Power Lunch - Housing Recession Fears, M&A Activity Returns 5/15/23

Episode Date: May 15, 2023

Peter Merrigan, Taurus Investment Holdings CEO, discusses commercial real estate demand and outlook. Ari Wald, Oppenheimer managing director, joins to discuss three stocks: Alphabet, Dupont De Nemours and Charles Schwab. Bryan Fairbanks, Trex CEO, discusses construction demand, inventory and recession fears. NYU’s Suzy Welch and Conference Board CEO Steve Odland, discusses the corporate agenda and M&A activity returning to the market. Plus, CNBC’s Robert Frank reports on how trouble on Wall Street and the economy is causing a supply glut in the Hampton’s summer rental market.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Good day, everybody, and welcome to Power Lunch alongside Kelly Evans, who's actually just over there. I'm Tyler Matheson. Coming up today, it is a merger Monday. Several big deals happening today, so it's a sign that corporate America is getting ready for an economic recovery down the road, buying low in hopes that values go higher. Plus, commercial real estate being called the next shoe to drop, we'll talk to a big CRE investor about what he's seeing in office, retail, and residential. Kelly, We will dive through all of it, Tyler. Thanks. Hi, everybody. I'm over here checking on the markets where the Dow has turned negative again. It was only positive for about the last hour, down five points. By the way, it's down for about the eighth day out of nine, something to that effect. While the S&P is up seven points today, 41, and the NASDAQ is still up half a percent. Let's run through some of the merger news because we've seen a considerable. We have an energy, a mining deal. We'll start with the energy one. One Oak buying Magellan, Magellan, Magellan up 14 percent. It's a $14 billion dollar cash in debt deal. That said, One Oak shares are down eight percent. This would be the biggest. energy deal of the year so far. Dan Pickering last hour said he thinks it's going to be a slow cycle, but that activity should pick up. Also this big mining deal, Newmont buying Australia's New Crest for

$17.5 billion. It's the biggest gold deal ever, and it's also a copper play. We see Newmont shares up 3%. And shares of Western Digital are also jumping on reports. It's, you guessed it, speeding up merger talks with a Japanese memory chipmaker. That's a 10% pop for WDC. And Neogames is more than doubling today. This is an Israeli-based provider of services to online lotteries. An Australian company called Aristocrat Leisure buying them for right around a billion dollars, and these shares have doubled on that news. Also had some Microsoft news on the Activision takeover, EU giving it the green light today. Not much movement in the shares, though, because it won't help with the UK, Tyler, which blocked the

deal weeks ago. All right, Kelly, thanks a lot. There is a lot happening on the corporate agenda today, so let's take a look at several things. First, as Kelly just mentioned, M&A activity is picking up over $105 billion worth of deals have been made across various sectors of the economy today alone. Next, a new report from the Wall Street Journal showing that CEO pay sharply fell alongside the markets over the past year. And finally, the debt ceiling drama continues to make headlines and executives are trying to figure out the best way to position for the uncertainty. Let's make sense of it all or try to with CNBC contributor Susie Welch. She's a leadership professor at NYU Stern School of Business, along with conference board CEO Steve

Odland. Welcome, Susie and Steve. Susie, let me start with you. What does all this merger talk and actual mergers taking place? What, if anything, does it signal either about the pace of deals or CEO's view of the economy? Well, a lot of these deals, Tyler, have been in the works for many weeks, if not months. So them all falling on the same day doesn't, I don't, I don't I don't think it's a sign that we're seeing confidence in the economy. I have a funny view on this because I ricochet in my life between teaching MBA students at NYU and then advising CEOs at Brunswick. And they don't agree on very much. But they do agree on the fact that there's just no more certainty in the economy anymore.

There's just the, I mean, you could even say there's sort of the seven horsemen of the apocalypse, which would be like the fears of the recession, the debt ceiling drama. The list goes on on. We know all the usual suspects. And what that all adds up to is just lack of certainty. And so I think what you're seeing perhaps, and this is a theory, is that CEOs at these companies are saying there's never going to be a certain time again. Let's go ahead and make those deals. There's not going to be any way to time the market anymore. We're in a state of perma crisis.

Who knows what the next thing is? Let us agree that perma crisis is the new normal and let's move forward. And I think that, if anything, explains all the deal activity today. Steve, why don't you react to what Susie just said? I think provocatively about certainty and uncertainty. And what do you think explains the deals that are either rumored or are taking place? Well, I think Susie, you know, hit it right on the nose. Look, we had a record 2021. We had a terrible 2022. Everybody was really excited about 2023 because we thought we would get through this. And yet the pace to date has not been great. So Susie's right.

I mean, we've been, it's been kind of 18 months in pipeline here. You've got the cost of equity very high. And, you know, you've got valuations in a lot of industries just way too high, things like consumer products and those industries that are able to take pricing and pass it through. And, you know, their stocks have done well. You have debt that is at a very high level versus where it's been. So, you know, look at PE markets. You've got a lot of equity raised, a lot of funds raised by private equity.

firms looking for the right deal here. So you're seeing some things break loose on tech and biotech where valuations have been reduced. But this uncertainty thing, Susie couldn't have said it better, uncertainty is the killer right now for CEOs. CEOs need to know what the policy is. They need to know where interest rates are going. They need to know the macro environment. And none of that is clear at this moment. Although, Steve, it also feels natural to me that we would have, you know, during the bull market, we had tons of new companies, tons of IPOs, tons of the, I mean, wouldn't consolidation be the natural kind of next thing to happen here? Yeah, and, and, you know, look, a lot of companies would love to have it. The problem is making the numbers work. You know,

you do the long-term numbers. And if you're talking about an industry where valuations are very high, debt is very high, the numbers just aren't going to work. You're not going to be able to give the premium to current shareholders. If it's been beaten down, the question is, okay, is now the time, is this, you know, what's going to happen here is the uncertainty? And you see a lot of people like, you know, you notice you recognize today, people are just saying, oh, forget it. We're going to bulldoze through this thing because, you know, we need to break it loose. And I actually hope that this is a harbinger of things to come. But, and maybe they're betting that the interest rates are at a peak.

But look, you know, most CEOs say there's a recession coming, and, you know, we've got to batten down the hatches for that. So, you know, I don't think this is a long-term thing. We've kind of got three items we want to cover. And I'm going to go out of order because it plays into this idea of uncertainty. And Susie, my question has to do with the debt ceiling discussions that are going on. Here is a huge uncertainty. Are most of the CEOs that you're talking to or counseling? Are they of the view that one way or another this debt ceiling thing is going to get resolved

and that all of the storm and wrong here is much ado about nothing? To mix my metaphors. I would say that the vast majority are saying, we've seen this movie before. Two cars are driving towards each other very fast, and at the last moment, one of them veers off and it's a very happy ending to the movie. That's what you hear most of the time.

But then you also hear CEOs, and sometimes the same CEOs who are saying, we've all seen this movie before, it's going to work its way out, it's going to be scary into the last moment. Then sometimes you hear them say, but nothing is the way it used to be. And this may actually have a scary ending.

Maybe this is the time that the ending of the movie is different. And I think this adds to the uncertainty. And so it actually comes down then to the confidence and experience of the CEO of sort of saying, look, these things work themselves out. They always do. Or newer CEOs, younger CEOs, CEOs with less supportive boards have a different take. And they're more nervous.

And they're doing, they may be doing deals or looking around for deals, but smaller ones. And interestingly, Steve, one of the things Brian Reynolds was warning about today is that if the debt ceiling is resolved, you could actually see deposit flight pick up into money market funds, those government money market funds, which a lot of corporations can't move money into right now because of the debt ceiling uncertainty. So if the debt ceiling gets resolved, more of the money goes in there and it comes out of the bank. So it kind of then brings the bank issues back to the four. Yeah. And look, the markets are saying it's not going to be an issue. You know, the U.S. markets are what, within one or two percent of an all-time high. Same thing around the world. So the markets are saying,

ho-hum, it's no big deal. The problem is if they're wrong this time, it's catastrophic. It's, I mean, It's just unthinkable that this would happen. Now, seven of the last 10 ceiling, debt ceiling issues or periods of time when this has happened, they've been negotiated. And so I think people are going, okay, you know, they'll figure out a way that's a lot of, you know, politics. And CEOs hate politics because, you know, all of this stuff is not good. This uncertainty is not good for the economy. It's not good for customers, consumers.

They just wish they would stop this stuff and stop playing around with the debt ceiling. Suzie, let's close with a little quick discussion on CEO pay. Did CEOs feel in the pocketbook, the purse, the rough year that many companies had in the stock market last year? They had to. I mean, because their compensation was tied to stock performance. I think, though, if you say that CEOs hate talking about the uncertainty of the debt ceiling and uncertainty period, they hate talk about their compensation. It's the worst option. in the world, to have people talking about how much you pay, and to have people sitting around a table thinking about the differential between what you make and the average worker. And sometimes, you know, they're bored to have different feelings about how they should be paid. And then they are the ones who are attacked for decisions that the board makes. But I do think, of course, some CEOs certainly felt it. They hate it being talked about. And I don't think very many of them are in a grab to get more right now because it doesn't, it doesn't help you get the job done when people are talking about how much you make in quiet rooms where you are not. Sundar Pachai last year, I think, made $225 million, just for the record. Good for him. Susie Welch, thanks very much. Steve Adlin.

Appreciate your time today. And we've got breaking news ahead of that Senate hearing tomorrow. Let's go to Leslie Picker for the details. Leslie. Hey, Tyler. Executives from both Silicon Valley Bank and Signature Bank believe their respective firms were victims to historic bank runs. Those are sentiments that stem from prepared testimony that was just posted ahead of a Senate Bank committee hearing tomorrow on their respective bank failures. Greg Becker, the former CEO of Silicon

Valley Bank, will say after Silvergate failed and an FT article linked to the securities portfolios of the two banks, $42 billion in deposits were withdrawn from SVB in 10 hours or roughly $1 million worth of deposits every second. He will say, quote, I do not believe that any bank could survive a bank run of that velocity and magnitude. which was far beyond historical precedence. Co-founder of Signature Bank will say that after Silvergate failed, depositors withdrew $16 billion from his firm within a few hours. Still, he will say in his testimony that he did not think regulators needed to seize the bank

with signature bank in a, quote, strong position to weather the storm. So potentially some fireworks ahead at tomorrow's hearing, guys. Yeah, I appreciate kind of getting the detail now from everybody involved. as he will be turned up on them. Leslie, thanks. Coming up, we'll talk to the CEO of Trex, the Decking Company, about what he's hearing from consumers?

What's their willingness to spend on home improvement projects? Stocks fractionally green today. Let's do our power check as well with financials. The best performing group in the S&P right now, Key Corp, one of the regionals hard hit lately, up 6%.

The power draining from utilities. Meantime, they're the worst performer in Amarin. Down 3% is the worst name in that group. And as we go to break, Here's the bond market right now. The 10-year yield above 350 after Atlanta Fed President Rafael Bostick on Squawk Box this morning said inflation is not coming down quickly. It may be spring outside, but the housing market is still in deep freeze. High rates and low inventory are keeping people from moving. New mortgage originations hitting their lowest level since early 2014. Now, many assume this would be good news for home improvement.

But KeyBanks says it actually expects home-related spending to slow in the coming months. Analyst at Baird and MKM echoing this outlook, cutting earnings estimates on Home Depot and Lowe's. Home Depot reports tomorrow and Lowe's next week. Home Depot, by the way, is down 8% this year while Lowe's is hanging on to a 1% gain. Decking material manufacturer Trex is still seeing some nice benefits from home improvement, though. They just posted an earnings beat last week, and the stock is up nearly 35% on the year. Joining us now is Brian Fairbanks. He is Trex CEO.

Brian, welcome. Great. Thanks for having me this afternoon. So, and just to familiarize everybody here, you guys do the composite decking and, you know, kind of water-resistant. Give us all the features here, and why do you think your product might, I don't know, could it be taking share from lumber? And it's amazing you're doing so well when lumber prices have fallen like they have of late. Yeah, we manufacture composite decking and railing for outdoor use. Something unique about the Trex Company is that we do it with 95% recycled and reclaimed content. We've been doing that since inception with the Trex company.

In 2019, we launched a product that would allow us to go directly after wood. So you're right. The price of wood has decreased significantly over the past year and a half. But with our enhanced product line, it's priced about two times the price of wood. Market research has clearly showed us that's where the customer starts to make that decision to move over to composite decking. And there's about 75% of the market available for us to go after. as we continue to grow as a company. What I see in the neighborhood that I live

is a lot of people building elaborate outdoor living spaces. They're not just decks anymore. They are decks with kitchens, with enclosures for the television, with basically lovely cushy furniture. The size and footprint of what's being built today feels to me to be markedly different. from 15 years ago. Am I right about that or not?

Absolutely. People have the desire to bring the indoors out, and they are bringing all of those amenities along with it, where you truly have that outdoor living room or your kitchen, and you can spend time with your family on that deck, as well as with your neighbors. So let's talk then, Brian. What's interesting is kind of the difference between new home construction and the existing home sales market. You know, just because there's bidding wars, just because the home builders have been so strong, doesn't mean that the housing market, broadly speaking, is doing that great. You know, existing home sales are down, I think, a million and a half from their peak,

and the market is kind of frozen in place a little bit. So what does that mean for your business? What is your outlook or guidance for the rest of this year? Well, it's an interesting opportunity for treks and for repair and remodeling. People will be staying in their homes longer. They've got low interest rates they're already locked into. They generally have pretty good equity in their existing homes. And rather than making that move up as the family grows, they'll probably stay where they are.

We're already seeing some of that. Those consumers are making the decision to improve their existing spaces. And one of the lowest cost ways to do that is by adding a deck onto the home. So we see through this cycle of the economy, continued opportunity for repair and remodel. About 90 to 95 percent of our business falls into that side of the market versus the new marketplace. You mentioned earlier that a high percentage of your product is made from recyclable or reused materials. What are those materials that you're recycling and where do you source them? We source materials from all over the country and up into Canada to some extent, even international from time to time.

What we use is a significant amount of polyethylene stretch wrap. People are most familiar with plastic bags at grocery stores. If you see a collection center at your grocery store, more than likely that's coming back to the Trex company, and then that's being included in a deck that's being built. The plastic bags, the plastic bags that I used to be able to get in my town. They no longer have them. By the way, so beware. So it's plastic bags is one of the main inputs or the feedstock, I guess. It is.

Polyethylene. A much larger source comes out of distribution center where stretch wrap. post-industrial wrap, things like that. Those are a much larger source, but bags are something that easily recognizable people. And that's where communities can help add value as well, too, by being a part of the recycling system and then allowing us to use that material in our great products. Just a quick but a loaded last question, Brian. What about deal making? You know, your competitor, ASEC is maybe half the size in a market that gets a little bit more challenged. Is that something that you'd pursue?

Well, always interested in other areas where we can improve the outdoor living opportunity for our customers along the way. But our primary focus is to grow against wood. That's been our strategy for a number of years now, and we have a long runway. So if the right opportunity comes along, we'd absolutely be interested in taking a look. But you can expect with Trex, most of what you'll see is going to be that growth in wood as well as against competition. Are all your products used exclusively outdoors, or is there an opportunity to use them indoors that could expand your market? Today products, our products are used in outdoor marketplace. We also have a product that's used for cladding, so instead of a siding-type product, it gives you more of a real wood look.

We have seen that used indoors in some limited circumstances. Interesting. Okay. Brian Fairbanks, thank you very much. We appreciate it. Continued good luck to you. Thanks. Thank you. shares of both tracks and Azax 25, 35%, so they might have a better currency, but their competitors are getting pricey too. All righty, folks, coming up, diving into the street talk, three analyst calls, including one more than seven years in the making. We'll explain that when Power Lunch returns. It's 21 past the hour.

Welcome back, everybody. Time for today's three-stock lunch, doing a little early today. Let's take a look. And we want to start the cocktails early here. Let's look at some names, seeing some action from Wall Street calls. First up, Google, Alphabet. down just about 1% after the company got hit with a rare downgrade from loop capital markets. The firm says it's worried about Google's AI prospects, even after it laid out plans to ramp up its chat GPT rival Bard. Here with our trades, Ari Wald, Oppenheimer Managing Director. Ariya, what's your take on alphabet? The technical trends are going the opposite way as far as versus that downgrade that they are so favorable. I think generally speaking, underlying market trends.

right here are pointing growth over value, even more so than they are defense over offense. And I think these growth stocks still stand to lift the market higher over the coming months. Looking at Alphabet, the stock has generally lagged through this recovery since last year. It didn't really get going until the March period. And I think last week's strength was confirmation of the turn. It marked a meaningful breakout and trend. I'd be looking to stick with strength, buying weakness down to the breakout level at around 109 and we see upside into $130 over the coming months. That's more or less where the stock

started to break down when all this got started the selling in the first part of 2022. Yeah, it had a great week. Let's turn to talk about DuPont, which we don't rarely mention, but those shares are up about 3% today, area after Deutsche Bank actually upgraded them to buy, I believe. They're basically saying that the stock's trading in a 50% discount to its peers. It's gone through seven years of massive changes is now the moment. We don't think so. Technical trends are less upbeat. We tend to think that there's relative risk and relative weakness.

And this stock has been a driver of weakness in the market. If you're worried about market, Brett, you've got to be worried about the areas that are causing that weakness. And with the recent move lower in DuPont, that completed a multi-month topping pattern that's been playing out since November. So we would be selling the strength back into this breakdown level, back into the gap at around 60s. $7, with some potential downside risk to $60 over the coming months. Let's move on to Charles Schwab, finally. The broker's firm up more than 5% after Raymond James said Schwab's core banking business remains strong, which could help the stock gain as much as 30%.

Ari? What do you think? I think you can squeeze out some more upside here, unsure about 30%. Generally speaking, we've argued that it's been less about concentrated buying in the tech sector, Instead, the resilience of the market to a very concentrated selling within the financial sector. And Charles Schwab, of course, has been weighed down with this broad-based weakness in the financial sector. We're currently on the sidelines. I think the stock has stabilized from oversold conditions. I think there's more work to be done over the coming month.

There's a lot of resistance overhead. So with this recent and more double bottom at around $46, I think it's capped at around $60, which is where the stock started to break down. in that March period. All right, Harry, thanks very much. Great to see you, sir. Appreciate it. Thank you. Harry Wall.

Oil closing for the day. Meantime with gains, Nat gas striking as well. Pippa Stevens is back, Pippa. Starting here with oil, it is bouncing today. After posting four straight negative weeks for the first time since September, we have the dollar the lower dollar

is supporting prices as well as outages in Canada due to wildfires. Nat gas up another 4% extending Friday's rally and actually coming off its fourth positive week in the last five. That is after we saw. that 16 rigged decline in the rig count for at NAC gas. Now, you talked about, you know, merger Monday earlier in the show, and one of those deals

is One Oak and Magellan midstream. And this deal really seemed to take Wall Street by surprise, given that the companies have very different assets. One Oak is all about NAC gas and not gas liquids, while Magellan is all about crude and refined products. And so I think that's one reason why we are seeing that decline in shares of One Oak now down 11 and a half percent. Because when we talk about acquisitions, a lot of the time it's about, you know,

cost synergies and saving costs and things like that. But as Wall Street analysts have pointed out, these two companies have very different asset bases, begging the question of will there actually be any type of cost savings? So what's the strategic play then? Well, so it diversifies it. So right now, One Oak is all about NAC gas. And so then the acquisition of Magellan increases its focus and makes it a larger company because now it has also oil and refined products.

And particularly given how hard it is to build a new pipeline, there are becoming scarcer resources. And so if you have access to that, then you have a much broader, you know, broader portfolio. this is all, you know, fee-based. And so it does increase the revenue they're getting and pipelines are a short commodity. However, they can't really have those synergies between the two, given that they're completely basically different businesses for the time being. Any buzz about the drop, 8% drop in the shares today? You know, are investors voting this one down? I just think it's more, they're concerned about whether or not there actually will be any type of synergies between the two and cost savings and kind of, I think it really came as surprise.

You know, a lot of the time you kind of have inklings that these deals might come and this really did seem to shock the street. It seems like it could go through in the third quarter. That's when it's forecast, given that there's not really any, given that they're so different, there doesn't seem to be any kind of anti-competitive. That's not my area of expertise. These days, everything is anti-competitive. I'm sure they'll find something. We'll see. Point taken. Pippa, thank you. Pippa Stevens. Let's get to Bertha Coombs now for the CNBC News Update. Bertha? Hey, Kelly. Here's what's happening at this hour. President Biden confirming to reporters that he plans to meet with House Speaker Kevin McCarthy tomorrow to continue debt-sealing

negotiations. The pair was set to meet along with other congressional leaders last Friday, but that meeting was pushed back. Biden said yesterday he remains optimistic about a deal to avoid a U.S. default. But McCarthy said today he thinks the sides are still far apart. The Supreme Court agreed today to hear a bid from South Carolina Republicans to restore a congressional district that a lower court ruled a racial gerrymander. The district in question includes the city of Charleston. Republicans redrew the boundaries following the 2020 census. A January ruling claimed the newly drawn district was configured to dilute the power of black voters. And the singer The Weekend has changed his name on social media to his birth name, Abel Tesfay.

This comes after the pop star said earlier this month that he was getting more. ready to close the weekend chapter and reinvent himself. He added that the album he is working on now will be his, quote, last hurrah as the weekend. And presumably it'll be a real album as opposed to the chat GPT one that they made of him and Drake. I thought he would change his name to Tuesday. Right. Definitely not Monday.

Not Monday, not a good. Well, what's his birth name? Do we know? Yeah. A bell. A bell. A bell. Or Abel.

A bell. A bell. Able. No cane. Okay. A head on Power Lunch. Some experts are warning that commercial real estate is banking's next big worry. Commercial relending is tanking.

Data from Goldman points to a 13-year low. We'll speak to the CEO of Torres Investment Holdings after this on Power Lunch. Welcome back to Power Lunch Regional Banks among the market's biggest gainers today. Comerica, Zions, Key Corp, all up 6 to 7%. But it's been a rough road, of course. One additional potential problem spot for these banks has been pointed out, And again, commercial real estate. Small banks hold greater than four times more exposure to commercial real estate loans than their larger peers.

We have rising rates, declining office occupancy in particular, and maybe the economy, all contributing to the concerns. Here to discuss the challenges and opportunities in commercial real estate. Peter Merrigan is the CEO of Torres Investment Holdings. They're a global real estate private equity firm. They've got everything from industrial to office and multifamily. Peter, welcome to Power Ledge. Thank you. Thanks for having me today. Is this just a case of, you know, office being under pressure, or do you think that there are cracks showing everywhere?

There is some cracks showing, I'd say, but it really is more office than anything else. You know, that's what's really struggling the most. You know, industrial is doing fine. Big Box is starting to slow down a little bit in industrial, but last mile industrial, which we own a lot of, is doing better than ever. Multi-family is kind of flattening out a little bit. Hospitality is doing really well. but office is tough. Yeah, and office is so tough that people are trying to figure out if these loans are going to be made full, made whole.

And so far we're seeing a lot of people just sending back the keys. And whether it's banks or REITs or even life insurance companies, they're going to be, how do you think it's going to trickle through their businesses? So, you know, office is really facing a number of headwinds with, you know, less demand, first of all. And it depends on what kind of office you're talking about, if it's R&D space or, you know, you know, pharmaceutical type of space, things like that, there's still good demand for it. But if it's just conventional vanilla box, you know, putting a lot of people into a space for office, that's that there's not that much demand for that because of the work from home dynamic. And also the economy is slowing down. So that's really tough and you have to spend a lot of money

to release those spaces. So as those start to empty out, the retentering risk is pretty significant. And then, of course, it requires, you know, significant amounts of capital to put new tenants into place and then as interest rates have gone up, et cetera, it's really a capital crunch for those landlords. So that they're making those decisions, whether they walk away, whether they make that investment to hold on to their assets. But it really depends on the market. It depends on the situation with the individual tenants. It depends on how highly leverage they are. So it's not kind of a one-size-fits-all problem. So you're not seeing this huge wave yet because a lot of borrowers are kind of fighting it off. But eventually, if this continues, as it currently is,

there's going to be a wave happening. I think what's going to really trigger it is not so much the banks and the insurance companies, because those are balance sheet lenders, but it's going more than commercial mortgage-backed security lenders. You don't have flexibility. You do business across the U.S. You do business in Europe as well. But as you think about the U.S., I can well imagine that there are certain cities that are doing just fine, whether it's Miami or Austin or Tampa or Orlando or Charlotte. But then there are some major cities where the urban cores are not the same kinds of places they used to be. San Francisco, Los Angeles, Chicago, even Manhattan. How are you factoring that in?

And is that worrisome to you as major employers consider maybe leaving or downsizing in those? urban cores where quality of life issues are so stark? Yeah, I think it's a huge problem. We're on base in Boston and Boston is not the same as it was pre-pandemic. No question about it. The downtown is not as vibrant. There's not as much going on in the individual office bills. That doesn't mean that demand is completely evaporated.

There are people coming back and there is some occupancy that's going on. Traffic is picked up, things like that. But yeah, I mean, it's tough out there for in those major centers that you talked about. San Francisco in particular a lot. Anything that's heavily tech focused is really going to face a lot of headwinds. And that's without even discussing AI and how that's going to impact the job market in the tech sector as well. Yeah, you must feel good. 80% not office in your portfolio for now.

Peter, thanks for joining us today. We appreciate it. Thank you. Peter Merrigan with Torres. Up next, real steel, less pollution. Today's clean start taking a look at one company producing iron with an electric furnace. And as we had to break, CNBC is celebrating Asian American and Pacific. island or heritage throughout May, sharing stories of business leaders in their community.

Here's Ellen Chen, Mendocino Farms, co-founder. I'm very proud to be Taiwanese American, but it's been hard growing up in America. I've faced a lot of challenges with racism, sexism, people wanting to put me in that Asian stereotypical box, but I've embraced these adversities because it's made me a stronger and more resilient person. We can be so much more than doctors, lawyers, and engineers. But we can also be creative artists, athletes, CEOs, and entrepreneurs like myself. I want my kids and the kids of the next generation to understand that they belong in this country and that they're not just Asians living in America, but they're Americans living in America.

Well, over the months, we have talked about the race to create greener cement, but its sister in construction, steel is also a major carbon offender. Diana Oleg joins us now to explain in her continuing series on climate startups. Hi, Dai. Hey, Ty, yeah, steel is considered the world's most important construction material used in everything from skyscrapers to cars to cargo ships, but it is anything but green. Lowering its carbon footprint will require something of an iron fist. Steel is an integral part of the clean energy transition.

It's used in electric vehicles, wind turbines, and new infrastructure. But making steel is a dirty process. 70% of the steel produced globally is made in blast furnaces fueled by coal, which results in two tons of carbon dioxide for every ton of steel produced. Now companies like Boston Metal and a Colorado-based startup, Elektra, are attempting to make steel green. What our team has developed is a novel process that uses renewable electricity and lower-grade iron ores to potentially,

eliminate 90% of CO2 emissions produced in steelmaking. Electra produces iron, the main component of steel, at far lower temperatures, just 60 degrees Celsius as opposed to the usual 1,600 degrees. And it's using emission-free renewable electricity to heat the ores instead of coal. From cost perspective, our goal is to be equivalent or cheaper than the incumbent steelmaking process. Electra is now partnering with New Corps, which is heavily full. focused on decarbonizing steel and uses electric arc as opposed to coal-fired furnaces.

It also uses recycled materials for the most part, but still needs the pure iron for some products, which Electra will provide. You could, in essence, have high-quality iron that would have zero embodied carbon, and that would be a huge win not only for New Corps, but for the industry and for the world. In addition to New Corps, Electra is backed by Breakthrough Energy Ventures, S2G Ventures, Temasek, BHP, and Amazon's Climate Pledge Fund. Total funding, $85 million. The biggest challenge now is how to scale this technology to such a massive industry. The faster that can happen, the cleaner steel will become globally. Tyler.

You know, so even though the company is using an electric furnace, that electricity has to come from somewhere, is it clean, too, or not? Well, they are using renewable energy, but that often has a problem because when you use solar, right? The sun's not always out. It's intermittent, but they say that by using this lower temperature functionality, they can actually start and stop the process for when the solar is available. All right. Diana, Diana, Oleg, thanks. Appreciate it. They can figure steel out. That would be a very big deal. After the break, the media industry hitting an inflection point. The streaming wars turning from red hot to cold. Where do some of the smaller media players like Vimeo fit in? That's today's

working lunch. Streaming video is a tough, tough market where ad-based business models are under pressure these days. Google's YouTube dominates long-form video, TikTok, shaking up the short form. Today, John Ford brings us up close with the CEO working to carve out a niche by catering to businesses. John. Yeah, Tyler, Anjali Sude is the CEO of Vimeo, the streaming video company that came

public two years ago this month when it spun out of IAC. The market reception has been shaky since then, as investors post. pandemic has shifted attention away from smaller companies. Anjali's used to feeling like an underdog. Growing up, she went from the public schools of Flint, Michigan, to the prestigious boarding school Phillips Andover for high school. She quickly felt she was in over her head until one particular history essay, sophomore year, and a teacher who encouraged her.

And I, like, remember the actual, I can, like, picture the page with his comment. And, yeah, it was, like, the first time I had not wildly failed at this school. And he had said I could do it and he had seen something in me and then I did it. And I think that was my turning point. And it's amazing how quickly from there, how I embraced it and went from being a really poor student to, I think, doing quite well by the time I graduated. Things can turn quickly when you find your groove and that's what suit is trying to do at Vimeo now. The site has gone from trying to compete with YouTube for mass market views and individual creators to specializing in paid tools for businesses. and enterprises to deliver their messages in video.

That part of the business is around 20% of revenue grew 62% in Q1. She's cutting elsewhere in the company to fuel that growth. We want that experience to be designed to help businesses, create content, manage content, distribute content. We want that content to be the most engaging, and we just want you to be as successful as you can. And so we've made a lot of choices. We're consolidating different product experiences.

We're unifying our UX. We are de-investing in other parts of the business. And for us, I think the North Star is we want to see adoption of video. Video is being created, videos being shared, videos being used on Vimeo. We want to see that grow. We want to see that scale really nicely. And we want to do it while getting more efficient. I didn't talk AI this time because I don't want to make it the main thing every time.

But Anjali did tell me Vimeo is exploring. ways of using AI more than it is already to make the video editing process and content creation process that much faster. What is their distinguishing characteristic? When I've used them, it's I have to go and click on a button. Somebody has sent me a video that is kind of not password protected, but it's privately shared with me. Yes.

Well, unlike YouTube, which is really trying to face a mass market, the broadcasts. They know isn't making money off of ads. They're making money off of the creators who want to be. be able to make video in a specialized environment, track how it's doing. So it's businesses. Mostly enterprises. The enterprise portion, larger businesses, are what's really growing for them while overall revenue is coming down.

So they're trying to rein in expenses, push more of their resources towards serving that business customer and get profitability. She has a very difficult task. Yeah, yeah. But it's so it's not just like, it's not like TikTok with random people making videos and posting that. No. They're not trying to compete there.

With TikTok. Wise move, I would say. They won't have the CNBCs, the Procter & Gambles, you know, those businesses that are making internal videos and videos to push out to the world to use that as sort of their base for crafting that video and then being able to track how it does over time. How big a company is it? They went public when, did you say? Two years ago. So they spun out of IAC, which has so many companies. Did she work for Barry Diller?

Yeah. That's a tough boss. You learn from Barry Diller. You learn well. Vimeo's smaller than it was a few months ago. They've had some headcount cuts, as many smaller companies have at the beginning of the year, about 11%. So there's been some shrinking going on as they're trying to grow. But it's a smaller company.

See if she can pull it off. The graduate of the college of Diller. Usually that's a very high. Phillips, Andrew, we've got nothing on Dillard, I tell you. Yeah, but yeah, Diller after Warden. And now the public markets, by the way. Coming up, John, thank you. It's almost closing time.

We'll take you through some of the other key stories. We're watching when Power Lunch returns. don't go anywhere. Welcome back, everybody. Four and a half minutes left in the show and a bunch more stories you need to know on this Monday. So let's not waste any time. Clock is ticking.

And first up today, the Biden administration is considering creating a government-run alternative to turbotax and H&R Block. Now, it's drawing some resistance from Republicans as well as the companies who shares are down today, Tyler, as they fear a loss of business, would be a free online tax filing,

specifically people with straightforward returns into it, which makes turbotax, H&R Block, both down about 1, 2.5%. I see nothing wrong with this. I think if you have a very simple return, which used to, I forget what they used to call them, it was the short form return. You've just basically got W-2 income. You're not going to claim anything other than the standard deduction. Why not be able to just to go on a website, file your return, send it, and bang, it's done. And then maybe everybody can do that, and we can just get rid of the whole thing going forward. It would be nice. All right, Bitcoin hired today as well as for the year. But if you take a look at the chart, it's been stuck in the mud over the past couple of months. Paul Tudor Jones, a UVA grad from my class, no less.

That's a long time ago. Weighing in on crypto this morning. Let's see what he said. Bitcoin has a real problem because the United States, you have the entire regulatory apparatus against it. So it's just kind of yesterday's news. And if inflation's truly done a bit, if that, if that, If that story's been played, then you have to wonder, we were buying gold and Bitcoin for the inflation hedges. That game may be over.

Basically saying one of the use cases or one of the philosophical underpinnings is maybe losing its mojo. Listen, there's Bitcoin. It's back up around 27,000 today. But it hit 30 that caught some attention. The question is, can it go back above that level for different, you know, maybe because of bank crises, maybe because of Fed rate cuts, maybe because it will it just hold its purpose? purchasing power over time. I think he's just saying, you know, the days when it could jump, you know, 30, 40, 60 percent in a year, maybe they're over. Yeah. Any, any classroom

tales to share, by the way? No, no, no, no. He was, he was, he's been an incredibly generous benefactor to the University of Virginia. Oh, yeah. I remember he was in a, in a fraternity populated by guys from, I believe, I believe he comes from Memphis and they were a lot of Memphis guys. With that accent. We'll let you leave it at that. A shakeup at Shake Shack. Say that five times fast. Activist investor engaged capital is planning to run a proxy fight for three board seats at Shake Shack. Shares the stock cut in half from the early 2021 highs, even rallying more than 50% this year, tied. They think they can double profitability in two years. Shake it up.

I mean, who knows? I mean, this is such a crowded area with all kinds of things. Shake Shack, premium price. My son loves it. My son loves it. Maxil? Yeah, he goes there. I don't really go there.

But is it getting Chipoli-fied when it's like people just don't go there? Well, Chipoli is the clear winner in that in that. cohort. I can't, listen, I probably haven't been there in a couple of years. So I can't say how they would ramp up profitability, but as well as McDonald's is doing lately, Burger King under Patrick Doyle, like, this is the time to make a move. But even McDonald's, McDonald's gotten expensive. Very. It's not, yeah. Anyhow, all right, where are we? Do we talk to this one? Let's go to this one. Consumer debt hitting a fresh new high in the first quarter of 2023 at just over 17 trillion. That increase came, even though new mortgage originations are at the lowest level since 2014. Wow.

Mortgage foreclosures remain low. Delinquency rates for all debt increased up. 0.6% for credit cards to 6.5%, and 0.2 percentage points for auto loans to 6.9%. Americans are carrying more debt. And the key here, credit cards for the first time in 20 years did not go down in Q1 seasonally,

so it suggests a little bit of duress. So everyone's binging on snacks and food companies are eating it up. Circana Group says nearly half of consumers are eating three or more stacks a day. that's up 8% in the past two years, $181 billion industry. Yeah, I wonder if the snack use

is a reflection in part of how expensive other kinds of foods have become. But we all just get to full meals. You should come to our newsroom and see the snack. The snack. Maybe we'll show that on air. We should do this from that table someday.

All right, and a big interview coming up tomorrow on CNBC. David Faber with Elon Musk, live from Austin, Texas for the hour. This follows Tesla's annual. meeting. You don't want to miss it. Musk CTV. I cannot wait for that. Like David said, he'll listen to the interview as long as Musk will sit there. And it's not just snacks. We've also got some fancy cars to show you tomorrow. We will be speaking to the CEO of Benley. He's bringing the cars outside of our building here to check out. They've got five EV models on the way by 2030

with the first model available in 2025. And I'm getting one for you. Thanks for watching. Power Lunch, everybody.