DigitalBridge Group, Inc. (DBRG) Earnings Call Transcript & Summary

Good morning, everyone. Thank you all for being here, including our esteemed panelists and all participants on the line. We sincerely hope you're all safe and in good health and spirit. My name is Jade Rahmani. I've been covering the commercial real estate space at KBW for 13 years, and I've been covering cyclical companies since 2004. When I joined KBW in 2007, the mortgage sector was on its knees, facing grave concerns about liquidity, credit loss and even the industry's very own survival. Today's situation is quite different, but some of those concerns are, again, front and center. And that's why we're very fortunate to have on this call a seasoned group of executives, whose experience spans nearly all aspects of the real estate spectrum. These folks need no introduction. We have Willy Walker, Chairman and CEO of Walker & Dunlop; Barry Sternlicht, Chairman and CEO of Starwood Capital and Starwood Property Trust; Barry Gosin, CEO of Newmark; Marc Ganzi, CEO of Digital Colony and Successor CEO to Colony Capital; and Jay Sugarman, Chairman and CEO of iStar. Our goal in this panel is to give each person a chance to provide their unique perspective, perhaps ask each other questions, and audience members can submit questions online or email me directly.

So to begin, I thought we would start with Willy Walker, who's been hosting weekly calls with experts across a range of critical topics. Willy, could you please discuss the evolution of your thinking as to how you came to grasp the gravity of the current crisis and your mental process regarding the potential impact to the industry and to your company?

So Jade, thanks for having me on with this incredible panel. And I would also say that Barry Sternlicht has been on my webcast and there was a -- I think we've got 13,000 reviews of my conversation with Barry. And so it's been a great process being out -- sorry about that, my wife just walked in and handed me a cup of coffee, that's not typical for me at the beginning of something. Anyway, I would just say that if you back up, Jade, in March when the country went into lockdown and the federal government came out with an eviction and forbearance plans across paying credit and hiring properties, both single-family as well as multifamily. There was a real sense, both at Walker & Dunlop and across the industry, that there were some tough times ahead. We didn't know how many people would come in asking for forbearance. We didn't know how deep the crisis would hit in the single-family as well as multifamily world. As you know, the month of April was significantly better than we had expected as it relates to, if you will, a lack of forbearance request from major owners and multifamily properties across the country. And that has held up through May. Most of our big multifamily clients are looking at collection rates of north of 95%. There are certain assets, particularly on seeing multifamily assets that may not have rental assistance contracts with their tenant base that are in sort of the 85% to 90% collection rate. And in some instances, you're down in the high 70s. But generally speaking, rent collections have held up extremely well. That has played into borrowers paying their mortgages and a very, very small number of borrowers asking for forbearance in April and May. There is clearly question marks as it relates to the CARES Act and the unemployment insurance, $600 a week boost that has been put in place by the CARES Act and whether that gets extended by either something close to the Heroes Act or whether the Republicans in the Senate win and say we're paying people to sit on the couch rather than to get back to work. And we don't think that, that boost on employment insurance needs to stay in place. I think that's a very big question mark right now as it relates to what do rent collections look like in the back half of the year. And how do portfolios perform going forward with or without that additional federal stimulus.

Okay. Turning to Barry Sternlicht. Thank you for being here. Have you begun forming any concrete views as to how office, hospitality and even multifamily usage might change?

Start with Willy's expertise. Thanks for having me. And we own about 80,000 apartments. I think, overall, it looks like incomes are down a bit. Rents down. Expenses, especially -- I think everyone needs to be on mute, by the way. Expenses continue to rise. And I think if you're operating in the blue states, you have tremendous pressures on real estate process. I don't see that going down. So if incomes begin to fall and expenses continue to rise, NOIs will hurt for a little while. I don't think there'll be long-term implications to the multi-markets because construction stats are falling as well. Other than if we really do see drops in incomes, and that means America doesn't really get back to work. And I think it's hard to see that this many Americans will be employed by the end of the year. So it's a question of how fast we can get people back to work. And that kind of complicates the other asset classes. I personally believe that between the need to space people out further in office, and maybe there's a net decrease in demand, particularly from tech, you probably have a wash. But the office market is going to behave very differently across the country. I mean clearly, New York City is sort of -- it's an environment that the tristate area is it's a world of its own. And the rest of the country, like we have a building per building spec in Raleigh, and we leased 200,000 square feet space in the middle of COVID there. So there are still deals being done. But not really that much activity in Manhattan as I think price just sort out its long-term implications of COVID. The office markets like the apartment markets, we're collecting, our rents were 97%, even our shared office work tenants have paid in 7 of 8 locations that we have. And the one that didn't pay is in Atlanta, and it's a marginal space for them. So we think they're below markets, but we're not really -- we're fine if they leave. But tenant velocity is going to slow down. As Barry will tell you, it's obviously down. But then I think hotels, I mean, hotels are -- and retail are the 2 most impacted asset classes. And our view is, again, it's very different. What kind of asset you have. If you have a drive to asset, limited service probably in the middle of the country away from the most heavily impacted states, those assets are open. They're probably some 50%, 60% occupancy. We have a chain of low-end hotels that's running at 83% occupancy, 24,000 keys, but they're not in the Northeast, and they're not in California. And the big boxes that require international travel or group and meetings like big hotels in New York, big hotels in Vegas, Chicago, in New Orleans, the big boxes are going to take quite a while to come back. And of course, we still have complete foreign travel restrictions, which to cities like New York, where 1 of every 2 foreigners visits New York. It's going take a while for New York to come back, and that has a lot of implications for labor and for the burdens on New York City, which are severe, to come out of this crisis. So -- and retail, the contrarian in you wants to play, but it's very hard to underwrite retail today. And it will be very interesting to see what happens with the bankrupt department stores like Penney's. Are they picked apart? Will Amazon [ close ] some of their stores? What will happen to Macy's? And if you want to buy the -- some of these properties, you have to look at their alternative uses or most of their alternative uses. It's going to be -- some can make a lot of money, but I think it's very hard to indirect. It's been difficult.

Going to Barry Gosin from Newmark. Can you comment on trends that you're seeing in leasing and capital markets and perhaps share your broader views about long-term demand [indiscernible].

First, excited to be here with this panel. I've never been on the panel where there have been 2 Barrys. So this is a first for me. So to echo Willy, on the multi side, we obviously have a dust agency business, pretty much the same. We were frightened of the level of forbearance and the impact on the advancement of payments, and it has not lived up to the fear. We've had very -- virtually no forbearance requirements. Our collections, also in the same range. So we're feeling good about multi. And as Barry said, multi -- we still believe in multi. We think multi is a good category. It's going to continue. There will be -- obviously, unemployment has an impact. Will people more likely buy -- go into rental housing, we think that should continue. In our business, we cover pretty much every food group. In the industrial space, we think new shore and e-commerce, other than the ports where export and import industrial has had a place that the industrial business will be strong. And in data centers, we have a pretty strong data center business. We haven't seen any indications of any decline. In fact, colocation is a business that is in really good shape. Same with storage. Now going to office, I think it really depends where it is. I agree that New York, Boston, some of the urban centers that require public transportation to get to work will have a little bit more of a challenge with respect to that. But the concept of remote working, I don't believe works. I mean there have been these grand pronouncements about remote working from Twitter, Google. But in the first month, the ability to work remote was somewhat demonstrated that we could have people work remotely in the first month. So if you surveyed your employees, we got 24% people said we can work remotely and we like it. By the second month, it's 60% want to get back to the office. I suspect by the third month, it will be even higher amongst our employees. I think 70% want to come back to the office and 15% are just concerned about getting there. So I think that is the issue. The issue of business, how do you define a business without having a place, a culture, businesses are a tribe. So I think that the majority is still out. As Barry did say, the densification will mitigate some of the distributed work and remote working. We've done a bunch of overlays for companies that we represent, where we have looked at their footprint. And I would say, to accomplish social distancing, you need at least twice the amount of space to occupy under the same -- under the social distancing, so that's going to play itself out. We're still in the middle of this. We're in the middle of a rip tide, so it's really hard to determine what the economic implications of this are. Right now, we're out selling those at par, where we're the -- we're seeing an increase in our loan sale business, but it is an under distress. If there is distress, the distress will likely occur when the real economy shows its face, and that's not going to be until '21, when the liquidity and the federal government overlay and all of the liquidity that's put into the system disguises what will ultimately happen. So the delta between the original underwriting and the economic condition postsettling will be determined sometime in '21.

Jade, I would just intervene. Yesterday, here's -- so many interesting things that happened yesterday, Google said that they're going to open their office again. So I think this work in home thing. I mean I think people are confusing that. People like to work at home right now because they're sort of on vacation and they can work, dial in from the Hampton so they can dial it in from Aspen, and they don't want to go to their office. I mean it's summer. So everyone wants to be on vacation and dial-in for work. It's -- but I don't think it's the reality. I think companies have culture and the ability to walk around and work with people. And yesterday, there was a fascinating news release. Yesterday, IWG, or Regus, announced their results and their shared office space occupancies were up 700 basis points. I mean go figure, you would have thought they would be half, right? And their occupancies are soaring. And I actually heard that anecdotally from WeWork down here, I -- one of my neighbors is a WeWork executive, and he said that their business is very solid. And actually, companies are going into WeWork as they retrofit their offices. So they want places for their guys to go. So they're taking some space. So I don't even think the shared office space is dead. I think you're going to see -- I mean, Americans are so optimistic and they're so positive, and we have such short memories, which is a good thing and a bad thing. But in the case of economic recovery, it's a really good thing. So I think you're going to see increased momentum to back to normal. But by the way, I'm not in New York, if I was in New York, I'd have a totally different perspective. It's the rest of the country has not had the experience of the tristate area, which people have to remember, especially Wall Street.

I am in New York, and I can't wait to get back in the office. If I'm -- another day is just another day. So I would say, as a New Yorker, I can't wait to get back.

And I think switching gears a little bit. Jay Sugarman, you perhaps have a unique experience as iStar both survived the global financial crisis, but over the last several years has undertaken a dramatic shift in the strategy. Can you please share your perspective on key lessons learned from prior cycles? And also comment as to whether iStar's pivot to ground leases in some ways anticipated a turn in the economic cycle.

Thanks, Jade. Thanks for inviting me. I guess the interesting thing about focusing on ground leases is you start to think in 100-year blocks. So it's always interesting when people ask us what our rent collections were this month. We're thinking much more about what's going to happen over the next 10, 20, 30, 40 years. So we look through a lens that is a little bit different. And when we hear people talk about the end of New York City and the end of urban gateways, this may be one of the great opportunities if that mindset kicks in because we've heard that once in every 10, 20 years, somebody writes off these major financial centers as obsolete, and we just don't believe that. So when you think about the long-term arc of history of bends towards progress, obviously, the response to this pandemic was tragically bad, incoherent. I hope we take the lessons from all mistakes that have been made, primarily the idea that this is going to be solved top down. There's really been no engagement from the citizen REIT to actually help solve this problem. And we felt like data will solve this problem. But it's going to come from 330 Americans providing data up, not government or scientists providing data down. That will be the lesson we think will be learned, but it will make us a stronger society going forward. Certainly, the technological innovations, the medical innovations give us comfort that making 100-year bets in major markets with smart real estate operators in great buildings is a great place to be, and whether we were smart enough to understand that the markets felt toppy to us and more commodified than we're comfortable in, and so we tried to find something new and innovative. Yes, I'd give ourselves credit for that, but we had no idea, again, like in '08, '07, we thought bad news was coming. We had no idea it was going to be quite this severe. So I think our goal is always to find things that are -- make our industry better and more efficient. We think that modernizing ground leases provides one of the largest users of capital, which is real estate with a better, more efficient tool, more capital efficiency, more cost efficiency, risk reduction. So we hope PropTech, we hope what we're doing in the ground lease world, we hope what Barry is doing in hotels, these are all long-term trends. They are things that for the next decade will be one of progress, not regression. So we're happy to make investments in great markets with great operators. Even if there's a monthly hiccup, quarterly hiccup, annual hiccup, 2-year, 4-year hiccup, I think the smart investors in this period will go back to what they learned about how this country and be real estate operators and it always find a way to find the next big thing. And I think our view is there's a lot of pain that was unnecessarily inflicted on the world because we were unprepared. We didn't know how to deal with it. We ignored the signs. But we're going to learn from this, how to be a better -- hopefully, a better country and better coordinated the next time it happens or the next time a challenge comes around. But that's a 100-year view. It's based on going back 100 years and looking at how societies change. And we still believe long-term leadership matters. And didn't get it this time, but I think a lot of tough lessons have been learned and hopefully coming out of this, the next long arc will be again an upward one and one of progress on a lot of fronts that maybe we haven't even thought about.

I'd like to -- something that Jay said. After the financial crisis, the urban centers recovered in 21 quarters, and the rest of the market recovered in 28 quarters. So it took another 2, a couple of years to recover for the nonurban centers. And when -- and in a financial crisis, if you look in New York where it was most affected by the financial crisis, they recovered much quicker than the rest of the country.

Thanks very much for that. Turning to Colony Capital. Marc Ganzi, so Colony is at a similar fork in the road as iStar since Colony is now pivoting to a primary [indiscernible].

Jade is about to make my entire investment thesis.

And sectors performance you expect to lag.

Well, Jade, we lost about the last 20 seconds of what you said, which just makes our investment thesis that more durable. But maybe you could come back 20 seconds and reask the question. We lost you.

Sure. Could you share your views as to whether there are identifiable sectors and themes you feel are poised to benefit from the current situation, Marc, and also those that perhaps you need to be more cautious on.

Sure. Well, look, it's a history lesson, right? We go back to 2001 in the dotcom crash. We look at the financial crisis of 2008, and we look here in the pandemic in 2020. The businesses that we're invested today in Colony is that the tale of the 2 cities. We have our legacy assets, which are focused on lodging and wellness infrastructure and mortgages. And then we've got our digital business, which is focused on towers, data centers and fiber. And so starting with the legacy side of the business. Look, as Barry said, hotel business, the lodging industry has been battered. We think we found the floor, Barry, in March, looking at mid-20s occupancies. We've begun to see a little bit of a rebound in April in the low 30s. The early returns on May continue to be a little bit stronger as we progress higher into the 30s in occupancy. And we own 268 limited service hotels. Those are quite easy to sort of bring down the cost structure because we don't have massive F&B operations. But as we turn those hotels back on, Jade, they're starting to perform. We know our breakeven point is somewhere in the low 40s. And as Barry said, those types of assets, anecdotally, some of them are doing actually quite well, where they're adjacent to teaching hospitals. They're adjacent to universities where we're making long-term agreements to provide student housing. Student housing is going to forever change in college campuses. So we're trying to figure out where we have lodging assets near universities where we can repurpose those over the next couple of years as temporary dormitories. So short-term pain, perhaps long-term gain, but the recovery for lodging is going to be a long road back is what I would say. On the wellness infrastructure side, that's been a real surprise for us. One, we haven't had to engage in significant forbearance discussions with our lenders. We reported we had 96% collections in the first quarter. Our collections actually got better in April, believe it or not, and wellness infrastructure. So the MOB portfolio is performing well. Hospitals are performing well. Skilled nursing is performing well. Senior care is -- senior living is a tough sector right now. We have certainly some -- we got to be careful about how we treat our senior citizens and how we run those assets. But long term, we feel good about being in health care real estate. And ultimately, that portfolio actually, from my perspective, Jade, has performed a lot better than we thought. On the mortgage REIT side at CLNC, we've got great thoughtful leadership now in place with Mike Mazzei. He's doing a great job protecting our portfolio. Didn't have to go deep in our repo lines. Our portfolio has actually held up incredibly well. We've seen collections hang in there. And so that's been one of the pleasant surprises, I would say, in the last 60 days is how CLNC has performed. And our hope is that, that group can continue to perform and we can outperform our peer group. I think on the digital side, look, and that history lesson in '01 and '08 and 2020, one asset class that's always held up in these downturns has been towers. The tower sector has been incredibly resilient as a digital real estate form, and this pandemic is no different. Not only have our asset values held in, but we've actually had out of our 5 tower companies globally, we've seen 2 of those assets, Jade, get marked up in that time period. So organic growth in towers right now in Latin America, we had a 24% organic growth rate in our tower businesses in Brazil, Chile, Colombia and Peru. In the Nordics, where we own a tower business in Europe and in Finland, and we have a tower business in the U.K., both of those businesses had 14% and 18% organic growth, respectively. So we've seen a lot of commitment to our customers wanting to accelerate their 5G deployments in Europe, which has been really positive for us. And then in United States, our flagship REIT Vertical Bridge posted an 8% organic growth rate in the first quarter. So towers continue to be one of those great places, Jade, where investors can protect their capital in a contrarian environment or an environment where we're seeing traditional real estate contract. Another big winner, I would say, in the pandemic has been data centers. Barry touched on it earlier, but our data center businesses not only have collections hold up perfectly, but one of the interesting things we saw, Barry, in the first quarter is literally no churn. We've seen the lowest levels of churn in data centers than we've seen in over 12 quarters, Jade. So looking at DataBank, which is our edge computing business, which is on the Colony balance sheet, we have less than 50 bps of churn inside the quarter, which is just incredible. And at the same time, we posted 13% organic growth. So not only are these assets holding in, Barry, but they're growing. We're seeing our leasing backlogs continue to build. And then on the hyperscale side of the business in Vantage and Vantage Europe, we saw 19% organic growth in the first quarter in Europe in hyperscale leasing. And then our hyperscale leasing, we booked 22 megawatts in the U.S. in the first quarter, which is our strongest quarter in the company's history. So hard to really understand what's happening in digital today because our customers are growing? Their networks are under massive pressure. And so we've seen increase in spot bookings in fiber, not only lit services but dark services. Zayo posted an 11.2% organic growth rate in the first quarter. That's the -- as you know, you track Zayo as a public logo, that's the strongest organic growth rate that Zayo has seen in 5 years, right in the middle of the pandemic. So all of this is a byproduct of having healthy customers. Microsoft and Amazon, their network is under massive pressure. Applications like Webex and Zoom, also under significant pressure. We've seen a lot of new leasing activity from both of those companies in the fiber side and on the application side in our data centers. So last but not least, we also continue to see great leasing, and you saw Verizon a couple of weeks ago, Jade, announced that they're upping their CapEx. So if you think about the total TAM in digital from a TI perspective, or as we'd say in commercial real estate, the build-out, what's the CapEx potential? $378 million of CapEx will be put into digital infrastructure this year. So $240 million of that is in equity, the rest in debt, but 80% of that bill, Jade, is all greenfield. And so our mission at Colony right now is to stay in front of our customers. We're building data centers. We're building towers. We're building new fiber routes. We've never been busier at the company. And as we make this pivot to digital and finish the mission by the end of next year, we're just going to keep our heads down and just keep working. That's the key. We got to keep the digital economy moving.

Okay. Great. We've been getting some investor questions directly. I just want to ask if people could mute their lines when they're not speaking and then unmute when they want to speak. Starting with the first question. I'm not sure if it makes sense for either Barry Gosin or Barry Sternlicht to comment, but what is your outlook for New York City and San Francisco office? Big tech companies have recently announced work-from-home policies that seem long term in nature, and banks have also reported being very productive. Do you have views on those 2 markets that you'd like to share?

As I said before, there have been these grand pronouncements about working remotely. I mean we've proven that technology works, you can work from a remote place. But is it really productive? And that story is not fully told yet. An interesting thing I heard this morning, I haven't seen it in writing, but Neiman Marcus, the retail space in Hudson Yards, is being put on the market, which I found pretty interesting on how is -- what's the implications of that to the whole retail center in Hudson Yards. So I got to believe there'll be some aftereffects of that. Generally, it's hard to say. There've been -- there's very little activity, and we're not back in New York. So it's really hard to say what's going to happen. San Francisco is -- has other problems, but the one thing it does have is an abundance of need and demand from technology companies in the Bay Area. I don't know whether and to what extent remote working is going to impact the overall envelope of these companies. We're looking at -- and it runs the gamut from One -- Twitter, Jack Dorsey said, he's not coming back to the office. Zuckerberg said 50%. But I think that's going to change over time. And once we have a vaccine, the world is going to look at things differently. It's like anything else, we'll forget. And we'll go back to the office. You can't be -- how do you have an apprentice? How do you train someone? How does someone aspire to be ultimately the CEO of a company? And when you ask someone where my office is, is you're going to say, well, I'm on the left bottom side of this Zoom screen is where I sit, it's just not going to work.

I'll pick up on that. I mean the whole reason to work for Google, Facebook and these other companies are their ecosystems and the fun of their office space. And don't forget, that demographic got 0 to 40. I guess they don't have 0 newborns, but they're not really the target of COVID. So this is kind of -- I'm pretty sure they don't employ that many 80-year olds. So I don't think -- I think it's sort of a knee-jerk kind of reaction, but I do think it's hard to build corporate culture remotely. And even though Team and Slack and other work tools are available, I'm not like Jay, I'm not positive on New York City's long-term health or San Francisco. I think the populism, the new wave of populism, which is shifting heavily left in the big union cities like New York and San Francisco, I think you have a serious problem. I always tell you that people go, buildings don't. And so raising taxes to fill budget gaps on commercial landlords is the funniest thing they do. They're taxing -- they think they're taxing millionaires and billionaires, when many of these assets are owned by pension plans and other investors and those people are trying to help are being hurt because their 401(k) and pension plans of the New York City Fire and Police Department, health workers, even the hotel workers' union, the own real estate. So to some extent -- and the tilt blue is getting dark blue. And the impact of the de Blasio administration on Manhattan hasn't been good for business. And the only real net growth of use in San Francisco, let's talk about New York for a second, has been tech, has been the 5 dominating companies that are dominating the stock market today. 76% of the growth in the S&P has been 5 stocks. If you add the next 5, you probably have 80%, Salesforce, which isn't included typically as a FANG stock. So you saw right before the crisis, Amazon took the Lord & Taylor building in New York. In the middle of the crisis, Facebook took Farley Building downtown. Google has a massive new project going on in St. John terminal. It's kind of interesting to see these tech companies, but on the margin, Barry will confirm that most of the growth has been TMT. And the big names in tech that are expanding not actually because they want to be in New York so much is that's where the labor is, and they've kind of tapped out the labor force in San Francisco, and they're -- it's getting very expensive as these companies steal each other's engineers. So they're coming to places where kids want to work. New York was good that way. But I do think you have to look close to this election and worry about a tipping point in places like Manhattan or Southern Connecticut, when tax rate -- effective tax rates could go over 60% for the wealthy. And I live in Miami right now, we're having -- I mean, literally, it's a boom outside. Every house that's a pull to be sold is being sold, and they're all coming from New York. And that is not a small thing. That's a permanent change. If the executives come down to Florida or they move to Tennessee, I have friends in Chicago that are moving at Nashville, and they're moving because of the taxes. And the tax situation in these cities is not like New York. It's not going to turn around. It's going to get worse and worse and worse as the wealthy leave. And so they're on the path of self-disruption. I'm from Connecticut, one of the most bankrupt states in the country. They have a $60 billion unpaid -- unfunded pension liability for their -- these states are going to need a serious product to the organization, and it's going to impact real estate and the growth in real estate. So our efforts in investing have tilted more to growth states, which are fairly obvious, and away from some of the more heavily politicized dark blue states, which have enormous needs to cover their social network. And unfortunately, real estate is going to have to pay for it. And no crying for the guys on this phone call, like nobody...

I happen to agree with Barry. I think that my fear of California and New York is less about pandemic and the return and more about left wing politics. I mean, right now, the City Council just passed a bill, which basically contravenes the good guide provisions of the lease in California. There's a bill before the state legislature regarding forgiving -- you can evict, and you can't -- you don't have to pay your rent for a year post corona. So I...

1.5 years.

I think some of it is self-immolation. But New York and San Francisco have been able to overcome that. So there is going to be a tipping point if New York doesn't get its stuff together. In the COVID 4 bill, right, that was passed by Congress, one of the things is the elimination of those -- reinstituting the salt deduction. And it's not certainly something that the Republicans would want to vote for, but I think it's something that, certainly, if there's a Democratic senate and Congress, you'll have the reinstitution of the deductibility of state and local taxes, which was a blow to some of the blue states. And the right and the left of this country have created such a schism in the middle. It's -- and that is a problem.

Question for Willy Walker, which would be, how do you strike the right balance in this environment between defense and preservation of liquidity and potential offense to the extent that talent becomes available, companies become available for situations at attractive pricing.

Yes. I mean, Jade, it's been -- I mean, we're super lucky that 85% of our deal flow comes from multifamily and that multi is doing so well. And we obviously have plenty of liquidity right now, both on our balance sheet and borrowing capacity. So I would just say that it's early days. There's no excitement to sort of be a hero and catch a falling knife right now if you go back to what Barry Sternlicht said previously. This thing has -- unfortunately, I think the downturn has legs. It's going to be a while. The pain really hasn't been felt yet. So as we have talent saying, hey, I want to join Walker & Dunlop, I'm in sort of a -- well, the price for that talent is going to go down because they're going to be not doing deals for a certain -- a longer period of time. So we're trying to hold back on that. As it relates to M&A activity, there will be opportunities. But the real question is, when is the right time to start to transact, if you think about how long this prices sits out there. But I would also say, as it relates to multifamily and the comments that Barry and Barry both just said, I had plenty of borrowers of Walker & Dunlop over the years, say, I'm tired of 30% taxes in California. We're thinking about relocating our company to Denver. It really does seem to be real this time. The kind of the ferocity of the comments that I'm hearing from people have sort of, I've got 136 -- one borrower last week, I've got 136 assets across the country, 135 of them are performing really well. I've got 1 in downtown, either Seattle or LA, that the free rent movement, the local politics and any eviction laws, it made it so I can no longer manage my assets. And they're not going to go put new dollars there. They may go long on that asset and try to make it work. There's no doubt about it. They got a lot of money into it. But to put new dollars out into those markets going forward, if you don't get some type of change from a local political standpoint, I just think that dollars are going to move to other places. They're going to move to places like Denver, Colorado, where you've got 4.75% of state taxes. You've got a lifestyle out here that is totally different to various point about Southern Florida. And I do think that this distributed model as it relates to office space, I totally concur. I mean we're right now trying to put together our next corporate headquarters in D.C. We haven't changed our space specs one iota. So before the crisis, we were out looking for space, we're still looking for the exact same number of square foot. Yes, we're looking for more outdoor space, the common areas, gardens, all that stuff kind of is heightened a little bit. We're not changing the footprint at all. But I will tell you, if somebody in our Bethesda office says to me, you know what, I want to move to Boise, Idaho, because the cost of living there is less and I'll get on an airplane and travel around or go to meetings, I'm going to be able to Zoom. What am I going to say? You worked really well during the downturn, but now you've got to be in Bethesda? No, they're going to get on a plane and go to Boise. And they'll participate in our company that way. The only other thing I'd say on that is I had a call with Starwood 2 weeks ago, and I had more Starwood people on that call than I've never been able to pull together into one meeting. And so the only thing I would say, I totally concur that offices will still be needed. But I think offices are needed for the culture that Barry Gosin just talked about as it relates to bringing your team together to talk and be creative and think about things. But I'm not convinced that I or anybody else at Walker & Dunlop is going to get on an airplane nearly as frequently as we used to, to go visit our clients because we can see so many people in such a distributed model by doing what we're all doing right now. And I think that does change how many nights I'm going to be on the road from an airline standpoint. How many nights I'm going to rent a room at a hotel, and how much I'm going to spend going out to a closing dinner with the client.

Can you leave this part of your speech out? I think Willy is right. I think business travel is going to take a -- we're not talking about, Jade, all of New York City is going to vacate. We're talking on the margin. Where does the company go to expand? Where do they -- do they consider Austin over New York because the business climate is more friendly. And I think it's going to become a bigger and bigger issue because it's a negative reinforcement cycle in the big cities that have to maintain their subways. Obviously, there are going to have to be changes to the transportation systems, the bus systems, the quality of life, the garbage collection, I mean, the social service network has to get funded somehow. And if companies move or the burden on these companies is too great, they have a fiduciary duty to move out of these locations. And Austin, Texas is a fabulous -- phenomenal city because we kind of missed it. We're now invested there. But for 20 years, there was always new construction, new supply, more apartments, more office buildings, we thought that they overbuilt it. But what we didn't see was the flow of humans to that fairly fun place to live and work and a good environment, and it's an easy city to live in. It looks like New England, except it's in Texas, and there's no taxes. So you look where the growth is right now in the country, country is telling you what works. The country is telling you that the growth is in tax-free states. Nashville is one of the hottest cities in the country, right? Look at Florida, the whole state, Orlando was probably the best apartment market in the country for 5 years in a row, practically, right? Jobs everywhere, cost of living free. So when people are learning, they can do this easily. And it's not hard. So companies, I think, are more mobile. I love Manhattan. I think it's an amazing cultural center, an epicenter of the country, but I do think they have to be careful. And I think you could reach a tipping point. And I'm kind of a case study. I left Connecticut, like the tax rates for people like me kind of approach Manhattan, it was either New Yorker or come down to a tax-free state. So I did that. I'm back in the city all the time. I'm traveling all the time. But I agree with Jade -- I mean, Willy, travel, business travel is going to take a while. Again, that impacts how you invest in the hotel space going forward.

A question for Jay Sugarman. With the long duration nature of Safehold's capital, you're seeing an opportunity to make any opportunistic investments and also to increase the diversification of Safe's portfolio perhaps in some of these secondary markets that Barry was alluding to, the growth markets like Nashville or Austin.

Yes. Look, we're in Nashville, we're in Austin. We love those cities. We do agree that there is a shift that has started long ago and continues. And again, bad leadership in some of these legacy cities will certainly hurt them. But when I -- when the pandemic first started, they started looping escape from New York with Kurt Russell. And that dystopian future of New York, I just don't -- I don't believe it. I think if you look at London, that's still the epicenter of the U.K. 1,000 years later. Rome is the epicenter of Italy. These great cultural cities go through many waves. And if people want to sell New York at dystopian prices, yes, we're going to step in. Now it's easy to say all this because we come in at $0.35 on the dollar. So we don't have to worry about what's going to happen tomorrow or next week or this administration. The de Blasio administration is creating a lot of damage. But again, in the ground lease business, we're working with our customers over long periods of time to find ways to help them generate higher returns no matter what the environment is. We just want to create a better capital solution for them. And if they can buy things even cheaper than they could before, we will help them take advantage of that. The one thing I do believe, Jade, is that real estate has some of the smartest entrepreneurs in the world who walk every corner and decide what the future is going to look like. And we want to harness that energy, that entrepreneurial spirit, wherever it is, whether it's Austin or Nashville or the next city none of us are even thinking about, our goal is not to get in the way of our customers. It's to help them maximize their ideas with the cheapest, most efficient capital possible. So whether you call that opportunistic, our view is real estate is one of the largest investment classes. It's stockpiled with really smart, innovative people, and we have the easy job. We just have to give them the fuel to do what they do well. So I like this business a lot, as you can tell. I think it is a perfect spot for us to use everything we've learned in the finance business, the sale-leaseback business, the corporate world, the capital markets, and try to deliver all that knowledge and expertise to the people who really create the future. And that's a fun place to be when the world is changing. And we hope to be helping people like Marc or helping people like Barry or helping people like Willy serve that next-generation in the way that we know is not going to be what it is today, but whatever it is, we'll figure out how to make it a better future.

And a question for Marc Ganzi from an investor. What do you think of CLNC's ability to consolidate the market in Europe? And is there an opportunity for Digital Colony to do something similar to that?

Yes. Look, we've got great respect for Tobias and his team. We've met Tobias the first week he started at Cellnex over a decade ago, and they've built a great portfolio. And we've looked at everything that Cellnex has looked at in Europe. And candidly, this is just where we differ from them that they've looked at. And from my perspective, it's about credit quality and it's about counterparty credit risk. And Europe is fraught with a lot of different telcos that are noninvestment-grade. And one area where digital can have weakness, as you know, is some of these telcos when they're over-levered, and they're the third or fourth carrier in the market, usually, that leads to consolidation, like Sprint and T-Mobile just have gone through here in the U.S. We don't think that, Jade, places like the U.K., France and Germany can have 4 carriers. It's not sustainable. And so we spend a lot of time looking at credit, and we think long and hard about that credit concentration. So what might be good for some people doesn't necessarily work well for us. I think in Europe, we've been very focused on, for example, hyperscale data centers, where we've got a big advantage now, we're moving quite fast, and we're winning a lot of the jump balls, candidly, with some of the big FANG logos. So that's going quite well. We also think small cells are a huge opportunity in Europe. And we've deployed over 5,000 small cells in the U.K. in the last 24 months, and we enjoy a pretty good advantage there. And we've been deploying small cell infrastructure in Finland for the likes of Telenor and for Telia and other investment-grade logos. So the key is finding great customers, getting behind them, building great infrastructure for them, signing long-term leases so that we can ensure our investors get that stability of those cash flows not just for 5 years or 10 years, but we're really thinking in our customer relationships, a lot like Jay was talking about, this isn't something we're thinking about quarter-to-quarter. This is a multi-generational relationship we have with our tenants. I've been doing this for 26 years, and a lot of the relationships we had in the late '90s, we're building for those customers today. And that's not by accident. It's because we've carefully worked with customers that have that strong credit profile. And at the end of the day, whether you're building office buildings or whether you're building multifamily assets or you're building cell towers, it's still at the end of the game. We all do the same thing. We're looking at the credit look through. How do we ultimately build long-term sustainable real estate or infrastructure where we think we're going to have a tenant relationship for 5, 10, 15, 20 years. Some of our leases go all the way back to 1996. And that's because we've had great relationships with our customers, and we've been able to work with them as they've migrated their technology path up. So our strategy in Europe is a little bit different than Cellnex's. Nothing to take away from Cellnex. We think that they've built an impressive business. They've returned great returns for shareholders in their strategy. We're just focused a little bit in a different way in how you play European digital infrastructure. And so the things we're thinking about today are small cells, hyperscale computing. You and I have talked a lot about edge computing, Jade. That's a big thematic for Europe over the next 5 years. We're going to spend a lot of time working on building oRAN and cRAN infrastructure for our carriers, which is really kind of next-generation stuff for tower owners. So my eye is focused sort of on how we help customers in the future, and how we can deploy good infrastructure that gets the right returns for Colony shareholders.

Do any of you have any questions that you wanted to ask one another?

We know each other.

Okay. And also, are there any, I don't know, messages you want to convey either to policymakers with respect to what's worked, what hasn't worked for the industry at large?

I'll start. I mean I think it's a sad and lucky situation that 441 stimulus measures have been enacted. The Europeans are going to spend $780 billion in grants to their impacted industries. The Japanese are buying 18%, and other stimulus package will be 18% in GDP. But the western democracies are actively aggressively debasing their currencies. And it's only working because everyone is doing it, but it is a very dangerous strategy. And at some point, this paper will be worth nothing. I mean Japan can never pay back the debt they're showing. It's not even -- it's not laughable, 300% debt to GDP and rising. And there doesn't seem to be any consequences to it. So the politicians have decided that they can just print money, hand it out, not tied to work, not tied to efforts to get back to work, not tied to training, not tied to any kind of real -- we can't do that. We can't run a global economy based on handouts. And it's not how the country will progress. Innovation will take place. So I think -- and it's only -- and one of the reasons the market is up is if you use today's discount rates given the 10-year is 69 basis points. The cash flows discount to higher values if you use these interest rates. But will they be here? Probably the biggest contrarian play today in the whole globe would be the short interest rates because everybody expects they're going to be here forever. But we could see inflation, you should see inflation. We've never seen the money supply grow like this in the history of the United States. It doesn't even -- look, it can't compare to the Great Depression. It's like twice the stimulus of the Great Depression. So it feels nirvana, like the Trump administration was spending a lot of money before COVID happened and then with COVID, rightly so. I mean they've opened the gates and Democrats have now decided to march through that. And their $3 trillion additional stimulus package was held up, but it seems like there's no price to pay for this. And with a bus, it's somewhere -- somebody says uncle to the ever-expanding deficits that were [indiscernible] by the way. You're going to say it was just as obvious, it's a financial collapse of '07 and '08 in the bank lending practices. So I think debt is transferring to governments that are not capable of paying back their obligations. And we still have these pension obligations all over the country. So I think they need to exercise long-term thinking and financial discipline. And bring some sense of order to the situation, that will restore business confidence, and again, we will all go back to buying our properties and feeling good about things.

I would say I think -- I don't think we have much of a choice. In fact, we're probably very fortunate that 2008, 2009 happened because I think the present administration thinks if you lower interest rates, the stock market goes up and that solves all your problems. I think federal -- I think Powell has done a relatively good job keeping the market lubricated. I mean we know what a month ago in terms of the spreads, the widening out of the spreads where we were, the stress on repo lines, commercial debt, agency debt, money market funds, there was enormous, enormous stress in the system that, for the most part, the Fed because of the road map of [ Paul Sam and Benanki and Rubin and Summers ] provided at least somewhat of a road map. I agree with Barry that the balance sheet is going to be enormous. And the amount of -- it's going to put pressure on interest rates for a long time down, one might think. But I don't think we had much of a choice but to enact some of these provisions. I think most of the stuff that, that has done has been good. I think some of it is silly, but the question of what they need to do next. I think then it could go haywire if they continue just to give money for money's sake, just to get votes and to keep people. I mean right now, there's a fight between coming back to work and unemployment. So it pays more to stay unemployed for some people. But for the most part, I think what they've done to date has really saved what could have been enormously more painful.

I'll just jump in. I'd just say my concern right now is with consumer credit as much as Jamie Dimon came out 2 days ago and said that their credit card book at JPMorgan Chase looks really good. I just can't imagine that once we get through all these stimulus dollars that the people don't start to get out of these forbearance periods that they're in with credit card issuers. That they will then not pay their credit card bills, they'll turn to the next bank to get a new credit card and instead of getting $2,000, they're going to get $500. They're not going to be able to buy their medication or their food, and then all of a sudden, that kind of cascades down. So I'm super concerned about Q3 on that side. Q3 is well -- all the retail loans, all the hospitality loans that have problems right now are in forbearance. So everyone is just sitting there waiting. That's going to come to roost in Q3 and Q4, where all of a sudden, actually, you're going to say great, you got 3 months, 6 months of forbearance. Now what are we going to do? So all that's going to get into the banking system, both from a consumer standpoint and then those loans that are going to go bad. And that is going to, I think, contract liquidity. On the opportunity side, I'd just put 2 out there. One, I think movie theaters being repurposed to gaming studios is something that will -- someone will step in and say, there's a shift here from people going to the movie theater to watching it at home, and these theaters are set up perfectly for gaming studios for kids, and we're going to repurpose that space into gaming. And so I think that's an opportunity. Then I think a lot of people have been looking at student housing, saying, whoa, stay right in student housing, that's a binary event, students are either going back or not, and you could be caught with a lot of inventory. As we saw from [indiscernible] last week, as we've seen from Mitch Daniels out there yesterday in Washington Post, the chance of kids getting this disease and having it be fatal is -- the numbers he used yesterday was 0, exactly barrier. So the point being is, schools are going to go back. And the issue is they're going to go back with less dense campus living. They're going to look for more space. They're going to save doubles with singles. And that's going to drive people off-campus, and off-campus housing has a real opportunity there. So I'd say that's another opportunity here.

I agree with Willy, Jade. I think that's a big trend. I think the spacing of student housing is a huge opportunity. We think we agree with you there. And I think in these situations, I'm always looking at what's happening in the subprime world. That's always sort of the initial tell of where we see a credit fracture. And I've always marveled at what constitutes a subprime student loan. By nature, a student loan is already subprime because mom and dad aren't funding it. So I find that looking at things like subprime ABS and looking at subprime credit cards, I mean this is going to be a very prolonged credit cycle that I think will extend well plus Q3 into Q4. We're going to see defaults on student loans. We're going to be seeing massive defaults on car loans, credit card payments. The good news is people don't turn in their cell phones. They continue to pay their cellphone bills, which is fortuitous for us, but I'm very concerned, as Willy is, around consumer credit. And I think ultimately, we have a great opportunity in front of us as a country that the message I always give to policymakers right now is what happened in infrastructure? And I'm not talking about digital infrastructure. We've got bridges. We've got roads. We've got waterwork systems that are antiquated, particularly in New York City where it's a mess. And we have a massive opportunity to put Americans back to work in infrastructure. And I would challenge our government at a federal level to get people back to work and put them back to work with a shovel. And let's start thinking about how we repair our road system, our bridges. There's so much infrastructure that needs to be built. Governments talked a big game for the last 20 years about rebuilding our infrastructure, no one's done anything about it. And so if we want to put people back to work, we got to figure out how to repair our infrastructure. Everyone knows that infrastructure is a leading indicator for economic performance and recovery. And this is that opportunity to do it. We've got a window to do it. And instead of continuing to pump liquidity in the system for $600 a month consumer lead. We should be turning out, as Barry said earlier, how do you put people back to work. Jobs are absolutely central to the psychology of the human being and their just sense of worth in general. People need to work to feel good about themselves. And that has to be our highest priority right now is figuring out how we put America back to work.

Well, thanks very much, everyone. Unfortunately, we're out of time. It's been a great honor for -- a privilege for me to be able to ask all of you questions and also for investors to hearing your insights. So we really appreciate your participation. Hope you have great investor meetings throughout the day. And thanks again.

Thanks, Jade. Thanks, everybody.