Staying Bullish on Commercial Real Estate

0:00As a top-performing advisor, you demand top-performing funds. That's why Fidelity's 1 ,000 experienced research professionals combine deep insights and advanced analytics to deliver consistent outcomes for clients across market cycles. Explore 300-plus Morningstar-rated 4 - and 5-star funds at i.fidelity.com slash top funds. Across all fund share classes of Fidelity, Fidelity Advisor Shares, and Fidelity ETFs as of 6-15-2026, past performance is no guarantee of future results. So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need.

0:40Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, that isn't always easy. Risk can touch multiple parts of an organization at the same time, often in ways that aren't immediately obvious. It might involve property, liability, or cyber. It could stem from regulatory requirements or challenges tied to a specific industry or the scale of an operation.

1:23At that level, managing risk becomes an ongoing discipline, not a one-time decision. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. That means working with companies to identify where they're exposed, decide what matters most, and put practical standards in place so risk is managed as part of day-to-day operations. And when losses do happen, the Hartford can pair that risk control work with insurance coverage grounded in underwriting, risk engineering, and claims experience developed over time. Learn more at thehartford.com slash risk mitigation.

1:58When you own your own business, you own every decision. Now own the card that rewards you for it. Chase Sapphire Reserve for Business is a pay-in-full card that elevates your travel experience and offers premium benefits that will take your business to the next level. Sapphire Reserve for Business offers 8x points on all purchases through Chase Travel, 3x points on social media and search engine advertising, airport lounge access, and more. Chase Sapphire Reserve for Business. It's the card that gives back all you put in. Learn more at chase.com forward slash reserve business. Chase for Business.

2:32Make more of what's yours. Accounts subject to credit approval. Restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank N.A., member FDIC. Bloomberg Audio Studios. Podcasts, radio, news. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio.

2:56Ran Eliasaf:So we just talked a little bit about what's going on in Miami in terms of commercial and residential. We want to broaden out a little bit to New York City and across the country. In fact, what has been one of the most read stories on the Bloomberg today has to do with Manhattan condo buyers getting squeezed by a shortage of units on the Upper West Side. I got to say, Bloomberg users always love to read about real estate. New York City in particular. Let's get a view on New York City and more. With us is Ron Eliasoff. He is founder and managing partner of Northwind Group. They have transacted on over$5.6 billion worth of debt and equity investments in residential, commercial, senior living, and healthcare properties.

3:31Ran Eliasaf:He's right here in our Bloomberg Interactive Broker Studio. Ron, good to have you here with David and myself. Tell us a bit more about your firm and the composition of some of the investments that you guys have. Thank you, Carol. I mean, we're a Manhattan-based private equity firm. We focus on credit investments, mainly providing acquisition, bridge, construction loans on residential properties and healthcare properties in supply-constrained markets. But debt and equity? Well, we start on the equity side, and then we've transitioned in 2017 to the credit side, and now we're 100 % strictly in the credit space.

4:02Ran Eliasaf:You are, so completely. Okay, why? Back then, we started looking at the risk-adjusted returns in equity versus credit, and it started to make sense back then to shift gradually into the credit space. Obviously, we did not anticipate COVID or rate increases, but that definitely turned out to be a great environment for credit. What I wanted to ask you about are just kind of the trends of redevelopment in the city. And I know there was so much conversation for so long coming out of the pandemic about what could we do with all of this vacant office space? Could we make them into more residential space?

4:34Where is that conversation today? And is that something that you and your company are interested in at this point in time? Yes, we're heavily involved. Obviously, New York City is seeing a huge shortage of housing supply. It's been a trend for the last five to seven years or so. We're personally involved with about eight office to resi conversions, including the largest one, which is the prior Pfizer. The Pfizer headquarters building. Tell us a bit about that, because that is kind of getting a lot of attention. It's exciting. Actually, if you look at that entire city block on 42nd, between 2nd and 3rd, five out of five buildings are being converted on that block, which is incredible.

5:07So we're the first mortgage lender on 235 East, 42nd Street, which will be turned into, combined with a neighboring building, to 1 ,600 rental units. It's a very exciting project. Think about it. Pfizer left the building, moved to Hudson Yards. Building stood vacant. And with the incentives that came from the city, City of Yes, 467M tax abatement program, revitalizing a vacant building into a vibrant community. You mentioned rentals. That's where things are headed here when it comes to building residential units in New York City. Rent is where it is at. Most conversions are for rentals. We have seen some office to condo conversions.

5:46But usually when you do a conversion, it's a slightly more limited product. It's still a great apartment to live in. But, you know, when you're buying a condo, you're paying top dollar. You don't want to compromise. In a rental, it works usually better.

5:57Ran Eliasaf:Well, how difficult are those conversions? I think for a long time, people thought those office buildings couldn't easily be converted or couldn't be converted at all. Nobody was going to want it. But I hear it's not always so easy. But walk us through how difficult that process is. It's definitely more complicated than a ground up. Or costly too? It really depends on the building. In the Pfizer building, as an example, they are opening a courtyard, kind of an interior courtyard. So that's a heavy lift interior structural work that has to be done. So usually a conversion will take slightly longer and will be slightly more costly.

6:30But what happened post-COVID is some of these buildings traded at rock-bottom price. So they ended up buying the building for less than what the land would have traded. So it ended up working as a very good transaction. But it would not have worked without the long-term tax abatement program. We have a mayoral election here on the horizon. Wait, what? And a debate tonight. And I am going to go out on a limb and guess there's going to be a lot of conversation during the course of that debate about affordability in New York City. And I know there's been some agita among some folks about the Democratic nominee for mayor and what he said about what that might mean for people coming here or leaving.

7:05But he really has centered his campaign on this notion of affordability. And I wonder how resonant that is with you. And regardless of who wins this election, how high up on that agenda, how high up on that list is this idea of how do you get more affordable units in the city so that people can live here, if not easily, in a way that they might in other places? Well, you know, my opinion is most politicians are going about it the wrong way, about capping rents and rent stabilizing rent freeze, where really to solve affordability, you need to create more supply. And in a city like New York, it's very tough to do.

7:36You know, we have a limited amount of land and buildings. So the real route should be to figure out where we can create. It's probably not going to be in Manhattan, right? It's probably going to be somewhere in the outer borders, create more supply of rental units. and you create more supply, gradually price will go down for most New Yorkers over time. But it's not an easy thing to do, especially we have to be reelected every two to four years. This needs a 10 to 15 year plan to really fix affordability.

8:02Ran Eliasaf:But do you want to provide the debt for plans outside of maybe Manhattan? Definitely. Well, we land across the country in about 25 states. If the land is priced right and you can understand what the construction costs will be, right now, if you build it, they will come because there is a housing shortage not just in New York, but in a lot of major urban markets across the country. Yeah, we've been talking about private credit, both the good and the bad of it. We've seen these headlines about regional banks, what exposure they might have, any risks that might be kind of incumbent with that. What is private credit able to do that banks aren't able to do well?

8:35I mean, there's this kind of narrative that we've seized upon that the opportunities in private credit, it's growing so fast. As you look at sort of what banks, traditional banks offer and private credit offers, Why does it seem to have an edge, at least in terms of the narrative or the dialogue surrounding lending at this time? I mean, listen, banks have a better cost of capital. So they will always be able to provide a cheaper cost of capital, cheaper loans, essentially. Private lenders, we typically move faster, slightly more efficient, slightly less heavy regulation as the banks do. So we're able to provide usually faster, sometimes more flexible financing solutions.

9:13But in any given day, hey, if a bank comes in and gives a loan at 3 % cheaper, you know, the developer should and will take it, right? We've seen the last three years, commercial banks really curb their lending activity. They're starting to come back. We're seeing more activity. Spreads are gradually tightening a bit, which is a good thing for the economy and for real estate in general. It means cost of borrowing is coming down a bit.

9:34Ran Eliasaf:Well, that's what I was going to ask you. When you look at kind of the level of activity that you are doing, I think we're just in this interesting point. We're trying to figure out what is the right way or what is the way forward? I think people are surprised considering where we were back in the spring and we saw markets sell off and there were concerns about American or US exceptionalism going away. And it does feel like earnings and things have held up. Like, how would you describe the business environment right now? I mean, what we're seeing, I mean, we had a record 2024. We've originated over 1.1 billion in new direct loans.

10:09Right. And we're seeing volume pick up, not go down. So there's more activity. Rates coming in a bit is helping. Right. General, a little bit more stability. I would say that the most important thing people are underwriting or cautious about right now is political risk. It's true for the federal level. It's true for the global economy. And it's true for New York specifically. Political risk has become the number one risk you have to underwrite and take into consideration when you're considering buying or lending in any market. Spell that out a bit more. So is, you know, when you look at the uncertainty you're having to deal with, is it principally sort of trade policy tariffs?

10:42How much is it going to cost for the materials that you need to renovate or redevelop a building or a project? How much does immigration policy come into play? I mean, is it easy enough for you to find, not you, the folks you're working with, to find workers to do the kind of construction building you need? What is weighing on? When you talk about geopolitical risk, political risk, what are we talking about? So real estate eventually is a local business. So it's the local regulation changes. Look what happened in New York post-rent stabilized law changed in 2019. An entire industry almost got decimated.

11:15So we're looking at that new mayor election. There's definitely aggressive agendas out there with some aggressive ideas on how to go about. Mamdani gets elected. He's going to try and get some of that done. It's not going to happen immediately. It's going to take a couple of years, but he'll probably do it. And that will impact values. and will also cause in the meantime people to kind of pause and say, okay, you know what, let's wait and see how it plays out. That might reduce investment activity overall. So political risk is across the board. You know, we invest also in healthcare, and we've seen, you know, the huge change in, you know, Medicaid, Medicare bill.

11:51I think President Trump just spoke about it a bit as well. So that's something you have to follow also very carefully to see how the wind is, you know, where the wind is blowing.

11:58Ran Eliasaf:Well, you guys play into senior living. Talk to us about that. But I mean, I just feel like that whole aging investment play continues. How much are you doing in building? How much are you investing in that area? We're mostly providing acquisition bridge loans on income producing portfolios of senior housing and skilled nursing in about 20 something. So like assisted living and skilled nursing, assisted living and skilled nursing. So these are typical portfolios of eight, 10, 15 properties that are being purchased. And we are providing the bridge to HUD loan. Talk about political risk, you know, government shutdown, HUD as well as impacted.

12:31You see a slower pace of refinancing from HUD. So there's definitely impact of policy into business activity. Ron nodding to the fact that we've been hearing from the president. He has concluded his remarks. And just to give you a little digest of what he said after we ducked out of his comments, he talked about oil prices going down, says he wants to see gasoline below$2 a barrel. That's the headline. Me too. There's something that we've not seen. Who doesn't want to see it at$2?

12:55Ran Eliasaf:The oil company. There you go. And I'll note also a headline crossing that Semaphore is reporting that Argentina is in conversations with private lenders to the tune of$20 billion to help its economy here. And again, that's not something that Bloomberg has matched or confirmed, but Semaphore reporting that. And the story here has been, of course, the U.S. has bailed out the country to an extent, but it's been looking, we know that, actively for private partners in that effort as well. So, synthesizing all of that news here. Right, that's partnered with China, certainly, and the U.S. looking to kind of come in there and assist in terms of currency.

13:27Ran Eliasaf:Ron, one thing I want to ask you, and I think about even around Bloomberg, we've had a lot of empty retail space. I was in Boston recently. A lot of open stores for rent, a lot of storefronts. Is there still a lot of office buildings that are vacant post-COVID? I mean, if you talk about New York City, we're definitely seeing absorption kick in in the office market. I think the last three quarters have been same levels of leasing like you've seen pre-COVID. So the last quarter was equivalent to 2019 leasing volume, which is good. So to answer your question, there's vacancy still out there. It's coming down a bit.

14:08And I think when you're speaking to office landlords right now, they're starting not to smile again, but they're starting to look less round as they did a year ago when it was a very, very tough leasing environment.

14:20Ran Eliasaf:All right. Good to know and good to check in with you. Thank you so much for our bouncing back and forth. It's kind of our world right now, and there's a lot coming out of D.C. and certainly the president. Ron Eliasaf, he is founder and managing partner of Northwind Group, joining us right here on Bloomberg Business Week Daily.

14:39When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com slash risk mitigation.

15:14Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. it. Never bet against American grit or American energy. Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time. So while others are busy talking, we're busy building. That's Venture Global. That's unstoppable energy.

15:49As industries evolve faster than ever, companies need an environment that accelerates strategic growth, and Michigan delivers on that promise. From emerging startups to global enterprises, Michigan offers what executives value most, a resilient, innovative ecosystem, diverse communities that attract top talent, and a quality of life that supports work-life balance. With our unified Team Michigan approach, businesses scale faster and compete at the highest level. Michigan. Pure opportunity. Seize your opportunity at michiganbusiness.org.

16:45care work as one for everyone. Learn more at business.optum.com.