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00:00Mike obviously you've you've lived and worked through many crises in the market and many quite serious real estate crises not least of which 2008 09 financial crisis. Why is it different this time round . Well thanks Dad I really appreciate the opportunity to be with you. Having started my career on the trading desk in Beverly Hills at Drexel Burnham when distressed debt investing really became an institutional product. I've had the opportunity to see several cycles. And that's this filing question is we always go back and look at what happened last time or what happened this time. I think there are three things that stand out to us right now that are different about this time versus the GFC. One is the leverage that we had coming into the crisis . Two is the speed and depth of the monetary and fiscal response . Three is the scale of unemployment. On a positive standpoint we had leverage coming in much lower both at the corporate sector as a banking sector and the real estate sector. I think 20 percent lower. So that was a positive for this cycle too in terms of monetary and fiscal response. For example back in 0 8 and 0 9 we were trading first mortgage debt 50 percent loan to value at 8 to 10 percent yield debt maturities and already given the Fed's response. Those are in the threes fours this time . So much more liquid functioning market. But the negative really is the scale of unemployment. And Bloomberg has obviously reported a lot on the positive positive job report from Friday . But even with that great job report that we hope continues. We have unemployment that is 33 percent above this headline unemployment 33 percent above what we saw at the peak of the GFC . That's the big question will watch is how fast do those jobs come back. But Mike isn't it also a very relevant fact to the unlike in previous crises in this current one. People just aren't going into work. People are not going into the physical office space. And as long as that continues. Presumably you're going to see a real retreat in demand for commercial real estate . Yeah I think that is a big question. I mean we've we've got the optics speak to every major investor and owner around the world with the tour ability that we do a year and transaction . And that really is the question. I think what we're seeing though is it's hard to pay a bribe brush because certain asset classes continue to do surprisingly well. They were doing well before we came into the crisis. They're doing well and they continue to do expect to do well after like logistics and properties lease the life sciences and data centers and really good quality multifamily which doesn't have a housing shortage and newer quality better leave long term leased office buildings . So those sectors continue to perform well and they were performed well and we feel like we are going to perform well coming out. Flipside of that is things that were challenged come into the cycle like commodity office products with shorter term leases that could have been really hit by the stay at home orders. Enclosed malls have been really hit particularly the lower quality ones have been hurt by a stay at home orders. And hospitality is probably was doing well coming into this. But really it's been really significantly impacted by stay at home orders and negative cash flow. So really it's kind of a barbell we see right now going on with some of those more distressed assets minds particularly if I think about hospitality in malls where you potentially just have you know sort of no traction and no traffic tool at the moment. How are companies and investors thinking about price discovery then. When will we start to see people I suppose moving in to buy some of those more distressed assets. Yeah that's a good question because they the first place that we've all been watching for price discovery is the publicly traded rates which obviously traded down significantly in March and now have started to trace back up. They're still down but that's the first place that people have focused on. How are the publicly traded reach centers in watch of a name like Simon that's you know gone from the 50s to the 90s and in about a week . So it's definitely growing optimism around some of these sectors as seen by what's going on in the public markets. But I think what we're seeing in the private markets investors are are are looking to say OK if the tenant if it's got a cash flow stream that is relatively stable with credit cards over the next three years people feel more confident underwriting that. If you get on the other spectrum like hotels it's getting even more differentiated where people say all right if it's a drive to resort. I think I can underwrite investing in that sooner or later because I think people will be willing to drive to resorts if it's a fly to resort. I got to assume a longer recovery. So it's very differentiated by market and asset class. Another big theme of the last few years has been not necessarily sort of work from home but this idea of flexi working space. Obviously we saw we work that kind of poster child of the shared office space and ISE in a spectacular disaster. Does this crisis change the desire I suppose for companies to build out that kind of office space . That's it. That's a good question because offices the hardest to underwrite right now because you're underwriting both the economic recession and your underwriting human behavior. Our view is that the human behavior side of it recovers quicker than we expect as we get closer that vaccines and therapeutics . Because companies as we look at our own company there are three things we need to day and grow our business. We need to continue to deepen our culture. We need to be able to maintain a shared consciousness of what we're doing for our clients . What are the best ideas how we're serving those clients best and we need to train and mentor that next generation. And so you know that is very difficult to do from work from home. In one sense we're living off of the reservoir we built coming into this crisis. But I think that a lot of companies including ourselves are looking at it. We're going to be coming back to the office. And I think as we get more comfortable with therapeutics and vaccines we're going to be using that office space pretty similarly to what we've done before because we want culture shared consciousness and training of the next generation . We can't do that . In the previous crisis I remember one interesting thing that did occur was that you had this real dislocation between Europe and the U.S. in terms of the pace at which real estate recovered particularly commercial real estate. It's sort of flipped around this time with Europe doing somewhat better than the U.S. and the assets having recovered slightly faster already. Talk to us about that. Why are we seeing that dislocation work the other way round this time. Yeah and it's interesting about Europe there's a perfect question that you're created real opportunities coming out that gee I see it allowed us to really grow our business there off the backs of selling 10 billion of loans for Anglo Irish in 2011. So we've been ill watched to become 20 25 percent of our business. I think it's fascinating to watch that Europe while a lousy coronavirus hit Europe maybe a month month and a half earlier than it hit the US. It feels to us that the acceleration out of the crisis maybe three or four months ahead of what we're seeing in the US and that's in you know two things. We see that in terms of capital really willing to put money to work into deals. We're seeing more debt more equity willing to look at deals and invest in deals that may be driven by the fact that the European investment community's gotten very used to very low rates. So when it sees the opportunity to buy income property a little bit cheaper than it was before it's willing to step up given the challenge of low rates. The other thing we see in Europe is I think there's a faster belief that we will go back to work in the major cities of Europe until we open. Frankfurt offers our first office to reopen between the US and Europe. But people's view of the strength of London and Dublin in Milan and Paris and Amsterdam and Berlin and Frankfurt. That confidence I feel is much stronger in the US in Europe than he has is so far in the US . So Mike just bringing all of this together. If you had a truckload of money today what would you invested in. What would be the right real estate. Or asset indeed to buy into. Now if you're looking to really cash in on the upside. Yeah I think that that is there's there's two places to play. One is playing in the distressed assets where assets that were over leveraged or assets like the commodity offer's certain lower quality malls and hotels have been really hit. And again come the last cycle we did about 95 billion of loan sales coming out of the GFC. I don't know if it'll be that big this time but those are the places where we see both the property types and over leveraged sister situations where there's to be real up to you put money to work. But also on the other side of it is I see a number investors saying all right these feel yields in the US which talking a lot about on Bloomberg may be here. These low yields 1 percent 10 year Treasury plus or minus might be here a long time like we've seen in Europe. And maybe now's the time to start buying those better quality logistics and office property and life sized properties that have long term leases and locking in a secure recurring income stream while I have the opportunity to do it at yields that are very high relative to where treasuries are right now. So really two barbells .

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Real Estate Investors Are Taking ‘Barbell’ Approach to Crisis

Mike Van Konynenburg, president of real estate investment bank Eastdil Secured, talks about how investors are looking at the commercial real estate space. He speaks to Bloomberg's Ed Hammond. (Source: Bloomberg)

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