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- [00:00]
Host
At Marsh, we believe that perspective powers progress. That's why our individual businesses have come together as one company, a new Marsh built to solve the world's most complex challenges and uncover new opportunities for our clients. We're better positioned than ever to help your business navigate obstacles and unlock potential across risk, reinsurance and capital, people and investments and management consulting. Learn more@visitmarsh.com podcast support for the show.
- [00:30]
Public Investing Ad
Comes from Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it again against the S&P 500. Then you can invest in a few clicks. Generated assets are like EFTs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member finra SIPC Advisory Services by Public Advisors LLC SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for information purposes only and is not investment recommendation or advice. Complete disclosures available at public.com disclosures there's.
- [01:39]
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- [01:56]
Host
Bloomberg Audio Studios Podcasts Radio News this.
- [02:03]
Bloomberg Businessweek Daily Announcer
Is Bloomberg Business Week daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens, the Bloomberg Business Week Daily Podcast with Carol Massar and Tim Stenovec on Bloomberg Radio.
- [02:26]
Host
All right folks, let's get to what is top of everyone's mind and that is the winter storm stretching from the Southern Rockies to New England. It is expected to impact at least 170 million Americans, including everybody around the table and certainly here at our New York bureau. Let's get the latest Bloomberg News Energy reporter Josh Saul back in the house with us. So where are we? Has it Gotten any better?
- [02:47]
Co-Host/Interviewer
Still going to snow, Josh.
- [02:48]
Host
It's still going to snow.
- [02:49]
Josh Saul (Bloomberg News Energy Reporter)
It's going to snow a lot. We're going to see up to a foot of snow here in New York City on Sunday. Might cancel my kids basketball game, but snow is already following the Rockies. And what's amazing about this one is it's such a huge part of the United States. This will affect up to 170 million people stretching. It's going to stretch 1500 miles. And a big test will be Texas on Monday morning.
- [03:15]
Co-Host/Interviewer
Why Texas is such a test? Is it because of what happened there a few years ago? Is it because of the concerns with the power lines freezing there? What is it?
- [03:24]
Josh Saul (Bloomberg News Energy Reporter)
It's partly because we saw so many deaths in such an intense power grid emergency almost five years ago. But Texas is not used to extreme cold. So when you have a polar vortex, you know, pressing down from the Arctic like we have, that's going to just put a lot of stress on the state. The state's power grid is expecting a demand peak of 84 gigawatts. That's not just going to be a winter record. It's going to get close to a summer record. And that much demand is going to be tough for the grid to keep up with.
- [03:56]
Co-Host/Interviewer
Wait, can you just explain 84 gigawatts we hear kilowatt hours is sort of like what our own home energy use is measured in. Gigawatts we hear in relation to AI.
- [04:05]
Josh Saul (Bloomberg News Energy Reporter)
So gigawatts are the big boys. One gigawatt is roughly the output of one nuclear reactor. So if you think of, you know, the nuclear power plant in the Simpsons, 84 of those, you know, producing power across Texas.
- [04:18]
Host
You know what? You've made my day. You've made my week. You've made my year by that reference. Hey, listen, Texas though, back to 2021, right? That was when we. It was just really rough. Texas. I have a lot of family in Texas. It's not an area that usually has to deal with this kind of weather. You know, the president was out and I want to bring this into it, Josh, because you follow the environment and he put out on social record. Cold wave expected to hit 40 states. Rarely seen anything like it before. Could the environmental insurrectionists please explain whatever happened to global warming? What do you say to that? Because my understanding of global warming is, yes, the planet is getting warmer, but there's also extreme movements when it comes to weather overall. And that is certainly what we've seen.
- [05:00]
Josh Saul (Bloomberg News Energy Reporter)
That's right. So global warming is one term climate Change is a more accurate, broader term because what the what climate change does is it makes for more erratic swings in temperature and more in more types of extreme weather. So sometimes that can be global warming, a warming and a drying, making for more intense wildfires, for example. But it can also do things like make hurricanes more powerful by making more moisture in the air so those swirling winds pick up more water out of the ocean.
- [05:30]
Host
And that's what we've seen in terms of intensity of storms, whether it's winter storms, whether it's hurricanes. And they're also happening in places that they didn't used to happen before.
- [05:37]
Josh Saul (Bloomberg News Energy Reporter)
Right. And actually with this storm, the fact that there's so much cold air pushing down out of the north, the reason it's able to come so far south and this storm is going to be striking Texas is because the jet stream is not keeping the that polar vortex contained the way it normal the way it normally would. You'd have to get a full time weather reporter, not a power reporter to explain whether that's a result of climate change.
- [05:58]
Host
Right.
- [05:58]
Josh Saul (Bloomberg News Energy Reporter)
But those kinds of weather patterns, it is what's making these storms so intense.
- [06:02]
Co-Host/Interviewer
Well, I'm going to throw a power question your way and talk a little about energy use. We know it's expected to increase, of course, as people turn up their heat when it gets colder outside and more heat is needed here in New York City. Con Edison, much of the lines for power lines are buried underground in New York City. Is that an advantage in a storm like this?
- [06:22]
Josh Saul (Bloomberg News Energy Reporter)
Yeah, for sure. The powered buried lines in a, in a storm are much more secure. That's going to be better for in places like California, which is working to bury its lines. That's better for preventing wildfires. And in a place like New York City, having the lines underground means they're less likely to freeze, get overloaded, have a tree fall into them, get knocked out in that way.
- [06:42]
Host
All right, going to leave it there. Hey Josh, thank you so much and you've done this, keeping us up to date throughout the week. Appreciate it. Josh Saul, Bloomberg News energy reporter.
- [06:51]
Co-Host/Interviewer
Stay with us. More from Bloomberg businessweek Daily Coming up after this.
- [06:58]
Host
Business challenges and opportunities are never one dimensional. At Marsh, we believe that to thrive, you need perspective. That's why our individual businesses have come together as one company, a newmarsh where each layer of our organization works even more closely together to provide you with a stronger, more panoramic perspective. We're now one firm solving the world's most complex challenges and unlocking opportunities for you across risk reinsurance and capital, people and investments and management consulting. As business continues to evolve, Marsh will always be here to help you overcome new challenges, answer new questions and take advantage of new opportunities. We're better positioned than ever to provide the perspective you need to fuel progress forward. See how@visitmarsh.com podcast support for the show.
- [07:53]
Public Investing Ad
Comes from Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewal renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are like EFTs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public. Paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member finra SIPC Advisory Services by Public Advisors, llc SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not investment recommendation or advice. Complete disclosures available@public.com disclosures you've never been.
- [09:02]
Capella University Ad
One to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outru, momentum to build on, and your own high standards to meet. Stop now. Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now go earn the degree. Capella University. What can't you do? Visit capella.edu to learn more.
- [09:32]
Bloomberg Businessweek Daily Announcer
You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTub.
- [09:46]
Host
All right, so let's add it all up because we have had a jittery week when it comes to the market, moving sometimes off of those comments, social media posts from President Trump and kind of keeping uncertain geopolitics top of mind for investors. We've definitely seen that play out and raising kind of the question of whether that could undo some of the stock momentum that we've seen over the past three years, we've had three years of double digit gains. And there is a question, is that it or do we have more momentum to the upside?
- [10:14]
Co-Host/Interviewer
Well, it kind of reminded you of this conversation between JP Morgan Chase chair and CEO Jamie Dimon and Bloomberg host and Carlyle co founder and co chairman David Rubenstein. This was just last week.
- [10:24]
Host
Yeah.
- [10:25]
Co-Host/Interviewer
And here's the part where Jamie Dimon addressed what could bring about a possible turn in the cycle.
- [10:30]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
There are chances to have a problem somewhere, somehow.
- [10:33]
Bloomberg Businessweek Daily Announcer
You know, the biggest unknown is, is geopolitics.
- [10:38]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
You know, and it's not like you have to be dangerous, careful. You talk about. It's not like that's going to determine what the economy does in 2026, but it is a moving tectonic plate.
- [10:49]
Co-Host/Interviewer
Well, there you have it. JP Morgan CEO Jamie Dimon earlier this month with Bloomberg host and Carlyle co founder and co chair David Rubenstein that was at the US Chamber of Commerce. That full conversation will be featured in an upcoming episode of Peer to Peer Conversation with David Rubenstein on Bloomberg.
- [11:03]
Host
All right, Curious to see what our next guest has to say about the geopolitical climate, what it means for investing in 2026. Andrew Kry is back with us, Chief investment officer at Crescent Corporate Grove Advisors. They've got over 5 billion of assets under management as of the end of June. He joins us from Milwaukee. A lot to talk about. Do you even think about what might bring the next turn, significant turn in US Markets or the next crisis? Financial crisis?
- [11:32]
Andrew Kry (Crescent Grove Advisors CIO)
Of course, yeah. We're always risk aware in terms of how we allocate portfolios and think about what.
- [11:37]
Host
Are you more so, are you more so in this environment? I understand that we're always thinking about risk and we have to do that with any kind of portfolio management. But is there something about this environment? I don't think 2026 got off or began like we all thought it would.
- [11:54]
Andrew Kry (Crescent Grove Advisors CIO)
I think that's a fair comment. Right. And I think there's been an uneasiness about the general rally in the S&P 500. Just feeling like whether it's the labor market starting to fragment somewhat last year or at least seeing signs of softening, the Fed moving to cut interest rates in sort of a meaningful way again, taking out insurance against the downside scenario. I guess there are different elements that you could point to and say, yeah, this, this just doesn't feel right to have such a buoyant stock market against the backdrop where it feels like the Macro is a little bit fragmented and of course you had tariffs, you had policy uncertainty which is now rolled forward into a different type of policy uncertainty, different type of geopolitical concern. So I see the point on that. But I would say we're constantly risk aware, right? At least we, we aspire to be so.
- [12:38]
Co-Host/Interviewer
So then in terms of the awareness that you have right now, where is it with in relation to other risks, risky atmospheres or risky times that you've seen just in the last couple of years? Where does this time stand?
- [12:50]
Andrew Kry (Crescent Grove Advisors CIO)
Well, I would think about maybe what we saw in Japan this week is an interesting way to come at set aside the Greenland, you know, and Davos news with Trump and kind of the, the issues with the administration around Greenland and wanting to annex it or whatever the case may be there. But I think what was more interesting, and you saw Ken Griffin and others, really high profile folks talking about the spike in yields that we saw in Japan and we saw this build in term premium to the tune of about 10 basis points, which doesn't seem like a lot. That's sort of wonkish in the way that you think about that from a ten year treasury perspective. But to us that's a big concern. Moving forward here is do you see an untethering of the long end of the yield curve potentially or is this an early warning sign that you could see a real steepening or at least you know, just the long end of the yield curve moving higher. You get, you know, higher discount rates then which flow through and ultimately in sort of a 2022 type scenario I think is an analog where you see higher rates ultimately catalyzing a derating of stocks and in particular those really highly valued tech names or growth names, let's say writ large that have been leading the market for several years now, that to us becomes the cascading, you know, one, two, three punch sort of thing as it relates to where the risks are on the horizon here. So we're watching that really closely.
- [14:07]
Host
Well Andrew, on that, you know, we've got a story on the Bloomberg about this quiet quitting of US Assets also maybe you could call it the sell America trade. And we've been looking at some of the flows. So has bank of America. Investors are pouring cash into emerging market funds at a record pace. They're sending M stocks to a record gauge. Asian tech tech shares driving that rally. The flow of funds from Europe to India to Diverse away from US Treasuries has added impetus to that M rally fueled by robust global growth and political shifts in Latin America. I mean, are you advising investors to participate in that shift? And we look at, you know, some of the flows, the amount of money going international compared to what we are seeing in the US Or Europe and Japan, it's pretty stark. And maybe some say it's small amounts, but it's not something that we've seen in a while.
- [14:59]
Andrew Kry (Crescent Grove Advisors CIO)
And I think we would point to a couple different things there this week. Being an interesting, I guess an interesting example here of the catalyst around why that's occurring. Just the policy uncertainty that can be created by the administration. And then as much as anything, we would kind of set aside the Greenland specific issues at hand here. We would say ultimately this is just another force to galvanize Europe in particular, but to galvanize really the rest of the world around feeling like they, you know, they don't want to be antagonized by the US Administration or put into a corner from a policy perspective which then ultimately will have trade ramifications and tariff ramifications, etc. So you know, that then catalyzes whether you see in a public sense these pension funds selling their treasury holdings, which was really a drop in the bucket. But you just see to your point, this more insidious effect of selling US Assets because, you know, moving into things like gold because they don't want to be exposed to the potential ramifications of US Policy.
- [15:54]
Host
Good stuff. Andrew Krai over at Crescent Grove Advisors, thank you so much.
- [15:59]
Bloomberg Businessweek Daily Announcer
This is the Bloomberg Business Week daily podcast. Listen live each weekday starting at 2pm Eastern on Apple CarPlay 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 11:30.
- [16:17]
Host
Well folks, you can all take a deep breath, take a sigh because can't believe this is actually happening. As you said, the TikTok on TikTok has been one to watch. It's really been a years long saga over the future of TikTok's American operations. We've talked about a lot here at Bloomberg. Finally, finally, it seems reaching a conclusion. The social media platform saying that its US Arm has been brought by, bought, excuse me, by a consortium led by Oracle formalizing the deal outlined by the Trump administration back in September. What I love about this story is all the little people who are involved in this because it's not really just one entity, is it?
- [16:56]
Co-Host/Interviewer
Oh, there's a lot of moving parts.
- [16:57]
Host
Yeah, there's a lot of moving parts.
- [16:58]
Co-Host/Interviewer
That's why we have Alexandra Levine here. She's Bloomberg News technology reporter. She joins us here in the Bloomberg Businessweek studio. So who owns this thing?
- [17:06]
Host
That's what we want to know.
- [17:08]
Alexandra Levine (Bloomberg News Technology Reporter)
So, you know, not a lot has actually changed and you said it was a year, a year long saga. This has actually been going on for seven years. The folks who are now going to be owning this new US TikTok joint venture are the same names that were floated back in the fall and then also earlier last year. So we know that Silver Lake, we know Oracle and we know MGX are the three leading investors.
- [17:30]
Host
Who are mgx, mgx and who are they?
- [17:34]
Alexandra Levine (Bloomberg News Technology Reporter)
They are a Saudi, a Saudi investment firm. And so they are, you know, they are, I think, one of the only ones, if not the only one that's not actually an American in American investors. So when we're talking that this new venture is majority American investors, that is what we mean by this. But so the owners are this group and then also we've got existing ByteDance affiliates. And what we basically know is that not a whole lot is even though the ownership is changing for some parts of this TikTok US business, what people who are using the app are actually going to be experiencing is not going to be all that different.
- [18:12]
Host
Why not?
- [18:12]
Co-Host/Interviewer
Why isn't it going to be? Because I thought the algorithm is the special sauce. So give us the details on who has that and who has rights to it and how they got it from ByteDance and how that works.
- [18:26]
Alexandra Levine (Bloomberg News Technology Reporter)
Sure. Us TikTok users are not going to need to download a new app. That's, I think more what I meant when I was saying that the experience won't be different. However, ByteDance is going to be leasing a copy of its algorithm to this new U.S. joint venture. And that joint venture is going to be responsible for retraining the algorithm on US user data. This is all very wonky.
- [18:44]
Co-Host/Interviewer
So if that is, is the US user data like, is the algorithm going to be as impressive moving forward? Because that is the special sauce.
- [18:53]
Alexandra Levine (Bloomberg News Technology Reporter)
I mean it's a great question and I think that's what everyone is waiting to see is are we going to be see, be seeing different things on the app? One thing that's really important to note about these new owners is that this new US joint venture is responsible for content moderation. So they're going to be the ones deciding what people are seeing on the app if there is any sort of change as far as what people are seeing on the app. My big question is will we know?
- [19:16]
Host
See, what I'm curious about is where are the servers. Who has access to all of this? And my understanding is bytedance. I mean, it complies with the national security law that mandates ByteDance reduce its ownership of TikTok US to less than 20%, but there's still ownership. So are they just silent owners and they have no say? How do we know that copy. I'm sorry, this is going to sound like Homeland, but it's like, how do we know that copy of the algorithm doesn't have some backdoor entry for ByteDance? Like, how do we. How do we trust that technology, which is considered to be this incredible algorithm? How do we know that it really is safe, secure, and that basically the Chinese government or Chinese companies still can't access certainly personal data of Americans?
- [20:02]
Alexandra Levine (Bloomberg News Technology Reporter)
The idea with this new entity is that, is that the entity, and especially Oracle, which is a longtime TikTok partner, Oracle is going to be sort of the trusted security guard that is supposed to be able to let everybody else know that TikTok is, in fact, complying with the law. I think there's a lot of questions around how that will be communicated to the American public, if it will be communicated to the American public. And to your point, bytedance does have ownership of key parts of the business even beyond. Even beyond just leasing this copy of the algorithm. I think one really important thing to note is that ByteDance is still going to be in charge of TikTok shop, which is basically the E commerce arm that is turning TikTok into a huge shopping destination in the U.S. they're also going to be in charge of the advertising business, which is a very lucrative piece of their empire.
- [20:45]
Co-Host/Interviewer
Why did China agree to do this?
- [20:49]
Alexandra Levine (Bloomberg News Technology Reporter)
China, you know, China hasn't said quite as much throughout this entire process as President Trump has. Most of what we know about the deal has come just from the words of the White House and from the words of TikTok itself. I think that a lot of people looking at this are seeing that China comes out with a win here, that Trump comes out with a win here. Content creators, of course, come out with a win here. But especially, especially China in this case, because ByteDance is still going to be involved in the most important parts of this business.
- [21:21]
Host
We should say in a social post, the President, President Trump, that is thanking Chinese President Xi Jinping for, quote, working with us and ultimately approving, end quote, the TikTok deal. Okay, cool stuff. Keeping us up to date. So we're done.
- [21:35]
Alexandra Levine (Bloomberg News Technology Reporter)
Famous last words.
- [21:36]
Host
Okay.
- [21:37]
Alexandra Levine (Bloomberg News Technology Reporter)
Famous last words. I should say that there, you know, there's folks that have been talking for over a year about how the deal that has been reached has not actually met the terms of the law. I think that the question is whether any of those voices, any of those people, including members of Trump's own party, will have the political appetite to actually do something about it. I was on the Hill earlier this week meeting with some folks, and it doesn't seem like there's going to be the political will to do much of anything from here.
- [22:06]
Host
All right, good to see. All right. Have a good weekend. Alexandra Levine, Bloomberg News Technology reporter, right here in studio.
- [22:13]
Co-Host/Interviewer
Stay with us. More from Bloomberg businessweek Daily Coming up after this.
- [22:21]
Public Investing Ad
Support for the show comes from Public, the investing platform for those who take it seriously. On Public, you can build a multi asset portfolio of stocks, bonds, options, crypto and now generated assets which allow you to turn any idea into an investable index with AI. It all starts with your prompt. From renewable energy companies with high free cash flow to semiconductor suppliers growing revenue over 20% year over year, you can literally type any prompt and put the AI to work. It screens thousands of stocks, builds a one of a kind index and lets you back test it against the S&P 500. Then you can invest in a few clicks. Generated assets are like EFTs with infinite possibilities, completely customizable and based on your thesis, not someone else's. Go to public.com podcast and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com podcast paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA SIPC Advisory Services by Public Advisors, llc. SEC Registered Advisor Generated Assets is an interactive analysis tool. Output is for informational purposes only and is not investment recommendation or advice. Complete disclosures available@public.com disclosures so you want.
- [23:31]
Bloomberg Businessweek Daily Announcer
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- [24:25]
Capella University Ad
You've never been one to settle, stand down or stand still. You're a lifelong learner, energized by excellence. There's a fire inside you you can't ignore. You've got competition to outrun, momentum to build on and your own high standards to meet. Stop now. Not a chance. At Capella University, we help you catch what you're chasing because you've always had the drive. Now go earn the degree. Capella University. What can't you do? Visit Capella. Edu to learn more.
- [24:55]
Bloomberg Businessweek Daily Announcer
You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Eastern Apple, Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [25:09]
Host
Bloomberg Intelligence noting that transaction activity for senior housing assets jumped 70% in the month of December. That was Tim to the second highest monthly level of 2025, with more likely in 2026.
- [25:22]
Co-Host/Interviewer
Meantime, our Bloomberg Intelligence research also showing that apartment REIT Transaction activity rose 40% in December, contributing to a broader late year increase in overall real estate deal volume. That uptick, Carol, driven more by asset dispositions than purchases. So that suggests that prices may fall this year.
- [25:38]
Host
All right. So there's a lot going on and it's only, you know, not quite the first month of 2026. Here to talk about possible opportunities in real estate investing is Lauren Hochfelder. She's back with us, head of global Real assets over at Morgan Stanley. They've got 76 billion in assets under management. And she joins us here in studio. Happy New Year. How are you?
- [25:56]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
To you as well. Great to be with you.
- [25:57]
Host
It's good to have you here. And I feel like we kind of laugh and kid that this week has already felt like a decade. There's a lot going on. I'm curious if you're seeing any narratives, any themes already start to build or is it still kind of early?
- [26:11]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Well, look, I think we are existing in a world of heightened geopolitical and policy proposal uncertainty. And what it really brings us back to is two things. One, as an investor, you need to learn to live and avoid the noise. Right? And we stay focused on These long term megatrends, things like aging demographics and supply chain realignment, where you listen to the noise, but you got to tune it out.
- [26:36]
Host
But is it all noise? Because some of that noise, some of that bark actually does become bite. So I'm just, I'm curious how you navigate through that.
- [26:43]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Sure, yeah. To be clear, it's, it's differentiating, which is noise versus substance. And I think take supply chain realignments, which is obviously an area that, that's very intertwined with tariffs. I think one of the interesting things is people seem to think this Trend started on April 2nd of last year and that's just not the case. This long predates it. Go back to Covid. Companies learned pretty early on about putting all their eggs in one basket. And they've been diversifying where they manufacture their goods and how they get those goods to the end consumer, which creates winners and losers in our space for that core infrastructure they need for distribution.
- [27:22]
Co-Host/Interviewer
Anything the president has said over the last two weeks, when it comes to real estate and when it comes to affordability, does that have any effect on your world? The idea of, well, certainly lower rates, but that's, let's put that aside. But the idea of institutional investors not being able to buy single family homes, or the idea of Americans being able to tap their 401ks for home purchases, is that at all, in your view, going to bring down.
- [27:48]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Well, look, there is absolutely a housing affordability crisis in this country. So the administration absolutely has the right diagnosis and it's profoundly important. The question is, is it the right prescription? And at the end of the day, if you look at single family home ownership or buying among institutions, it represents about 1% of the market. So it's a little bit like the 1% tail wagging the 99% dog we've known since the beginning of economics, that price comes down when supply goes up. This is the solution. And just to give you a little color on that, so we own rented residential housing in a multifamily format all around the world, all throughout the U.S. europe, Japan. And so we really see this day in and day out. You take two, take two American cities. Austin, one of the hottest markets in the US Affluent, educated, workforce, tech, all the buzz. And take, by contrast, Chicago, which is seeing domestic outmigration, it's seeing corporates relocate out. Guess which of the two of those cities has had higher rent growth in our portfolio. We've seen rents grow in Chicago by 20% over the last few years while rents have dropped in Austin.
- [29:01]
Co-Host/Interviewer
Is it because of overbuilding in Austin?
- [29:02]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Absolutely, because supply brings down.
- [29:04]
Co-Host/Interviewer
Exactly.
- [29:05]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
It makes it more cure for high.
- [29:07]
Co-Host/Interviewer
Prices, is high prices.
- [29:08]
Host
So if you're a builder, you're going to be very careful, right. Because you want to get top dollar what you build. So I mean, this is kind of the situation we continue to find ourselves in. So is there a real fix to this or is that supply demand always going to be a very slow mover, if you will?
- [29:25]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Well, I think if you look at the US in particular, we tend to have, as is true across the broader capital markets, the most efficient markets. And so what that means is the supply side response tends to be quite efficient. That's actually what ends almost every cycle in the US Rents rise, values rise, supply kicks in.
- [29:44]
Host
Right.
- [29:45]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
What's a little bit different this cycle is we're seeing a dramatic decline in new supply in part because replacement costs have risen. You've seen supply chain disruptions, obviously impacts from immigration policy and other factors. So values today are trading about 20% below dependent, depending on the asset class, but consistently below replacement costs for the first time since the gfc, which we think actually gives real room to run for rents. It's one of the most bullish indicators for this cycle.
- [30:18]
Host
Well, and I feel like rents, anybody who's been looking for a rental apartment I think in this area too has just talked that they're off the charts. So we certainly see see that. So, all right, so when you think about opportunities for investors this year, what are you thinking or what would you be telling investors right here? It's January, it's early, we're going to see what we get from a Fed in terms of interest rates. But you know, how do you think about it, Lauren, like in terms of where you might be place?
- [30:44]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Well, a couple of things on interest rates, I would say yes, we'll see what the Fed does. But it is our view that the long end, which is ultimately the greater predictor of real estate values and yields, we think stays relatively range bound at today's elevated levels cycles. Which means that unlike past cycles where investors made a lot of money betting on cap rate compression, this time around we think it's all about income growth to drive asset value. And that means you need to be invested in those sectors that have the long term tailwinds, that are structural, not cyclical. So you mentioned at the onset senior housing, that's as you know, an area we've been very bullish on because of the demand side because supply is down and we think there's a real tailwind Another area is industrial. Again we are at the early innings of this supply chain realignment. It's creating real growth in demand and winners and losers.
- [31:37]
Co-Host/Interviewer
What part of industrial interests you the most? Because it's, it's certainly not monolithic but you know we could talk data centers, we could talk other types of industrial, we could talk warehouse. When we talk about cold storage. What's interesting to you?
- [31:50]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
So we like, we like warehouses generally we like warehouses with excess power that create greater optionality. But we're basically focused on. We've been focused on the rise of E commerce for the last 10, 15 years. That's been an incredible growth opportunity. We've seen values in our portfolio double and triple over that period of time. We're very focused on the supply chain realignment. So those markets that benefit from diversification of trade away of manufacturing away from China, among other things we're seeing increased defense spending on shoring of advanced manufacturing. These are the types of things that we're focused on.
- [32:29]
Host
Whatever happened to office? Like where are we on office? I feel like it never. We are here and more people are here but I still see office. There's some properties that are, I think you know, either still vacant. Like where are we in that? We thought that there was going to be this big drop off.
- [32:45]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Yeah. So it's fascinating. So actually take a city like New York where we're sitting today, office utilization is actually back pretty close to pre Covid utilization levels. So we are back. We are no longer debating return to office which blessedly but now we're debating. We know we're coming back to what kind of office are we coming back to. And I think what we've seen is it's really demand is concentrated in those better quality assets. The other fundamental question is what's the right valuation for office? And I think the dirty little secret is that office we think was mispriced before COVID Too high, too high. It just didn't factor in the capex intensity of the asset class.
- [33:27]
Host
And you're not just talking New York office, you're talking across.
- [33:30]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
Not just across the U.S. i'd say really across parts of Europe. The one office market that we view is actually quite different from the rest of the world is Japan. That's a market that is much less capex intensive. Japanese companies and tenants pay for their own build out. That helps that cash flow drop through to the bottom line.
- [33:50]
Host
All right, kind of leave it there. Always love catching up with you and I know we'll do it throughout the year. Lauren, thank you so much.
- [33:56]
Lauren Hochfelder (Morgan Stanley Head of Global Real Assets)
So great to see you.
- [33:57]
Alexandra Levine (Bloomberg News Technology Reporter)
Thank you.
- [33:57]
Host
Great to see you. Lauren Hochfelder joining us here of course, from Morgan Stanley, joining us right here in studio.
- [34:04]
Bloomberg Businessweek Daily Announcer
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