential for you know, hospital, for you know, industrial, hotel, mixed use, other types of retail, big boxes, you know, junior anchors. So that's what we're trying to do. But in some cases we just would sell it if there isn't a demand for that joint venture.
Which takes us back to the Berkshire mall and why I'm missing Pennsylvania, which has become something of a problem for borough manager Ware and for its owner, which turns out to be none other than Egle Namdar. The average income within a mile of the Berkshire Mall is close to one hundred and thirty thousand, but that's just seven thousand people. Zoom out five miles and the average income drops to seventy three thousand dollars a year across almost two hundred thousand people.
I believe the highest assessed value was in the mid fifty million dollar range. That coupled with mercantile tax, you were looking at probably anywhere between four to seven hundred thousand dollars in annual tax revenue. Compare that to the most recent reassessment that dropped it down to five million dollars. So you can do the math on four hundred to seven hundred thousand lower to ten percent. I mean, that's if you're talking in terms of our overall budget. Current
annual operating budget is around thirty million dollars. Four hundred thousand is the amount we spend annually on televising and repairing our water means or that's a third of our annual street improvement. So that amount could have a significant impact when you're talking about services the borough can provide and tax revenue that's being generated.
Berkshire's owner recognizes the problem. He says he shares the community's goal of getting revenue from the property and tax payments up, but that sometimes the issue lies with the local government and difficulties in getting timely approval of plans to redevelop.
I think that if you have a good use that's going to help the city and help the developer the landlord, maybe you can expedite things where we can make that happen quicker. I hate to see certain assets sit empty for years and years till you get the zoning approved,
the entitlements. I hope that there's a way that everybody can work together and maybe expedite it, because the ultimate goal is to have that land repurpose into a new class that is ideal for the community, for the city, for us, for everybody.
The intent was to redevelop it.
The borough quickly found out that current ownership that's not how they operate. They instead buy properties and effectively sit on them. So the redevelopment plan that I think the community and borough council expected to see obviously has not happened much to the dismay of most everyone who just kind of sits back and watches it continue to further deteriorate.
However, things ultimately work out for the Berkshire Mall. All parties recognize the need to repurpose the property for a changed world of retailing, and they all see potential yet to be realized.
I don't think shopping centers as a whole are a dying breed, and twenty years from now you're going to see every single one of them repurposed. There's clearly development going on.
It just takes a while, but are really our intent is to work together with the towns of ease as much as we can work together as a team to redevelop these assets into something that will hopefully be here for the next hundred some of the years.
Adapting to the wants and needs of the current generation and those that come after them will be the key to the long term health of the shopping ball and the key to a successful second act. Still ahead, how America is preparing for the Silver Tsunami. That's next on Wall Street Week. This is a story about a tsunami, an overwhelming wall not of water, but of people. As our population ages and needs places to live that can accommodate their particular needs and desires.
We considered probably for different residents, and that would be for COVID, and then we looked at Murano and loved Mirano.
That's Marilyn Bergstrom, an eighty seven year old widow who has recently left her house in Seattle, Washington to take up residence in an upscale senior living development.
My husband he got lung cancer and passed away in a year, and then I stayed in the house for another year, and then I decided it was time for me to move on. Well, I had thought years ago I wanted to live in a senior living community before I had to.
Bergstrom is on the leading edge of a coming explosion
in people who will seek senior living accommodations. The number of Americans over age eighty is projected to surge over the next twenty five years from thirteen million to day to over thirty two million by twenty fifty, and within the growing population over seventy five, those with annual incomes over one hundred thousand dollars are growing much faster than the rest, with the highest percentage of growth coming from those with incomes over two hundred thousand dollars.
Demographics are definitely in our favor. I got into this business just over thirty years ago, and we talked about then this silver tsunami that was coming. Well, I'm happy to say that I'm actually seeing it happen now. You know, within the next five to ten years, that aging population is actually going to be moving into senior living.
Tanegaal is one of those addressing the growing demand for high quality senior living. She's president of Meryl Gardens, which owns and operates retirement communities in seventy locations across the United States, including Morano, which Marilyn Bergstrom now calls home. And what her company provides goes well beyond just a place to live.
We define senior living as a place for people to go enhance their lives once they're past the age of sixty two and they're ready to downsize, or they have some need that really keeps them from living in their own home and makes them want to move into senior living. So we provide help with activities of daily living. We provide meals, housekeeping, maintenance. Probably the most important and maybe overlooked,
is social interaction. People who live at home alone are lonely, and we know that socialization helps you live longer, and certainly not just longer, but happier lives.
Taichi, yoga, all those amenities don't come cheap, particularly at the high end of what Meryl Gardens has to provide, But today there is a growing number of seniors like Bergstrom who can afford it.
I'm paying about seventy five hundred a month. That includes my car, which I like to have as long as I can drive. I feel that it's a fair price for what you get. This is far better than any place I expected to live. When I moved in. I just felt like I was in the fancy hotel every morning that I woke up.
And Tanna Gall says that as pleasant as it is for residents like Bergstrom, it should also be good business for Meryll Gardens.
I would not say it's a high margin business. It is a middle margin business. Our margins have been a little more compressed of recent since the pandemic. The pandemic goes really rough on our sector, for sure. If your question had been to me, Tanna, what keeps you up at night? I would have said getting enough great team members there's a couple things that we're looking at. Number one, we are trying to attract more people into our business that don't even know we exist. So, for example, we
hire a lot of people from the hospitality business. It's very, very similar to running a hotel. We have also really broadened our scope in reaching out to colleges and universities.
Were bused to steal robust demand that's about to explode clientele, with the ability to a high prices, a business with solid margins, all of it should make the world of senior living a truly good real estate investment. But, as Nickmaps Vision CEO Eric Morton says, there's one thing holding it back. Supply. His firm tracks senior housing inventory and demand.
Senior housing is really facing a watershed moment as the baby boomers begin to turn eighty. Senior housing construction has been outpaced by eighty plus growth since twenty twenty two, and that gap is only set to continue as the boomers grow by about forty percent by the end of the decade. It's really on the supply side that the
issue has manifested. So the pandemic brought inflation to construction costs as well as a historic increase in interest rates, and the effect of that has been to make the cost of development basically out of reach for most markets. And so what's happened is the senior housing inventory growth has hit all time lows right as demand is set to explode.
I have been fortunate enough to watch our industry go through two very big cycles. As I mentioned back in the mid nineties, when assisted living hit Wall Street. Nobody was public before, but a bunch of companies went public in the mid to late nineties and they built a lot of assisted living. And then we had the dot
com bust and things slowed down again. And what was good from that is it took all those buildings that we built and filled them up, and so then the supply demand was in a nice balance for quite a few years. And then when the recession hit in eight to ten, the same thing happened. We had a lot of product on the market and people weren't moving in. So now as we come into a new economic climate, it is probably the lowest I've seen on construction starts,
maybe in my thirty years. So in some ways that's a little bit distressing to me. But what I'm seeing happen is everybody's filling up our occupancies, I'd say, is an industry are back up to about where they were before the pandemic.
Occupancy rates are back up, But now there's a risk things will go too far that there will be a substantial shortage in available senior housing.
At the current pace, we're on track for about a two hundred and seventy five billion dollar shortfall in senior housing development. I still think a lot of the challenge is, frankly, just projects don't pencil. So if you think about what's happened there, you're looking at construction costs that have gone up by twenty five or thirty percent, Debt that used to be three or four is now seven or eight, and so when you put those two together, your cost
of development has gone up pretty substantially. At the same time, you're looking at what's happened to margins over that time. Will occupancy has been down and the cost of labor has gone up. But if you dig deep and go down market by market, street corner by street corner, there are areas where occupancies high rates are high, and the construction costs the equation pencils, and so we're really seeing people kind of sharpen their pencils and really go hunting
for those areas that can work today. And the number of those areas that work are going to increase as demand explodes.
But if investors are going to be in a position to move in to serve that exploding demand, there have to be enough projects in development now just waiting for the capital and the go ahead. Tena gall at Meryl Gardens says she's ready to move as soon as it makes sense.
It really kind of halted our development, and so, for example, I've got two pieces of land today that are entitled and ready to go, but I can't financially make them work yet. And from an investor standpoint, there's a lot of people who want to get involved in the sector because they're seeing what's happening down the road, But right now, the cost of capital is just too much for us.
At this point, we're starting to see it come down, but it's not quite where we can a project work yet, so we're always looking for pieces of land that makes sense to me.
That's the kind of the scary scenario is that there's markets and segments of the market across the country that have you know, frankly no excess capacity, and so the impact that could have on seniors and our entire society is pretty significant. So I think that, at the end of the day, is the thing that I worry the most about.
All of which means those in the industry see an opportunity for investors to get into the senior living game now in anticipation of that silver tsunami.
At a time when the industry needs more capital, more debt financing to be able to go out and meet
this need. You know, we're seeing market participants that have become exhausted or maybe been beaten during this cycle, and so, you know, really I think there's a call to action for the nation's banks, for the nation's asset allocators, LPs, pension funds, whoever they might be, to look at this not only as an opportunity to generate an incredible return, but also an opportunity to really help the industry meet the needs of society. And so I really am hopeful
that that will happen. But to the extent that we have challenges there, that's something that you know, I'm quite worried about.
For all the challenges the senior housing industry faces, it also offers substantial rewards financial and otherwise.
When I jumped into senior living, I didn't think I would be in it for very long. To be honest, I thought, oh, I'll give this a try. I see what it's about. Everybody told me, you know, the people are really nice in the industry, and I thought it would be like a six month gig. And I literally woke up in August and I've been doing it for thirty years. And here's why I love it. It matters. I get to make a difference in people's lives every day and it's pretty significant. So for me, it's like
working with the team members. If I treat my team members great, I know they treat my REDID it's great. And simultaneously it's a business. We make money doing it, so that's why all of it. That's why I think as an industry is going to be around a long long time.
And that, of course is a good thing for Marilyn Bergstrom at Morano, I like.
Everything just this day as is. I mean everything right now is just absolutely perfect. Kids, grandkids coming for dinner and spending time here. It's a place that people like to come to. In fact, even without being invited. They just will call up and say, oh, can I come over? And that's a really good feeling. It's like being in your own home.
Coming up. Taking a hard look at funding for the US Department of Education that's ahead on Wall Street Week. This is a story about doing without recognizing our limits and facing the consequences of testing them, particularly when it comes to things we care deeply about, things like education.
Now, I'm going to.
Close the Department of Education and move education back to the States, and.
We're going to do it fast. In campaigning for president this year, Donald Trump made eliminating the Department of Education a priority for his new administration, which could help with his plan to reduce government spending overall. But what would that entail and what would it mean for the nearly fifty million US public school students. The Department of Education was created under President Jimmy Carter in nineteen eighty and started with three thousand employees and a budget of just
over fourteen billion dollars. Today, it employs forty four hundred employees and its budget has grown to over eighty two billion dollars. That it's just its operating budget, it's also responsible for dispersing over two hundred and forty billion dollars for schools and student resources from kindergarten through grad school, with the lion's share of it coming in the form of student loans and grants for higher education.
The federal government needn't be doing many of these things, and you know, we're going to have to get into a mode where the federal government limits itself to must do items.
This is like standard Republican orthodoxy. Abolish the Department of Education, blah blah blah, and it's you know, okay next. Obviously, this seems a little more serious this time, but you know, time will tail. The Congress obviously is going to have its by to the apple.
Before we can even consider eliminating the Department of Education, we need to understand exactly what it does.
The Department of Education is responsible for a lot of funding for higher education and K twelve education. Actually, about seventy five percent of the department is focused on higher education through the form of a nanchel Aid pell grants support for college and university students. The rest of the House is focused on elementary and secondary education through Title
one funding and the Office of Special Education. There are other things like Career and Technical Education, and the Office of Civil Rights that supervises and oversees things like Title nine.
Margaret Spellings served as the eighth Secretary of Education under President George W. Bush. She now heads the Bipartisan Policy Center, a think tank based in Washington, d c. American public schools receive only eleven percent of their funding from the federal government, but the lion's share of money coming from the Department of Education has nothing to do with K through twelve public schools. It goes instead for college educations.
The first thing that has to happen is a clear ryde diagnosis of where the biggest bang for the buck can be found, and I would commend the higher ed side of the house probably is the riper work.
Daniels ran the USOMB the state of Indiana as governor and Purdue University as president. As a vocal critic of the Department of Education. He doesn't seem much downside to eliminating it all together.
When you look at it through a competency lens, it has failed utterly at its mission. Look at the National Assessment of Educational Progress SCURSE today versus back at the time of its inception. I think it'd be a great object lesson to the country if we actually stop doing anything federally that's important. You would see, as I've sometimes glibly said, you'd be amazed how much government you'd never miss.
You would not miss.
You'd hear the screams of the clients and recipients of the money, but the average person would not see any difference in their lives, and that might embolden the country to support other trimming and reductions and modernizations of the kind we really need. The Department of Education is doing something it ought not be doing. Other things it's doing that might be legitimate, and I'll say helping somehow finance student education is doing so poorly that someone else should
do it. There's a lot of suggestion move that whole loan mess over to the treasury. Another idea would be to sell it to the private sector. But in any event, they have failed utterly and clearly should be out of that business. What does it leave, perhaps to support state and local educators in doing what has always been really in their province. You could support them financially without all the incumbrances that come with a federal department, and without its cost.
The DOE contribution to K through twelve. Public school budgets may be modest, but talk to someone who runs those schools, someone like Sherry Cammys, superintendent of the Baldwin, New York, Union Free School District, and you get a somewhat different sentence. How big is the budget of your school district? How much of it comes from their department education?
So our budget coming from federal funding is just under two million dollars a year, which represents one point one four percent of our total budget.
What does that mean if that money went away? How would it aff affect Baldwin School students?
So it sounds like it's a small amount of money, and it sounds like a small percentage, but in fact, it is a lot of money for us. Our federal money helps support the programs that we run for our students with disabilities, It helps us run programs for our Title I students, which are students that are below the poverty line, and it helps us with these students who are most in need in our school community. At that one point one four percent, that is a timping point.
If we lose that money, we lose programs and we lose the ability to support those students.
If that money went away at the federal level, is it possible that you could get it replaced at the state level or even the local level.
A good percentage of our state funding coming from the federal government as well. So when you think about the flow of funds, if the state gets less money, then the school district is going to get less money in terms of our aid from the state. If the federal government gives less money, then we're going to see less money coming directly from the federal government.
Quite apart from the role of the Department of Education and doling out funds to public schools, educators like Camis say, it's also important that we have a federal agency that focuses specifically on education and acts as an advocate for education in Washington.
So obviously the funding is important, but the way that the Department of Education understands education, the way that it advocates for public school systems, is imperative. The majority of kids in our country go to school in public schools, and public schools, in fact, are the bedrock of democracy for this country, and so when you think about eliminating the Department, you're really also talking about eliminating the greatest
advocate for public schools and for our nation's children. I guess my question would be, is that really what we want to do? Do we want to put the role of education in the hands of somebody who maybe that's not their primary goal or it's not of primary importance. For me personally, I think our kids are the most important thing that we treasure and value in our nation, and so for me, I want to make sure that our children are taken care of.
The money provided by the Department of Education for local public schools may make a difference. It's advocacy on behalf of public school students may be important, but that doesn't begin to address the bulk of the over one hundred and seventy billion dollars going to college student aid in the form of loans and grants every year. What about that student loan program? Does it make money for the US government or lose mone No, it's.
Losing hundreds of billions of dollars. When the federal government under President Obama took it over nationalized, essentially, we were told it was going to make money, but that's proven to be the reverse of the truth. It's quite possibly the this is a this is a stiff competition. It's at least a contender for the most catastrophically failed federal domestic program that we've seen.
The story is a bit different when it comes to those grants for less fortunate students, though Daniel sees room for reform there as well and isn't sure the Department of Education is needed to administer them.
I think the pel grant program, properly aimed, is very, very worthy, and you know, could honestly be expanded if you didn't have all the rest of the department to pay for. Once again, though the money could be and the program could be decentralized, doesn't need to be command and run command and controls from Washington.
And then there's the basic question of whether we should be urging so many of our high school graduates to go to four year colleges. To begin with, there's been a lot of emphasis on everybody going to college, to go four year college. Is it time to revisit that anyway?
I think it absolutely is, and it's being revisited all over the country. And one of the things that the new nominee for the Secretary has been a strong support of apprenticeship programs. We have workforce programs scattered throughout the federal government. The ones that are focused in high schools and community colleges live at the Department of Education. Many of them live at the Department of Labor.
There are twice as many Americans who started college and didn't finish, many of them because of the that went down the student loan path we talked about. There are twice as many such people as all the eighteen to
twenty two year olds on college campuses. And if we could help find more of those people than we do today, help them get to a new skill, a new credential that would allow them to advance themselves in life, I think that could be money well spent, better than much of what we do presently.
With all the disparate views about the value of the Department of Education and whether it should be preserved, there is one thing everyone appears to agree on, the purpose, which should be to prepare students to join the modern workforce.
As I talk to business leaders around the country, here is a part of the Bipartisan Policy Center that you know, you hear it from every CEO. Every single entity is worried about the quality of their workforce. That is what is going to drive their growth, and that's what it's going to drive our country's growth too, And so yeah, I think it is a national imperative. Can we have a lighter hand, Can we be more about a research agenda?
Can we be more about you know, data and accountability as opposed to telling them what to do, telling them what we desire instead? Yeah, I think there's you know, we're constantly recalibrating the federal role.
So if I'm a CEO of a big company or I'm a big investor, what does this all mean for me? Why do I care about what you do every day?
So the relationship between public schools and industry and CEOs and industry is underrated. There is a direct link to what we do and what industry does. If I'm a CEO of a company, I want the most prepared, the smartest, the most independently thinking, critical thinkers that I could possibly employ.
That does it for us? On Wall Street Week, I'm David Weston. We'll see you again next week for more stories of capitalism.