San Francisco Real Estate AI Frenzy

The Federal Reserve started its meeting today. I wonder what Kevin Warsh is gonna say tomorrow From American Public Media this is market plan In Los Angeles, I'm Kyi Risell. It is Tuesday. Today, This one is the sixteenth of June. Good as it always is to have you along, everybody. Kevin Warsh coming up in a minute, but we begin today with a somewhat but not really hypothetical question Is there such a thing? as having too much money It's relevant on an individual level as the world tries to decide how it feels about its first trillionaire But it's also relevant on the corporate level because really big companies sitting on really big piles of cash are going to the capital markets to get more. Alphabet issued eighty five billion dollars worth of new shares last month. Amazon and Alphabet as well have gone to the bond market to raise billions in the past couple of months. Nvidia did the same thing yesterday The raising cash part isn't unusual. It's the They've already got so much of it. The news Places Henry App gets us going This is really all about data centers. Big tech, as you know, is all in on artificial intelligence, which takes a massive amount of computing power to run. So they're building out that infrastructure, which is costing them collectively hundreds of billions of dollars just this year. Julie Ask is a tech analyst and founder of OSk Advisory This isn ant Unprecedented level. capital expenditure for most of these companies And the cash they have on hand is not enough. So that's why they're going to the bond and equity markets, says Brent Phil, managing director of teech Research at Jeffrey's You can't fund this. byy just straight equity or straight debt, you need a collection of financing vehicles to fund this AI boom For B tech, this is a good time to get that financing because investors have money to put to work and they still want a piece of the AI boom. Nvidia's bond sale this week, for example, attracted orders three times greater than the bonds on offer, according to Bloomberg. Sarah Koonst, head of Clio Capital says that kind of demand makes borrowing inexpensive the CFO's office will be telling the CEO's office is, look This money is incredibly cheap compared to the normal cost of money, and we should probably go get some before investors change their minds, says Dan Ives, head of tech research at Wed Bush securities. We're in the window where capital' there Six months from now, that capital might be narrowed Because as the AI boom goes on, investors will want to see companies actually make a return on all this data center investment, says Brent Phil at Jeffrey's. And this is what's concerning investors is when you look at The type of spend, are we going to get the ROI? The answer Phil says might not be clear for a few more years. And he thinks this AI hype cycle might also have years to go. to put it in terms of the internet boom a generation ago It feels more like mid nineties A this point The dot. com bubble didn't start to burst until two thousand. I'm Henry App for Marketplace. Wall Street today, tech, not so good, most of the rest kind of aash. We will have the details When we do the num numberers This is Fed Week for those who observe, and since twenty eleven, this has been its identifying audio Good afternoon. The Federal Op Market Committee concluded a two meeting earlier. Today, the Federal Op Market Committee decided to raise the target range for the federal funds rate. We at the Fed will do everything we can to achieve our maximum employment and price stability goals Thank you. I look forward to your questions. Press conferences from the chair Berni Yellen and Powell in that order. Kevin Warsh, the new guy hasn't committed to doing one after every meeting, but seeing as tomorrow is going to be his first We thought a little history might be an oder I would start the story way back in nineteen ninety four when the FMC decided to publish statements after their scheduled meetings That's Tom Larrennce at the NYU Stern School of Business, Allen Greenspan, you might remember was the chair back in nineteen ninety four. I just pulled up a random statement, april eighteenth, nineteen ninety four Chairman Greenspan announced today that the Federal Reserve will increase slightly the degree of pressure on reserve positions This action is expected to be associated with a small increase in short term money market interest rates and the statement That's not much to go on, right But it was more or less the norm until the financial crisis in two thousand eight. Ben Bernankke was the chairman and the Fed was doing a bunch of things it had never done before to keep the financial system afloat Heres Sarah Bnder at the Brookings Institution And so Bernanki, as chair said I need to explain what we're doing so that markets can adjust, businesses can adjust so everybody can know what we're going to do going forward because they know we can't lower rates The lower bound was o, right? interestnterest rates were basically zero. and what Bernike was doing is what's come to be called forward guidance. And in twenty eleven, Berni started holding press conferences after every other meeting, basically four times a year thing that happened immediately is The meetings without press conferences came to be heard. observed by market participants as less important, less giveive less li Chry Yellen, whose idea press conferences were in the first place back when she was vice chair, she kept press conferences at four times a year. and then Jay Powell in twenty nineteen started doing pressers after every meeting H's Kanal Sangani at Northwestern University. By making every meeting live You're getting yourself into gettingiving a lot more forward guidance, So a lot more guidance about how interest rates are going to unfold in the future. And one of the trade offffs of that is, you, that forward guidance could turn into forward handcuffs. whichich is Chairman Warsh's pointint. Warsh, by the way, has not actually said how many press conferences he might do I think it's an open question whether eight press conferences a year is the right amount or whether scaling back would do the job. while not sort of impeding the ability of the Fed to react quickly and still make pol policy decisions on a short horizon Dancing around the big question How does Wars want an vision leading the Fed? And with what consequences for President, for his relationship with Congress, and obviously for how markets interpret what the Fed's going to do The worst dance starts tomorrow two hundred thirty Eastern. stay tuned You might have seen this a couple of days ago that last month for the first time, solar supplied more electricity in this country than coal did And that's despite the Trump administration's hostility to renewable energy and its support of coal Late last year, the administration ended a federal tax credit for residential rooftop solar panels, but commercial and utility scale projects still do qualify for the N next couple of weeks anyway l place of Kit Lantan has more on that one I called up Solar Montana, a solar installation company, and I got Belinda Romero on the phone We arere doing very well. We have quite a few commercial jobs that we're working on They're putting solar panels on libraries, colleges, fire stations, and there's federal money still on the table We have a electronic sign in front of our building And that's what it's advertising, letting commercial owners know K about the thirty percent tax break on installation costs. It can be tens of thousands of dollars in savings. But that's mostly going away july fourth under the Trump administration changes. What we're going to see over the next three weeks is lots and lots of solar projects beginning construction. Pavel Monchanov is with Raymond James. The good news is starting construction is not difficult. It can even be as simple as purchasing some of the equipment up frront and keeping it in a warehouse After that, there's still a four year window to get the panels installed and pumping electricity created a runway of work to be completed. Rachel Mountin is with Namiste Solar, an installation company in Colorado. She says ordering supplies like the solar panels, inverters, batteries, It hasn't been too difficult A lot of manufacturers have started producing equipment partly because of the demand from projects trying to get the tax credit. What will solar demand look like post twenty thirty? afterfter the tax credits expire Sannon Anderson with Solar United Nebors isn't worried The industry is excited to see this new era and to see where we can go again, in terms of reducing cost in other ways Her group is encouraging people to pool their resources by solar in bulk And some states are even offering their own tax credits Heitelint Anne for Marketplace There are a bunch of ways to figure out what's going on in this economy Data, of course, that's got its uses Analysts and economists there. pretty good Best though People who actually make this economy go Patrick Smith is one of them. He runs well offess ranches. That's a hops and apple farm up in Yacma, Washington. Patrick Ad is good to talk to you again Good to talk to you K. All right, first things first, How how are things on at Lftis ranches Yeah, what I mean, one of these days, I hope that we have one of these calls and I can say Costs are down, prices are up and everything is everything's going great. Today is not that day. There's been plenty in the press lately about cost pressures on the farms, whether it's fertilizer prices, diesel prices, obviously a lot of cost pressures that we're facing. And here in Washington State, not only are we facing a drought yet again this year, but USCA earlier this year came out with a report ranking all the states by one measure of farm profitability. Here in Washington state we had the distinction of coming in dead last. report fiftieth out of fifty states. so It' it's been a rough go for the farm economy here in Washington lately. Yeah, so this basically echoes a conversation I had with a corn and soybean farmer that we know in Iowa, not to, you know, you play one against the other, but once again, this is farmers being price takers, first of all, you guys don't get to decide And also just the macro sense that farming is really hard now Yeah, certainly. The inability for us to pass on cost increases is a major part of why we're seeing such economic difficulties on the farms A lot of farms are struggling to stay in business. and here in Washington State, we just saw One of the largest treefuit growers in the state filed bankruptcy within the last couple of weeks. But it's just kind of indicative of the state of things in this industry right now. Yeah. Well, let me ask you as a treef fruit growower, right? You grow apples. alsoso hops, we should say, as we've said many a time. What are the crops looking like? I mean, you know, too many crops is bad because then prices go down, but you got to have crops to take the market. How are things Yeah, we're starting to finally see some acreage coming out of production. so hereington reallyally So it was wait. sorry. so this is Well, that's really interesting. you say, finally because you're an Apple guy and Apple's obviously youve got to grow the trees and this and that and it's not like you can just turn off the switch. Right, Right. And so that that's been one of the biggest problems in agriculture here in Washington State, really throughout the West where we're a lot more heavily indexed to these permanent crops. and these cycles just repeat themselves over and over again. And so we entered this period of structural oversupply where The industry was just producing far more than was really demanded and forces farmers to eat the cost increases that we've seen over that. Can I ask what's gonna sound like a really silly question to a guy whose life this is, but how do you take parts of your acre, your apple acreage out of production? Do you like cut down the trees? Do you not fertilize? What do you do? Chainsaws are really effective perspective pill. Yeah. That seems so drastic. It is, it is. But, you know, the fact is is that on our one farm, you know, we have orchard blocks each year that we evaluate and we When we look at it, we can't cover the cash cost of of growing it. And so without the visibility to pricing improving, how long can we lose money just on labor fertilizer crop protection products, you know, in some cases, invested forty, fifty, sixty thousand dollars an acre getting these trees into production. but at the end of the day you know, usinging four five thousand dollars an acre year over years, notot that interesting. Perhaps I'm over romanticizing this, but doesn't it just take a little piece of your soul to cut down all these trees Oh yeah, absolutely. specially when there's no great alternatives to go into. I mean, without American consumers deciding to, you know significantly increase their consumption of fresh apples the only real way for the industry to get to a place of relative health and sustainability is to reduce production Patrick Smith Lft this ranches, Bailbreaker Brewing, and various other side hustoldles Patrick, thanks a lot. It wass good to talk to you. Of course, thank you, K. appppreciate it up There's a mansion deficit Oh Okay First though do the number D ind shows up three twenty eight to that is two thirds of one percent, fifty one thousand nine hundred ninety nine. The NasDQ subtracted three hundred seven points about one point two percent there. twenty six thousand three seventy six S and P five hundred down forty two points six t percent, seventy five and eleven. Some of those bond selling technology companies that Henry Upp was telling us about Nvidia gave up two point four percent today alphabet pocketed one and a ten percent amazon dot com prettyty much unchanged. Dav and Buster's Entertainment missed analysts expectations and reported that comparable store sales were down more than five percent for the quarter. ticker symbol on that one. playay PLAY down six and a quarter percent. Also shout out to the parents out there good stuff with their kids in there. Anyway, price morears in the pizza business have convinced young brands to get out of the pizza business. It is selling pizza hut to a private equity firm. Young brands heated up two percent on the day you're listening to Marketplace This is Marketplace. I'm Kai Risdahal Fox has entered the streaming chat. A media company that has long relied on straight up cable TV for its success said this week it is buying Roku for twenty two billion dollars. Roku has in streaming program that comes automatically installed on smart TV's in more than a hundred million households. the thing you see before you click on the app that you actually want to watch Pleicey Kelly Wells has more This is a smart play for Fox, according to John Geeganak, who's founder and head analyst at Hub Entertertainment Research Because out of all the problems that TV watchers face these days, Their biggest frustration is how complicated it is to use television which is where a streaming aggregator like Roku comes in Geeigenak says his company has studied how TV watching has changed. The number one thing that they turn on first has switched from some kind of a cable box to an app inside of a smart TV. And for one hundred million households, that's Roku Now Fox can sell ads to those people directly on the Roku platform, whichich means more money, says Peter Cohen, who teaches management practice at Babson College people would then be targets on which to spend advertising. So they could bring in advertising revenue But more advertising is only part of the revenue stream. It's about owning the home screen that lives between us and content. Chief addvisor Dave Nicholson with the Analytics Group Futurom says that gives Fox an opportunity to collect data about what users are watching when. and it lets Fox advertise its own services. I can be watching a YouTube video on Apple TV And I will get a little box that will come up that will say, hey, Formula One race is starting in fifteen minutes. A big benefit for a company that relies so much on its news and sports offerings. On top of that, being the bridge between users and content pays well too, says Brandon Katsz with the entertainment analytics company, Greenlight Analytics. Suddenly I want to watch Netflix and I have a Roku device, well, Fox is taking a bite out of that subscription and advertising revenue and all the other streamers and apps that you subscribe through your Roku app as well Kat says Fox ceded the content creation race to the likes of Disney and Netflix years ago claiming this gatekeeper role, Katz calls that move a home run for Fox. I'm Kaylee Wells for Marketplace This is shaping up to be, as you know, the summer and perhaps the fall of the ginormous initial public offering. SpaceX last week anthropic and open AI set to follow suit. SpaceX worth two trillion dollars now give or take the latter two of them based in San Francisco, pushing valuations of a trillion Dollars apiece Even before all that IPO cash though, San Francisco has had the highest and the fastest rising home prices in the country That's according to Red Fin. Thispl is Mean Mcard Carino takes us to the front lines of the AI boom A Turnkey restored Edwardian home hit the market last month for just under three million dollars right outside the neighborhood known as Cerebral Valley for its concentration of AI workers We've got this beautiful viola marble fluted Llast Realtors Krystal Pollock and Kelly Bennett show me some of the home's unique selling points. There's a motorized stairway to the attic that folds into the ceiling Two car parking, two car parking, which is also a rarity. But perhaps the most distinctive thing about this listing is one of the forms of payment accepted shhares in open AI or anthropic We have had at our open houses, a lot of folks come in and be like, o my gosh, I wish I wish this was six months from now. And so when they were talking about it The seller said, Well, yeah, I would take I would just take their stock for it AI equity has literally become the currency of the market Some shareholders have been able to cash out stock before the IPOs by selling to new investors. It's driving a frenzy of bidding wars There's a mansion deficit. That was the term I coined Yeah, he said manansion deficit Luxury real estate advisor Alexander Lurie, who also happens to be the mayor's brother, shows me around one of these rarities on a hilltop stretch known as Billionaire' Road So we're looking at the whole span of the bay, the mouth of the bay, the Golden Gate Bidge, to Alcatraz It's a twenty million dollar view Laurie says he knows of about fifty buyers shopping at that price. Typically fewer than ten such properties go up for sale in the city in an entire year People are offering many millions of dollars above asking price, or making generous deals before a house ever gets listed publicly We are in unprecedented times because of the access to liquidity, the access to wealth San Francisco is the perpetual gold rush town. The mansions of Billionaires Row were built with the fortunes of mining and railroads before they were claimed by the barons of Silicon and software Ted Egan, the city's chief economist has seen his share of booms in his two decades in San Francisco. But nothing on this scale The amounts invested in AI companies are orders of magnitude bigger than in previous tech waves, but the wealth is accruing to a small group as the rest of the industry contracts Egan says the city lost about forty thousand jobs in the last three years, mostly in tech It's really a tug of war between something that's in decline and something that's growing rapidly That dueling reality is taking a psychological toll on the city, says Deeee Dosas, a former engineer who's now a partner at a VC firm that's a major investor in anthropic To see it up close and personal is It's very stark. I mean Overnight, I have friends who are worth billions of dollars. and others, shaken by a newfound sense of precarity, even with enviable big tech salaries people who are like You know I felt like I did everything right in my life. I went to I don't know Stanford at MIT. I was top of my class, I took the right job, I did everything right, but I don't know if my job even has value anymore He says the term permanent underclass gets thrown around a lot in tech circles, unironically. It's the idea that if you miss this wave of wealth There may never be another Fear of missing out is also palpable in the real estate market, says realtor Kelly Bennett, who's working on that Edwardian listing once these companies IPO, What's going to happen to the home prices then? I mean, you know, we might look back on this time and think, oh shoot. I wish I'd gotten in in sppring twenty twenty six could still get a home for Three million dollars In San Francisco, I'm Meghgan McCarty Carino for Marketplace This final note on the way out today, global context for whatever it is that the Fed is going to do tomorrow. The bank of Japan raised its key interest rate today to one percent even The highest that rate has been since nineteen ninety five Odds are that the Fed's going stand pat tomorrow with its key rate set at a range of three point a half to three point seven five percent Jordan Menji, Ooniil Maharaj, Janet Wyn Olga Oxman and Virginia K Smith are the digital team. I'm Kyi Rzdal. We will. seeee you tomorrow, everybody This is APN