Guy lets see what is happening. Stocks are higher in europe. We are getting a lift from italian banks, which bounced back after being hit yesterday. The Italian Government may be backing off on the windfall narrative. But european gas at one point was up by 40 . This is a story that relates to shortages out of australia as result of industrial action, but this is the fear, that we can seek shortages this winter. This is highlighting that risk again. It is going to feed into the inflation narrative. It could be something that comes back again this winter as a big problem. This is a competitor to we work. We work goes away. I wg benefits. It is not all doom and gloom when it comes to the office story. Iwg up nearly 10 on the back of that wework narrative. Alix the s p is down by. 3 . I want a couple things to tease out here. In one of the most active stocks today, it is spending a lot of cash. They say the demand is there. They say they can produce the cars. There are still supply chain issues, but the stock getting hit hard in the last hour. More of the ceo interview coming up. Crude in new york is at its highest level so far this year. The eia inventory numbers did not necessarily in a huge boost, like the demand for gasoline was still strong, but this feels more like a geopolitical issue coming in as well as the black sea conflict in ukraine and russia. At 1 00, the takedown for the three year was good yesterday. The 10 year yield is down, but that takedown is one we are watching. Guy we will watch carefully. Everyone is trying to figure out the inflation narrative and what is happening. It is difficult to judge. There does seem to be a sense that we are headed for a soft landing, but there are forces at work that may make that difficult, one of which is what is happening in the inflation story but the other is the disinflationary story related to china. We see the disinflation data, plus we have the story to work through. We were talking about this in the last hour. Country garden, the huge manufacturer of homes in china. The Developer Properties in china is really up against it now. The bond falling further into distress. We are now below 20 and falling. There is serious concern here that you will see and evergrande 2. 0. It brings us back to a question of the day. We have been waiting for this story. We have been waiting for u. S. Real estate to become crunchy. He saw that reflected in u. S. Banks early this week. Are we starting to see it coming to the fore . Alix and what the repercussions of that would be. Joining us to break it down is lindsay judge for Bloomberg Intelligence and abigail doolittle. Abigail, i want to start with you with Market Impact and terms of wework. What is the potential trickledown . Abigail i do not think that there will be much from we work if they go under. It seems that stock is priced down from its ipo price. More broadly from the Office Perspective of the areas of the commercial real estate area, and terms of the question of whether there is a crisis at hand, for office are challenges. For broader commercial real estate, that may not be the case because Office Accounts were about 17 of the 4. 5 trillion, but it is clear occupancy and vacancy rates vacancy rates are high. In new york city, the highest since being measured in 2024 in 2004. It is thought that class a trophy space will be ok, even though we have seen highprofile default from lock stone, brookfield blackstone, brookfield. There is the thought that these big Property Owners are going to make it through ok. Guy compare and contrast the situation in the United States and what is happening in mac china in china. How big a problem do they have . How bad could it get . Thanks for having me. When we think about property fundamentals by sector, there are some individual companies that are having some difficulties, like we work and evergrande. Some of those issues are isolated to those companies. If we step back and think about individual subsectors then commercial real estate, fundamentals are about the same. And we think across the globe from the u. S. To europe to asia, there are challenges as we discussed. There are other areas where there are bright spots in terms of warehouses and things like that where vacancy is low compared to the over 20 number referenced on the office side. Alix is there a issue a shoe that is going to drop . There may be issues here and there, and the bank that has the loan to we work or the Office Buildings we work as, that will be tough, but is there going to be a giant shoe . Guy if there is, if private credit is private credit also waiting to step in and provide the opportunity here . Is there a safety net . Particularly in the United States. Is there a safety net around Consumer Credit . You do wonder whether there is still liquidity in the system for the system to absorb what is happening. Maybe there is a shoe to drop but may be the shoe has a soft landing. Alix or it gets picked up fast. What do you think . Lindsay if you think about the safety net angle, we see a flight to quality across asset types but particularly when youre think about office and challenges that we see here in the u. S. , i think the highest Quality Properties that are well located should be best positioned to continue to generate cash flow to support their business. Obviously refinancing debt that is coming due now can be a challenge with higher Interest Rates, but those companies that have a Higher Quality portfolio should be best positioned to do so no matter what region you are in, so it is a focus on quality. Guy is the real risk around regional banks . Abigail i do not think the risk is around regional banks. Only 15 to 20 of commercial real estate loans are spread out among many of those banks, so in some cases the diversification acts as a risk buffer. To the shoe dropping, it is interesting because usually i believe a crisis does not announce itself. The fact that we are having this conversation tells me maybe things are healthier than folks think. Theres probably more pain there. A sign of the bottom once Properties Start to trade again, but it is doing ok. One piece said the other properties are going to have to invest equity into their buildings. Think about this building, the headquarters. The first time i entered this building, it is like a little city. There may have to be a recreation of older buildings to attract workers back. Last week, i didnt interview i didnt interview i did an interview. They are doing the diplomat in florida. He said it is fine. They had to go floatingrate as opposed to fixed rate. Alix if you ever go to the headquarters in london, talk about amazing little city. To you, how are reits performing . Office reads but other reads. Where is the strength and weakness, . Lindsay office as a whole had been underperforming on the year. More recently, we have seen those stocks outperform other sectors. It might have been investors were worried about this coming vacancy and a plummet in asset values, but maybe they overdid it, so we are seeing some are covering their for some of the owners. Again, it is biased toward those with the strongest portfolios. And similar when you think across to the other sectors. We saw a pause in the transaction markets. There are questions about asset values and concerns and other sectors, but the stock reacted ahead, so we are seeing some improvement. Guy it was interesting also, talking by the fact that some are buying properties because the underlying land is worth more because we have seen steep valuation discounts coming through building something that is more valuable. Perfect set up. I want to bring breaking news to you elated to the geopolitical story. We are just hearing from the bank of russia. The bank is holding its fx push to support the ruble. Obviously significant stress, that economy coming under pressure. The bank of russia has been out front in terms of managing that risk and in some ways has softened the blow that we see their book clearly stress is mounting. Coming up, is the commercial real estate crisis beginning to start . The global head of coequity markets joining us next. This is bloomberg. We often think about known and unknown risks. Commercial real estate is topical because of the points you mentioned, but this was a known risk. I do not know if i would say this is the beginning. I think this is a known risk that was ever present in the market and will continue to be that for some time. Guy speaking to alex and me in the last hour, taking us back to our question of the day. Is the commercial real estate crisis just beginning to get started . You have the chinese story which we are focused on as well and the downgrade of u. S. Banks. Moodys downgrading on the basis of that risk. Joining us is Gareth Mccartney of ubs. To what extent does real estate become a risk for your world . How is that filtering in . Gareth the big story of this year has been this normalization of Interest Rates in the u. S. When we have looked for where stress could come in the system as a result of the raising Interest Rates, real estate has been front and center of that. That is where we have seen some issuance particularly in the convertible space in europe. Alix do you think that continues . It does not even have to be real estate, just in general. If the rising rates stop rising but stay there, does that affect trickle down to where it needs to land . Gareth the surprise this year has been how benign the Market Reaction to this normalization has been. Global equity markets have rerated everywhere, 10 to 20 depending on where you look. We have seen volatility at five year lows, so for the Broader Market the visibility that we are at the top of the cycle or close to the top of u. S. Rates is enough for real estate. There are a few legs still to work through on financing, but i think the top of rates will be enough for the market to rerate. Guy every time i see you, you are like, it is going to get better soon. Is it about to happen . Gareth the boy who cried wolf is an issue, but now we look at the preconditions and we have seen volatility low. We have seen the pipeline building in the background. I would say cautiously optimistic that we see the ipo market reopen and next year has all the hallmarks of being a big year for ipos globally. Alix 2024 is now when we think there will be a recession. Does the ip market get ahead of that . How do you see that evolving . Gareth i think we are at a fork for Equity Capital markets issuance. The market side will play out with a mild recession or soft landing, in which case we will see the market open. If we have an adverse outcome and this plays out worse than anticipated, some of the distress we are seeing in real estate will filter through to other parts of the economy, and that is where you will see other Companies Look to raise primary equity in the same way they did postcovid and the same way we did after the financial crisis with banks in europe. Guy are you surprised how smooth the market has adjusted . Gareth yes. We had a paper we put together to talk to management teams about, which was it cannot be the Balance Sheets in the same place. Therefore, this is something we need to look at. We looked at adverse scenarios of earnings down 25 , cost of debt goes up significantly, market tolerance for leverage comes in one or two turns. In that scenario, you probably want to raise equity to hedge against that. The majority of management teams have pushed on through. Today, that has been vindicated by a market that it has rerated and forecasts have become more benign. So we need to see where this plays out but increasingly the soft landing scenario looks like what the market is pricing in. Alix where do you think we will see the most activity not distressed . Gareth it is difficult to find. That is the challenge because most Balance Sheets from a corporate perspective are in good shape. It is not obvious beyond specific cases in real estate where Companies Need to raise equity to get ahead of a potential downturn. So it feels like a benign outcome, not really seeing much more equity being raised. Even if you look at more adverse scenarios, most management teams are going to just grind through. Guy if that is the case and these management teams are just pushing through and have not protected themselves, are they more exposed now than they were then . Gareth i think they are in a better place now than when we came through the financial crisis, where people like the banks saw multiple capital raises play out in europe. Even in the more adverse scenario, it feels like corporate Balance Sheets are more robust and lessons were learned in 2007. Banks are a good example. Pretty much, excess capital is being returned to shareholders so i think the buffers are resilient across main sectors as we go into a more tough environment. Some Growth Stocks in that tech space with higher levels of cash , maybe that is more of an issue if things become more difficult but the broader economy feels resilient. Alix guy this is bloomberg. If you have this. And you get this. You could end up with this. Unexpected outofpocket costs. Which for those on medicare, or soon to be, is a good reason to take charge of your health care. So consider this. An aarp Medicare SupplementInsurance Plan from unitedhealthcare. Why . Because medicare alone doesnt pay for everything. And what it doesnt pay for, like deductibles and copays, could really add up. Even thousands of dollars a year. Medicare supplement plans help by paying some of what medicare doesnt. And making your outofpocket costs a lot more predictable. Call unitedhealthcare today and ask for your free decision guide. Learn more about plan options and rates to fit your needs. Now if you like this. Greater freedom. 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It is according to some basically people are worried about the workers strike in australia causing shortages, but im sure the positioning you are looking at a 40 spike in european gas prices without some positioning element as well. I do not know what is going on. Im hoping that Rachel Morrison does. Do you . What is happening here . What a rally we have seen today. There is this potential strike. We do not even know if it will happen. We do not know when it is. There is a meeting tomorrow that could curb some supplies, which would mean particularly japanese businesses need to find new supplies, which tightens the market. Fundamentally, that should not cause this kind of rally, so we think some Short Covering and also perhaps people buying the worst case scenario, that it is a strike and lasts for a long time, into winter. We have some predictions saying january prices could double if this strike is bad. It shows how nervous people are at the moment. Still a risk. Alix to that point, a german utility warned of this, that if events like unplanned supply shortages and coldweather meet up in the winter, you will have big problems. That is still the issue. I am wondering how it is actually looking now. Rachel it is easy to get too comfortable looking at storage levels. European storage is full, which is why traders are looking at ukraine and other places to put gas. The interesting thing is what in impact something fundamentally small like this could have on markets. That is the precarious situation we find ourselves in after the war. Guy when i think about stories, i think, we have enough gas to supply ourselves. That is not how it works. We still need cargo to come in to deliver enough gas for us to be able to survive the winter. People talk about storage as being there is enough in storage. That is not the total supply we need. Rachel it is not all of our gas for winter. It is the buffer we have for if it is very cold. Everyone says if we have a cold q4 that is why the january prices the one analysts look at. It is normally coldest weather, when we are reliant on flows of energy and storage. Alix i year ago, we were trading at over 300, so the difference between where we were in a real supply crunch versus where we are worrying about a supply crunch is different. Rachel that is spot on. In the grand scheme of things about this price is not high, but it is the highest since june. If you get caught short on a 40 move, he will be in trouble with your boss for sure. Guy fantastic, Rachel Morrison. We will watch what happens here and get more news tomorrow. Into the european we have seen stocks rally today. European stocks are being driven by italian banks after the scare surrounding the windfall tax. The Italian Government is walking that back a little bit. This is bloomberg. Ti ons. Because they know health isnt ons. Just a future state. Health happens now. 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