Q2 2026 Market Update with Anthony Graziano & Juan Arias

The quarterly market update is back, and this one had no shortage of material. Juan Arias, National Director of U.S. Industrial Analytics at CoStar Group, and Anthony Graziano, Chairman and CEO of Integra Realty Resources, returned to Buró with cocktails in hand to make sense of a quarter that gave everyone whiplash.

We started where the whole world started this quarter: the Strait of Hormuz. Juan and Anthony walked us through what the oil shock actually did on the ground, from freight and logistics costs to the inflation spike that had the Fed talking hikes instead of cuts, and what the ceasefire cooldown means for the back half of the year.

From there, the conversation turned to the two letters driving everything else: AI. The guys dug into whether the productivity story is real or just a really good pitch deck, and what the data center land grab means for industrial real estate, power, and the markets scrambling to feed it. When warehouses start competing with server farms for dirt and electricity, the math changes fast.

Then we brought it home. South Florida's growth story is changing shape. Net migration has turned negative for the first time in memory, but the people leaving are being replaced by a smaller, much wealthier crowd. Juan and Anthony debated what a market gains and what it loses when the moving trucks head north and the billionaires fly south, and what that means for everyone building, buying, and leasing here.

As always, we closed with predictions on the record, to be lovingly held against them next quarter.

Thanks to Buró for the space, and to Vinya for the pours that kept the forecasts honest. The market may be uncertain, but the glasses were full.

Want to dive deeper into Miami’s commercial real estate scene?

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Transcript

SPEAKER_03 0:03

We wanna we wanna welcome you guys again back on the podcast. We also want to shout out to our new liquor sponsors. You know, we have to uh to keep you guys coming back, we have to get a liquor sponsor, so we got the good shit now. I love it. Right?

SPEAKER_05 0:15

It is good, by the way.

SPEAKER_03 0:16

And so we got uh Raz is drinking a little run del Bar Barlito Barellito from uh Puerto Rico. Nice. Um, first time I've ever tried this. It's delicious. Yeah, have you ever had this before? No, no, no, but I'm having the rest of it tonight. You should take this with you. I will. Um, and uh and then we uh um we're drinking a scotch too. By the way, uh there's other rums there for our next uh podcast too that you should try. I don't know if you if you saw that. Oh the tease, I love it. Yeah, Vinya gave us a sick menu.

SPEAKER_00 0:48

The whole menu is very productive. Are we gonna mention a sponsor?

SPEAKER_03 0:53

They're on key biscuit, and they have like this uh it's just like highly high freebian liquors and wines, and they have you know a little restaurant there. So if you guys are ever on key biscayne, check them out.

SPEAKER_01 1:03

Yeah, one picked uh 21-year-old Glenn Fiddletch. Yeah, good choice, too. I know. I'll get into that in a second here.

SPEAKER_03 1:10

Yeah, I'm ready in there. I tried the run already before these guys even got here, and I'm on the scotch, too. Scotch. I haven't tried it yet. Oh, okay. So cheers, guys, welcome. Cheers, cheers.

SPEAKER_05 1:18

Thank you guys, cheers. Good to see you one.

unknown 1:22

Cheers.

SPEAKER_03 1:25

It's Friday, so we uh we got the drinks and the conversation.

SPEAKER_04 1:31

Oh, that's good. That's delicious.

SPEAKER_00 1:36

Have you had that before? Uh Glen Fiddish 21. I don't think it's 21, but I I do enjoy Glen Fiddish.

SPEAKER_03 1:42

Yeah. All right, cool. Uh well, welcome back, boys. Um, welcome to Bureau. We're back here uh at the uh at the studio. Uh lots of uh I feel like every quarter there's some crazy shit going on. And uh you know, I think this this quarter is the back and forth with the war in Iran. Um you know, one day we're not at war, the next day we're at war, we got an MOU, ceasefire, no ceasefire, uh a lot of uncertainty.

SPEAKER_06 2:13

Um I don't think a Hormuz opening has lasted more than 48 hours. I think every time we reopen the street, there is another chaos within 48 hours.

SPEAKER_03 2:22

Absolutely. And I don't think this thing is gonna be resolved anytime soon, but I'd like to hear what you guys have to say about that as well. Um inflation ticked down a little bit last last last month just because gas prices came down a little bit, but that's going right back up. Oil prices are back over um close to 80 bucks a a barrel, I think it is. Uh and uh even though gasoline was down, um we still have the stock market at all-time highs for some reason. We keep touching. Um we got the 10-year at four and a half percent. Uh so it's ticking back up.

SPEAKER_06 2:58

No movement in June by the Fed, by the new uh chairman abortion and their new uh FMOCs.

SPEAKER_03 3:03

And they did say that they're what they're looking closely at inflation and uh and the the prospects now are are not a rate cut um anytime soon. It seems like there's more than anything we're looking at maybe a rate hike, depending on things, how things go at with the uh whole whore moves thing and inflation. So uh that's uh it's it's it's been it's been touch and go here with uh with with the uh the situation in the Gulf, and and that really impacts a lot of things here. I mean diesel prices um have gone back up as well. And uh, you know, that impacts everything that we move here in the United States. It's whether through locomotives, through freight trucks, which is predominantly where we move our freight is through freight. It is through trucking. Um and so that generally gets passed on to uh the consumer um as uh as we start moving things throughout the country. Uh but it also I saw something yesterday too that demand for trucking is is back on the rise as well, Juan.

SPEAKER_00 4:04

So um it's less of a demand story, um mostly uh the capacity story for the freight trucks. Basically, there's there's fewer trucks out there, and so the spot rates for trucking have come up significantly, apart from you know the the the pass through of the diesel cost, the spot rates are are have been on a tear over the last few months. Uh for what does spot rates mean? Spot rates is but what you pay, the the rate you pay for hiring uh a truck to move stuff from point A to point B. Um so most of the volume improvement has been driven by the data center story. Um so that's a very different type of truck that is moving more stuff, but less than truckload um hasn't seen a significant volume improvement. Um it's just more on the capacity side that that has come down and that's helped spot rates come up. So that's good for um for trucking businesses because they can be profitable again. Um, but all of that depends on the operating costs, right? Because if my diesel costs continue to go up, then you know I'm not as profitable as I would have been if you know spot rates kept on climbing and um diesel was flat down, right? So um if if the Iran issue begins to get closer to uh resolution, then that's more bullish for the the trucking market and for expansion of trucking firms. Because at this point I think we realize that um you know we probably need more truckers. Um you know there was some legislative changes over the last uh few years that kind of reduce capacity for truckers. Um that means we we kind of if if the spot rates hold up, then we we're gonna need to hire new truckers. And if volume eventually comes back, um broad-based volume, not just data center related volume, um, then that would be bullish for logistics and transportation firms.

SPEAKER_01 6:08

Good time to be a trucker. I might start driving soon. It's a tough job, it is a tough job. It is a tough job. I see those guys on Instagram. There's these guys that go truck to truck and ask them how much they make per mile. And the cattle guys, I guess cattle's not as regulated. There's no limit on hours, and these guys are making like 15 grand a week or something, just ripping back and forth on cattle. Wow.

SPEAKER_06 6:29

I want to go on a cannonball run. There you go.

SPEAKER_05 6:32

Cannonball run. There you go.

SPEAKER_03 6:34

Bring you all the way back to the 70s. Could be cool. Uh shit. You know the cannonball run is a real thing, right? Like there is there's like a course for that. And uh they they broke the records during the uh during the pandemic. Did you follow this at all? I didn't know. No, but you didn't see this? No, I wanted to do it. So there's a movie, the Cannonball Run. You've ever seen this?

SPEAKER_01 6:54

I haven't seen the movie, but I know what it is.

SPEAKER_03 6:55

Wait a minute, wait a minute. Oh, this is a classic guys. Go home this weekend. This is the best movie. So it's it's basically a story of these guys that do a race across the country, right? From New York to LA.

SPEAKER_06 7:13

Yeah, no, here they they get hired by a Texan who wants to have a big party with Coors Light, but he they can't take the Coors Light over the county lines because it's not legal. So they hire um uh Burt Reynolds to basically do the cannonball run, is to drive, pick up the beer, and bring it back for, I think this guy's name is Eustace or Eunice or something. Enough, Enus is big party. So if Bert Reynolds says, Well, how much? And he says, like a whole truckload, like a tractor trailer full of of course light. That was the setup. The Cannon Run was to go pick up the coarse light, bring it back over the county line in some southern you know county that didn't allow importation of beer or something. But but there was a movie called Cannonball Run where they went across the country. Yeah, no, they had to they had to pick it up in Denver and drive it back to Mississippi or wherever they wherever they were. That was the Cannonball Run.

SPEAKER_03 7:59

So so then so then there there became like this race, and during the pandemic, it's like it starts at a parking garage in New York and then ends in Los Angeles somewhere.

SPEAKER_05 8:08

Okay.

SPEAKER_03 8:08

And uh, and so the record just kept getting broken over and over again in during the pandemic. People were doing it because there was no one on the road. They were doing it in like 18 hours or something like that. It was something crazy. No, they were doing these in cars, modified cars.

SPEAKER_01 8:25

I think it was like a Cadillac like CTSV with all these like crazy police monitoring. Average speed was like 180 or something. You saw that yeah, it was like a it was definitely over 150 average, it's like a stupid average, where you're like, I don't know.

SPEAKER_06 8:37

I'm sorry, I feel I feel like we've lost all of our real estate listeners, but I'm for a matter of context. So Burt Reynolds was driving a Transam, right? And he was and the whole setup was he brought he got his buddy, who real in real life is named country singer Jerry Reed, to drive the truck. And Burt Reynolds was in his Transam, and what he was doing was he was basically speeding through ahead of the truck so that he would get all the cops to follow him so that the truck could make up enough time behind him. So they were like working in tandem so that and and it's that's a classic cover, too.

SPEAKER_01 9:10

Yeah, the black one, black and gold.

SPEAKER_06 9:11

Yeah, that's what it was.

SPEAKER_01 9:12

I'm just telling you, guys, this weekend it's mandatory.

SPEAKER_06 9:15

Go when I come back, I'm gonna ask you guys next quarter if you watch Cannonball Run, and you better know everything about it.

SPEAKER_00 9:19

It's a cannonball run and a World Cup game. That's yeah, those are your two mandates.

SPEAKER_01 9:23

So, how does this trucking affect real estate?

SPEAKER_00 9:27

Well, um, I mean, there will there could eventually be an uptick in demand from 3PLs, trucking firms, etc., if we do see kind of a more volume-based expansion eventually from the trucking side. But for now, it's very concentrated to that data center AI story, much like most of the demand for logistics space that we continue to see, where it's um uh most of uh the tenants that are signing space are tied to uh electrical component manufacturing, um, you know, storing chips. So Google is leasing some logistics facilities to store chips so that they can eventually go into some data centers that they're building, um, just like hoarding all this chip inventory to to be able to have it. Um so it's it's most of that demand is what's holding up a lot of the market right now.

SPEAKER_03 10:17

And are are are we seeing any new construction on uh on the warehouses or not really?

SPEAKER_00 10:22

Well, uh the the latest Prologes call, which was yesterday, I think, um they were bullish again on new warehouse construction. Um so we continue to see demand flow from older warehouses into newer ones. It's not uh that much of new demand creation, but tenants moving from older to newer inventory. And so if that uh keeps a pace, then there's some justification in some markets to uh you know build on spec again. Um but they also continue to comment on like the the data center story is still like the strongest piece, and and we we're gonna continue to also build uh help build that out. But I think they have over five gigs in the in the development pipeline right now for data centers. What's five gigs mean? Uh five gigs is a total amount of critical IT capacity that the data centers have. Um that's the energy that's flowing into the electric energy that's flowing into you know using that data center.

SPEAKER_06 11:23

Gigawatts of electric. They're they're scaling a data center based on its electricity. Yeah, it's gigawatts of electrical usage.

SPEAKER_04 11:29

Yeah.

SPEAKER_06 11:30

Um we, you know, big macro last quarter, you know, we had a chip shortage for about 45 days that really uh jammed up uh all of the major computer manufacturers in terms of deliveries. Businesses were trying to buy computers and delivery times went from you know five days to uh two or three weeks.

SPEAKER_03 11:46

I think I didn't hear about this.

SPEAKER_06 11:47

Yeah, yeah. Um but I think in terms of the you know the data center story, we've also seen a number of legislative efforts to uh basically uh not allow the construction of data centers in certain markets. And that's uh I think caused everybody to start worrying about maybe there's not going to be as much capacity. So the existing uh developments that are in place uh sort of reached a competitive point where they said, hey, there's may there may not be a lot of people behind us developing. So there that's that's really a big change and the kind of a C change. We talked about this last quarter, yeah, which is the public backlash against data centers because of their water usage and utility usage and impact on electricity rates in the state that are state regulated rates, uh, and that there was gonna be uh a slowdown in some of this development pipeline for data centers because there was gonna be this public backlash. It was gonna be harder to get things through the planning board, it was gonna be harder to get sites reapproved so that the existing sites with power, with water availability, are gonna become a lot more valuable. And what we're seeing really is that the land values on some of these are just getting insane. The the stuff that's sort of shovel ready for good data centers, the land values into infinity, and everybody else that was speculating and saying, Well, I'm gonna get water and I'm gonna get power and I'm gonna get the data center approvals, that now becomes a lot more speculative.

SPEAKER_01 13:00

And how much of that is real? Because I I keep hearing it from both sides, like they're gonna use all the water, and then the guys that are in the business are like, We're not using any water, we're bringing water. So it's like it's hard to parse out what's real and what's not. It depends on how you calculate it.

SPEAKER_00 13:13

So there's the closed loop systems that don't require more intake of water, but then the data center continues to rely on electricity, and that electricity ends up having a cost, a water cost as well. So at the end of the day, yes, it will require water, we can't get around that um unless you put them in space. We'll see. Um but um but I think there's there's one side of the argument which goes an extreme way where it's like it this is just terrible. We can't we can't have these in our backyard without taking into account that there are some ways to mitigate these environmental impacts, as well as there's a lot of positives that come with brand new data center development. Um, so I think the the latest one was New York uh is basically put a full moratorium on building new construction, uh building new data centers. Um but either way, like most of the data center construction was going to state like Texas um or Phoenix, like Nevada, like those places we have ubiquitous water. So so well, these these states are pro the data center story, and at least Texas has like 90 gigs of power under construction that will feed these data centers. So they have the capacity getting built out for power. All the other states haven't been building the enough power plants to to kind of uh to support this new ecosystem of data centers, even less so advanced manufacturing and all the stuff that comes after it. So, yes, Texas has a uh a water issue that they will also need to contend with. Um, but right now that's the state that has power. So I am less concerned about a New York saying that they're gonna it's it's an issue, but I'm less concerned about a New York saying that there's a moratorium because they were they weren't building the power either way. I couldn't put a data center there and have it in the next three years because there's there's no power in the pipeline to feed that data center. So there's other factors that were gonna slow the data center build story, um, which was partly the power, now the water. There's also um all the supply chain bottlenecks. So it's the chips, it's the memory, it's uh even building new power plants like gas turbines, et cetera, there's issues with the supply chain around that. Um and now if there is an expectation that there will be new tariffs put in place on metals and specifically copper, um, then we'll have issues also manufacturing some of those electrical components and stuff like that here locally because the costs are gonna go up. Um, so there's a lot of other factors. Um, yes, the moratoriums are a concern, but there's other things that we're gonna weigh on this data center construction story. Even then, we have more data centers on our way now than we've ever tracked. So there's still a lot in the pipeline getting built. Um so I I think that that will help in the near term, but in the longer term, we'll we'll need to figure figure out all these other supply chain issues which are more concerning to me right now than the uh the moratorium.

SPEAKER_03 16:21

But we're going to this data cons data center construction. I mean, you mentioned Phoenix or Arizona, Las Vegas, Texas. Where's the pushback coming from? I mean, from from what other states are is is the pushback coming from? And I feel like these a lot of these data centers are being built in areas where there's not this big NIMBY pushback where it's it's it's kind of you know out in in open fields, industrial areas where there aren't a lot of people that are going to be affected by them.

SPEAKER_00 16:52

So we had one in Palm Beach, like right next to like close to Mar-a-Lago, um, that just got pushed back and it got canceled. So that probably got canceled. So it's the pushback is happening here and there where the community feels like they haven't been involved in the discussion, uh, where they feel like they're just being steamrolled by the developer. So I was the the last data center conference I was at, a lot of the conversation from these data center players was we need to make a better effort at communicating um the benefits of the data center and all of these mitigation uh factors that we uh are putting into the new data centers that we're building that are different from the old data centers. Um so they they've realized that there's a lack of knowledge uh by by a lot of a lot of the communities that they need to kind of fill that gap and and before they even you know apply for a data center construction permit, they need to educate the community and have conversations with them so that you know once once the community has a say, you get as a part of that community to support the project as well. But right now, most of them are just you know reading things on Reddit and pushing three things to an extreme, and that's what gets pushed into these meetings, and then the projects get canceled.

SPEAKER_06 18:13

And again, remember some of this is just people's reaction to their fear of AI or their fear of you know the technological innovation. So it's the their natural tendency is to just be against it because they don't want to see that happen, right? And you know, I I can say this I've been attending planning board meetings since I was you know 15 years old. Uh most people that show up at the local community board are there to object. Yeah. People that don't have a problem with it don't show up. So there tends to be this very vocal minority of people, but they're always the objectors that you're trying to, you know, gain some. And a lot of times it's not even rational. No. And I've seen people come, there'll be an excellent development that's proposed at the planning board, and they just we don't want more traffic. Yeah. It's like, okay, so you don't want to grow. Well, it's not that, but we just don't want anything to change. Okay, so you don't want to grow. Like it go, it always goes back to you know, people's resistance to wanting to see things change, to wanting to deal with the knock-on effects of things happening. And like on commercial, you know, when there's a huge residential uh project that's proposed at a local, you know, I see people get nervous, like, oh, this is gonna change the character of the town because we're bringing in 2,000 new people and it's gonna put pressure on our police and our schools and our fire and our this and our that. When you're doing a commercial development, it's like you're providing services, you're providing jobs, you're providing economic activity, you're providing growth of the tax base that lowers your cost to live in the town. And I've gone to these planning board meetings and people just are absolutely irrational.

SPEAKER_04 19:38

Yeah.

SPEAKER_06 19:38

They just come, they don't have any other reason than to just say we just don't want this to happen. You know, hopefully you have good leaders in the community that understand there's a balance there. And, you know, again, I think what Juan is saying is correct. I think the data center, the the folks that need these data centers built are really evaluating what they need to do to get people to understand the order of magnitude of what's proposed. Um, and yet at that, you're just you're never gonna make everybody happy all the time. You just gotta move through it.

SPEAKER_01 20:04

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SPEAKER_03 20:10

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SPEAKER_01 20:20

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SPEAKER_03 20:31

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SPEAKER_01 20:44

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SPEAKER_03 20:53

So if you want to level up your workday like we we try to do every day, check out Bureau. You might even catch us sipping some espresso between podcast sessions.

SPEAKER_01 21:00

Or tequila. Definitely tequila. Tell Bureau the Built World sent you, and you'll get 50% off your first month's membership. See you out there. Cheers. Later. Do we ever get any in Florida? I mean, how do we take advantage of this gold rush? I want to sell an $80 million piece of land. Rage. Right. I mean, look, the the the the plus we got salt water every they don't have to be fresh water, dude. That's cool shit down.

SPEAKER_06 21:22

Uh look, I think as the as the different engineering designs of these centers, the different engineering designs of these centers will improve, both in terms of water electricity usage. But until that happens, I think you're gonna find it in places that have excess power where there's cheaper land, where you can where you have land provision for for water and power availability today. That's gonna those are gonna be the first sites.

SPEAKER_01 21:44

We've got the Everglades, they could just build them in there. Oh, don't say that. Don't say that.

SPEAKER_03 21:47

You want a community pushback? Um But do uh are these being built, do they have to be built near like cities, or can they be built in the middle of Iowa?

SPEAKER_00 22:00

So I uh right now it the it depends um uh with what what you're gonna use the the data center for. So typically the ones that are training models can be out in the middle of nowhere. The ones that are used uh for inference, so if you ask a question on Google or whatever it is, um you you want some speed for that for that answer to get to you. So as we move towards the inference stage, uh the expectation generally is that you know the data centers are gonna need to be closer into the major fiber, fiber lines and the major metropolitan areas. Um so there's been some investors that have been very active in purchasing uh the old um telecommunications kind of office-looking towers in the middle of downtowns with the expectation that there will be they will continue to um kind of flip them to data centers and there will be more demand for data centers within those downtowns. How many acres of land do we need for a data center? I mean, it depends on the size of the data center. I don't I don't have like the exact numbers.

SPEAKER_06 23:08

What's an average data center? I would say probably 25 to 100 acres is your 25's minimum.

SPEAKER_00 23:14

Well, here's here's why because if you're hyperscalers.

SPEAKER_06 23:17

The hyperscalers, if you're gonna go through the process of getting the entitlements and provisioning it for power and water, you want to have excess, you want to have development timeline that looks like a 10-year build-out, right? You don't want to go through all that and then build one spot data center, and that's the other part of the pushback is that you're ordinarily taking you know a hundred-acre site and entitling that and taking it through the process, which for a lot of communities is a big development, yeah. Um, you know, but that said, you're you're you've got the long tail of wanting to have that capacity. Uh, and if you're gonna expend all that upfront money, you want to have a build-out. So I mean you could do them on you know, small as 25, but typically, you know, they're looking at 100 plus acres. What's really interesting?

SPEAKER_03 23:59

They're building them in phases, yeah, yeah.

SPEAKER_00 24:01

And that's the that's part of because on the marketing side for these companies that are trying to raise money, it's like, okay, I have a development that has you know 10 gigawatts or 20 gigawatts of available capacity, but in reality, you're building three. And you market that, right? And that's what you put on your documents that you are going to have 20 gigs of available capacity. And then the community sees that and they're like, wait, what? You're gonna build 20 gigs? Like, we don't have the power for that, we don't have this, we don't have that. So that's part of the educational part where it's like a lot of these are in faces, and what they're showing right now in their marketing materials is the whole thing, if it was fully completed. Um, and and that can scare some people, yeah.

SPEAKER_01 24:48

So we went down the data center out of a hole. Let's pull back out. Yeah, let's do it. What do you guys like looking at Q2 as a whole? How do you think it's stacked up to Q1? Like, what were the big moves? Like, you know, I don't remember what we predicted. We should start keeping track of this for Q2. But I mean, have you seen things move in real estate? The the tenure seems like it's still ticking up. Is that slowing things down? Are transactions slowing down, speeding up? Like, what's the had anything changed? Is it still the same?

SPEAKER_06 25:13

What's I mean look, I I think we went we came into the second quarter with expectations that you know things were a little bit rocky, macroeconomic-wise. We had a new Fed chair, we had we didn't know what was going to happen with interest rates. We did we really weren't sure where inflation was gonna shake out, and everybody was thinking inflation's gonna start going up, which is gonna force the Fed to make moves to curb inflation, which means but it didn't materialize as quickly as everybody thought. Um, we didn't, you know, rates didn't move up, and now now there's we're fighting a labor market issue, right? We had a slow jobs print, and the last print was like 56,000 jobs. So now the dual mandate of the Fed, right, is to curb inflation, but also to keep the job market supported. Now we're still at 4.2% unemployment nationwide, which is not critical. We're not creating a lot of new jobs as it currently sits, and I think businesses have been laying off people uh to account for some future repositioning. Some of them are blaming it on AI and some of them are being straightforward and just saying, hey, we're repositioning our workforce, but we've seen major layoffs. And so the concern is, you know, what's gonna happen in the labor market in the coming six months? And then how do we balance that against the prospect that there may be more inflation? But again, inflation's starting to pool. Most of that's due to the decline in gas prices that we think is going to be short term, but it's also tied to housing. But now we're seeing housing costs elevated again, right? The the apartment market now has sort of caught its breath and absorbed a lot of that inventory. So we're starting to see normalized rent increases in major metropolitan areas exceed 3% in a lot of cases. Yeah. So it depends on the metropolitan area. Of course, of course.

SPEAKER_00 26:44

But we're getting we're getting back to housing inflation and and housing. But normal, like we're not going back to the theory. No, it's not 15, 8, 15%. It's not going to be a big driver of the inflation story. And so the the issue that that I am seeing, at least right now, is that the the gas price issue is transitory, whichever way you view it. And it's not something that the Fed can tackle directly by raising interest rates. Um, that has that will have no impact on whether or not Iran is going to ship out oil. Um, so my my expectation is that we're gonna be on a flat interest rate environment for a little while longer. I don't expect a rate hike because, as he mentioned, the labor market is not doing yes, we have a low unemployment rate, but there's no real significant job creation. And when you look at labor force participation, it's been trending down significantly over the past year. So that's what's been keeping our unemployment rate low. Not that we're creating a lot of new jobs, it's that people are exiting the labor force completely. And so that's keeping the unemployment rate tight. What are they doing? Where are they some people are retiring? There's demographic issues, immigration issues, right? So some people have to leave. Um it's a mixed bag of things, and then the the general layoffs that are happening as well. There's also a lot of people that have been out of a job for a significant amount of time, and they were counted in the labor force, and then eventually they just have to get kicked out, right? Because they're no longer looking for a job because they they gave up on it. There's a significant piece of it, is that um so I think the labor force side, the the employment part of the equation for the Fed is going to become increasingly important um as the economy continues to move into the second half of the year. The inflation story, I think, is this transitory issue. And when you look at the Phillips curve, uh, which basically tracks um the impact of a tight unemployment rate on inflation, that has been that that relationship has been weakening. So even if we retain a low unemployment rate, uh the wage gains, we had a little bit of wage gains uh at towards the the, I think the beginnings through the middle of last year, but that kind of dissipated. So I don't expect that the tight unemployment rate, quote unquote tight, because I don't think it's fully tight, is gonna compensate. So most of the volatility that we're gonna see in the near term, I think, is transitory issues that are being brought in either from tariffs on and off or the gas story, and those are things that the Fed you push interest rates interest rates up, and you're just gonna tank the economy rather than fix these issues.

SPEAKER_01 29:40

So, what do you guys what's your prediction that what's gonna happen with interest rates? Stay flat for the near term and probably flat through the end of the year.

SPEAKER_06 29:46

End of the year. Yeah. What do you think, Raz? I think there's gonna be some pressure to do some some downward, there's gonna be some pressure to push it down a little bit. If inflation can stay reasonable, we see inflation stay reasonable, I think September, September to December, there's probably a rate cut or two. Um, because I think they're gonna try to juice the economy a little bit towards the end of the year. And I think the like you said, the employment picture and wage growth picture is not great. Um, that said, I don't think anybody at this point in the market cycle, to certainly from a real estate investment perspective, is counting on that. I think right now everybody's back to sort of counting, like, all right, this is gonna be a a hold year. How do we make this work? And what's really interesting is if you look over the last three quarters between the cost of capital, availability capital's been good, right? So nobody's had to sell, which then has left many people in the position to refinance, which may look like no cash out or a little bit of cash out, or maybe you have to put a little bit of money in, but your real estate at least is secure and safe and you have availability capital. I think that will continue, and that's gonna keep our transaction market in balance a little bit. What's been great over the last six months is that we haven't seen the distress that I thought we were gonna see coming if interest rates didn't get cut. We didn't get the cuts, but we also didn't see that distress break into the market in any systemic way. I think the bank balance sheets are still being managed, if you will. I'll call that, I'll say in air quotes, being managed. Um but we're not we're not seeing huge pockets of distress. And there is still a lot of dry powder out there that wants to make real estate investments and can't find real estate investments that give them the right return to equity. And then if there's a headline in the Q2 right now, it's that equity returns for real estate are looking very tepid. And the result of that is cap rates are gonna come up, it's gonna reset some values in a lot of markets. Uh, but more importantly, equity is gonna have to find opportunities. And what so what we're starting to see now is like the office market and some of the office markets that are reasonably stable with a little bit of rent growth, there's enough corporate activity that people can get comfortable with a lease up position. There's people are re now they're going back into markets that had really taken a big value hit, and they're buying real estate at you know 18, 20, 22% equity returns and getting deals at that level. So now the office market is transacting again, and we're starting to see.

SPEAKER_01 32:07

You've never seen those types of deals in the office, yeah. In what markets?

SPEAKER_06 32:10

Yeah. I'm gonna I don't want to bust anybody's bubble, right? But like as an example, you know, I'm doing some work up and I've been doing for the last few months a bunch of things up in Broward County. You know, plantation office market is like stable. Um suburban office park suburbic? Yeah, yeah, suburban office. And those numbers had come from you know 220 to 250 a foot, you know, down as low as 120, 140 a foot. And then people started to transact all cash because that was a no-brainer. Now those numbers are back up to 160, 170 a foot, and there's still transaction activity because they see the story there and they can get to that number. Um, but you know, there there are investors out there that are looking at that, and it's not an all-cash transaction. There's availability of capital, low level, lower leverage for sure. Um but in the in the I'll say at least in Florida, um, the markets that have reasonable, stabilized office demand, those investors now are coming back, but it's requiring higher return to equity, which means it's it has to, I mean, if you know, again, you look at the cap rates unadjusted for equity, just the general cap rates of office space. We're at like nine, nine and a half, ten, ten and a half in some markets.

SPEAKER_01 33:20

So that's people are selling at that at that level.

SPEAKER_06 33:22

Yeah, if they can't refinance.

SPEAKER_01 33:23

Yeah, some people have they're stuck with the okay. That makes sense. Because I see it like you know, I'm working on a live local deal right now. We're trying to raise LP equity, it's damn near impossible like to hit the returns. I talk about this a lot in the pod, and you see that echoing through almost all the asset classes, all the all the equity, no one wants to be common equity anymore. Everyone wants pref equity, everyone wants a you know, an accruing pref. Everyone wants all these extra things, but those deals aren't really out there. The bid-esque spread is persistently pretty far apart, and it's really hard to find those deals like the ones you're mentioning. Um so it's interesting to hear that office is might be an interesting sector, but the guys that aren't specialized in office, maybe there's multifamily guys, like those those deals aren't really being had. I don't I don't see them in industrial either, because to your point, there's really no distress, people don't need to sell.

SPEAKER_00 34:07

So so it depends. So the the there are some markets that um like Inland Empire, Lehigh Valley, big box logistics that you know have kind of battled with significant net absorption losses for quite a while. And some of those industrial owners have gotten through it. Uh, but now if the there isn't a more significant recovery for those markets over the coming year or so, the expectation is that there will be some better deals, even for some big box distribution space that has been sitting vacant for quite a while. So there may be opportunities coming by the end of this year and next year to to have attractive returns on those deals.

SPEAKER_01 34:53

And how does that work? Because if they're still sitting vacant, yeah, you get a great per foot deal, but who are you gonna lease it to? Right. So you have to I guess you lower the price.

SPEAKER_00 35:02

You have to you're you're buying it in at a at a good price at a discount to to when it last traded, which was probably a pandemic peak. Um, and your expectation is okay, I might eat some of that vacancy risk in the near term, but come 2028, the expectation is that things are going to begin to change, and you know, I'll eventually be able to lease it up. Plus with your base is so low, you can offer lower lease rates. Yeah, and you can hold on for a while, right? Um now I think we've been so focused historically on the interest rate environment. Um, I think that that has less of a of a you know of a of a of a it has less it's still important, it's just not the the the the factor that's gonna help us have that transaction volume come back and all these things. The interest rates, even if they cut, like you you expect probably towards the end of this year, it might be 25 basis points. And even then, the tenure rate is probably gonna hover at where it's hovering right now. Like I don't expect the tenure rate.

SPEAKER_06 36:07

It may not translate into a more capital markets discount in terms of your cost of capital. Exactly.

SPEAKER_00 36:12

So then the competitiveness of this market, your expected returns from your equity, it's it's gonna remain the same. It's not gonna change. So I think I've been saying it for a while, like this is not uh uh the typical real estate market that we've seen since probably going back to the last like 2015 through 2020. Like the interest rates are not gonna save you. You're not an all-star. If you made good deals then, well, good for you. But that that was uh an interest rate environment that was propping everybody up, and we're not there anymore, and probably not gonna be there for some time. Um, so right now, the people that are transacting deals are the people that know about you know their office, not just markets, submarket, the niche that they're in. You mentioned Brower County, specifically certain suburban areas. There's few players that know exactly how that plays out, and they already went in there probably eight two years ago, right? So the savvy real estate investor, the one that really has been tracking their submarket and their slice of property, those are the guys that are going to make it through the the next couple of years.

SPEAKER_06 37:21

Let's not forget, let's not forget, as the stock market continues to rip, right? People are peeling off gains that they're now reinvesting in other opportunities.

SPEAKER_01 37:30

I saw that was my next question. What do you guys what do you make of that? The stock market's on fire.

SPEAKER_00 37:34

Well, today it dropped. Did it? I didn't see it was all red today. Really? Um, so it dropped significantly today, but I mean it's been just propped up by the AI story and the data center build-out story. And I think there's SpaceX.

unknown 37:49

Yeah.

SPEAKER_00 37:50

Well, as SpaceX already fell below its IPO price. I saw that. Yeah. So I think we I think the data center story still has legs. Um, because all of the, at least for companies like AMD, NVIDIA, etc., all of that revenue still has to make its way through into their financials. There's a lot of cash flow that that's flipping from um the the big like Meta, Microsoft, et cetera, that all that cash flow went somewhere and then it just like completely evaporate, evaporates, and it went to the balance sheets of all these guys that are building out that infrastructure. So that shift began and it still has a couple of years to go. So the market concentration in those stocks is an issue, but I think it is that market concentration is justified because what I see in the macroeconomic environment is the one thing that's providing growth, the one thing that's providing, you know, some glimpse into what our future economy is gonna look like. It's it's all this data center build-out, chip story, advanced manufacturing, robotics, et cetera, et cetera, um, that I don't think that's gonna get shut down anytime soon.

SPEAKER_06 38:59

But those trades are getting scrutinized, right? They're there, people are really calling over and trying to try to develop a thesis. And, you know, the private credit markets and private credit markets and real estate in particular, and a lot of the pension funds and alt investments that have been made have been really scrutinized over the last three months. Is that, you know, do I have a good thesis on what I thought was this SaaS company that now all of a sudden doesn't have a competitive advantage anymore? And everybody has a position in it across the board. And so there's been a lot of um turmoil, I'll say, in this private credit market side. I will say this though, I don't want anybody to quote, like, I don't measure the economy by the direction of the stock market. There's been times when the economy's been completely healthy and the stock market has not, and vice versa. There's been many more times in my lifetime where the stock market is ripping, but the underlying economy still has some fundamental cracks in it. And I think that it's not a direct correlation. And, you know, despite what the president often infers, a strong stock market does not mean that the economy is strong necessarily. It just means that people are betting more of their allocated capital to the growth of business than they are to the growth of other asset classes, right? And we've got right now, we're at a point where everybody's got money that they have to put somewhere. So there's naturally a tendency to find the best yield, and people are plowing it into this thesis around the growth of AI and the future, which is great. But it's not a referendum on the underlying economy. My only point was that at some point when people start to peel chips off the table, real estate becomes a safer, long-term asset to invest in. And so you'll, you know, it's part of what's driving our um, you know, our real estate activity right now is I think people reallocating. You know, the other thing, too, is most of the institutional investors have a mandate to balance what they hold in equities versus other buckets. So when the stock market is ripping, then they are underrepresented in real estate and are forced to go out and reallocate more to real estate and buy. And that is also going to have an impact and translate into transactions that maybe you say, Whoa, I can't believe they transacted at that cap rate. But they they needed to put some hard real estate into that bucket and they're all competing to do it at the same time. Um, but that said, you know, that's kind of like a that's at a very high big asset level and you know, mostly look like urban center trades and things that are larger assets. I think when we look at when I look at like investors, you know, the sort of traditional five to twenty million dollar investor pool um across the country, I think those transactions are happening, but they're harder. They're more difficult to make. And I think the new development stuff, particularly on the multifamily, they're hard deals to make today because costs are elevated, cost of capital, uh, equity capital is expecting more. They want, like you said, terms. They want to make sure they're gonna get paid first. Um, and it's just it's harder and harder to get those deals done today, much more difficult than it was, you know, when interest rates were at zero, money was for free.

SPEAKER_01 41:55

Yeah, and when you have a 10-reach caliber four and a half, you know, why would you take a deal at five and a half?

SPEAKER_06 42:00

Well, and that and that's why I said the the rate, the cap rates and the investment rates have to come up for the market to normalize in that regard.

SPEAKER_01 42:07

They just have to. And that's just sellers needing to either sell for whatever reason. That's the problem. They don't really need to sell right now.

SPEAKER_06 42:14

I think I think that's part of it. And I think the sellers also, you know, when they want to sell, they'll get they'll get reasonable and they'll make the transaction.

SPEAKER_01 42:20

But you were mentioning before we we started rolling that uh you're seeing a lot of transactions. You said it's been pretty active. It hasn't, yeah.

SPEAKER_06 42:27

I mean, look, it's not we we're not ripping like 21-22 in terms of breaking records, but that was a big anomaly, but we're back to concentrate.

SPEAKER_00 42:33

But even like no, we plateaued, yeah, and we've been we've been inching upward again. Um you guys think we've bottomed out basically. In transaction activity, the expectation is that yeah, we we've likely bottomed out, but now that we rip from here, I think we're gonna be a little bit flattish to slightly upward. Growth will be tepid. Yeah. Yeah. I think that's what our economy is telling us. That's what everything is what what everything's indicating right now is that you know, nothing's falling off a cliff, nothing's terrible, but there's there's we're no longer in a growth spurt. Like we had that growth spurt because we you know shut down during COVID, everybody everybody got fired, or well, not everybody, but a ton of people got fired, and we had to readjust, and then we had that growth spurt right after it. Um we went through that and now we gotta you know calm down for a little bit. We've been calming down for quite a while now. We we'd love for it to rip again, but I think that the that's either we're gonna have some type of you know shock that allows us to grow again, or we're just like plateau for for a while until you know some of the other trends pick back up. I I think the the one of the bigger issues that we continue to face is the demographic story, and and that's uh that's a weight on all the real estate systems.

SPEAKER_03 43:52

Are you talking specific to South Florida or just hire?

SPEAKER_00 43:55

The entire I mean yeah at this point, the entire globe. Like the all all advanced economies are are really.

SPEAKER_06 44:00

Facing an aging population. Yeah. That's also facing a a wave of retirements and people coming out of the labor force. And we don't have the growth in the younger labor force to replace them. And that's why we're seeing this consumer-based, you know, what the economists are calling a K-shaped economy. 20% of the earners in the US are spending like 60 to 70% of the they're 60 to 70% of the economic activity. The top 20% of the earners are 60-70. And then everybody sort of at the middle to middle to lower end, the bottom 80% of the economy is struggling.

SPEAKER_04 44:32

Yeah.

SPEAKER_00 44:32

And look at most of the job growth over the last year or two. It's all like healthcare. Because that's where demand has grown, and that's where salaries are growing. And that's, you know, where people are shifting from, you know, maybe I worked at a warehouse, now I become a nurse. Like there's there's career paths that are changing. There, even I read from the Wall Street Journal, it was like a finance guy who decided, yeah, now I'm going to be a nurse. Like there's dramatic changes happening in the underlying labor force demand patterns right now that are directly tied to our aging population. And I think that's going to be a trend that continues with us for quite a while. And even though we are concerned about the fact that, okay, AI, AI, AI, it's not going to create the jobs that we wanted to create, well, maybe it'll help with the current labor force that we have to actually provide for a healthier work-life balance for the people that actually are out there to work. Um, because, you know, if we shut down immigration, um, or we go back to more typical immigration patterns, you know, we're not going to see that labor force growth that we saw coming out of the pandemic.

SPEAKER_06 45:37

Or the productivity growth. I may have said this on the last podcast. I forget if I repeat myself. I'm getting to that age, right? But but um I you know, I always said to my senior leadership team, we were talking about different things that were happening in the economy and how it affects our company. And I said, you know, if you close, if we close our eyes for a moment and pretend that AI never happened, where were we going to grow? How were we going to grow our productivity? Because we had already maximized Microsoft and Word and email and no faxes and scanning and all of the things that came about in what we used to call the technology stack, right? Where was our growth coming from? Because we had already sort of reached that point of maximization and productivity. If AI hadn't come along, we would be in a completely different situation in terms of how we were thinking about the next five years. So I think what Juan is saying too, and and I've I'm a big, big fan of this, is that you know, we make the good out of this. We make the good out of this. Uh, it'd be great if we could solve Alzheimer's. That would extend uh the lives of many of our folks, that we could, you know, have a longer tail on that, on the wealth transfer. The wealth transfer that's happening demographically in the U.S., this is the baby boomers transferring their wealth down to the Gen Xers and even uh the next generation, that wealth transfer is going to have implications on the economy. But I think the bigger implications are gonna be the political waves that are gonna be happening over the next 10 years around this conversation, elites versus everybody else. Um, what's fair? How do we get the country to move forward together? And so we, you know, we've we've had these patterns happen many, many times before, right? Coming out of the Great Depression, and what did that, you know, our post-war World War II boom that occurred was a broad-based boom. We need that kind of mandate again.

SPEAKER_00 47:22

Yeah, right now, as as you mentioned, right, like the economy is not seeing broad-based growth. It's very specific, like I mentioned, the healthcare sector, that's where growth has been, and then where most of the other growth is coming from right now is the data center, and then eventually it'd be probably advanced manufacturing. And unfortunately, um, a lot of that doesn't create many, many jobs.

SPEAKER_06 47:46

And it's also very concentrated to create wealth for people that are at the higher end of the capital, that have the capital to invest in those things, so it's capital reinvesting in capital, because okay, eventually I'll have robots, and the robots are gonna do the work for me.

SPEAKER_00 48:00

And so that's more capital. And um the unfortunate thing is you know, we kind of need that to happen because we were being undermined uh by other countries in terms of our manufacturing activity because these other countries were offering such lower costs of labor. So because we had gotten to a point where our cost of labor you couldn't push it down more, um, and it was very inflated relative to these other economies, we like our entire manufacturing base got eaten away.

SPEAKER_06 48:34

But but it was also part of our strategy. I mean, I think if you look back 25 or 30 years in terms of our economic strategy was to ship it out, to transfer that overseas to create more global wealth to help stabilize and integrate the economies. And also, but our thesis was that that was going to help us grow knowledge workers here that were gonna give us more productivity, which it did in some cases, but we left a lot of people behind in doing that. And there, and not everybody in the United States can be a knowledge worker, and that's part of the part of the pressure they're having today in the United States politically is this backlash against globalism, backlash against the elites that are making money at global scale. You know, I tell my kids all the time it's one thing to to make money, to earn money, to go to work, to earn money, but when you start taking a little bit of money from everyone in the world, that's when you really start to get insanely wealthy.

SPEAKER_00 49:23

And so, you know, I think the trend that I was mentioning, which is it's it's aggravating those issues, is the fact that if we are going to have advanced manufacturing that doesn't hire as many workers as it used to, um, as as manufacturing used to, because we're being uh much more productive and we're, you know, having robots, et cetera.

SPEAKER_05 49:45

Let's go. Give me some of that more, more of that. Too much coconut, not enough rum.

SPEAKER_00 49:49

And now we're also uh it's not just a labor issue. Now we're fighting over the raw materials. Uh that there, therefore, we have this tariff war. Um the the raw material story, that inflation piece is not going to go down. It's probably gonna go up. So you have more pressure on lowering labor costs, and that leads to more uh uh automation, right? Robot. Yeah, so again, the capital feeding capital so that you can have that growth, but that's not a growth that is broad-based, it's a growth that is very specific to certain sectors, and it's not gonna create a big employment boom, um, unfortunately, uh at least on the manufacturing side. Now, if we continue to age, I don't think we'll have in maybe in my lifetime, maybe, we'll have robots that can take care of you, um, like a nurse can. But for now, I don't think we're close to that yet. And so we'll continue to see this labor shift towards you know, taking care of our elderly on that. That'll hold us off for a little while. But like you mentioned, a lot of people won't be able to make that shift either. And so we will continue to have these polarized politics of the guys with the capital and then the guys that are losing their their jobs and want a fairer outcome from the shift that's happening once again. It's a constant, it's a constant struggle.

SPEAKER_06 51:17

All politics is tyranny. But no, but I say this with, but I do say this. There are there are pockets of socialistic thinking in the United States that's just not gonna work. Oh, right. I mean, there's the Mamdani effect in New York and what a lot of things that are happening in California. Some of the, you know, I'm not a Bernie Sanders guy. I'm not saying that we all need to, but we do need really strong emphasis on a broad-based growth of for everyone in the United States. We need to solve that problem because ultimately, if you don't, then you have sort of revolution and replenishment, and that becomes disruptive. And the worst thing for the real estate market is any type of you know, instability, uncertainty, right? We we learn that. So I would say our best strategy, you know, over the next couple of years is to really seek some leadership on how we get to a broad-based recovery, balancing these macro issues. I'm not sure we have the right balance between Washington, between Congress. I don't see that right now, but you know, maybe in the next election cycle or two, uh, that'll start to get, you know, really well, it'll it'll get out there and everybody will start to really think about how do we how do we get everything, everybody moving and get the whole United States moving in the right direction.

SPEAKER_01 52:28

Well, it feels like we're in such a unique, groundbreaking territory in terms of capitalism. So I'm a capitalist through and through, but at some point you have to start taking care of people. I think about So there's like this whole new paradigm we have to come up with, which is like it's not socialism doesn't work, but pure capitalism, pure competition all the way to the end probably won't work either. So there has to be some sort of hybridization that goes on.

SPEAKER_00 52:51

So so one of the I think one of the essential things that a pr a society can provide in an advanced society like ours is some type of basic health care. And if people are not gonna have jobs, then eventually you'll have to expand the safety net on the healthcare system. So I think there's gonna be some give and take. I mean the Europeans max that out and that's costing them, but they're Canadians too. Canadians too. So you will have to find some balance.

SPEAKER_03 53:21

Shout out to the 51st day. Yeah.

SPEAKER_00 53:24

Well, I don't know. Is it Venezuela the 51st date? Because it may it be a couple of every couple of weeks. Um but yeah, I think it'll bring back these conversations of okay, if people don't have, and we in this system, we've tied having uh affordable health or at least an insurance plan with having a job. So what does it mean if I don't have a job? How how do I get affordable health care that that actually covers me properly, right? So we tried with Obamacare, some people are okay with that, some aren't. And I think it's the the problem's only gonna get worse. And the weight on the system is gonna get worse.

SPEAKER_01 54:02

So we'll have to two-party systems tough to solve that because it's just us or them. It's there's no real like middle ground.

SPEAKER_06 54:09

I I really applaud you for pulling us out of the data center uh black hole, and then and then I threw us in the political black hole. I apologize.

SPEAKER_03 54:16

I heard today on uh do you listen? Do you listen to uh uh Scott Galloway at all? I have he was saying that Ken Griffin may be running for for president.

SPEAKER_04 54:25

Oh wow.

unknown 54:26

Okay.

SPEAKER_03 54:26

That would be fun. Yeah, that would be fun, right? I'd support that. Yeah, I I can get behind Ken Griffin, I think. Yeah. Um going back to your productivity question, when when you're talking about productivity, I mean you're you're basically talking about productivity per person, right?

SPEAKER_06 54:40

And it is a lot of different ways to measure that. But yeah, that's one way. I mean, one way is to look at productivity per person, sure.

SPEAKER_03 54:45

And and are you seeing productivity per person in your firm increasing because of AI?

unknown 54:53

Yes.

SPEAKER_06 54:53

Absolutely. Absolutely. And and not just because of AI, because we've also because of AI, we've got to be.

SPEAKER_03 54:58

I mean, you said you said it like we kind of hit a plateau, and now with AI, it's kind of exponentially making people more productive.

SPEAKER_06 55:07

Yeah, and again, I don't want to say exponentially. I want to say it's it's been a factor of you know, maybe 1.2 to 1.4, you know, 20 to 40 percent more productive. Not every year, that's not compounded growth. But I would say, and remember, I mean, Chat GPT, November 23, we're sitting here, it's not even November 26, right? So when we talk about large language model AI, um, you know, we're we're only talking about the last couple of years, and even that took some time before there were competitors with Claude and Gemini, and you know, and we got to model four and five. So, really, I would say true LLM type integrations really didn't hit until the end of 24, early 25. So we're we're 18 months in on that side.

SPEAKER_03 55:49

Um, but in terms of one of the big but you're saying 20 to 30 percent increase on productivity.

SPEAKER_06 55:55

Yeah, over I mean that that's significant. It it is, but again, we um some of that productivity I also have to attribute that some is not just AI deployment, it's also the fact that we've ripped apart our entire process and made it better to be able to understand how to automate, how to integrate it into an AI process. If we had just stopped and done that, we would have gotten some of those gains. Some of it is market-related, right? We just we have more uh work coming through and we've learned to be more efficient with it by improving our process and doing some of those things. It's the the uh my point about the productivity uh capping is really a larger thesis, which is how much more technological innovation were we gonna get if this AI piece didn't happen. How much better? I mean, look, we moved to cloud computing computing. That was a massive improvement in um infrastructure. We did we we reduced our infrastructure costs, we create and you know, improved our redundancy, we mitigated lot data loss. We did a lot of things by just moving into the cloud. And a lot of businesses did that over time, but it was very expensive initially. People were still sort of running their own VPNs across bandwidth, and all of that sort of went away in favor of the data center story, right? Even before AI. I mean, we're using data centers for cloud storage and story was right, and you had AWS and you had all of these different sort of centralized networks that were now running in the cloud instead of you buying hardware and manually putting it in a data center and then having a copy of it in a different data center in a different location.

SPEAKER_00 57:25

And that's still going on, right? So, like the data center demand is not just uh training of language models, it's still we're producing a ton of data and we need to put it somewhere. All right. So that's still a demand driver for all of this.

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SPEAKER_06 58:22

But the companies, I in my view, I don't know that individual the individual companies are not doing it at the scale that they were, certainly in the middle market. I mean, I think the major companies like Verizon and you know, massive companies like that are still running their own, but a lot of them are just outsourcing it to Amazon or outsourcing it to Microsoft or otherwise. The federal government is outsourcing it to these companies. So, but my point is that the AI productivity gains that we're that are coming, even, are also going to help us continue that productivity gains that we need to make up for an aging workforce. Not, you know, fewer employees that are going to be in the workforce. The challenge that we have right now is a lot of what everybody's solving for is the very super easy stuff to do, which means they're eliminating the opportunities for people to come into the workforce. So it's like now I have to find someone that can come into the workforce, but sort of join join with the knowledge as if they were in the middle and work for me for two or three years, right? I'm eliminating that.

SPEAKER_00 59:20

Like all the young software developers are struggling, and then the 30 plus year olds that have already been in the industry are okay. Um, so how are we going to create the next generation of great developers for these next technologies if we're not incorporating them into the workforce?

SPEAKER_06 59:39

And by the way, take AI out of it. You have global, you know, uh labor arbitrage or a lot of companies in my space certainly have been outsourcing things overseas for the young, you know, what we're hiring, you know, I call it the integra made in the USA model, right? We're not hiring people overseas to do our data research for a number of reasons, not the least of which is we don't want to have we don't want to we don't want to have our clients accessing our data that are that is our clients being accessed by people that are not in the US that we can't control geofense and know where the data is going and staying. Like coastal. I'm not saying that.

SPEAKER_00 1:00:15

We control, yeah.

SPEAKER_06 1:00:17

And and that, by the way, that's a huge, you know, that's not our vendor contracts are a big part of that, right? Because our vendors are also ensuring that we're not sort of just using people overseas and doing things. It's a it's a very big point that the vendors help help us in that framework. But a lot of companies that CoStar, let's say, can't enforce against, you know, the bigger sort of national brokerages and things like that that have sort of, I'll call it special deals, you know, they are using overseas labor. And but what they're doing and using overseas labor is they're eliminating that first year, two, three years of training that the next generation of real estate people need. And they're doing that, companies are doing that across the board in asset management, they're doing it in valuation, they're doing it in brokerage, they're doing it in a lot of different spaces where I do wonder like how 10 years from now, where are the 35-year-old brokers going to be? You know, and that's gonna be a big, big thing. Um, you know what's a cool story that's happened really big in the last quarter, and I and I think really been going on for the better part of a year, I'd be interested in Juan's, is what's happening in the residential data market. Right? You look about uh the MLSs are battling with the major companies over private listings. You got Compass Real Estate trying to build their own internal sort of private sector listing. Everybody, the consumers are saying we don't want all of our data out there for every broker to know how long my house has been on the market. I mean, it's not as much a commercial story, but I will say in my career, whatever happens in residential ultimately bleeds into the commercial segment, in the commercial sector. And I got to tell you, this battle over MLS data and who owns that data and what that data is worth in terms of exposure to the market and maximizing price, there's a lot of uh national uh implications here. What are they paying over? They're all trying to create their own MLSs or well, no, the the um the major brokerage companies, you know, you would put would participate as as realtors in the MLSs. Right. But then the data companies, the redfins and other and otherwise, were coming to the MLS and saying you have to share the data. And they actually won a lawsuit saying you're the MLS could not that the MLS was required to share that data. And so they kind of broke what I'll call it with a monopoly of the MLS, although it wasn't really a monopoly. I think the realtors did a terrible job sort of making their case here because the MLSs were owned by the local realtor board, they weren't owned by the National Association of Realtors. But the judges found, you know, said, hey, this is um you know, you are controlling this market. Local versus national monopolies is still a monopoly. So but again, they were it was an association of realtors that had agreed to put this data and funded this data database, right? Um and I and I think that I love my friend Juan here, so I don't want to sort of start pointing to which monopoly we should point to. I would what I will say, what I will say is that the issue of data control is is really front and center in the residential space right now. And that data control is going to have implications to what is public data versus what is private data, where you keep the data, how do you license the data? I mean, this we are in uh the early innings of a data war in real estate right now, and it's kind of unspoken. Um, and I think the the residential brokers are really struggling because they're they're they're trying to do, I think the the residential brokers are trying to do the best thing for the market, but the market doesn't view it that way. The market views it like they're trying to control the data, they're trying to control the listing, they're trying to control, you know, who gets to see the listing and all that. And there are a lot of consumers that are saying, we want that. We don't want the whole world to be able to pick up their phone and find out how much I listed my property for and all the pictures of our online of my house that I can just go to a particular website and start looking. You know, you should opt in for that and you should control that data as a consumer. When I give you that data to market my house, you should have a choice, whether it's out there in the world, whether who has access to it, and so forth. I think that as this develops more, and I think next quarter, I'm gonna come back with some really interesting tidbits on this. But this is a big story that over the last, I would say six months has been playing out in the news, but the news is doing a terrible job reporting on the facts of it. And I think I think unfortunately the realtors have kind of missed the boot in terms of what they're how they're viewing it, and they're letting the big brokerage companies, the compasses of the world, kind of drive that initiative because they've already lost their their footing. The realtors have lost their footing.

SPEAKER_00 1:04:44

I would say it's not uh for me because I view it from a different angle because Coastar basically just we focus on data, right? So we've been fighting a data war probably since Coastar started. Um we had issues with a company called Excelegent a few years ago. They were ripping off our data. Um and it's a constant struggle on the data side. And I think on the residential market, it's not just a US-based story, it's uh it's a global one where a few, I think a year or two ago, I think it was Blackstone, one of the blacks, Blackstone, BlackRock, whichever one of those, uh bought um Idealista, which is one of the big real estate data firms out in Europe. Um and so the the data war is happening globally. The companies are going out and buying these companies that have all this pre-aggregated data. That uh some of it comes from uh public sources. It's just that they already had that ecosystem built out to pre-aggregate that data. That's the real work that the private company did of putting it all together, mapping it out, and then showing it in a really nice portal. And so CoStar would the company typically does is we'll go and find these private entities and also collect public data and try to compile that and show that, right? With our own agreements with those parties as well as with other private entities around, you know, data collection and following all the rules, whether it's US-based or European based. But I think the data collection wars are have been going on for quite a while. And maybe now they're just coming up on the residential side significantly. We've had you know competition with Zillow for quite a while, right? Because we now we have homes.com that's trying to compete with Zillow that's a residential offering. And I think that those those wars are here for a reason because AI and all this you know all this power that AI brings to the table makes having the data more and more and more and more important. The shops that have the data can actually use the tool from AI to create new insights and knowledge for the industry, right? So yeah, the data is the essential factor even in this AI age. And I think I think it's probably the most important thing. Yeah yeah and I think we've been um underappreciated as a as a company over the last year if you look at our stock um we've been underappreciated because of the assumption that AI has changed the rules of the game but in reality the game comes back to one reality that if if you don't have the data even with AI you can't do much of anything.

SPEAKER_03 1:07:44

Agree 100% with that there's your hot mic right there buy co star stock. Yeah exactly I'm I'm all in on co star yeah um yeah I listen I think you know the importance of of of good data and what you can do with good data now with AI is it's incredible the the power of AI if you have good data. And uh I'm blown away by it and I'm I'm you know Fed and I are a couple of brokers here in Miami and we have good data and the shit that Claude can now do with our good data is just fucking incredible. Like the mapping technology that we can integrate now and and you know it's just a couple of guys banging on Claude and uh and it's incredible.

SPEAKER_01 1:08:32

I mean that would have cost tens if not hundreds of thousands of dollars and developers previously right look at and that's that's going back to the the productivity growth right like it I would say it's more than 23% productivity growth at least on my end.

SPEAKER_03 1:08:46

On my end I'm gonna say it's in the last six months it's like two to three times.

SPEAKER_00 1:08:50

Yeah I'm I'm I'm too like I'm another like I'm not just uh an industrial market analyst I am also a much more in-depth data analyst from what I could have been a few years ago without AI. Like the amount of code work that I can do today in and the quality of it in the amount of time is sometimes better than if I had hired someone that is that doesn't know real estate but is just purely a data analyst because I don't have to explain the real estate and the data so that the the code can get built I I just do it myself and that made me an extra work basically made me two workers in one. Yeah my salary didn't go up and that's why that's why I mentioned earlier the Philippine issue. Yes your productivity went up but that doesn't really factor into the inflation equation unfortunately we have this conversation in totally all the time I love it.

SPEAKER_06 1:09:50

So and by the way maybe I'm showing my age or my bias right I'm not gonna get the same out of going to the gym as you guys are but when I measure productivity I'm not measuring that I could do more in an hour. I'm measuring that the revenue increase is going to be there right so like I have a lot of people come to me and they go I can save 20 minutes a day and based on what I make at 20 minutes a day we could save X. And I'm like why are you going to stop working that 20 minutes a day? I'm still paying you to be there for that 20 minutes. So okay you're saving it but what are you doing in the alternative that's creating revenue right and that's the part of the conversation is people think in terms of like oh I'm doing twice as much stuff. It's like okay great but are you generating twice as much revenue now not every job is translates to that right you you have like research jobs and whatever but it does translate into having to hire fewer FTEs full-time equivalents to get some of that work done and you can sort of translate that into cost savings. But when I talk about productivity I'm talking about revenue increase. So yes, you might save a hundred percent of your full-time equivalent cost, but you're not a hundred percent of the revenue it's not a hundred percent revenue increase. And I think we we disconnect that sometimes. So when I talk about productivity I'm talking about my ability to generate revenue there's a lot of people that measure productivity and well I double the amount of things I can do in an hour. It's like yeah but if 60% of the shit you're doing is not productive great good for you. You just doubled the amount of your lack of productivity so I would just caution everybody to say like fair point I love that let's let's measure that in a in a on a in a decent yardstick but I would I would say we have to think of it in terms of the ability to produce revenue because that's ultimately what's going to generate and and and you know amortize the cost of these things. I think you're right though the structured data more and more important um and it's also harder and harder to contain control source. I think there's gonna be a lot of development around governance issues on that. And I hope that the that the vendors that the vendors and data companies that we use will under you know appreciate what we're doing to protect the data and respect the data but we also need them to work with us to help contain this sort of runaway like I I tell my my people all the time if you haven't run your appraisal report we have closed end um AI right we don't let any outside AI touch our system so you cannot sign up for your personal Anthony Graziano Claude account and get to our data right we that's no no right we've got everything in a closed system within Integra. But if you haven't run your appraisal report through any AI that we enterprise AI that we've deployed if you haven't run it through there, you're an idiot because your clients are not reading your appraisal report for the most part anymore. The first thing they do when they get your appraisal report is they dump it into Claude to their version of Claude and they say well what does this say? And sometimes they do that and the one the appraisal that they got six months prior and they say compare these two right and nobody's sitting there extracting that information like that anymore. So I think part of what we have to be thinking about is how do we deliver um a sort of an AI readable AI ready document that is easier for for the AI to digest because I think the humans aren't going to be reading every word anymore. And how do we take a lot of those words and get them down to really data points and bullet points so that the analysts can extract quickly without having to dig in and yet still maintain the integrity of the opinion so that people understand what the foundation of the opinion is. That's an interesting balance and I think everybody's going through it people are going through it with offering memorand the brokers are having it in the offering memorandum world right they're they're writing decks and offering memorandums for investors to review and then the investors are trying to automate their systems to be able to go through all these OMs and tell them you know whether a deal should even be really looked at by a human. We're gonna be adjusting all that for the next couple years. And I think it's cool.

SPEAKER_01 1:13:38

I think it's exciting. Kraz your firm does a lot of uh litigation or you're exposed a lot of the court system yes what are you guys seeing in the courts right now the lawyers are in the the lawyers are in disaster mode what does that mean?

SPEAKER_06 1:13:52

Well in the sense that the lawyers are also playing catch up with the AI and trying to understand like how they should be using it and and um the whole element of presentation of evidence right so I don't ever want to go into an AI system and ask the AI system a question and then use that as a source. Oh I got that from Claude or I got that from Gemini right I I need to go back and source that. But then you know the old way of throwing 20 lawyers at a work file and going through every single document and reading it and trying to cross reference I mean what the lawyers are able to do now in terms of taking apart let's say an expert you know email chain just on like all of the extraction that's able to happen on not only the source document of the opinion but all of the work file opinion is scary. But at the same time we're building tools to be able to also do the same thing quickly so that we can understand where the attorneys are coming from when they're cross-examining us or looking at our reports or looking at our opinion. We're trying to get to that but the lawyers in general I mean you think about what the LLMs have done in terms of being able to extract and write and extract and write the lawyers are also facing a lot of pressure to use AI responsibly and yet be able to present something to the court that is legitimate checked confirmed not hallucinated and so forth. And I think the judges are also you know they're they have tools and they have the ability to do it but they're not standing for any kind of like poor evidence, right? They're trying to gatekeep the good evidence gets in and it's human and it's real uh and it's it's very interesting like the the size and scope of these work files has just gotten massive and from a real estate perspective what do you see in the courts?

SPEAKER_01 1:15:38

I mean are you seeing a lot of distress are a lot of people like are there a lot of workouts going on like what's the what is what does the act real estate activity in the courts tell you about where we're at in the cycle right now?

SPEAKER_06 1:15:47

Nah not too much. I mean there's a lot of the court uh you know a lot of the um litigation varies widely right so if you if you look at that just even the whole tax appeal world right that we've seen a massive increase in the number of tax appeals not just at the district court level but also even in the the what we call Florida the value add the VAB I think Miami Date actually last year had the most tax appeals in the county more than any other county in the country now what was that that was the assessor's office you know anticipating bigger growth in value than maybe happened and a lot of people had to take appeals to get their taxes put back to the right level um but administratively that's a huge burden on the you know on the infrastructure that is the county county assessor's office because now they're fighting all those appeals. I don't think there's any broad base way to look at the courts and say is there a correlation to what's happening in real estate value except that you know a lot of construction lawsuits, a lot of construction defect lawsuits, um, and that type of litigation is I think indicative of when things have gone bad, you know, and then people go back and they look at the contractor and they say you did this wrong, you did that wrong. Some legitimate some otherwise you know they're just sort of going after to try to negotiate and get after the insurance companies obviously we have a lot of insurance issues in Florida the way we insure properties but these bonds on construction I mean the guys that are building condos today are taking massive long tail risk. You finish the condo you sell it out you pay off your bank everything's done you hand it over to the association and all of a sudden two years later the association comes back to you as a developer and says you messed up. Yeah and in some cases like I said I'm not saying you know some of it's legitimate and some of it's warranted and yet some of it is just sort of normal just taking on risks and uh you know I've had a couple of developers come to me that were traditional condo developers and said we don't want to do condos anymore. We're just gonna build apartments we're gonna we're gonna own hold and sell and we're gonna do apartments we're just we're not gonna really taste the condo mark anymore because it's too risky. You know the Champlain Towers uh demolition God bless the Champlain Towers tragedy you know sparked a massive wave of reevaluating these con these older aging condo buildings and saying you have a lot of engineering work that's being done a lot of renovations that are being done on these older condos there's going to be a wave of litigation after that um but I would say largely mostly litigation that's outside of construction defects and tax appeals is you know title issues partnership issues so nothing really correlating to no real signal of as what's happening in the market.

SPEAKER_00 1:18:25

And Juan what are you seeing in the South Florida industrial I mean we're it's kind of the same story right big boxes languishing small bays ripping nothing's getting built um yeah I mean the net absorption numbers haven't been stellar and vacancy rate ticks up uh has ticked up um but I think that's just following national trends nothing specific to South Florida would tell you that there's something significantly worse with this market than any other um and I think that even with the rise in the the recent rise in vacancy rates investors still view this market as uh a good opportunity to buy into a supply constrained uh long term medium to long term supply constrained market specifically Miami and for Lauderdale not so much Palm Beach because they have more room to grow um northwards and then you guys and Lucy competing there um but but yeah specifically Miami and for Lauderdale the supply constraints here allow you to to really uh in the medium to long term make good good returns on that rent growth now right now we're on the soft patch that probably would bring in more investment volume as some of these investors want to take opportunity uh uh around that vacancy risk uh and one of the markets where they would view a lower vacancy risk in the medium to long term would be a market like South Florida much similar to you know the California markets uh specifically not not at inland empire but uh LA um Orange County um if you look at our rental rates down here they they got close to they got really close to the California markets right so um we we are becoming a similar supply constrained market like like in in the West Coast are we seeing rent growth here on are you seeing rent growth on the industrial side or is it pretty flat? It's um the rent growth has really slowed down to close to 1.3% um and my expectation we're just running through our latest round of forecasts my expectation is that we're uh bottoming out and hopefully we begin to re-accelerate uh by 2027 I now don't I I wouldn't say expect significant resurgence in rent growth probably back to inflation um because we still have to contend with a significant supply pipeline though that we're dealing with even though you know construction activity has slowed relative to the pandemic highs the amount of speculative space sitting out there that got built over the last few years and is still in the pipeline is double the levels that we saw pre-pandemic. So there's still a lot of some players say you know the spec story uh is not as bad. It depends on the market. But nationally the warehouses were out in Medley and in Durral well I mean there were there were warehouses up in St. Lucie and St. Lucy was developing a ton of warehouses as well. But yeah there there's a lot of warehouses that are you know once you get closer to the Everglades etc a good a good amount of development there. Now those warehouses what the the the developers have tried to do over the last couple of years has been to demise them down to smaller suite spaces. The issue is that you can only get so deep you can only get so small. And sometimes you can tap into 30 4000 square foot suites that's not small enough relative to where the real what I would call the real small bay market is which is sub 2000 square feet. But still I mean so sub-2000 square feet is is gold right now well I mean that's that's 80 90% of leasing activity in any given market. So there's a lot of depth in the tenant pool to tap into there, right? But you still got to contend with the issues of these new newer warehouses are farther out and a lot of these tenants want to be closer in um so the weight between transportation cost and proximity to your consumers that's the balancing that that these small bay tenants have to do.

SPEAKER_06 1:22:50

And by the way the closer in is closer to population centers which now a lot of that industrial is being converted out into multifamily and being demolished because the inventory was aging and stock was aging which is then driving the land prices up which is making it more expensive to stay in. Yes. Right? And so you may have to go further out and so rent rent growth is actually a really interesting topic too I mean in terms of the story of rent growth. So we talk about rent growth we're talking about the asking rent the current market trading rent right where I'm where a property would sit. But then you go in as a tenant and you do your lease your landlord's not locking you in at that number not giving you they're giving you three percent four percent increases even though the market may only be increasing by one or one and a half percent so you get to the end of a 10 year lease you could be unless the market you know on average grew that much you're paying above market you're you're paying above market right and so you don't necessarily gain a leasehold um and so when we talk about rent growth in the market a lot of the tenants are geared for three percent rent growth minimum and a lot of them are even tied to like a minimum of three or CPI because we had a period there where CPI was going higher. But the actual market is growing the rent the face rent market is slowing and I think that's probably the right number or something it's less than two percent but that's a supply side today. And then of course when that gets absorbed and it will then we'll start to see that return to sort of normalize rent growth until we start a construction cycle again. And that is the market.

SPEAKER_00 1:24:15

That's the way the market operates um the real key is are we refreshing the inventory and do we have the tenant demand and what does that tenant demand look like in terms of economic activity and I think that's pretty positive for where we are in yeah I'd say the um when you look at new leases versus renewals um what I've seen as of late is uh new leases have performed really well if the new lease activity has actually begun to tick up significantly renewals are are trending down. But part of it is these factors that that he was mentioning that you know there's a lot of landlords that have been marking to market and some of these tenants cannot absorb it um and they choose to move to a new location. There's also been uh uh an increasing weakness in the the small business sector over the last few years. If you look at the there's two lines that I that I try to to track um specifically for small businesses, which is small business uncertainty versus capital expenditure expenditure plans in the next three to six months by small businesses. And within those capital expenditure plans part of them is taking on a new lease or buying a new property. Right now uncertainty is elevated for these small businesses historically high and um capital expecting to spend capital over the next three to six months it it's at a historic low.

SPEAKER_03 1:25:45

So um and when you say small businesses they're occupying what size spaces more or less?

SPEAKER_00 1:25:50

Typically that's a small base space. So below 2000 square feet that's that's that's costing some tenant churn in that small base space. So we're seeing a lot of new leases but fewer renewals because there's still some tenants that are going under right the the small base space if you look at the vacancy rates overall they're tight because of the supply demand factors that he mentioned but that the vacancy rate has also been ticking up slowly. So there's still the the issue right now with the industrial world is you've got to be very mindful about your tenant roster and very careful about when you choose to renew a tenant that that you weigh a little bit more the the overall occupancy of your property versus the rent growth that you want to squeeze out because occupancy right now holds a much bigger weight keeping that tenant in place because even though it's a very liquid market in the small base space um a lot of these tenants are also struggling because of the uncertainty around the economic environment the slowdown in economic growth uh the slowdown in demographic growth the fact that home sales aren't happening that new construction has slowed down across many sectors except data centers um and so all of those factors are tied to small bay demand because small bay has a lot of HVAC construct contractors um uh construction companies all these companies tied to you know when you buy a new home and you renovate it well you hire the local guy that comes in he has a small bay warehouse that he works out of um so right now uh home sales activity remains very sluggish so that's causing some pain for for on the uh demand side and then on the operating expense side the guys that can deal with the supply chain volatility with the rising diesel prices those are typically the bigger players the small bay guy has to eat a lot of those rising operating costs even more so in a demand environment and a consumer environment that is sluggish.

SPEAKER_06 1:27:59

And by the way This is not just an industrial. Let's talk about retail. Yeah. You got you have restaurant, you have restaurateurs, small businesses doing a million to two and a half million dollars in sales a year, right? They their food costs are elevated, their labor costs have been elevated. Now their rent gets elevated. All of a sudden that margin gets squeezed to the point where the guy that owns the restaurant says, I don't want to operate this restaurant anymore. If you're the kind of retail operator that's trying to squeeze out an extra $5 a square foot in rent on renewal from this restaurant operator where all of his other costs have gone up, you're going to drive that operator out. Now, maybe, and this is, you know, I get paid money to help people figure out the strategy, maybe that works, right? I mean, if the if the operator is paying $11 a square foot and the market is $50, you know, you have to say, well, maybe this operator is not for my shopping center anymore. I told an owner the other day, we're like, sometimes the tenant outgrows the building, but sometimes the building outgrows the tenant, right? If the if the building's location and you know, market rent is is very, very high, you may lose some tenants. But as an overall strategy, I agree with Juan, maximizing every single last dollar to get a little bit more net operating income should not be the only factor. You've got to look at the occupancy of the building. And then with a cost of replacing the tenant, you know, restaurant tenant moves out, and that that person was a good operator and they had been there 10 years and they had a reputation and they had a good client base. So that operator moves out. Now you're paying a new real estate commission. Somebody's got to come in there and completely retrofit that space, which by the way is the new tenant, usually in a retail center, but now their capital cost is way high. So now they're operating cash poor to start, and you have to hope that they have the holding power to build the successful business in that location. And you do that again and again and again through retail, through industrial. Now let's go to the office market. You know, we talked about the office market starting to come back. And, you know, we have landlords that are saying, hey, it's time to, it's time to press rents in certain markets. Right? Everybody reads about what's happening with rents downtown, and that sort of ripples out into Coral Gables, into Coconut Grove. All of a sudden you're down in Dayland. And now you've got tenants that you know had a rent profile that all of a sudden the space doesn't make sense for them anymore. They just can't cover it. So I think it's an important element for the landlord to recognize, yeah, you know what, you want to see value growth. You want to that that includes, you know, managing your rent role correctly. But this is happening now where everybody's sort of scrutinizing a lot of these rent rolls and saying, is this the right balance between occupancy and rental rate? And it's not always about maximizing the rental rate. You gotta balance it all.

SPEAKER_00 1:30:27

Yeah, and that's why it's tough right now because the landlord, because there's no reprieve from the capital cost side of the equation, the landlord is looking at where where do I get the growth? Right. So it's it's the rent growth, right? So can I squeeze these tenants right now or not? And that's why it's not just difficult for people trying to find good deals, it's difficult also for the people that are trying to, you know, retain the properties that they bought maybe during the peak of the pandemic. And you don't really have enough room to grow more on that value proposition right now because the rent growth is not there and the the the interest rates are like like we mentioned, if even if they drop 25 basis points, that's not gonna make a dent on on the overall market, unfortunately.

SPEAKER_06 1:31:16

Yep, and that's the market. There we are. There we are.

SPEAKER_03 1:31:19

And a quick question about multifamily, um, because we we haven't talked about that. Um we had seen a lot of construction in multifamily, um, particularly in Wynwood, um, Edgewater. Uh what what do vacancy rates look like there? Um, we have a lot of inventory. Are we seeing any rent growth? Uh at one point, I think you know, probably six months ago when we had you on the podcast, I think we were seeing significant pressure on on rents, um, a lot of concessions. Are we still seeing seeing that? Or is that is that inventory being absorbed absorbed?

SPEAKER_00 1:31:56

I mean, we we're still seeing positive net absorption, but it still continues to come in at a cost, right? If you look at the asking rents, they're still flat. If you look at concessions, there's still significant concessions that hasn't gone away. Um, and if you look at uh at least Miami eight counties um resident population numbers, they went down. Right. So the demographic story right now, it's beginning to percolate to the to the reality of the market. Um we had a point where you know I think Trump had backed out of the ice rates and now we're back on. So we'll have some volatility as well on on our resident uh and on our resident counts. But in general, I think it that it's gonna remain flat to down, and that's generally not a good story. If you look at also our overall labor force um in Miami Date again, it's flat. We are we have a tight unemployment rate, yeah. It's like sub three percent. That's amazing. But a big piece of it, much like the national story, is because we're not adding new entrants to the labor force. And unfortunately, if you don't have new labor force entrants, um and you're not creating new households, you're not creating demand for new apartments or new houses, et cetera, et cetera. So I think the one one of the main variables that's uh helping to prop up demand for the rental market is the fact that um homes are still super expensive. Um even if you look at the condo market, even with uh some price reductions on older condos, HOA costs are significantly higher, insurance costs are significantly higher than they used to be. So it's still not a uh uh a good option for for many uh in our in our residence space. So um I I I think we continue to become a renter market. Um we still have one of the lowest home ownership rates in the country, and that has trended down over the last decade or so. Um so that's the variable that continues to kind of prop up positive demand for for the apartment market. Um but if you look at overall population gains, labor force gains, that's kind of just flat.

SPEAKER_03 1:34:13

Isn't that a problem though for South Florida that we're not growing our population?

SPEAKER_00 1:34:17

Yeah, I mean, yeah, I mean I'm mentioning it because I believe it's a it's a it's an issue. And it's I think um we've rightly so. I'm not gonna say that that it's not correct to focus in on attraction of wealthy individuals uh to our metro. And both Miami and Palm Beach have been very successful in attracting wealthy individuals to our metros, and that has been kind of a focus of our economic development. But I think we are slowly realizing that unless that wealthy person comes with actually a relocation of an HQ, then there's no you know, broad-based benefit to our economy. Like that billionaire buys one mansion and they have a couple cars and they eat uh breakfast, lunch, and dinner once a day. They're not creating they're not bringing in 500 jobs that then you know kind of help the restaurant story and and create new jobs that spend on all these other restaurants, right? So if we want the the billionaires to come and have the tax benefits that we offer and the lifestyle that we offer, we should do a little bit more work around, hey, also bring in some other jobs that are not just your you know secretary. Um and we s at least you know the Citadel story has gained some strength because of the uh negative negativity around being based in in these in in Chicago and these other metros. But the other, like the most recent stories of billionaires moving here have not been uh big job creators for for for these counties. Um so I think we need to be uh doing a little bit of a better job at making sure that once the wealth comes in, that it actually it's not just wealth, it's actual bodies, because the bodies is what matters for real estate. The wealth the accumulated in a bank doesn't really translate to real estate occupancy and real estate demand.

SPEAKER_01 1:36:20

Hey guys, Ben here. Quick break from the show. I've got something I am genuinely fired up about. I just bought a wakeboard school. It's called Gatorbait Wakeboard and Wake Surf School, and we're located right off the Rickenbacker Causeway in Kibasking, literally just over the bridge from Brickle. If you've ever wanted to learn how to wakeboard or wake surf, or even if you're already into it and just want to get better, this is exactly what we do. Private lessons, super dialed in coaching, premium gear, and the latest 2026 Mastercraft boats, you just show up and ride. This has been my favorite sport since I was a kid. I'm sure you've heard me light up when people bring it up on the podcast. I'm completely obsessed with it. So getting to own and operate a school like this is pretty surreal. If you're in Miami or visiting, come ride with us. Check us out at GatorbaitWakeboard.com or hit the link in the show notes. All right, back to the episode.

SPEAKER_06 1:37:08

I'll take a different tack on the demographic side. I mean, look, first of all, I think that uh I don't know that it was an overarching strategy to attract billionaires. I think there were a lot of factors.

SPEAKER_00 1:37:17

These are tax strategy.

SPEAKER_06 1:37:18

Well, I think a lot of the factors of of the you know, of the way in which the economy is structured here, the billionaires came because of those factors, not that we were able to attract them per se. Although I do think that, you know, the lifestyle here in Miami was attractive and all of that. But you know, South Florida.

SPEAKER_03 1:37:36

And COVID really played a big part in that massively, a massive part of it. I mean, it was just less restrictive here. They're like, okay, we can just move to Florida.

SPEAKER_06 1:37:43

And a lot of the immigration came from people that were used to vacationing here and they said, hey, uh, you know, I know what I've got down there and I know what I can get down there, and that's great. And not just in not just South Florida, Tampa, you know, even throughout throughout all of Florida. But that said, I think uh the population story is one here that's always been ebbed and flowed, right? And as it gets more expensive to be here, and it's been in the past, relative to incomes, very expensive to be in South Florida. It's harder to attract Fortune 500 companies, it's harder to try to attract major employers. But I actually think in the last few years, we've done a better job at that than we ever have, attracting them, the employers and getting them to stay. I think there's also been a lot of wealth creation here generally, just because the economy has done well here and those that are here are. But then what happens is as it becomes more expensive, the aging population says, I'm not gonna retire here. I raise my kids here, I'm leaving. So the two parents leave, and hopefully the child stays or two child children stay, but that's gonna net out. Um, and you've got to continue to attract. So you're always going to have a tr have trouble growing your population if your costs of how your cost of living are going up beyond the cost of wages.

SPEAKER_00 1:38:53

I mean, then the numbers would say that the the retirees are sticking around and the younger population continues to leave. That's the issue that the state has been tackling with for like a decade. And um if if if you're not generating the job opportunities at the right salary levels to have those young folks stick around, that's that's a big concern.

SPEAKER_06 1:39:19

Agreed, but I I think South Florida has a bigger problem with that than the balance of Florida. I mean, I think Tampa's gotten relatively more expensive than it has historically, but it's still a pretty good for the lifestyle and otherwise still pretty good spot. Orlando's in a good spot, Jacksonville's in a good spot. You know, West Palm and Miami are having those cost of living challenges.

SPEAKER_03 1:39:38

Notice he didn't say Fort Lauderdale. Nope. Skip right over there. Skip right over Fort Lauderdale. No, no, no, no, no.

SPEAKER_06 1:39:46

I actually think Fort Lauderdale is in an envious. I'm saying that because I think it's in an enviable position. It hasn't outgrown its boots.

SPEAKER_03 1:39:52

Yeah.

SPEAKER_06 1:39:52

Right? The core economy in Fort Lauderdale is strong, and yet the costs of living in Fort Lauderdale have remained reasonable relative to their North and South Pole neighbors. So I actually think Broward is a better in a better position in terms of where what's happening with the cost of living and people being able to stay there.

SPEAKER_00 1:40:09

Yeah. So that like if you look at where most of the net wealth went to uh since COVID, it was Palm Beach in Miami. Broward received almost none of it. So that kind of helped. The ugly stepchild. Yeah, that kind of helped, you know, keep that inflation kind of down. But the issue is that, yeah, okay, so you have this wealth coming in boosting up inflation, and then okay, what do you do with the people that were living here, or how how do you attract more people domestically? Because right now, the people that are moving around the country and and the the population growth that you're gonna get is from a domestic migration. And typically the domestic migration is from higher cost to lower cost. So the markets that are doing okay are lower cost markets like Texas, uh Georgia, the Carolinas. Um we are now, like I mentioned, we we we're beginning to lose population because we get domestic net out migration. We need to figure out how we have domestic net in migration because we are expecting that net international migration is going to continue to suffer, um, then that won't be able to prop up our population growth. And to have net domestic in migration, we need to do a little bit more than just attract wealth. We need to do um, you know, like we we have um a Vanderbilt that's gonna get built in Palm Beach. That those are those are small the that that's a significant step, but um we need to also have more of these company relocations here that create the jobs that are not just um I think which one that was the big uh technology company that so you want more than just family offices moving here. Well, yeah, the at the end of the day, the family office uh employs a few people, yeah. Um and the net benefit of that family office goes to uh a small circle of the family. If you hire a couple secretaries and maybe even less now because you can do a lot of the secretary work with AI, right? Um then there's there's less of a of a of a job growth out of that. So I I think we need more corporate relocations, more corporate expansions, and we need to figure out how we attract more corporations here in a way that creates better, higher paying jobs. Because the Caseya example that I was gonna give, originally we we thought Caseya was gonna bring high-tech jobs, and in reality, they brought in a bunch of you know sales jobs that were at a different income level than what we were expecting. And so that didn't really generate the economic benefit that was.

SPEAKER_01 1:42:46

Do we even know what Caseya does? They have your name on uh on the stadium, don't they? That's not what they do, man. That's not what they do.

SPEAKER_06 1:42:55

I just want to make a point, by the way. I love I love when Juan and I get on the mind meld, right? So basically, what Juan is saying is we need a broad-based recovery here in Florida. We need a broad-based expansion of our economy. We just need uh, you know, a better, more balanced broad base. But I I think that uh tough. It is, it's challenging. And look, by the way, it's it's almost like uh you guys know what the Fermi paradox, right? The Fermi paradox is the question like if they're if the presence of life in the universe is so abundant, why have we never heard from them or heard from anybody, right? That's the Fermi paradox. Um, we have a similar thing in real estate that I've really contemplated, nobody gives me a good answer, which is what do we do if we can't continue to grow? Because our entire model around urban development has been our entire economic model for GDP and everything is growth.

SPEAKER_00 1:43:43

It's all based on growth, yeah, right.

SPEAKER_06 1:43:44

And so at but at some point you say, okay, can we get to some sustainable equilibrium where we don't actually need compounded growth year over year to make the economy work? And I think, you know, when you talk to Japan, for example, right?

SPEAKER_03 1:43:58

But that's contraction, right?

SPEAKER_06 1:43:59

I mean, they they were over-levered, they didn't grow, but it was at the expense of actually like they were in a deflationary environment. I'm talking about being able to have a sustainable economy that operates within a framework where it doesn't require growth to drive it. It doesn't, you know, there has to be replacement. You're gonna have homes that are old and they're gonna get replaced by things that are new. There's gonna be obsolescence built into the economy that you have to build through. But what I'm talking about is we've, as a as a uh as an economy, we tend to compete on growth. And the fastest growing economies attract the capital, and then that attracts the growth, and then that, but you're taking it from somewhere else. And the net, net, net effect is we probably have enough, for example, we probably have enough housing in the US. But we just don't have it in the right places because where the people want to live, there's not enough housing. And a lot of places where the people are leaving, there's too much housing, then that creates a glut. And so we're dislocated on housing. It's not that we actually don't have enough housing, it's just we don't have it all in the right place and it's not movable, right? But I want to I the the paradox that I'm describing is we need to find a way for broad-based growth and expansion. I agree, but I'd love to do it in a way that's more equilibrium-based, right? It's not, it doesn't require that we continue to chew new resources and develop every single square foot of land and build it all out to 80 stories to make it work. Um, and I think that's been, you know, part of the good news about what we've seen in South Florida is we have really improved the fabric of our urban environment. We have really managed our growth in a way that I think has been healthy. And the question is, how do we do that to the benefit of all the citizens that are here without driving them away? And that's that's gonna be the headline for the next 10 years is how do we get there?

SPEAKER_00 1:45:38

I mean, there's still plenty of space. I mean, look at look at the spirit headquarters. That's complete bankruptcy that's gonna hurt that market. And uh we'll see. I think the government, the the uh the government of the or Broward County wanted to take that uh that HQ. But I mean, I think there's still there's a lot of suburban space available. There's there's space available, like you mentioned, probably not in the right spots because everybody wants to be in Brickle. Um which is not a bad thing for Brickle. No, it's not a bad thing for Brickle, but you don't just need to be there. Um, but anyways, like I think we also need to create uh like one of the things that at least our our head of office always mentions is you can't have corporate relocations if you don't have the office footprint vacant and available in the right locations for it. And unfortunately, Brickle's tapped out right now, and there isn't much of a push. I mean, there's a Santa in there tower, I may have some space. Citadel goes up and down in terms of how much they're gonna occupy versus they're gonna have available, so that might unlock some more opportunities. But we have opportunities elsewhere in our suburban markets, and we are not really um uh pushing as we should, because I think we've had economic development, at least downtown for Lauderdale economic development. They're very focused in the downtowns, and then some of these suburban areas have availability. We could have some companies going out there. Um, but yeah, that's that's a different sound like a dictator over there, Juan.

SPEAKER_01 1:47:16

You don't need to be in brickle, you're going to the same thing.

SPEAKER_00 1:47:20

He mentioned like a broad-based development. We have dictators. Plenty of available land in other areas for a broad-based, broad-based economic development, right? Like look at Durral. Durale has been densifying and adding more um more real estate over the last few years, and it's had a incredible renaissance. And that's because there's been a focus to develop there, right? So I think there's other pockets in South Florida to do that. I think we just got to be a little bit smarter around that and and and try to not just do Brickle, not just do downtown um or downtown Palm Beach, start moving in in these other directions as well.

SPEAKER_03 1:47:58

Well, listen, it's credit to Dural, right? Because they actually allowed for them to create Codena, I think, is in related were the ones that went down there, created a master plan, brought the density in there. There wasn't any pushback, right? We need more of more of that. Yeah.

SPEAKER_01 1:48:15

So what's your guys' predictions for Q3? Where are we going? Is the strait gonna be open? Interest rates flat.

SPEAKER_05 1:48:22

Oh gosh. Straight's gonna be open.

SPEAKER_01 1:48:24

You think it's gonna be open? It's gonna be open.

SPEAKER_06 1:48:26

I don't know about wide open, but it's gonna be open. We're gonna get we're gonna get control of that.

SPEAKER_03 1:48:29

Are we gonna we're gonna be back to 200 ships through the straits? I have no idea how many ships we put together.

SPEAKER_01 1:48:34

How we can't just send like three F-35s in there and rip that bitch open. I don't know. I don't know. This doesn't make any sense too. This is like waste.

SPEAKER_00 1:48:41

The Iranians have been getting ready for a war like this for decades. They have like subterranean tunnels.

SPEAKER_03 1:48:47

Like I I don't think I don't think this is gonna be resolved anytime soon.

SPEAKER_00 1:48:51

Yeah, this is not the same as like going into Venezuela and in like uh 20 minutes taking out their president. Like this is a regime that has been getting ready for a war with the US since they became a regime. Like I think they're more ready than than we'd like to admit. And um, that's why I I hope it's opened because that'd be great for removing that uncertainty that I talked about earlier and some of the inflationary pressures. But um if you're putting money on it, what is what's your prediction?

SPEAKER_06 1:49:24

My prediction is we I'm sorry, I'm gonna let you say, but my prediction is we do not go into midterm elections without getting this under control. Wow. And we do not turn our back on Israel without getting this under control, and we're not turning our back on Israel before the midterm elections. So sorry, this is going to get under control one way or the other if I'm being firm about it and I'm on Israel's side and we have to continue to resolve this problem. And that said, that's going to resolve all the other issues, which is the issue of the straight hormous is open by the midterms.

SPEAKER_03 1:49:50

I'm going. I'm going.

SPEAKER_04 1:49:54

I love that.

SPEAKER_00 1:49:55

Um I don't know. Look, I think the the the the amount of I I I I don't know how much leverage the administration has over the governments of, for example, Israel, um, because over the last few months what has been demonstrated is that Israel is more than willing to go their own route on this issue uh and therefore keep the the g war going, um, partly because uh their current um I mean Netanyahu has other issues, legal matters that would begin to prop up if he doesn't keep a war going. Um so I think he has uh uh an interest in in having the war uh uh as a matter of fact over the next few months, like not really shut down. The other factor is the leverage over Iran. I don't think we have that much leverage in the negotiating table against Iran because of what I mentioned earlier that these the this is a regime that has been getting ready for uh a war like this for decades. And we are, yes, we are using our air power, but typically air power does not win a war, does not win a battle. So unfortunately, a regime like Iran that has been dug in for so long, an air war is not as useful. And so I think that other than like putting butts on the ground, I think we're just gonna be at a stalemate for a while. Um, so I I would I would go the opposite view. Cool. Next time we'll be back next time it's finally meet. But this is not even like something you can predict. Like this is this is uh this is uh you know hedging. Yeah, no, not to hedge, but at the end of the day, like this is not real this is not real estate uh forecasting, this is more like uh geopolitical forecasting, which I love.

SPEAKER_03 1:52:08

I would say it's outside of that's for the wheelhouse, but I love it's also a passion of mine, so it's real estate geopolitics.

SPEAKER_00 1:52:17

So we'll see. I I just don't think that um even though the administration wants 100% this to be like completely done for for the midterms, the amount of leverage that we have over this geopolitical environment, specifically in the Middle East, I think has been diminished over the last few decades.

SPEAKER_01 1:52:33

And where do you guys think the uh interest rates are at?

SPEAKER_00 1:52:37

Well, I I said I said flat. I think you were said, I'll take 25.

SPEAKER_06 1:52:41

I'll take 25.

SPEAKER_05 1:52:42

I'll take a 25 cut in September.

SPEAKER_00 1:52:44

But just basically puts us in the same place of the same 10 years.

SPEAKER_03 1:52:48

I like the twenty I like the 2525 cut. I think Street Armor Home moves is gonna be a shit show for a long time. I think this is gonna be uh a a battle of wills.

SPEAKER_00 1:52:59

I mean, you see the the Saudis are like building a separate pipeline. Like if they wouldn't be thinking of building a separate pipeline unless they thought this was gonna get resolved in a few months.

SPEAKER_03 1:53:09

Yeah, I think this is gonna play out for a long, long time still, unfortunately. I think I think Iran is is a horrible regime. Um and we probably should have done something a lot earlier, uh, but we're here today. And uh I think there's gonna be a lot of pain on both sides.

SPEAKER_00 1:53:26

Yeah, but they look, I think the worst that was forecasted, like $200 per barrel, like the the $200 oil, like that hasn't materialized. Yeah, right. I think that's a good idea. Yeah, what do you think oil will be at? The Chinese are definitely paying a premium for their oil right now, so they're getting hurt, and but they've been relatively quiet. So I I think the tolerance uh of higher oil is being um kind of just accepted right now.

SPEAKER_06 1:53:54

Like it's it's just being but oil's not crazy at 80 bucks a barrel. It's not like 140 a barrel.

SPEAKER_00 1:53:59

No, that's what I'm saying. Like the the oil oil is not terrible, right?

SPEAKER_06 1:54:03

So I mean, look, if you think that the strait is not gonna be open and that's gonna constrain oil logistics and gonna drive the price of oil up, then you should be back reinvesting in Texas because the minute oil goes over $100 a barrel, uh barrel, uh, Texas is gonna spin up and start making money like you haven't seen again.

SPEAKER_00 1:54:20

No, no, I don't think I don't I think that so far the impact to oil hasn't been that's as significant as some people predicted, and I don't think we're going to have such a significant impact, even less so WTI, because we don't rely on that much of that type of oil that's coming out of the strait. It's mostly for China. So China's getting hit, but they've been relatively quiet. So and and the supply chains have been moving around. So I think there the the the willingness to accept more time on Iran being an issue is a little bit bigger than what I think we originally expected. That oh, it has to be done by the midterms. Maybe not.

SPEAKER_06 1:55:04

Everybody said it had to be done by the summer. I mean, if you read the articles 90 days ago, yeah, but everybody said if Trump doesn't resolve this by the summertime act, the consumer is gonna get destroyed and the summer vacations are gonna be over, and all of a sudden I wake woke up and everybody is in Europe.

SPEAKER_00 1:55:15

Yeah. So I'm like so at the end of the day, I think the impact has been marketed as have it was going to be more significant. It wasn't it was still significant, but wasn't that bad. And I think because it wasn't that bad, there's a willingness to have this conflict go on a little bit longer.

SPEAKER_06 1:55:33

Assuming we don't have any post-Labor Day crash in the stock market, I think we're gonna end the year fine. I think we're gonna have a sort of a normalized run rate for the next couple of months. And I'll just caution everybody that I made this prediction in 2007 before all shit went to hell. And so the next time I make this prediction, I don't want to jinx anything. But at the end of the day, I you know, we we've got a lot of positives here in the U.S. economy. I think we're in a good spot. I think we're in a good spot right now in terms of the way in which our employment market is balanced with some of the other things. And obviously, we we continue to get up every day and innovate. And if we do that, we're gonna come out all right.

SPEAKER_01 1:56:08

You guys are putting money into a deal in Q3. What is it? Which kind of asset asset class office is the best risk-adjusted return right now?

SPEAKER_06 1:56:16

Office in the right market.

SPEAKER_01 1:56:17

What do you say, Juan?

SPEAKER_00 1:56:18

I mean, uh office is definitely a sweet deal, uh, but you have to really think that long-term strategy on that office deal for it to make sense. But yeah, the office is really good. Uh, I think industrial will begin to make a little bit more sense towards the end of the uh of the year. Um, I think there's uh some appetite out out there for some institutions to uh take in some of that vacancy risk um because they've seen some healthy, really healthy uh absorption from the in the larger bucket size. So once you go above 500,000 square feet, the the net absorption has been very, very healthy through the end of last year, beginning this year. So um because the bigger players are able to digest this volatility and uncertainty a little bit better than the rest, they still continue to absorb space. If you look at e-commerce sales, they're now rising uh once again. Um so that's uh a good picture for the for the bigger players and the supply-demand imbalance for 500 or 700,000 square foot plus big uh logistics space is a little bit healthier than when when I go down to the mid-sized uh 100,000, 200 to 500,000.

SPEAKER_06 1:57:25

Makes sense. So if I win the big $750 million like uh mega lottery this week, then I can play in the $75 million industrial pool galaxy. But in the meantime, not that there's any balance in the market between this uh this asset class and and multifamily, but I I would also say self-storage is right in the sweet spot right now. Really self-storage, not noted or built. I mean, again, look in the markets where it is, take advantage of the pricing opportunity that you're gonna get. But operationally, we've started to see a slowing in that construction. It's correlated to the apartment market, which is generally balanced. And uh I think you look in a lot of markets, there's some really good self-storage opportunities. So revenue growth, business growth, good opportunities there. But again, I'm not tilting this. You know, I don't need to obviously a multifamily market in terms of order of size magnitude is massive relative to self-storage. Um, but I'm not tilting the market with any direct investment that I'm making, so it's fine.

SPEAKER_01 1:58:18

Well, you guys heard it here first. If our listeners start making money on office deals, let us know.

SPEAKER_03 1:58:22

Exactly. All right, gentlemen, always a pleasure. Seriously, we'd love these conversations.

SPEAKER_05 1:58:27

All right, sounds good, guys.

SPEAKER_03 1:58:28

Have a good weekend.

SPEAKER_06 1:58:30

We didn't touch it, we have to say. I mean, are we gonna declare for Spain or are we gonna declare for Argentina do possible?

SPEAKER_00 1:58:36

I'm I don't make these like oh. You won't go, you won't go on record. I I I go for Spain, but I'm not I don't like to declare winners. Anything can happen.

SPEAKER_01 1:58:47

Of course, of course. Argentina 3-2.

SPEAKER_03 1:58:49

Okay, wow. I'm going for Spain, but I think Argentina is gonna win it. Whoa, whoa, tough call.

SPEAKER_00 1:58:55

This is this feels like when I was in France, like all the French people were like, oh, we're gonna beat Spain, we're gonna beat Spain, and then uh I I didn't even get to watch that game because I was on the flight, and then I landed and like whoa. And my group chats were all on fire. I was so happy. So we'll see.

SPEAKER_06 1:59:11

I'd love to see Spain win, but I gotta tell you, Messi's gonna crush it in the final minutes. He's gonna steal it from them and he's gonna get even more valuable. He's the go. That's I mean, that's great for Miami, too.

SPEAKER_03 1:59:22

Yeah, so I'm gonna bet on Messi. Ronaldo's not even in this conversation. We don't need that for anything, right? Well, good luck, guys. All right, thank you. Always a pleasure, dude. Sounds good.