1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge you. 2 00:00:05,360 --> 00:00:07,680 Speaker 1: Along with my co host Lisa Brahma Waits, each day 3 00:00:07,720 --> 00:00:10,240 Speaker 1: we bring you the most noteworthy and useful interviews for 4 00:00:10,280 --> 00:00:12,520 Speaker 1: you and your money, whether at the grocery store or 5 00:00:12,560 --> 00:00:15,480 Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple 6 00:00:15,520 --> 00:00:17,959 Speaker 1: podcast or wherever you listen to podcasts, as well as 7 00:00:17,960 --> 00:00:23,760 Speaker 1: at Bloomberg dot com. Our next guest is a great 8 00:00:23,800 --> 00:00:26,520 Speaker 1: person to talk about Bay Area real estate, Susan Loenberg. 9 00:00:26,600 --> 00:00:30,720 Speaker 1: She's president of Loenburg Corporation based in San Francisco. Susan, 10 00:00:30,720 --> 00:00:33,720 Speaker 1: thanks so much for joining us. When when when people 11 00:00:33,800 --> 00:00:37,400 Speaker 1: think about the San Francisco or Bay Area real estate 12 00:00:37,400 --> 00:00:39,560 Speaker 1: think they think about the residential side and people being 13 00:00:39,560 --> 00:00:41,600 Speaker 1: priced out of their homes and they can't move here 14 00:00:41,600 --> 00:00:43,680 Speaker 1: and the cost of living is maybe even worse than 15 00:00:43,760 --> 00:00:46,879 Speaker 1: New York. But you focused on the industrial side of 16 00:00:46,960 --> 00:00:49,680 Speaker 1: the market. Tell us about how that market is today. 17 00:00:49,720 --> 00:00:52,640 Speaker 1: Is that as perhaps overheated as a residential side, it 18 00:00:52,800 --> 00:00:56,560 Speaker 1: is amazingly overheated. Um, we are shocked at the rents 19 00:00:56,560 --> 00:01:00,920 Speaker 1: were getting. We're getting rents, you know, and higher in 20 00:01:01,000 --> 00:01:05,160 Speaker 1: industrial than we had underwritten deals for for years. Um. 21 00:01:05,200 --> 00:01:09,240 Speaker 1: It's part of the barrier we have here is there's 22 00:01:09,280 --> 00:01:12,360 Speaker 1: a huge demand and growth due to the Internet business 23 00:01:12,360 --> 00:01:15,880 Speaker 1: and new businesses developing that send out They don't need 24 00:01:15,920 --> 00:01:18,319 Speaker 1: the bricks and mortar of a retail, but they act 25 00:01:18,360 --> 00:01:21,880 Speaker 1: like one over the Internet. So that changed the business 26 00:01:21,920 --> 00:01:24,759 Speaker 1: greatly and caused a huge upsurge in demand. The other 27 00:01:25,120 --> 00:01:28,040 Speaker 1: thing we're really facing the barriers the cost of construction. 28 00:01:28,720 --> 00:01:30,440 Speaker 1: When you talk about it's not just the price of 29 00:01:30,520 --> 00:01:33,640 Speaker 1: land going up, it's every metal stud has gone up, 30 00:01:33,640 --> 00:01:35,520 Speaker 1: goes up two to three times a year, and cost 31 00:01:36,000 --> 00:01:38,600 Speaker 1: you know, all the things that go into building and 32 00:01:38,600 --> 00:01:43,440 Speaker 1: building rebar metal. Um. What municipalities are looking to developers 33 00:01:43,480 --> 00:01:46,920 Speaker 1: to balance their budgets. I mean, so, Susan, you're actually 34 00:01:46,920 --> 00:01:49,680 Speaker 1: in the hottest area of commercial real estate right now, 35 00:01:49,680 --> 00:01:52,240 Speaker 1: fulfilment centers, warehouse space. People are saying this is the 36 00:01:52,280 --> 00:01:55,160 Speaker 1: area to get into given how the Amazon, the amazon 37 00:01:55,200 --> 00:01:58,640 Speaker 1: ification of retail. Thank you, I have. Really it's struggled. 38 00:01:58,840 --> 00:02:02,160 Speaker 1: It's struggled my time. UM. I'm just wondering how much 39 00:02:02,160 --> 00:02:05,160 Speaker 1: competition you're seeing right now. And you know, with pricing, 40 00:02:05,280 --> 00:02:07,080 Speaker 1: do you think that you're getting good value right now 41 00:02:07,920 --> 00:02:10,120 Speaker 1: on a buy? No? I think the values are terrible. 42 00:02:10,320 --> 00:02:14,560 Speaker 1: We haven't bought anything since two thou because you've got 43 00:02:14,560 --> 00:02:17,000 Speaker 1: two things going on. You've got money being very cheap. 44 00:02:17,880 --> 00:02:20,919 Speaker 1: You've got rents being at their historical highs. I mean 45 00:02:21,080 --> 00:02:24,839 Speaker 1: beyond the beyond. We and um less than twenty years ago, 46 00:02:24,919 --> 00:02:27,120 Speaker 1: we underwrote a project here in San Francisco, and we 47 00:02:27,160 --> 00:02:29,640 Speaker 1: thought maybe we could get seventy eight cents square foot. 48 00:02:29,639 --> 00:02:32,000 Speaker 1: We're hitting it out of the bark. We we just 49 00:02:32,040 --> 00:02:34,960 Speaker 1: did a deal at two fifty two dollars and fifty cents. 50 00:02:34,960 --> 00:02:38,080 Speaker 1: I mean, that's true. So the cost of goods and 51 00:02:38,080 --> 00:02:40,839 Speaker 1: the cost of you are going up. How they say 52 00:02:40,840 --> 00:02:44,320 Speaker 1: there's no inflation, I don't personally get, but so so 53 00:02:44,360 --> 00:02:46,600 Speaker 1: that I'm wondering who's buying and you know they are 54 00:02:46,639 --> 00:02:50,600 Speaker 1: they at risk of some some pretty big losses. UM. 55 00:02:51,000 --> 00:02:52,720 Speaker 1: You know, here's the deal. I think. I think that 56 00:02:53,000 --> 00:02:56,280 Speaker 1: the difference for someone like me who I buy one off, 57 00:02:56,320 --> 00:02:58,520 Speaker 1: I buy one building, I go after I chase buildings. 58 00:02:59,120 --> 00:03:02,760 Speaker 1: When you're a real you're not that one building doesn't 59 00:03:02,760 --> 00:03:04,919 Speaker 1: have to stand on its own. It gets put into 60 00:03:04,960 --> 00:03:07,480 Speaker 1: a big portfolio and if it performs at two percent, 61 00:03:07,520 --> 00:03:09,600 Speaker 1: it gets absorbed in that great deal that you did 62 00:03:09,600 --> 00:03:13,640 Speaker 1: ten years ago. That's pumping out, you know, fift So 63 00:03:13,680 --> 00:03:16,600 Speaker 1: when you put those together, you get a good return. 64 00:03:16,639 --> 00:03:18,639 Speaker 1: You get a stock return, you don't get a real 65 00:03:18,800 --> 00:03:22,880 Speaker 1: estate return. And reads fundamentally changed the way people look 66 00:03:23,240 --> 00:03:26,240 Speaker 1: or way read people. They can buy things at a 67 00:03:26,280 --> 00:03:29,040 Speaker 1: lower cap right than we can. So if we ask 68 00:03:29,080 --> 00:03:30,840 Speaker 1: you to kind of look into your crystal ball a 69 00:03:30,880 --> 00:03:35,240 Speaker 1: little bit, how long can this Bay Area expansion continue? 70 00:03:35,280 --> 00:03:38,920 Speaker 1: Because it's just it's been ten years plus. I said 71 00:03:38,960 --> 00:03:41,040 Speaker 1: it was going to be seventeen. Okay, I said it was. 72 00:03:42,520 --> 00:03:45,600 Speaker 1: I said it was going to be nineteen. Um, you 73 00:03:45,680 --> 00:03:48,240 Speaker 1: know there's got to be a correction. We're not going 74 00:03:48,280 --> 00:03:50,560 Speaker 1: to see O eight again. We're just not going to 75 00:03:50,640 --> 00:03:54,240 Speaker 1: see two thousand and eight. It's a Bay Area losing business. 76 00:03:54,440 --> 00:03:57,000 Speaker 1: I mean, I'm not going to move my fulfillment center here. 77 00:03:57,000 --> 00:03:59,400 Speaker 1: If it's so so expensive, Why would't I go to Austin, 78 00:03:59,440 --> 00:04:03,560 Speaker 1: Texas or Salt Where are your customers? Right? Well, presently 79 00:04:03,600 --> 00:04:05,280 Speaker 1: I'm just kind of sending it everywhere, right, might not, 80 00:04:05,320 --> 00:04:07,000 Speaker 1: I don't know, I guess you would, but you know, 81 00:04:07,120 --> 00:04:09,760 Speaker 1: the look, people want to live here. You know, at 82 00:04:09,800 --> 00:04:11,920 Speaker 1: the end of the day, you know, I'm a native 83 00:04:11,960 --> 00:04:14,320 Speaker 1: San Francisco. I was born here, and it kills me 84 00:04:14,320 --> 00:04:17,200 Speaker 1: when people who have moved here ten fifteen, two years 85 00:04:17,200 --> 00:04:22,520 Speaker 1: ago say, oh, the city has changed, the city has changed. 86 00:04:22,640 --> 00:04:25,800 Speaker 1: And I say to them, Okay, here's the deal. If 87 00:04:25,880 --> 00:04:30,040 Speaker 1: you don't want to live in a dynamic, diverse, totally 88 00:04:30,080 --> 00:04:33,040 Speaker 1: exciting city, moved to with all due respect to Peka, 89 00:04:33,640 --> 00:04:35,800 Speaker 1: moved to a small town in the Midwest. It will 90 00:04:35,839 --> 00:04:39,360 Speaker 1: be fine, you'll enjoy it. It'll be great. Go with 91 00:04:39,400 --> 00:04:41,000 Speaker 1: the one sing. But if you want to be in 92 00:04:41,000 --> 00:04:43,960 Speaker 1: a dynamic city that you know, you've got food, you've 93 00:04:44,000 --> 00:04:45,960 Speaker 1: got arts, you've got you know, you can go skiing 94 00:04:46,000 --> 00:04:49,200 Speaker 1: into I was you know, this is it? People want 95 00:04:49,200 --> 00:04:51,720 Speaker 1: to live here? Yeah? Well, and I hear you and 96 00:04:51,880 --> 00:04:53,800 Speaker 1: and and you know, just to speak to what you're 97 00:04:53,800 --> 00:04:56,040 Speaker 1: talking about, Paul. As we were driving in and we 98 00:04:56,080 --> 00:04:58,400 Speaker 1: just saw all the cranes just coming up. I mean 99 00:04:58,480 --> 00:05:01,120 Speaker 1: every couple of feet you just see a crane, just 100 00:05:01,200 --> 00:05:03,960 Speaker 1: buildings coming up. I'm wondering. You're talking about how you 101 00:05:04,000 --> 00:05:06,600 Speaker 1: haven't bought anything since two thousand fourteen. Are you selling? 102 00:05:07,279 --> 00:05:10,359 Speaker 1: We have sold a couple of things. We have sold. 103 00:05:10,120 --> 00:05:13,520 Speaker 1: We're very good buyers and were terrible sellers. What do 104 00:05:14,120 --> 00:05:16,560 Speaker 1: you mean by that? I don't like to sell, but 105 00:05:16,640 --> 00:05:18,880 Speaker 1: I never met anything I didn't want to buy. But 106 00:05:18,880 --> 00:05:22,560 Speaker 1: but but I'm wondering, were you compelled to sell because 107 00:05:23,720 --> 00:05:27,600 Speaker 1: because the prices were just so high? No, that's not 108 00:05:27,680 --> 00:05:30,080 Speaker 1: my that would not be my motive. If that won't be, 109 00:05:30,120 --> 00:05:31,520 Speaker 1: then I'd be out. Then I would retire and just 110 00:05:31,520 --> 00:05:35,279 Speaker 1: play golf. That's why would just sell the business. Because 111 00:05:35,440 --> 00:05:37,600 Speaker 1: keep so keep in mind are the way we have 112 00:05:37,720 --> 00:05:40,440 Speaker 1: constructed our small business is it's all about cash flow. 113 00:05:40,839 --> 00:05:42,680 Speaker 1: People say to me, what's your portfolio worth? I have 114 00:05:42,760 --> 00:05:45,719 Speaker 1: no idea, and I could care less. It's worth what 115 00:05:45,760 --> 00:05:47,320 Speaker 1: someone's gonna buy it, but it's gonna pay me for. 116 00:05:47,560 --> 00:05:49,920 Speaker 1: The things we have sold have been like a single 117 00:05:49,960 --> 00:05:52,960 Speaker 1: tenant building that was sort of special purpose. The tenant 118 00:05:53,000 --> 00:05:55,720 Speaker 1: wanted to buy it, a user wanted to buy it. 119 00:05:55,760 --> 00:06:00,520 Speaker 1: They were more strategic sales than they were um aspirational sales. 120 00:06:00,600 --> 00:06:02,760 Speaker 1: Let's call it, you know, or taking advantage of this 121 00:06:02,800 --> 00:06:05,719 Speaker 1: heated market. Because our our whole thing is that we 122 00:06:05,760 --> 00:06:08,840 Speaker 1: would rather have met really good and healthy cash flows 123 00:06:09,360 --> 00:06:12,320 Speaker 1: to disperse to our partners and to ourselves than worry 124 00:06:12,360 --> 00:06:16,760 Speaker 1: about value. Because the rent is more important to us 125 00:06:16,839 --> 00:06:19,800 Speaker 1: are the are the lending Is the lending community here 126 00:06:19,839 --> 00:06:23,520 Speaker 1: concerned about the I would be, But the capital is 127 00:06:23,520 --> 00:06:27,880 Speaker 1: still available. It's still available because it's yes, the capital 128 00:06:27,960 --> 00:06:31,200 Speaker 1: is absolutely still available. We're speaking with Susan Loeenberg, president 129 00:06:31,200 --> 00:06:33,680 Speaker 1: of the Loenberg Corporation, who is speaking here at the 130 00:06:33,680 --> 00:06:37,599 Speaker 1: Eisneramper real Estate Summit in San Francisco. I'm curious you 131 00:06:37,640 --> 00:06:40,160 Speaker 1: said that we're not heading toward another two thousand and 132 00:06:40,240 --> 00:06:44,680 Speaker 1: eight collapse. Can you give us some analogy? What are 133 00:06:44,760 --> 00:06:47,400 Speaker 1: we heading towards a correction? So what does that look like? 134 00:06:48,560 --> 00:06:50,280 Speaker 1: I think it's I think it's I think it could 135 00:06:50,320 --> 00:06:53,479 Speaker 1: be twenty. I think it could be twenty depending on 136 00:06:53,520 --> 00:06:56,640 Speaker 1: what happens with trade. So now, okay, here's something in 137 00:06:56,839 --> 00:06:59,960 Speaker 1: verse that's gonna totally countersay what I'm doing. So now, 138 00:07:00,200 --> 00:07:02,520 Speaker 1: with China, my understanding is in the wine industry, where 139 00:07:02,520 --> 00:07:06,080 Speaker 1: we're very heavy, um wine is not they're putting the 140 00:07:06,120 --> 00:07:09,880 Speaker 1: brakes on exporting wine to China because China saying, oh, well, 141 00:07:09,960 --> 00:07:12,760 Speaker 1: you know you want they're playing that game, Well, they 142 00:07:12,760 --> 00:07:16,080 Speaker 1: gotta put it somewhere. Every year, that wine's got to 143 00:07:16,080 --> 00:07:18,960 Speaker 1: come off the vines. It can come out. I mean 144 00:07:19,600 --> 00:07:23,000 Speaker 1: we can arrange. Okay, well, I'm gonna put my single up. 145 00:07:25,000 --> 00:07:27,160 Speaker 1: We can easily have stiff delivered to you. You mentioned 146 00:07:27,280 --> 00:07:30,480 Speaker 1: the Wine country. How did the fires impact any of 147 00:07:30,520 --> 00:07:34,440 Speaker 1: your properties because there was such terrible news, such terrible loss. Yeah, 148 00:07:34,800 --> 00:07:37,360 Speaker 1: it didn't affect it at all. We had it virtually 149 00:07:37,400 --> 00:07:39,760 Speaker 1: had no effect other than my partner's calling me constantly saying, 150 00:07:39,800 --> 00:07:41,640 Speaker 1: have we burned down yet? And I'm saying no, we're fined. 151 00:07:41,840 --> 00:07:43,800 Speaker 1: But but but it does raise a question, especially as 152 00:07:43,800 --> 00:07:46,520 Speaker 1: we hear about climate change and some of the effects 153 00:07:46,840 --> 00:07:51,080 Speaker 1: with respect to drought, with respect to fires in California, 154 00:07:51,880 --> 00:07:55,120 Speaker 1: how how are your colleagues responding to that. I think 155 00:07:55,160 --> 00:07:57,360 Speaker 1: everybody's got their head in the sand. I don't think 156 00:07:57,400 --> 00:07:59,440 Speaker 1: people were really responding to it. All. That must stand 157 00:07:59,440 --> 00:08:01,400 Speaker 1: in high value since it sounds great. But yeah, this 158 00:08:01,440 --> 00:08:05,880 Speaker 1: sounds like it's not going to topple that much though, 159 00:08:05,880 --> 00:08:08,760 Speaker 1: because you just have there's too much demand to be here. 160 00:08:08,800 --> 00:08:11,840 Speaker 1: People want to live here. It's a great place. First 161 00:08:11,840 --> 00:08:14,160 Speaker 1: of all, if you're in I guess Austin, Texas would 162 00:08:14,160 --> 00:08:16,240 Speaker 1: be one. You could truck it in from Houston, you could, 163 00:08:16,280 --> 00:08:19,600 Speaker 1: you know, if that's where your markets. But so much product. 164 00:08:19,680 --> 00:08:23,160 Speaker 1: I have an apartment that overlooks the bay, and thank 165 00:08:23,160 --> 00:08:25,760 Speaker 1: you very much, and I'll probably lose it in the 166 00:08:25,800 --> 00:08:30,880 Speaker 1: downtown because but you see just containership after containership after 167 00:08:30,960 --> 00:08:35,160 Speaker 1: containership coming through the bay, and then you see these 168 00:08:35,160 --> 00:08:37,960 Speaker 1: ships leave half filled. I mean, there are so many 169 00:08:38,000 --> 00:08:41,160 Speaker 1: products coming in here that are being distributed from here. Yeah. 170 00:08:41,200 --> 00:08:42,880 Speaker 1: What about the tax changes. I mean, I know that 171 00:08:42,880 --> 00:08:45,840 Speaker 1: people have been talking about how, you know, this faut deductions, 172 00:08:45,880 --> 00:08:48,440 Speaker 1: how that's affecting property values and it's affecting where people 173 00:08:48,480 --> 00:08:51,480 Speaker 1: are deciding to live. I mean, I understand with industrial 174 00:08:51,480 --> 00:08:54,320 Speaker 1: properties is a lag time with respect to where people live, 175 00:08:54,360 --> 00:08:56,600 Speaker 1: and then how that affects into the commercial properties. But 176 00:08:56,600 --> 00:08:58,480 Speaker 1: I'm just wondering, you know, is that something that people 177 00:08:58,520 --> 00:09:00,320 Speaker 1: are talking a lot about. You know, I I would 178 00:09:00,360 --> 00:09:02,240 Speaker 1: be nervous, to be honest with you about if I 179 00:09:02,280 --> 00:09:05,079 Speaker 1: were a homebuilder, I'd be kind of I'd be a 180 00:09:05,120 --> 00:09:07,200 Speaker 1: little nervous right now. I'd be cautious about what I 181 00:09:07,240 --> 00:09:09,160 Speaker 1: were going to bring out of the ground because I'll 182 00:09:09,160 --> 00:09:13,040 Speaker 1: give you an example. Um, my assistant, I've got her 183 00:09:13,040 --> 00:09:15,880 Speaker 1: into a house. It was great, she she saved it 184 00:09:15,920 --> 00:09:17,439 Speaker 1: was you know, I showed her how it would all work, 185 00:09:17,480 --> 00:09:20,000 Speaker 1: and she could deduct the interest in the property tax 186 00:09:20,040 --> 00:09:23,640 Speaker 1: as well. Her deduction. She got back last year four 187 00:09:23,679 --> 00:09:27,199 Speaker 1: thousand dollars, she told me this year she got yeah. Right. 188 00:09:27,720 --> 00:09:30,079 Speaker 1: But she's in the house though, so she's not gonna 189 00:09:30,120 --> 00:09:33,240 Speaker 1: go She's not going to lose the house. She's just 190 00:09:33,480 --> 00:09:36,600 Speaker 1: not going to spend as much, right because she doesn't 191 00:09:36,640 --> 00:09:40,880 Speaker 1: have that extra whatever. The number is twenty one dollars 192 00:09:40,920 --> 00:09:42,840 Speaker 1: to go maybe buy some new clothes or buy a 193 00:09:42,840 --> 00:09:46,640 Speaker 1: washer dryer. So that's going to have some effect. And 194 00:09:46,640 --> 00:09:48,920 Speaker 1: that's we and we've seen that on the East Coast 195 00:09:48,920 --> 00:09:51,079 Speaker 1: as well in the metro New York area. Susan Loenburg, 196 00:09:51,120 --> 00:09:53,760 Speaker 1: thank you so much. Susan as president of Lohenburg Corporation, 197 00:09:53,840 --> 00:09:56,679 Speaker 1: joining us live here in San Francisco at the Eisener 198 00:09:56,760 --> 00:10:15,920 Speaker 1: Amper real Estate Conferences, and thank you so much. Well, 199 00:10:15,920 --> 00:10:18,880 Speaker 1: we're about halfway through the first quarter earning season. I 200 00:10:18,880 --> 00:10:20,880 Speaker 1: think by and large we're going into earnings people where 201 00:10:20,880 --> 00:10:24,440 Speaker 1: I think pretty bears looking for three to four decline 202 00:10:24,480 --> 00:10:26,760 Speaker 1: in SMP earnings numbers seem to have come in a 203 00:10:26,800 --> 00:10:29,600 Speaker 1: little bit better. To see how much better we welcome 204 00:10:29,600 --> 00:10:32,240 Speaker 1: our next guest, Gina Martin Adams. Gina is the chief 205 00:10:32,240 --> 00:10:35,480 Speaker 1: equity strategist for Bloomberg Intelligence. She is in the Bloomberg 206 00:10:35,480 --> 00:10:39,120 Speaker 1: eleven three oh studio. Gina, thanks so much for joining us. 207 00:10:39,200 --> 00:10:42,000 Speaker 1: What is your take here a little more than halfway 208 00:10:42,000 --> 00:10:45,160 Speaker 1: through the quarterly earning season? Um, thank you for having me, Paul. 209 00:10:45,320 --> 00:10:48,959 Speaker 1: So far, so good. As you alluded to, expectations were 210 00:10:49,000 --> 00:10:51,640 Speaker 1: pretty low, so you know, take it for what it's worth, 211 00:10:51,720 --> 00:10:55,440 Speaker 1: but companies are on track to print about a one 212 00:10:55,520 --> 00:10:59,800 Speaker 1: percent decline in earnings year over year. That assumes that 213 00:11:00,440 --> 00:11:04,839 Speaker 1: everyone who was reported, plus all of the expectations come 214 00:11:04,880 --> 00:11:07,000 Speaker 1: in as as expected, we'll get about a one percent 215 00:11:07,040 --> 00:11:08,720 Speaker 1: to client in earnings on a year of a year basis. 216 00:11:08,760 --> 00:11:12,000 Speaker 1: That's obviously substantially better than the four point one percent 217 00:11:12,040 --> 00:11:14,560 Speaker 1: to client that analysts were expecting at the start of 218 00:11:14,559 --> 00:11:17,120 Speaker 1: the season. So companies are beating what I would have 219 00:11:17,160 --> 00:11:20,080 Speaker 1: considered to be a very low bar. The big change 220 00:11:20,160 --> 00:11:22,959 Speaker 1: over the last week relative to prior weeks was actually 221 00:11:23,000 --> 00:11:27,319 Speaker 1: we had more companies even guide for better earnings for 222 00:11:28,280 --> 00:11:31,680 Speaker 1: as a whole than guided lower. And this is a 223 00:11:31,720 --> 00:11:34,000 Speaker 1: big shift because for months and months and months now 224 00:11:34,000 --> 00:11:36,760 Speaker 1: we've had companies, you know, kind of hammering down forward 225 00:11:36,840 --> 00:11:40,280 Speaker 1: expectations as a component of every earning season. If we 226 00:11:40,320 --> 00:11:45,240 Speaker 1: can continue to see this recovery and guidance emerge, and 227 00:11:45,240 --> 00:11:47,720 Speaker 1: then then over the next several weeks, that could really 228 00:11:47,760 --> 00:11:51,560 Speaker 1: start to shift expectations and change some people's opinions with 229 00:11:51,600 --> 00:11:53,560 Speaker 1: respect to the outlook for earnings. I I don't think 230 00:11:53,600 --> 00:11:55,440 Speaker 1: a lot of people are expecting a whole lot this year. 231 00:11:55,640 --> 00:11:57,800 Speaker 1: This is important. I want to just make sure we 232 00:11:57,880 --> 00:11:59,839 Speaker 1: get that right and kind of hammer at home or 233 00:11:59,880 --> 00:12:03,120 Speaker 1: the past week, more companies have upgraded guidance going forward 234 00:12:03,280 --> 00:12:06,240 Speaker 1: for the rest of the year. Uh than anything else. 235 00:12:06,720 --> 00:12:09,160 Speaker 1: That's really interesting to me. I'm wondering where is that 236 00:12:09,200 --> 00:12:12,640 Speaker 1: growth coming from. Well, it's unfortunately so what we find 237 00:12:12,720 --> 00:12:16,240 Speaker 1: is very few companies actually provide guidance anymore these days, 238 00:12:16,320 --> 00:12:18,520 Speaker 1: so we don't want to read too much into it. 239 00:12:18,559 --> 00:12:22,400 Speaker 1: But frankly, the biggest driver of the turnaround in growth 240 00:12:22,720 --> 00:12:26,199 Speaker 1: is a turnaround from earning suppression in the first half 241 00:12:26,640 --> 00:12:29,880 Speaker 1: to slightly better performance in the second half for more 242 00:12:30,000 --> 00:12:33,800 Speaker 1: cyclical industries, in particular those industries that are exposed to 243 00:12:33,920 --> 00:12:38,760 Speaker 1: overseas economic conditions. Tech and industrials really stand out. UH. 244 00:12:38,880 --> 00:12:42,319 Speaker 1: Groups that had a bigger compression and earnings expectations on 245 00:12:42,480 --> 00:12:45,480 Speaker 1: tougher comparisons in the first half of this year. Their 246 00:12:45,480 --> 00:12:47,880 Speaker 1: comparisons ease into the second half year. Some of that 247 00:12:47,960 --> 00:12:50,640 Speaker 1: is due to tax so it's uh, you know, it's 248 00:12:50,720 --> 00:12:54,560 Speaker 1: it's not one big story driving recovery. I think it's 249 00:12:54,720 --> 00:12:58,880 Speaker 1: different industries and sectors that are experiencing really strong decline 250 00:12:58,880 --> 00:13:00,680 Speaker 1: in the first half of this year, with a modest 251 00:13:00,720 --> 00:13:03,280 Speaker 1: bounce back expected in the second half. So, Jeanne, we 252 00:13:03,360 --> 00:13:06,320 Speaker 1: heard from the Fed and the chairman yesterday kind of 253 00:13:06,800 --> 00:13:09,920 Speaker 1: still on the sidelines, kind of status quo. So my 254 00:13:10,000 --> 00:13:12,280 Speaker 1: guess is that kind of brings the earnings picture or 255 00:13:12,559 --> 00:13:15,320 Speaker 1: keeps the earnings picture very much in focus for investors. 256 00:13:15,400 --> 00:13:17,480 Speaker 1: So how do you think about the back half of 257 00:13:17,520 --> 00:13:19,719 Speaker 1: the year. Clearly, I think the expectations were for a 258 00:13:19,760 --> 00:13:22,280 Speaker 1: better second half of the year. Uh does that still 259 00:13:22,320 --> 00:13:24,680 Speaker 1: hold for you? Yeah, it does. I think for the 260 00:13:24,720 --> 00:13:27,720 Speaker 1: market it's going to be a story of more give 261 00:13:27,720 --> 00:13:29,920 Speaker 1: and take. Right, the first part of this year has 262 00:13:29,960 --> 00:13:34,640 Speaker 1: been all about valuation expansion driven by much easier than 263 00:13:34,679 --> 00:13:37,720 Speaker 1: expected FED policy, at least much easier than expected back 264 00:13:37,760 --> 00:13:40,760 Speaker 1: in December, right, and that shift in FED policy has 265 00:13:40,800 --> 00:13:43,920 Speaker 1: allowed for rally and bonds, which has elevated valuations in 266 00:13:43,920 --> 00:13:47,840 Speaker 1: the equity market. Now, the FED seems to be pretty 267 00:13:48,120 --> 00:13:51,800 Speaker 1: you know, it was presenting a pretty persistent message of yes, 268 00:13:51,880 --> 00:13:54,559 Speaker 1: we're on hold. We don't know if that next move 269 00:13:54,640 --> 00:13:57,200 Speaker 1: is going to be up or down, so we're data dependent. 270 00:13:57,280 --> 00:13:59,760 Speaker 1: Now that creates a different environment for stocks, right. We've 271 00:13:59,760 --> 00:14:05,760 Speaker 1: alrea rerated to anticipate much easier monetary conditions going forward. 272 00:14:06,240 --> 00:14:08,880 Speaker 1: We have to contend with this whole is a Goldilocks 273 00:14:08,960 --> 00:14:11,120 Speaker 1: or is it not? Because if growth gets too hot, 274 00:14:11,200 --> 00:14:14,439 Speaker 1: that's great for earnings, but that's not great for bond 275 00:14:14,440 --> 00:14:18,280 Speaker 1: prices and multiples. It's not great for our anticipated FED 276 00:14:18,320 --> 00:14:21,320 Speaker 1: increase um. Right, So I think that you could have 277 00:14:21,400 --> 00:14:26,400 Speaker 1: tighter monetary policies slightly offset better growth into the second half, 278 00:14:26,440 --> 00:14:29,920 Speaker 1: which just creates a more volatile condition, a dicier situation 279 00:14:30,040 --> 00:14:32,640 Speaker 1: for stocks than that which existed in the first half. 280 00:14:32,680 --> 00:14:36,600 Speaker 1: It doesn't necessarily eliminate the overall bolt trend. So I 281 00:14:36,600 --> 00:14:40,560 Speaker 1: want to get your sense on the micro aspects of 282 00:14:40,600 --> 00:14:42,880 Speaker 1: the macro that we're seeing. We saw productivity jump the 283 00:14:42,880 --> 00:14:45,480 Speaker 1: most since two thousand fourteen in the first quarter. I'm 284 00:14:45,480 --> 00:14:48,800 Speaker 1: wondering how much of this is people are actually, uh, 285 00:14:48,880 --> 00:14:50,720 Speaker 1: you know, just working harder and then are going to 286 00:14:50,800 --> 00:14:53,160 Speaker 1: get paid for it. And how much is it that frankly, 287 00:14:53,200 --> 00:14:55,520 Speaker 1: companies don't have to pay people as much as perhaps 288 00:14:55,520 --> 00:14:57,480 Speaker 1: they would have otherwise had to pay them, and they're 289 00:14:57,480 --> 00:15:00,120 Speaker 1: just working harder. In other words, Uh, those margin part 290 00:15:00,160 --> 00:15:01,960 Speaker 1: where it's just aren't there to the degree that we 291 00:15:02,040 --> 00:15:04,560 Speaker 1: expected them to be. Right, Yeah, I think that that's 292 00:15:04,560 --> 00:15:06,800 Speaker 1: a really good point, Lisa, And it's um, you know, 293 00:15:06,800 --> 00:15:08,920 Speaker 1: the answer is very tbd. I think one of the 294 00:15:08,920 --> 00:15:12,920 Speaker 1: things we struggle with is economic data, you know, is 295 00:15:12,960 --> 00:15:15,760 Speaker 1: going to very accurately capture what we pay in a 296 00:15:15,840 --> 00:15:20,680 Speaker 1: monetary wage, but may not accurately accurately capture payments of 297 00:15:20,720 --> 00:15:25,480 Speaker 1: other forms. Right, increasingly, individuals um in the workforce are 298 00:15:25,480 --> 00:15:29,280 Speaker 1: getting paid via healthcare allowance, they're getting paid via other 299 00:15:29,360 --> 00:15:34,160 Speaker 1: forms of benefits, not necessarily through accelerating wages, which are 300 00:15:34,240 --> 00:15:38,800 Speaker 1: much easier to measure so as opposed to you know, 301 00:15:39,000 --> 00:15:41,480 Speaker 1: flash back to the nineteen fifties and nineteen sixties when 302 00:15:41,520 --> 00:15:44,320 Speaker 1: a lot of these measurements were developed. You could just 303 00:15:44,400 --> 00:15:48,680 Speaker 1: measure an average hourly wage. Now half of our workforce 304 00:15:48,720 --> 00:15:51,680 Speaker 1: is on a salary, not an average hourly wage UM. 305 00:15:51,720 --> 00:15:54,960 Speaker 1: Many of our much of our workforce has you know, 306 00:15:55,240 --> 00:15:58,720 Speaker 1: additional benefits that are paid through corporations. That was certainly 307 00:15:58,760 --> 00:16:02,080 Speaker 1: not the case fifty years ago. So I think part 308 00:16:02,080 --> 00:16:04,600 Speaker 1: of it is a measurement issue. What we see in 309 00:16:04,640 --> 00:16:08,280 Speaker 1: the SMP five hundred, frankly, is quite a bit of 310 00:16:08,280 --> 00:16:11,160 Speaker 1: evidence that suggests companies have a degree of pricing power 311 00:16:11,920 --> 00:16:15,920 Speaker 1: UM instead of recording sort of pressures with respect to 312 00:16:16,240 --> 00:16:20,360 Speaker 1: escalating payments to companies. The pressures on the margin lines 313 00:16:20,360 --> 00:16:23,120 Speaker 1: are more about companies spending a little bit too much 314 00:16:23,120 --> 00:16:25,840 Speaker 1: an environment of slower revenue growth. So there's a lot 315 00:16:25,840 --> 00:16:27,840 Speaker 1: of moving parts in this story. I'd say that the 316 00:16:27,840 --> 00:16:31,200 Speaker 1: biggest the biggest problem is the economic data doesn't always 317 00:16:31,200 --> 00:16:36,160 Speaker 1: match up with the experience of corporate America. So, Gina, we're, 318 00:16:36,200 --> 00:16:38,680 Speaker 1: you know, ten plus years into this economic cycle, we've 319 00:16:38,800 --> 00:16:42,040 Speaker 1: stock markets back are near all all time highs. What 320 00:16:42,200 --> 00:16:46,840 Speaker 1: sectors tend to perform better in such an environment? I mean, 321 00:16:46,840 --> 00:16:50,800 Speaker 1: work should investors kind of be thinking from a sector perspective? Yeah, 322 00:16:50,840 --> 00:16:53,760 Speaker 1: I think every cycle is different, UM. In terms of 323 00:16:53,840 --> 00:16:58,200 Speaker 1: our sector allocation model. Right now, it implies that you 324 00:16:58,280 --> 00:17:00,920 Speaker 1: probably want to approach the market with something of a 325 00:17:00,960 --> 00:17:04,840 Speaker 1: barbelled strategy where and it fits very well with this 326 00:17:04,960 --> 00:17:07,560 Speaker 1: notion that the easy gains are done. We're moving from 327 00:17:07,600 --> 00:17:10,320 Speaker 1: an environment in which the rising tide lifted all boats 328 00:17:10,720 --> 00:17:13,560 Speaker 1: to an environment where investors have to contend with Yes, 329 00:17:13,560 --> 00:17:17,840 Speaker 1: earnings growth is probably going to improve, but if it does, 330 00:17:17,960 --> 00:17:20,679 Speaker 1: it probably means that the economy is strengthening, and that 331 00:17:20,720 --> 00:17:23,439 Speaker 1: may mean tighter monetary policy going forward. So you balance 332 00:17:23,520 --> 00:17:25,720 Speaker 1: those two things, and I think the result of that 333 00:17:25,760 --> 00:17:28,719 Speaker 1: is you want to mix of cyclical and defensive industries 334 00:17:29,200 --> 00:17:32,480 Speaker 1: toward the top of your sector allocation. One thing we've 335 00:17:32,480 --> 00:17:37,080 Speaker 1: seen all cycle is growth stocks outperforming value stocks. I 336 00:17:37,160 --> 00:17:40,760 Speaker 1: don't think any evidence has a surface to suggest that 337 00:17:40,760 --> 00:17:43,320 Speaker 1: that strategy is suddenly going to flip on its head. 338 00:17:44,200 --> 00:17:47,760 Speaker 1: Growth is still very very much in demand, still continues 339 00:17:47,800 --> 00:17:51,719 Speaker 1: to outperform value, despite you know, investors that are pounding 340 00:17:51,720 --> 00:17:55,080 Speaker 1: the table on these valuations spreads widening. I think structurally, 341 00:17:55,119 --> 00:17:57,320 Speaker 1: when you're an environment of very very slow growth and 342 00:17:57,400 --> 00:18:00,280 Speaker 1: very little inflation pressure with a flat yield curve, it's 343 00:18:00,320 --> 00:18:03,440 Speaker 1: just it just promotes gross Gina Martin Adams, thank you 344 00:18:03,520 --> 00:18:05,439 Speaker 1: so much for taking the time out of your very 345 00:18:05,440 --> 00:18:08,000 Speaker 1: busy schedule. Gina Martin Adams, Chief Equities, try to just 346 00:18:08,119 --> 00:18:10,720 Speaker 1: for Bloomberg Intelligence, and when she talks about a flat 347 00:18:10,800 --> 00:18:32,200 Speaker 1: yield curve, indeed go and I think San Francisco most 348 00:18:32,200 --> 00:18:34,639 Speaker 1: people would agree as kind of the birthplace of the 349 00:18:34,800 --> 00:18:37,800 Speaker 1: gig economy. Start your own company, start your own website, 350 00:18:37,840 --> 00:18:39,760 Speaker 1: start your own app. But when you do that, you 351 00:18:39,840 --> 00:18:42,360 Speaker 1: need a place to work. And that is why shared 352 00:18:42,480 --> 00:18:46,760 Speaker 1: workplaces have become really commonplace in this new economy. Elton 353 00:18:46,840 --> 00:18:49,639 Speaker 1: Quas a general manager for the North California region for 354 00:18:50,000 --> 00:18:52,840 Speaker 1: we work on the largest shared workspace companies. He joins 355 00:18:52,920 --> 00:18:55,000 Speaker 1: us here live Alton. Thanks for joining us. Thank you 356 00:18:55,040 --> 00:18:57,240 Speaker 1: so much for having me. I mean, you've got to 357 00:18:57,240 --> 00:18:58,800 Speaker 1: have the easiest job in the world. I mean I 358 00:18:58,840 --> 00:19:01,680 Speaker 1: could rent space in the Northern California Bay Area market. 359 00:19:01,760 --> 00:19:04,800 Speaker 1: How hot is it. It's amazing. So we started off 360 00:19:04,840 --> 00:19:06,560 Speaker 1: here in the Bay Area in two thousand and eleven. 361 00:19:06,560 --> 00:19:09,040 Speaker 1: The company we work started in New York City in 362 00:19:09,080 --> 00:19:12,120 Speaker 1: two thousand ten, and since then we have thirty locations 363 00:19:12,119 --> 00:19:14,399 Speaker 1: here in the Bay Area over ten cities. Uh So 364 00:19:14,480 --> 00:19:16,719 Speaker 1: we go anywhere from San Jose all the way up 365 00:19:16,720 --> 00:19:19,400 Speaker 1: to Mill Valley, and then we just recently announced Sacramento 366 00:19:19,440 --> 00:19:21,720 Speaker 1: as well. So no matter where you live or work, 367 00:19:21,840 --> 00:19:23,840 Speaker 1: you have a place to be. So one thing that 368 00:19:23,880 --> 00:19:26,960 Speaker 1: I'm struggling to understand is what's the barrier to entry here, 369 00:19:27,040 --> 00:19:30,880 Speaker 1: especially as other community commercial real estate operators start to think, 370 00:19:31,200 --> 00:19:33,359 Speaker 1: you know what, the gig economy is here to stay. 371 00:19:33,600 --> 00:19:37,000 Speaker 1: We're gonna do cooperative workspace to definitely. So as a member, 372 00:19:37,040 --> 00:19:39,000 Speaker 1: there's actually no barrier to entry. What we do is 373 00:19:39,040 --> 00:19:42,000 Speaker 1: we provide flexible workspaces for any size of company. So 374 00:19:42,000 --> 00:19:45,440 Speaker 1: whether you're a fortune or you're entrepreneur, you could sign 375 00:19:45,520 --> 00:19:48,520 Speaker 1: up today and start working tomorrow. Actually um, and you 376 00:19:48,560 --> 00:19:50,359 Speaker 1: don't have to pay the capital expenses, you don't have 377 00:19:50,440 --> 00:19:53,240 Speaker 1: to design the offices, everything is done for you. Um. 378 00:19:53,280 --> 00:19:56,480 Speaker 1: If you are another I guess industry leader trying to 379 00:19:56,520 --> 00:19:58,600 Speaker 1: get into the coworking space, that might be a little 380 00:19:58,600 --> 00:20:01,159 Speaker 1: bit tough, just because we have foreigner locations around the 381 00:20:01,200 --> 00:20:04,280 Speaker 1: world and that is continually to grow. Every single day. 382 00:20:04,760 --> 00:20:07,120 Speaker 1: On average, we actually open two locations a day, which 383 00:20:07,119 --> 00:20:11,320 Speaker 1: is pretty exciting globally. And what what why that's important 384 00:20:11,359 --> 00:20:14,040 Speaker 1: is because a member at one location is a member 385 00:20:14,080 --> 00:20:17,080 Speaker 1: around the globe, and you really have membership anywhere, and 386 00:20:17,119 --> 00:20:18,800 Speaker 1: so you have a home in a place to work. 387 00:20:19,080 --> 00:20:23,480 Speaker 1: So what is kind of a typical We Work member 388 00:20:23,600 --> 00:20:25,560 Speaker 1: UM is it kind of a single purses and a 389 00:20:25,640 --> 00:20:28,840 Speaker 1: small company. What's a typical one looked like? Absolutely? So. 390 00:20:28,920 --> 00:20:31,800 Speaker 1: Our enterprise business is growing tremendously, and we started that 391 00:20:31,840 --> 00:20:35,320 Speaker 1: in two thousand seventeen. Really, UH overt of our member 392 00:20:35,320 --> 00:20:38,520 Speaker 1: base now is enterprise companies and they take full floors, 393 00:20:38,560 --> 00:20:41,240 Speaker 1: they take an entire building, and we do everything full 394 00:20:41,240 --> 00:20:44,639 Speaker 1: service for them, from designing building and then operating the 395 00:20:44,640 --> 00:20:47,040 Speaker 1: space with our community management teams. UH so that is 396 00:20:47,040 --> 00:20:49,480 Speaker 1: a growing segment. We also have an MLB segment where 397 00:20:49,640 --> 00:20:52,320 Speaker 1: if you're medium to large sized business, you can get 398 00:20:52,359 --> 00:20:54,840 Speaker 1: a full space a headquarters space for you, so no 399 00:20:54,920 --> 00:20:57,040 Speaker 1: longer you have to go through the hasshole of finding 400 00:20:57,040 --> 00:20:59,000 Speaker 1: your own real estate and then finding your own general 401 00:20:59,040 --> 00:21:01,480 Speaker 1: contractor and then arc texture firm. All that is provided 402 00:21:01,760 --> 00:21:04,399 Speaker 1: UH through us, which makes it really easy. And then 403 00:21:04,440 --> 00:21:06,800 Speaker 1: we have the creative community that is part of the 404 00:21:07,320 --> 00:21:09,800 Speaker 1: UH we Work community, and that is our heart and 405 00:21:09,800 --> 00:21:12,240 Speaker 1: bread and butter, and it keeps the energy alive in 406 00:21:12,280 --> 00:21:14,520 Speaker 1: our spaces and in every single We Work location that 407 00:21:14,560 --> 00:21:17,600 Speaker 1: you go to, you'll see a membership level such as 408 00:21:17,600 --> 00:21:20,320 Speaker 1: hot desk or dedicated desk or some private offices that 409 00:21:20,359 --> 00:21:24,080 Speaker 1: are for the smaller UH companies to allow them to groom, 410 00:21:24,119 --> 00:21:26,440 Speaker 1: and we also connect them with other community members to grow. 411 00:21:26,640 --> 00:21:30,760 Speaker 1: So we worked a file confidentially for an initial public offering, 412 00:21:30,960 --> 00:21:33,760 Speaker 1: and it raises a question about the growth opportunity. You're 413 00:21:33,760 --> 00:21:35,639 Speaker 1: talking about some of the growth areas, but the degree 414 00:21:35,680 --> 00:21:37,600 Speaker 1: to which growth and can accelerate given the fact that 415 00:21:37,640 --> 00:21:41,160 Speaker 1: we Work, I believe is the biggest commercial property user 416 00:21:41,680 --> 00:21:44,720 Speaker 1: in both San Francisco as well as in New York. 417 00:21:44,840 --> 00:21:48,639 Speaker 1: So already kind of saturated in those areas. Given that fact, 418 00:21:49,040 --> 00:21:52,120 Speaker 1: I mean, these are all sort of marginal sort of gains, 419 00:21:52,200 --> 00:21:55,240 Speaker 1: is there another sort of big acceleration in the growth 420 00:21:55,240 --> 00:21:57,480 Speaker 1: of We Work. So what I would say in terms 421 00:21:57,520 --> 00:21:59,800 Speaker 1: of we Work is where global platform and with our 422 00:21:59,800 --> 00:22:01,480 Speaker 1: member or base, we can do a lot with that. 423 00:22:01,840 --> 00:22:04,880 Speaker 1: UM the WE company as a whole now has different 424 00:22:04,920 --> 00:22:07,320 Speaker 1: avenues and business lines that UM we play a part in. 425 00:22:07,400 --> 00:22:10,280 Speaker 1: So we have we Work, which is the workspace mission, 426 00:22:10,359 --> 00:22:12,679 Speaker 1: and then we have we Live, which is our living mission, 427 00:22:12,720 --> 00:22:14,919 Speaker 1: and then we have we Grow, which is our education mission. 428 00:22:15,400 --> 00:22:18,119 Speaker 1: So through that we're building really communities outside the walls 429 00:22:18,160 --> 00:22:20,040 Speaker 1: of just we work. How much attraction have you gotten 430 00:22:20,040 --> 00:22:21,960 Speaker 1: with we Live and we Grow? So the two of 431 00:22:21,960 --> 00:22:24,680 Speaker 1: those are just beginning and they're really exciting. We're getting 432 00:22:24,720 --> 00:22:26,639 Speaker 1: a lot of demand. Both of them are in New 433 00:22:26,720 --> 00:22:29,960 Speaker 1: York City right now. Um, we're looking for expansion, but 434 00:22:30,240 --> 00:22:31,960 Speaker 1: those are just in the early stages and I think 435 00:22:31,960 --> 00:22:34,320 Speaker 1: there's a bright future ahead for us. So in this 436 00:22:34,440 --> 00:22:37,960 Speaker 1: Northern California Bay Area, we've heard all day how expensive 437 00:22:38,040 --> 00:22:41,040 Speaker 1: real estate it is, how new construction is expensive. What 438 00:22:41,119 --> 00:22:45,880 Speaker 1: are the economics for we work in this marketplace? Definitely? 439 00:22:45,960 --> 00:22:49,240 Speaker 1: So for we Work, I think the value add that 440 00:22:49,280 --> 00:22:51,880 Speaker 1: we're able to provide for companies coming into the Bay 441 00:22:51,880 --> 00:22:54,600 Speaker 1: area is a flexible workspace. And as you know, today, 442 00:22:54,800 --> 00:22:57,479 Speaker 1: companies are so agile, they're growing so fast, their headcount 443 00:22:57,520 --> 00:23:00,760 Speaker 1: projections are changing every single day, and the lexibility allows 444 00:23:00,760 --> 00:23:02,600 Speaker 1: them to really kind of take care of their business 445 00:23:02,640 --> 00:23:05,200 Speaker 1: and not have to work about the facilities management aspect 446 00:23:05,359 --> 00:23:08,680 Speaker 1: aspect or the office space management aspect. And if you're 447 00:23:08,680 --> 00:23:11,560 Speaker 1: adding another ten two hundred people tomorrow, you need the 448 00:23:11,600 --> 00:23:14,800 Speaker 1: flexible space to grow without adding a tenure lease, and 449 00:23:15,080 --> 00:23:17,200 Speaker 1: we Work allows you to do that on flexible terms 450 00:23:17,200 --> 00:23:20,040 Speaker 1: but costly for you to get the most for you 451 00:23:20,080 --> 00:23:22,440 Speaker 1: to get this space, it's very expensive, so you're bearing 452 00:23:22,480 --> 00:23:24,760 Speaker 1: that big cost, right. We have relationships with some of 453 00:23:24,840 --> 00:23:27,000 Speaker 1: the largest landlords and we continue to grow that presence 454 00:23:27,000 --> 00:23:30,320 Speaker 1: and the portfolio presence with landlords across the world. Really 455 00:23:30,720 --> 00:23:34,320 Speaker 1: uh So, definitely, it is expensive we work, and um 456 00:23:34,359 --> 00:23:36,600 Speaker 1: I would say the real estate market here is expensive. 457 00:23:36,920 --> 00:23:39,000 Speaker 1: But I think the beauty about we work is we're 458 00:23:39,040 --> 00:23:41,320 Speaker 1: able to go into any city around the world, and 459 00:23:41,640 --> 00:23:44,240 Speaker 1: our entrance into San Mateo or entrance into Palo Alto 460 00:23:44,320 --> 00:23:46,760 Speaker 1: or entrance into Sacramento are just a few examples where 461 00:23:46,760 --> 00:23:49,359 Speaker 1: we're able to connect the workforce to the places where 462 00:23:49,359 --> 00:23:51,879 Speaker 1: people want to work, which also decreases commute times for 463 00:23:51,880 --> 00:23:54,119 Speaker 1: a lot of people. So companies don't necessarily need to 464 00:23:54,119 --> 00:23:56,440 Speaker 1: be in San Francisco exactly. Yes, we know that a 465 00:23:56,480 --> 00:23:58,439 Speaker 1: lot of tech companies want to have presents, but they 466 00:23:58,480 --> 00:24:00,240 Speaker 1: don't need to have their entire headquarters here, and we 467 00:24:00,280 --> 00:24:03,360 Speaker 1: provide them with the agile warkspaceed solution to to provide 468 00:24:03,400 --> 00:24:05,000 Speaker 1: for that. But if they also want to have a 469 00:24:05,040 --> 00:24:07,520 Speaker 1: presence in San Jose as well as San Francisco, they 470 00:24:07,520 --> 00:24:09,080 Speaker 1: can do that and they don't have to work with 471 00:24:09,119 --> 00:24:11,680 Speaker 1: too many different operators to make that happen. Elton Quark, 472 00:24:11,720 --> 00:24:14,159 Speaker 1: thank you so much for spending the time. Elton Quacks, 473 00:24:14,200 --> 00:24:17,080 Speaker 1: general manager for the Northern California region at We were 474 00:24:17,240 --> 00:24:20,440 Speaker 1: joining us here from the Eisner amper A real estate 475 00:24:20,600 --> 00:24:40,200 Speaker 1: summit in San Francisco. Tesla is in the market with 476 00:24:40,560 --> 00:24:43,040 Speaker 1: an offering of stock and bonds a little over two 477 00:24:43,080 --> 00:24:45,200 Speaker 1: billion dollars as it tries to shore up its balance sheet. 478 00:24:45,520 --> 00:24:48,440 Speaker 1: To see get some deeper analysis of this, we welcome 479 00:24:48,520 --> 00:24:52,080 Speaker 1: Joel Levington. Joel is a senior credit analyst for Blueberg Intelligence. 480 00:24:52,080 --> 00:24:54,200 Speaker 1: He joins us on the phone. Joel, thanks so much 481 00:24:54,240 --> 00:24:56,600 Speaker 1: for joining us. Uh, it seems like a move in 482 00:24:56,640 --> 00:24:58,719 Speaker 1: the right direction for this company in terms of its 483 00:24:58,720 --> 00:25:02,400 Speaker 1: balance sheet. Is it enough? Paul, You're You're absolutely right, 484 00:25:02,440 --> 00:25:07,280 Speaker 1: and uh, I think it is enough, certainly for if 485 00:25:07,280 --> 00:25:09,040 Speaker 1: you assume that the company should be at least re 486 00:25:09,160 --> 00:25:11,600 Speaker 1: cash flow break even, and I think it should be 487 00:25:11,640 --> 00:25:14,000 Speaker 1: a little bit better than that. It should be able 488 00:25:14,040 --> 00:25:16,480 Speaker 1: to pay down all of its deep maturities over the 489 00:25:16,520 --> 00:25:19,920 Speaker 1: timeframe and also keep a decent amount of liquidity on 490 00:25:19,960 --> 00:25:22,399 Speaker 1: the balance sheet. So Joel, can we just talk about 491 00:25:22,440 --> 00:25:26,000 Speaker 1: the capitulation here, because This really is capitulation. And basically 492 00:25:26,200 --> 00:25:27,920 Speaker 1: Elon Mosk have been coming out and saying we don't 493 00:25:27,960 --> 00:25:30,840 Speaker 1: need more capital, We're doing great. Now it comes out 494 00:25:31,040 --> 00:25:33,439 Speaker 1: we need more capital. We need it from the equity markets. 495 00:25:33,480 --> 00:25:36,119 Speaker 1: We needed for the depth markets. I mean, what what 496 00:25:36,240 --> 00:25:39,280 Speaker 1: caused this this sort of turnaround here? Well, I think 497 00:25:39,280 --> 00:25:42,919 Speaker 1: it boils down to Lisa is operational execution. You know, 498 00:25:42,960 --> 00:25:45,080 Speaker 1: if you look at what he was saying on the 499 00:25:45,119 --> 00:25:48,400 Speaker 1: earning skulls just a week ago, is that he really 500 00:25:48,400 --> 00:25:51,480 Speaker 1: wanted to hold capital tight and force his company to 501 00:25:51,520 --> 00:25:54,639 Speaker 1: perform better. That hasn't worked out the way that he 502 00:25:54,640 --> 00:25:58,280 Speaker 1: had hoped for and as a result needs additional liquidity. 503 00:25:58,359 --> 00:26:00,840 Speaker 1: So I would say, you know, he on his company, 504 00:26:00,920 --> 00:26:03,119 Speaker 1: the company hasn't performed the way it needs to and 505 00:26:03,240 --> 00:26:06,000 Speaker 1: hence needs the band aid of additional liquidity right now. 506 00:26:06,680 --> 00:26:10,280 Speaker 1: So Joel Health has uh testlas bonds performed. It's I mean, 507 00:26:10,280 --> 00:26:12,679 Speaker 1: if you're if you're a bond investoris company, you're really 508 00:26:12,760 --> 00:26:15,520 Speaker 1: taking some risk here. The company, as you know that 509 00:26:15,640 --> 00:26:18,080 Speaker 1: really hasn't had any They've been free cash flow negative. 510 00:26:18,160 --> 00:26:19,960 Speaker 1: So how have the bonds performed and kind of what's 511 00:26:19,960 --> 00:26:23,800 Speaker 1: the expectation here? Sure, that's a great question. Uh, the 512 00:26:23,840 --> 00:26:26,400 Speaker 1: bonds actually traded in a pretty narrow range between eighty 513 00:26:26,400 --> 00:26:28,639 Speaker 1: four and eighty eight dollars. Uh, you know over the 514 00:26:28,640 --> 00:26:31,000 Speaker 1: past year or so, and today they're up about a 515 00:26:31,000 --> 00:26:33,399 Speaker 1: point and a half, so at about eighty six and 516 00:26:33,400 --> 00:26:34,920 Speaker 1: a half, so the rate in the range that they 517 00:26:34,920 --> 00:26:38,400 Speaker 1: have been. That said, the auto sector has performed very 518 00:26:38,400 --> 00:26:42,160 Speaker 1: well this year on on risk adjusted returns, and so 519 00:26:42,280 --> 00:26:44,600 Speaker 1: it has been a major laggard. So you know, like, 520 00:26:44,600 --> 00:26:46,840 Speaker 1: where do you go from here? I don't really think 521 00:26:46,840 --> 00:26:49,520 Speaker 1: it breaks out of its range until it can show 522 00:26:49,560 --> 00:26:52,600 Speaker 1: some operational improvement. If that's shown, I do think that 523 00:26:52,800 --> 00:26:55,760 Speaker 1: you could see the bonds, um, you know, see more 524 00:26:55,760 --> 00:26:59,240 Speaker 1: mean reversion than what's already happened today. So I'm struggling 525 00:26:59,240 --> 00:27:01,399 Speaker 1: a great You did put this in a perspective in 526 00:27:01,600 --> 00:27:03,840 Speaker 1: a really great way tool, which is basically, yeah, there's 527 00:27:03,880 --> 00:27:05,960 Speaker 1: a rally, but it's pretty tepid. Right, We're not talking 528 00:27:06,000 --> 00:27:09,280 Speaker 1: about massive gains here in the bonds. I'm trying to 529 00:27:09,320 --> 00:27:12,080 Speaker 1: figure out why investors are constructive at all on this 530 00:27:12,119 --> 00:27:14,119 Speaker 1: capital ray has given the fact that Tesla seems to 531 00:27:14,160 --> 00:27:17,760 Speaker 1: be burning through the through, burning through their cash and frankly, 532 00:27:17,800 --> 00:27:22,440 Speaker 1: the capitulation does speak to execution issues. You're totally right, Lisa. 533 00:27:22,720 --> 00:27:24,560 Speaker 1: I think we have a lot of deals that are 534 00:27:24,560 --> 00:27:27,680 Speaker 1: going on, particularly in autos, which you know as an example, Addie, 535 00:27:27,680 --> 00:27:29,360 Speaker 1: and it's the same thing a couple of weeks ago. 536 00:27:29,800 --> 00:27:32,800 Speaker 1: It's really on the hope or promise for stronger tomorrow 537 00:27:32,920 --> 00:27:35,120 Speaker 1: is what you're banking on if you're an investor right now, 538 00:27:35,800 --> 00:27:38,320 Speaker 1: and that you know, at least with that with with 539 00:27:38,440 --> 00:27:42,520 Speaker 1: both companies actually hasn't turned out to be the right call. Eventually, 540 00:27:42,560 --> 00:27:45,399 Speaker 1: I think that will be for Tesla, but um, you know, 541 00:27:45,440 --> 00:27:47,320 Speaker 1: again you kind of wonder how long it will be 542 00:27:47,359 --> 00:27:51,600 Speaker 1: given that they've repeatedly missed expectations to me, I guess 543 00:27:51,600 --> 00:27:54,800 Speaker 1: the key catalyst here after the liquidity event would be 544 00:27:54,880 --> 00:27:57,760 Speaker 1: to get a CEO in place that would be a 545 00:27:57,760 --> 00:28:00,800 Speaker 1: strong operator. How about a in your management team that 546 00:28:00,800 --> 00:28:06,159 Speaker 1: actually stays um the yes right. So the question I 547 00:28:06,200 --> 00:28:09,360 Speaker 1: have so if you're an equity or or bond investor here, 548 00:28:09,359 --> 00:28:11,080 Speaker 1: what is what's kind of the metrics the one or 549 00:28:11,080 --> 00:28:13,159 Speaker 1: two metrics that you're looking at that from an operational 550 00:28:13,200 --> 00:28:16,640 Speaker 1: perspective that tells you, hey, I think they've really got 551 00:28:16,640 --> 00:28:19,400 Speaker 1: this thing going. That's a great question, Paul. I would 552 00:28:19,400 --> 00:28:21,920 Speaker 1: say the two things that people really look to are 553 00:28:22,000 --> 00:28:24,920 Speaker 1: the volume of production that comes out, and that's really 554 00:28:24,920 --> 00:28:27,160 Speaker 1: on the model three. And I think what what people 555 00:28:27,200 --> 00:28:31,119 Speaker 1: are really focused on is getting volume at seven thousand 556 00:28:31,160 --> 00:28:33,160 Speaker 1: a week or higher. And then I think the other 557 00:28:33,200 --> 00:28:35,760 Speaker 1: things you have to look at is operating margins UH 558 00:28:35,800 --> 00:28:38,880 Speaker 1: and moving those towards peer like levels, which would be 559 00:28:38,880 --> 00:28:40,640 Speaker 1: an even a margin somewhere and kind of like the 560 00:28:41,120 --> 00:28:43,480 Speaker 1: nine to eleven percent range. If you could do that, 561 00:28:43,560 --> 00:28:47,600 Speaker 1: you'd have a much stronger profile here at a certain point. 562 00:28:47,640 --> 00:28:49,640 Speaker 1: Could the positive sort of movement that we're seeing in 563 00:28:49,640 --> 00:28:51,320 Speaker 1: the bonds and the stocks the stock is up two 564 00:28:52,520 --> 00:28:55,160 Speaker 1: also come from the fact that Elon Musk is sort 565 00:28:55,160 --> 00:28:59,640 Speaker 1: of being realistic. I think so, and you know, I 566 00:28:59,640 --> 00:29:03,280 Speaker 1: think really what's what's embedded into the stock are two issues. 567 00:29:03,440 --> 00:29:06,760 Speaker 1: One was liquidity concern that would that continue to grow, 568 00:29:07,240 --> 00:29:10,200 Speaker 1: and the other is the execution issue. Today, what you're 569 00:29:10,200 --> 00:29:13,479 Speaker 1: seeing is an alleviation of the financial risk side. Right. 570 00:29:13,520 --> 00:29:16,120 Speaker 1: The liquidity will be fine, it'll be sound, and it's 571 00:29:16,120 --> 00:29:18,240 Speaker 1: a reminder that a fifty billion dollar company can go 572 00:29:18,280 --> 00:29:20,239 Speaker 1: back into the capital markets and get more money if 573 00:29:20,240 --> 00:29:23,280 Speaker 1: it needs to. The other side remains a wide open 574 00:29:23,360 --> 00:29:26,440 Speaker 1: question and UM and unfortunately today you won't resolve that 575 00:29:26,520 --> 00:29:29,840 Speaker 1: answer right but right now people are interested in the 576 00:29:29,880 --> 00:29:33,160 Speaker 1: immedia and not necessarily the long term. Joel Lovington, thank 577 00:29:33,200 --> 00:29:35,000 Speaker 1: you so much for being with us. Joe Lovington, Senior 578 00:29:35,000 --> 00:29:39,000 Speaker 1: credit analyst for Bloomberg Intelligence. Thanks for listening to the 579 00:29:39,040 --> 00:29:42,200 Speaker 1: Bloomberg PANL podcast. You can subscribe and listen to interviews 580 00:29:42,240 --> 00:29:46,080 Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, 581 00:29:46,120 --> 00:29:48,840 Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woit's 582 00:29:48,880 --> 00:29:51,320 Speaker 1: I'm on Twitter at Lisa A. Bramwo. WIT's one before 583 00:29:51,360 --> 00:29:54,160 Speaker 1: the podcast. You can always catch us worldwide on Bloomberg 584 00:29:54,240 --> 00:29:54,520 Speaker 1: Radio