TheChek News Flow

The sector is bouncing back. Shares of many pharmaceutical and biotech firms still look alluringly cheap, our Healthcare Roundtable

panelists say.

Partnership led by RFR Holding is said to have missed $21 million in ground-rent payments

The owner of the land beneath the historic Chrysler Building said Friday it was taking control of the office tower, in what would be one of the most prominent buildings in the U.S. to be lost during the office-market collapse.

A partnership led by RFR Holding, which leases the land from the Cooper Union school, hasn’t paid rent since May and has missed $21 million in ground-rent payments, Cooper Union said.

“The ground lease will terminate today,” said John Ruth, the school’s vice president of finance. Cooper Union has hired the real-estate firm Cushman & Wakefield to manage the building but hasn’t indicated its future plans for the property.

Attorneys for RFR said that the company was still fighting to hold on to the building and that it had filed a lawsuit to block Cooper Union’s takeover. The lease is set to terminate at midnight.

“While RFR prefers to resolve this matter amicably, and privately, if possible, it is also prepared for the alternative, if necessary,” said Terrence Oved and Darren Oved, attorneys for RFR, referring to court action.

Cooper Union’s move to take back this iconic jewel of the Manhattan skyline would mark the end of the road for a big investment bet that was rocky almost from the start. It is also one that has felt the full impact of the broader office market meltdown, which has hit New York City especially hard.

Defaults and other kinds of distress in the commercial-property market have ballooned to near historic levels because of high interest rates and the slow return of workers to office buildings. In the second quarter, portfolios of foreclosed and seized office buildings, apartments and other commercial properties reached $20.5 billion, the highest quarterly figure since 2015.

When it was built in 1930, the art deco Chrysler Building was briefly the tallest tower in the world, a feat accomplished thanks to the addition of its signature steel spire. The Empire State Building became the world’s tallest building the following year.

RFR and an Austrian investment partner bought the Chrysler Building in 2019 for about $150 million. The sale represented a loss for its previous majority owner, the Abu Dhabi Investment Council, whose stake was once valued at $800 million. That was before a boom in the construction of more-modern, spacious office buildings reduced the Chrysler Building’s appeal.

Even with the then seemingly rock-bottom sale price, RFR faced a major financial obstacle in the form of the property’s ground lease, which was set to become more expensive over time. At the time of sale, the $32.5 million annual lease was set to increase to $41 million by 2028.

Then the Covid-19 pandemic dealt the property a major blow, zapping demand for office space and setting back the owners’ plans to upgrade the property to attract higher-paying office tenants.

The owners said in a lawsuit that they spent $150 million on improving the property and covering tenant-rent shortfalls since the acquisition. At one point, the owners considered adding a hotel but abandoned the idea.

RFR, led by Aby Rosen and Michael Fuchs, had been in talks to restructure the lease for the property. Last year those prospects dimmed considerably when RFR’s investment partner, René Benko’s Signa Holding, began defaulting on other debts and was ordered by an Austrian court to sell its Chrysler Building stake.

RFR has had its own struggles. In August, it was hit by lenders with a foreclosure lawsuit at an office building at 475 Fifth Ave.

The Chrysler Building’s largest tenant is Spaces, a co-working company, according to the data firm CoStar. Several floors are shown on the building’s website as available for lease.

Germany, France and Netherlands not ready for biometric system due to start in November

Germany and France have told Brussels that the EU’s biometric border checks are not ready for roll out, as airlines and airports warn of “chaos” for travellers if the untested system goes live in six weeks.

The EU’s biggest countries want the European Commission to urgently rethink its November 10 launch plan because the main computer system will be unable to cope with one of the biggest ever changes to the bloc’s border procedures.   

The “Entry Exit System”, or EES, will require all non-EU citizens, including British visitors, to queue at airport immigration to register their personal details, including fingerprints and facial images, when they first visit the bloc.

The European Commission told the Financial Times that while it was working to launch the border checks “as foreseen”, rolling out the system was a “complex operation and delays cannot be completely excluded”.

Trade bodies representing airlines and airports in Europe said that passengers might face “widespread disruption” from the significantly longer border procedures.

The three EU countries most affected — Germany, the Netherlands and France — have still not declared their readiness to go ahead, according to people familiar with the matter.

Germany’s interior ministry said its principal concern was the central computer system, overseen by the agency EU-Lisa, which “still lacks the necessary stability and functionality”.

A spokesperson said Germany, France and the Netherlands, which host 40 per cent of traveller traffic affected by EES, “have not yet been able to — and still cannot — implement the final and nationally required tests”.

“The EU Commission is responsible for the timetable,” the spokesperson added. Some countries want the commission to consider alternatives, such as a soft launch to test the systems in pilot areas.

The UK government is also concerned about queues at the Channel ports and Eurostar’s station at St Pancras International in London, where passengers will need to register with EES when they go through French customs.

One transport industry executive, who asked not to be named, said they had seen modelling showing that border queues across the EU would be between 30 per cent and 100 per cent longer after introduction of the new scheme.

The system, which the EU first agreed seven years ago, has already been delayed several times. Olivier Jankovec, head of airports trade group ACI Europe, highlighted concerns that there had been no trials of the new rules involving passengers.

“Launching the system without having fully tested it is a huge risk, potentially leading to widespread disruptions across the European air transport network,” he said.

Ourania Georgoutsakou, managing director of Airlines4Europe, said the launch should be delayed until full testing had been carried out and until an app was ready that would allow visitors to register their details in advance.

“There is still a significant risk of disruption that could result in chaos at border points across Europe if the EES is implemented without addressing the serious concerns raised by airlines, airports and member states,” she said.

The EU system, which will replace simple passport checks, aims to electronically register everyone who enters and exits the EU. It would allow border control agencies to automatically detect who is allowed to stay in the bloc and for how long.

EU home affairs commissioner Ylva Johansson announced in August that the new system would launch on November 10, and EU-Lisa has declared its systems were ready. But with the three main countries affected raising questions about the rollout date, some officials believe further delays are likely.

“It is a gigantic [undertaking] and the member states want to make sure that the whole system is operational,” said a second EU diplomat, adding capitals were trying to iron out the final “technical difficulties”.

Artificial intelligence’s hunger for energy has set off a boom in utility stocks and may lead to the reopening of the Three Mile Island nuclear plant, our columnist says.

Want to make a wager on the future of artificial intelligence? Nvidia is the obvious bet. It designs the chips and software that make A.I. run, is the stock market favorite and has gained 150 percent this year alone.

But some stock traders have found a less obvious, backdoor choice: utility shares, specifically those of companies that own nuclear power plants.

Two such companies — Constellation Energy and Vistra — were the top performers in the S&P 500 in September through Thursday, with returns of more than 30 percent. Shares of Constellation Energy, the biggest nuclear plant operator in the United States, surged when it signed a deal on Sept. 20 to supply Microsoft’s burgeoning A.I. data centers with energy from the Three Mile Island nuclear power plant near Harrisburg, Pa.

If you were a consumer of news in 1979, or are aware of the history of nuclear power, you will know that Three Mile Island was the site of the worst nuclear disaster in U.S. history. Now, because of A.I. energy demand, the utility intends to reopen an undamaged part of Three Mile Island that was mothballed five years ago and change its name, to the less evocative Crane Clean Energy Center.

Vistra says it, too, has been in talks with several A.I. operators. And the Constellation deal with Microsoft followed an A.I.-nuclear power agreement in March involving Talen Energy and Amazon. Talen agreed to sell Amazon large quantities of electricity from the Susquehanna Steam Electric Station — a nuclear plant near Berwick, Pa., in which the utility has a 90 percent ownership stake.

Consider these stock returns for the year, including dividends, through Thursday:

The S&P 500 stock index, 21 percent.

Constellation Energy, 121 percent.

Vistra, 199 percent.

Talen Energy, 178 percent.

Other utilities have gotten a boost from A.I., too, but generally not as spectacularly as these companies.

Additional inactive nuclear plants, like the Palisades plant in Michigan and the Duane Arnold plant in Iowa, are under consideration for reactivation, an arduous and expensive process that requires major investment and regulatory approval. Nuclear plants that are operating and supplying power for other purposes may be shifted to more lucrative operations with A.I. data centers down the road.

In a conference call last month, Robert Blue, chief executive of Dominion Energy, said the company “is certainly open to the idea” of such a deal at its Millstone Power Station, which began operations in Waterford, Conn., in 1970.

It’s not just nuclear power plants that may have their lives extended. Old coal-fired power plants scheduled for retirement are being given a new lease on life. Heightened demand for power from A.I. data centers is outstripping the ability of energy producers to build and operate cleaner power generators using wind or solar power. That comes at a cost in air pollution, including carbon emissions that contribute to global warming.

Nuclear power plants, needless to say, have drawbacks of their own. For one thing, even the best of them produce radioactive waste that can’t be eliminated in a human lifetime. But nuclear plants don’t burn carbon or spew tiny, lung-damaging particles into the atmosphere. While it’s hard and costly to build a new one and get it approved by regulators, old nuclear power plants are very much in demand.

Yet for anyone steeped in the environmental issues associated with nuclear power, it is mind-boggling to contemplate a new bonanza in nuclear energy stocks, propelled by the A.I. boom.

An Insatiable Need

As a reporter for Newsday on Long Island, I covered nuclear power in the early 1980s, as it entered a period of steep decline from which it never fully recovered.

In the wake of Three Mile Island, many people around the world feared nuclear catastrophe. Bipartisan opposition led to the demise of a completed but never fully operational commercial nuclear plant at Shoreham on Long Island’s picturesque north shore. The state took over the Long Island Lighting Company, the formerly blue-chip utility that built Shoreham.

I never dreamed back then that in 2024, artificial intelligence would cause a stock market boom for utilities with nuclear power assets. That was beyond my forecasting ability, and, I think, that of any human. A.I may be able to help with that kind of forecasting one day, though I don’t think it’s ready now. But A.I.’s hunger for energy is already insatiable.

It needs energy in two main ways. First, advanced A.I. runs on supercomputers, filled largely with Nvidia equipment, that suck up enormous amounts of electricity to crunch the data that “trains” the A.I. systems and gives them something to say, embellish and transform.

Second, these supercomputers need vast power so A.I. chatbots can respond to questions and conduct searches. When you ask a chatbot for help with your Spanish homework or with a cooking recipe or for information about a stock, even that simple search on a bot like ChatGPT devours electricity.

How much electricity, exactly? I spoke with Jesse Dodge, a senior researcher at the Allen Institute for A.I., a Seattle nonprofit, who has worked extensively on this subject. He and his colleagues estimated the kilowatt-hours consumed by advanced Nvidia hardware on a simple search, and he summarized it this way: “We estimate that one query to ChatGPT could use as much electricity as could light one lightbulb for about 20 minutes.”

What’s more, he said, even A.I. searches done automatically and unintentionally — when, say, you run a traditional search on Google and it also offers you A.I. answers — require significant amounts of energy.

A.I. does some things well, but many searches produce trivial or nonsensical answers. “A.I. hallucinates, and its answers often aren’t reliable,” Dr. Dodge said.

Widespread use of A.I. by consumers is burning up energy — and using other precious environmental resources, like water to cool the power plants and data centers — that would be difficult to justify if people just thought about it, he said. “This is a problem that is getting bigger and bigger.”

It’s a global problem, but also a regional one, because consumers prize quick answers, and there’s less delay when A.I. supercomputers and their power sources are close to the major metropolitan areas where most consumers live.

We’re way beyond the experimental phase of artificial intelligence, with a handful of researchers performing occasional, energy-intensive searches. The field is mushrooming with millions of people conducting A.I. searches and new applications coming all the time. That’s why many researchers estimate that the total energy expenditure of A.I. is moving into globally significant totals — consuming somewhere in the realm of the energy use of a country like Sweden or Argentina now, and maybe, by 2030, more than India. Who knows where A.I. will end up?

I wouldn’t say the sky’s the limit. There’s considerable skepticism in some investing circles. No doubt many of the new A.I. applications will be splendid, but it’s not clear how useful or profitable the technology will be. Goldman Sachs issued a report in June with the provocative title “Gen AI: Too Much Spend, Too Little Benefit?”

As an investor, I avoid wagers on the future of any particular innovation and put my money into broad, low-cost index funds that track the entire market. I’m no more capable of judging A.I.’s ultimate potential than I am of assessing nuclear power’s long-term future in the marketplace. Is the current stock surge the start of a long-term revival? I don’t pretend to know.

But enthusiasm for artificial intelligence is still growing. A.I. needs energy, even if it has to come from Three Mile Island. Backdoor bets on A.I. through nuclear power utilities are, at this moment, an odd and creative alternative to buying Nvidia.

*VW SEES FY AUTOMOTIVE NET CASH FLOW EU2B, SAW EU2.5B TO EU4.5B

*VW SEES FY VEHICLE DELIVERIES 9M UNITS, EST. 8.1M

*VW SEES FY VEHICLE DELIVERIES 9M UNITS, EST. 8.1M

*VW SEES FY OPERATING ROS 5.6%, SAW 6.5% TO 7%, EST. 6.51%