WEBVTT - Commercial Real Estate Market Is Sizzling: Lowenberg 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel podcast. I'm Paul Swinge you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits, each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.760 at Bloomberg dot com. Our next guest is a great 0:00:23.800 --> 0:00:26.520 person to talk about Bay Area real estate, Susan Loenberg. 0:00:26.600 --> 0:00:30.720 She's president of Loenburg Corporation based in San Francisco. Susan, 0:00:30.720 --> 0:00:33.720 thanks so much for joining us. When when when people 0:00:33.800 --> 0:00:37.400 think about the San Francisco or Bay Area real estate 0:00:37.400 --> 0:00:39.560 think they think about the residential side and people being 0:00:39.560 --> 0:00:41.600 priced out of their homes and they can't move here 0:00:41.600 --> 0:00:43.680 and the cost of living is maybe even worse than 0:00:43.760 --> 0:00:46.879 New York. But you focused on the industrial side of 0:00:46.960 --> 0:00:49.680 the market. Tell us about how that market is today. 0:00:49.720 --> 0:00:52.640 Is that as perhaps overheated as a residential side, it 0:00:52.800 --> 0:00:56.560 is amazingly overheated. Um, we are shocked at the rents 0:00:56.560 --> 0:01:00.920 were getting. We're getting rents, you know, and higher in 0:01:01.000 --> 0:01:05.160 industrial than we had underwritten deals for for years. Um. 0:01:05.200 --> 0:01:09.240 It's part of the barrier we have here is there's 0:01:09.280 --> 0:01:12.360 a huge demand and growth due to the Internet business 0:01:12.360 --> 0:01:15.880 and new businesses developing that send out They don't need 0:01:15.920 --> 0:01:18.319 the bricks and mortar of a retail, but they act 0:01:18.360 --> 0:01:21.880 like one over the Internet. So that changed the business 0:01:21.920 --> 0:01:24.759 greatly and caused a huge upsurge in demand. The other 0:01:25.120 --> 0:01:28.040 thing we're really facing the barriers the cost of construction. 0:01:28.720 --> 0:01:30.440 When you talk about it's not just the price of 0:01:30.520 --> 0:01:33.640 land going up, it's every metal stud has gone up, 0:01:33.640 --> 0:01:35.520 goes up two to three times a year, and cost 0:01:36.000 --> 0:01:38.600 you know, all the things that go into building and 0:01:38.600 --> 0:01:43.440 building rebar metal. Um. What municipalities are looking to developers 0:01:43.480 --> 0:01:46.920 to balance their budgets. I mean, so, Susan, you're actually 0:01:46.920 --> 0:01:49.680 in the hottest area of commercial real estate right now, 0:01:49.680 --> 0:01:52.240 fulfilment centers, warehouse space. People are saying this is the 0:01:52.280 --> 0:01:55.160 area to get into given how the Amazon, the amazon 0:01:55.200 --> 0:01:58.640 ification of retail. Thank you, I have. Really it's struggled. 0:01:58.840 --> 0:02:02.160 It's struggled my time. UM. I'm just wondering how much 0:02:02.160 --> 0:02:05.160 competition you're seeing right now. And you know, with pricing, 0:02:05.280 --> 0:02:07.080 do you think that you're getting good value right now 0:02:07.920 --> 0:02:10.120 on a buy? No? I think the values are terrible. 0:02:10.320 --> 0:02:14.560 We haven't bought anything since two thou because you've got 0:02:14.560 --> 0:02:17.000 two things going on. You've got money being very cheap. 0:02:17.880 --> 0:02:20.919 You've got rents being at their historical highs. I mean 0:02:21.080 --> 0:02:24.839 beyond the beyond. We and um less than twenty years ago, 0:02:24.919 --> 0:02:27.120 we underwrote a project here in San Francisco, and we 0:02:27.160 --> 0:02:29.640 thought maybe we could get seventy eight cents square foot. 0:02:29.639 --> 0:02:32.000 We're hitting it out of the bark. We we just 0:02:32.040 --> 0:02:34.960 did a deal at two fifty two dollars and fifty cents. 0:02:34.960 --> 0:02:38.080 I mean, that's true. So the cost of goods and 0:02:38.080 --> 0:02:40.839 the cost of you are going up. How they say 0:02:40.840 --> 0:02:44.320 there's no inflation, I don't personally get, but so so 0:02:44.360 --> 0:02:46.600 that I'm wondering who's buying and you know they are 0:02:46.639 --> 0:02:50.600 they at risk of some some pretty big losses. UM. 0:02:51.000 --> 0:02:52.720 You know, here's the deal. I think. I think that 0:02:53.000 --> 0:02:56.280 the difference for someone like me who I buy one off, 0:02:56.320 --> 0:02:58.520 I buy one building, I go after I chase buildings. 0:02:59.120 --> 0:03:02.760 When you're a real you're not that one building doesn't 0:03:02.760 --> 0:03:04.919 have to stand on its own. It gets put into 0:03:04.960 --> 0:03:07.480 a big portfolio and if it performs at two percent, 0:03:07.520 --> 0:03:09.600 it gets absorbed in that great deal that you did 0:03:09.600 --> 0:03:13.640 ten years ago. That's pumping out, you know, fift So 0:03:13.680 --> 0:03:16.600 when you put those together, you get a good return. 0:03:16.639 --> 0:03:18.639 You get a stock return, you don't get a real 0:03:18.800 --> 0:03:22.880 estate return. And reads fundamentally changed the way people look 0:03:23.240 --> 0:03:26.240 or way read people. They can buy things at a 0:03:26.280 --> 0:03:29.040 lower cap right than we can. So if we ask 0:03:29.080 --> 0:03:30.840 you to kind of look into your crystal ball a 0:03:30.880 --> 0:03:35.240 little bit, how long can this Bay Area expansion continue? 0:03:35.280 --> 0:03:38.920 Because it's just it's been ten years plus. I said 0:03:38.960 --> 0:03:41.040 it was going to be seventeen. Okay, I said it was. 0:03:42.520 --> 0:03:45.600 I said it was going to be nineteen. Um, you 0:03:45.680 --> 0:03:48.240 know there's got to be a correction. We're not going 0:03:48.280 --> 0:03:50.560 to see O eight again. We're just not going to 0:03:50.640 --> 0:03:54.240 see two thousand and eight. It's a Bay Area losing business. 0:03:54.440 --> 0:03:57.000 I mean, I'm not going to move my fulfillment center here. 0:03:57.000 --> 0:03:59.400 If it's so so expensive, Why would't I go to Austin, 0:03:59.440 --> 0:04:03.560 Texas or Salt Where are your customers? Right? Well, presently 0:04:03.600 --> 0:04:05.280 I'm just kind of sending it everywhere, right, might not, 0:04:05.320 --> 0:04:07.000 I don't know, I guess you would, but you know, 0:04:07.120 --> 0:04:09.760 the look, people want to live here. You know, at 0:04:09.800 --> 0:04:11.920 the end of the day, you know, I'm a native 0:04:11.960 --> 0:04:14.320 San Francisco. I was born here, and it kills me 0:04:14.320 --> 0:04:17.200 when people who have moved here ten fifteen, two years 0:04:17.200 --> 0:04:22.520 ago say, oh, the city has changed, the city has changed. 0:04:22.640 --> 0:04:25.800 And I say to them, Okay, here's the deal. If 0:04:25.880 --> 0:04:30.040 you don't want to live in a dynamic, diverse, totally 0:04:30.080 --> 0:04:33.040 exciting city, moved to with all due respect to Peka, 0:04:33.640 --> 0:04:35.800 moved to a small town in the Midwest. It will 0:04:35.839 --> 0:04:39.360 be fine, you'll enjoy it. It'll be great. Go with 0:04:39.400 --> 0:04:41.000 the one sing. But if you want to be in 0:04:41.000 --> 0:04:43.960 a dynamic city that you know, you've got food, you've 0:04:44.000 --> 0:04:45.960 got arts, you've got you know, you can go skiing 0:04:46.000 --> 0:04:49.200 into I was you know, this is it? People want 0:04:49.200 --> 0:04:51.720 to live here? Yeah? Well, and I hear you and 0:04:51.880 --> 0:04:53.800 and and you know, just to speak to what you're 0:04:53.800 --> 0:04:56.040 talking about, Paul. As we were driving in and we 0:04:56.080 --> 0:04:58.400 just saw all the cranes just coming up. I mean 0:04:58.480 --> 0:05:01.120 every couple of feet you just see a crane, just 0:05:01.200 --> 0:05:03.960 buildings coming up. I'm wondering. You're talking about how you 0:05:04.000 --> 0:05:06.600 haven't bought anything since two thousand fourteen. Are you selling? 0:05:07.279 --> 0:05:10.359 We have sold a couple of things. We have sold. 0:05:10.120 --> 0:05:13.520 We're very good buyers and were terrible sellers. What do 0:05:14.120 --> 0:05:16.560 you mean by that? I don't like to sell, but 0:05:16.640 --> 0:05:18.880 I never met anything I didn't want to buy. But 0:05:18.880 --> 0:05:22.560 but but I'm wondering, were you compelled to sell because 0:05:23.720 --> 0:05:27.600 because the prices were just so high? No, that's not 0:05:27.680 --> 0:05:30.080 my that would not be my motive. If that won't be, 0:05:30.120 --> 0:05:31.520 then I'd be out. Then I would retire and just 0:05:31.520 --> 0:05:35.279 play golf. That's why would just sell the business. Because 0:05:35.440 --> 0:05:37.600 keep so keep in mind are the way we have 0:05:37.720 --> 0:05:40.440 constructed our small business is it's all about cash flow. 0:05:40.839 --> 0:05:42.680 People say to me, what's your portfolio worth? I have 0:05:42.760 --> 0:05:45.719 no idea, and I could care less. It's worth what 0:05:45.760 --> 0:05:47.320 someone's gonna buy it, but it's gonna pay me for. 0:05:47.560 --> 0:05:49.920 The things we have sold have been like a single 0:05:49.960 --> 0:05:52.960 tenant building that was sort of special purpose. The tenant 0:05:53.000 --> 0:05:55.720 wanted to buy it, a user wanted to buy it. 0:05:55.760 --> 0:06:00.520 They were more strategic sales than they were um aspirational sales. 0:06:00.600 --> 0:06:02.760 Let's call it, you know, or taking advantage of this 0:06:02.800 --> 0:06:05.719 heated market. Because our our whole thing is that we 0:06:05.760 --> 0:06:08.840 would rather have met really good and healthy cash flows 0:06:09.360 --> 0:06:12.320 to disperse to our partners and to ourselves than worry 0:06:12.360 --> 0:06:16.760 about value. Because the rent is more important to us 0:06:16.839 --> 0:06:19.800 are the are the lending Is the lending community here 0:06:19.839 --> 0:06:23.520 concerned about the I would be, But the capital is 0:06:23.520 --> 0:06:27.880 still available. It's still available because it's yes, the capital 0:06:27.960 --> 0:06:31.200 is absolutely still available. We're speaking with Susan Loeenberg, president 0:06:31.200 --> 0:06:33.680 of the Loenberg Corporation, who is speaking here at the 0:06:33.680 --> 0:06:37.599 Eisneramper real Estate Summit in San Francisco. I'm curious you 0:06:37.640 --> 0:06:40.160 said that we're not heading toward another two thousand and 0:06:40.240 --> 0:06:44.680 eight collapse. Can you give us some analogy? What are 0:06:44.760 --> 0:06:47.400 we heading towards a correction? So what does that look like? 0:06:48.560 --> 0:06:50.280 I think it's I think it's I think it could 0:06:50.320 --> 0:06:53.479 be twenty. I think it could be twenty depending on 0:06:53.520 --> 0:06:56.640 what happens with trade. So now, okay, here's something in 0:06:56.839 --> 0:06:59.960 verse that's gonna totally countersay what I'm doing. So now, 0:07:00.200 --> 0:07:02.520 with China, my understanding is in the wine industry, where 0:07:02.520 --> 0:07:06.080 we're very heavy, um wine is not they're putting the 0:07:06.120 --> 0:07:09.880 brakes on exporting wine to China because China saying, oh, well, 0:07:09.960 --> 0:07:12.760 you know you want they're playing that game, Well, they 0:07:12.760 --> 0:07:16.080 gotta put it somewhere. Every year, that wine's got to 0:07:16.080 --> 0:07:18.960 come off the vines. It can come out. I mean 0:07:19.600 --> 0:07:23.000 we can arrange. Okay, well, I'm gonna put my single up. 0:07:25.000 --> 0:07:27.160 We can easily have stiff delivered to you. You mentioned 0:07:27.280 --> 0:07:30.480 the Wine country. How did the fires impact any of 0:07:30.520 --> 0:07:34.440 your properties because there was such terrible news, such terrible loss. Yeah, 0:07:34.800 --> 0:07:37.360 it didn't affect it at all. We had it virtually 0:07:37.400 --> 0:07:39.760 had no effect other than my partner's calling me constantly saying, 0:07:39.800 --> 0:07:41.640 have we burned down yet? And I'm saying no, we're fined. 0:07:41.840 --> 0:07:43.800 But but but it does raise a question, especially as 0:07:43.800 --> 0:07:46.520 we hear about climate change and some of the effects 0:07:46.840 --> 0:07:51.080 with respect to drought, with respect to fires in California, 0:07:51.880 --> 0:07:55.120 how how are your colleagues responding to that. I think 0:07:55.160 --> 0:07:57.360 everybody's got their head in the sand. I don't think 0:07:57.400 --> 0:07:59.440 people were really responding to it. All. That must stand 0:07:59.440 --> 0:08:01.400 in high value since it sounds great. But yeah, this 0:08:01.440 --> 0:08:05.880 sounds like it's not going to topple that much though, 0:08:05.880 --> 0:08:08.760 because you just have there's too much demand to be here. 0:08:08.800 --> 0:08:11.840 People want to live here. It's a great place. First 0:08:11.840 --> 0:08:14.160 of all, if you're in I guess Austin, Texas would 0:08:14.160 --> 0:08:16.240 be one. You could truck it in from Houston, you could, 0:08:16.280 --> 0:08:19.600 you know, if that's where your markets. But so much product. 0:08:19.680 --> 0:08:23.160 I have an apartment that overlooks the bay, and thank 0:08:23.160 --> 0:08:25.760 you very much, and I'll probably lose it in the 0:08:25.800 --> 0:08:30.880 downtown because but you see just containership after containership after 0:08:30.960 --> 0:08:35.160 containership coming through the bay, and then you see these 0:08:35.160 --> 0:08:37.960 ships leave half filled. I mean, there are so many 0:08:38.000 --> 0:08:41.160 products coming in here that are being distributed from here. Yeah. 0:08:41.200 --> 0:08:42.880 What about the tax changes. I mean, I know that 0:08:42.880 --> 0:08:45.840 people have been talking about how, you know, this faut deductions, 0:08:45.880 --> 0:08:48.440 how that's affecting property values and it's affecting where people 0:08:48.480 --> 0:08:51.480 are deciding to live. I mean, I understand with industrial 0:08:51.480 --> 0:08:54.320 properties is a lag time with respect to where people live, 0:08:54.360 --> 0:08:56.600 and then how that affects into the commercial properties. But 0:08:56.600 --> 0:08:58.480 I'm just wondering, you know, is that something that people 0:08:58.520 --> 0:09:00.320 are talking a lot about. You know, I I would 0:09:00.360 --> 0:09:02.240 be nervous, to be honest with you about if I 0:09:02.280 --> 0:09:05.079 were a homebuilder, I'd be kind of I'd be a 0:09:05.120 --> 0:09:07.200 little nervous right now. I'd be cautious about what I 0:09:07.240 --> 0:09:09.160 were going to bring out of the ground because I'll 0:09:09.160 --> 0:09:13.040 give you an example. Um, my assistant, I've got her 0:09:13.040 --> 0:09:15.880 into a house. It was great, she she saved it 0:09:15.920 --> 0:09:17.439 was you know, I showed her how it would all work, 0:09:17.480 --> 0:09:20.000 and she could deduct the interest in the property tax 0:09:20.040 --> 0:09:23.640 as well. Her deduction. She got back last year four 0:09:23.679 --> 0:09:27.199 thousand dollars, she told me this year she got yeah. Right. 0:09:27.720 --> 0:09:30.079 But she's in the house though, so she's not gonna 0:09:30.120 --> 0:09:33.240 go She's not going to lose the house. She's just 0:09:33.480 --> 0:09:36.600 not going to spend as much, right because she doesn't 0:09:36.640 --> 0:09:40.880 have that extra whatever. The number is twenty one dollars 0:09:40.920 --> 0:09:42.840 to go maybe buy some new clothes or buy a 0:09:42.840 --> 0:09:46.640 washer dryer. So that's going to have some effect. And 0:09:46.640 --> 0:09:48.920 that's we and we've seen that on the East Coast 0:09:48.920 --> 0:09:51.079 as well in the metro New York area. Susan Loenburg, 0:09:51.120 --> 0:09:53.760 thank you so much. Susan as president of Lohenburg Corporation, 0:09:53.840 --> 0:09:56.679 joining us live here in San Francisco at the Eisener 0:09:56.760 --> 0:10:15.920 Amper real Estate Conferences, and thank you so much. Well, 0:10:15.920 --> 0:10:18.880 we're about halfway through the first quarter earning season. I 0:10:18.880 --> 0:10:20.880 think by and large we're going into earnings people where 0:10:20.880 --> 0:10:24.440 I think pretty bears looking for three to four decline 0:10:24.480 --> 0:10:26.760 in SMP earnings numbers seem to have come in a 0:10:26.800 --> 0:10:29.600 little bit better. To see how much better we welcome 0:10:29.600 --> 0:10:32.240 our next guest, Gina Martin Adams. Gina is the chief 0:10:32.240 --> 0:10:35.480 equity strategist for Bloomberg Intelligence. She is in the Bloomberg 0:10:35.480 --> 0:10:39.120 eleven three oh studio. Gina, thanks so much for joining us. 0:10:39.200 --> 0:10:42.000 What is your take here a little more than halfway 0:10:42.000 --> 0:10:45.160 through the quarterly earning season? Um, thank you for having me, Paul. 0:10:45.320 --> 0:10:48.959 So far, so good. As you alluded to, expectations were 0:10:49.000 --> 0:10:51.640 pretty low, so you know, take it for what it's worth, 0:10:51.720 --> 0:10:55.440 but companies are on track to print about a one 0:10:55.520 --> 0:10:59.800 percent decline in earnings year over year. That assumes that 0:11:00.440 --> 0:11:04.839 everyone who was reported, plus all of the expectations come 0:11:04.880 --> 0:11:07.000 in as as expected, we'll get about a one percent 0:11:07.040 --> 0:11:08.720 to client in earnings on a year of a year basis. 0:11:08.760 --> 0:11:12.000 That's obviously substantially better than the four point one percent 0:11:12.040 --> 0:11:14.560 to client that analysts were expecting at the start of 0:11:14.559 --> 0:11:17.120 the season. So companies are beating what I would have 0:11:17.160 --> 0:11:20.080 considered to be a very low bar. The big change 0:11:20.160 --> 0:11:22.959 over the last week relative to prior weeks was actually 0:11:23.000 --> 0:11:27.319 we had more companies even guide for better earnings for 0:11:28.280 --> 0:11:31.680 as a whole than guided lower. And this is a 0:11:31.720 --> 0:11:34.000 big shift because for months and months and months now 0:11:34.000 --> 0:11:36.760 we've had companies, you know, kind of hammering down forward 0:11:36.840 --> 0:11:40.280 expectations as a component of every earning season. If we 0:11:40.320 --> 0:11:45.240 can continue to see this recovery and guidance emerge, and 0:11:45.240 --> 0:11:47.720 then then over the next several weeks, that could really 0:11:47.760 --> 0:11:51.560 start to shift expectations and change some people's opinions with 0:11:51.600 --> 0:11:53.560 respect to the outlook for earnings. I I don't think 0:11:53.600 --> 0:11:55.440 a lot of people are expecting a whole lot this year. 0:11:55.640 --> 0:11:57.800 This is important. I want to just make sure we 0:11:57.880 --> 0:11:59.839 get that right and kind of hammer at home or 0:11:59.880 --> 0:12:03.120 the past week, more companies have upgraded guidance going forward 0:12:03.280 --> 0:12:06.240 for the rest of the year. Uh than anything else. 0:12:06.720 --> 0:12:09.160 That's really interesting to me. I'm wondering where is that 0:12:09.200 --> 0:12:12.640 growth coming from. Well, it's unfortunately so what we find 0:12:12.720 --> 0:12:16.240 is very few companies actually provide guidance anymore these days, 0:12:16.320 --> 0:12:18.520 so we don't want to read too much into it. 0:12:18.559 --> 0:12:22.400 But frankly, the biggest driver of the turnaround in growth 0:12:22.720 --> 0:12:26.199 is a turnaround from earning suppression in the first half 0:12:26.640 --> 0:12:29.880 to slightly better performance in the second half for more 0:12:30.000 --> 0:12:33.800 cyclical industries, in particular those industries that are exposed to 0:12:33.920 --> 0:12:38.760 overseas economic conditions. Tech and industrials really stand out. UH. 0:12:38.880 --> 0:12:42.319 Groups that had a bigger compression and earnings expectations on 0:12:42.480 --> 0:12:45.480 tougher comparisons in the first half of this year. Their 0:12:45.480 --> 0:12:47.880 comparisons ease into the second half year. Some of that 0:12:47.960 --> 0:12:50.640 is due to tax so it's uh, you know, it's 0:12:50.720 --> 0:12:54.560 it's not one big story driving recovery. I think it's 0:12:54.720 --> 0:12:58.880 different industries and sectors that are experiencing really strong decline 0:12:58.880 --> 0:13:00.680 in the first half of this year, with a modest 0:13:00.720 --> 0:13:03.280 bounce back expected in the second half. So, Jeanne, we 0:13:03.360 --> 0:13:06.320 heard from the Fed and the chairman yesterday kind of 0:13:06.800 --> 0:13:09.920 still on the sidelines, kind of status quo. So my 0:13:10.000 --> 0:13:12.280 guess is that kind of brings the earnings picture or 0:13:12.559 --> 0:13:15.320 keeps the earnings picture very much in focus for investors. 0:13:15.400 --> 0:13:17.480 So how do you think about the back half of 0:13:17.520 --> 0:13:19.719 the year. Clearly, I think the expectations were for a 0:13:19.760 --> 0:13:22.280 better second half of the year. Uh does that still 0:13:22.320 --> 0:13:24.680 hold for you? Yeah, it does. I think for the 0:13:24.720 --> 0:13:27.720 market it's going to be a story of more give 0:13:27.720 --> 0:13:29.920 and take. Right, the first part of this year has 0:13:29.960 --> 0:13:34.640 been all about valuation expansion driven by much easier than 0:13:34.679 --> 0:13:37.720 expected FED policy, at least much easier than expected back 0:13:37.760 --> 0:13:40.760 in December, right, and that shift in FED policy has 0:13:40.800 --> 0:13:43.920 allowed for rally and bonds, which has elevated valuations in 0:13:43.920 --> 0:13:47.840 the equity market. Now, the FED seems to be pretty 0:13:48.120 --> 0:13:51.800 you know, it was presenting a pretty persistent message of yes, 0:13:51.880 --> 0:13:54.559 we're on hold. We don't know if that next move 0:13:54.640 --> 0:13:57.200 is going to be up or down, so we're data dependent. 0:13:57.280 --> 0:13:59.760 Now that creates a different environment for stocks, right. We've 0:13:59.760 --> 0:14:05.760 alrea rerated to anticipate much easier monetary conditions going forward. 0:14:06.240 --> 0:14:08.880 We have to contend with this whole is a Goldilocks 0:14:08.960 --> 0:14:11.120 or is it not? Because if growth gets too hot, 0:14:11.200 --> 0:14:14.439 that's great for earnings, but that's not great for bond 0:14:14.440 --> 0:14:18.280 prices and multiples. It's not great for our anticipated FED 0:14:18.320 --> 0:14:21.320 increase um. Right, So I think that you could have 0:14:21.400 --> 0:14:26.400 tighter monetary policies slightly offset better growth into the second half, 0:14:26.440 --> 0:14:29.920 which just creates a more volatile condition, a dicier situation 0:14:30.040 --> 0:14:32.640 for stocks than that which existed in the first half. 0:14:32.680 --> 0:14:36.600 It doesn't necessarily eliminate the overall bolt trend. So I 0:14:36.600 --> 0:14:40.560 want to get your sense on the micro aspects of 0:14:40.600 --> 0:14:42.880 the macro that we're seeing. We saw productivity jump the 0:14:42.880 --> 0:14:45.480 most since two thousand fourteen in the first quarter. I'm 0:14:45.480 --> 0:14:48.800 wondering how much of this is people are actually, uh, 0:14:48.880 --> 0:14:50.720 you know, just working harder and then are going to 0:14:50.800 --> 0:14:53.160 get paid for it. And how much is it that frankly, 0:14:53.200 --> 0:14:55.520 companies don't have to pay people as much as perhaps 0:14:55.520 --> 0:14:57.480 they would have otherwise had to pay them, and they're 0:14:57.480 --> 0:15:00.120 just working harder. In other words, Uh, those margin part 0:15:00.160 --> 0:15:01.960 where it's just aren't there to the degree that we 0:15:02.040 --> 0:15:04.560 expected them to be. Right, Yeah, I think that that's 0:15:04.560 --> 0:15:06.800 a really good point, Lisa, And it's um, you know, 0:15:06.800 --> 0:15:08.920 the answer is very tbd. I think one of the 0:15:08.920 --> 0:15:12.920 things we struggle with is economic data, you know, is 0:15:12.960 --> 0:15:15.760 going to very accurately capture what we pay in a 0:15:15.840 --> 0:15:20.680 monetary wage, but may not accurately accurately capture payments of 0:15:20.720 --> 0:15:25.480 other forms. Right, increasingly, individuals um in the workforce are 0:15:25.480 --> 0:15:29.280 getting paid via healthcare allowance, they're getting paid via other 0:15:29.360 --> 0:15:34.160 forms of benefits, not necessarily through accelerating wages, which are 0:15:34.240 --> 0:15:38.800 much easier to measure so as opposed to you know, 0:15:39.000 --> 0:15:41.480 flash back to the nineteen fifties and nineteen sixties when 0:15:41.520 --> 0:15:44.320 a lot of these measurements were developed. You could just 0:15:44.400 --> 0:15:48.680 measure an average hourly wage. Now half of our workforce 0:15:48.720 --> 0:15:51.680 is on a salary, not an average hourly wage UM. 0:15:51.720 --> 0:15:54.960 Many of our much of our workforce has you know, 0:15:55.240 --> 0:15:58.720 additional benefits that are paid through corporations. That was certainly 0:15:58.760 --> 0:16:02.080 not the case fifty years ago. So I think part 0:16:02.080 --> 0:16:04.600 of it is a measurement issue. What we see in 0:16:04.640 --> 0:16:08.280 the SMP five hundred, frankly, is quite a bit of 0:16:08.280 --> 0:16:11.160 evidence that suggests companies have a degree of pricing power 0:16:11.920 --> 0:16:15.920 UM instead of recording sort of pressures with respect to 0:16:16.240 --> 0:16:20.360 escalating payments to companies. The pressures on the margin lines 0:16:20.360 --> 0:16:23.120 are more about companies spending a little bit too much 0:16:23.120 --> 0:16:25.840 an environment of slower revenue growth. So there's a lot 0:16:25.840 --> 0:16:27.840 of moving parts in this story. I'd say that the 0:16:27.840 --> 0:16:31.200 biggest the biggest problem is the economic data doesn't always 0:16:31.200 --> 0:16:36.160 match up with the experience of corporate America. So, Gina, we're, 0:16:36.200 --> 0:16:38.680 you know, ten plus years into this economic cycle, we've 0:16:38.800 --> 0:16:42.040 stock markets back are near all all time highs. What 0:16:42.200 --> 0:16:46.840 sectors tend to perform better in such an environment? I mean, 0:16:46.840 --> 0:16:50.800 work should investors kind of be thinking from a sector perspective? Yeah, 0:16:50.840 --> 0:16:53.760 I think every cycle is different, UM. In terms of 0:16:53.840 --> 0:16:58.200 our sector allocation model. Right now, it implies that you 0:16:58.280 --> 0:17:00.920 probably want to approach the market with something of a 0:17:00.960 --> 0:17:04.840 barbelled strategy where and it fits very well with this 0:17:04.960 --> 0:17:07.560 notion that the easy gains are done. We're moving from 0:17:07.600 --> 0:17:10.320 an environment in which the rising tide lifted all boats 0:17:10.720 --> 0:17:13.560 to an environment where investors have to contend with Yes, 0:17:13.560 --> 0:17:17.840 earnings growth is probably going to improve, but if it does, 0:17:17.960 --> 0:17:20.679 it probably means that the economy is strengthening, and that 0:17:20.720 --> 0:17:23.439 may mean tighter monetary policy going forward. So you balance 0:17:23.520 --> 0:17:25.720 those two things, and I think the result of that 0:17:25.760 --> 0:17:28.719 is you want to mix of cyclical and defensive industries 0:17:29.200 --> 0:17:32.480 toward the top of your sector allocation. One thing we've 0:17:32.480 --> 0:17:37.080 seen all cycle is growth stocks outperforming value stocks. I 0:17:37.160 --> 0:17:40.760 don't think any evidence has a surface to suggest that 0:17:40.760 --> 0:17:43.320 that strategy is suddenly going to flip on its head. 0:17:44.200 --> 0:17:47.760 Growth is still very very much in demand, still continues 0:17:47.800 --> 0:17:51.719 to outperform value, despite you know, investors that are pounding 0:17:51.720 --> 0:17:55.080 the table on these valuations spreads widening. I think structurally, 0:17:55.119 --> 0:17:57.320 when you're an environment of very very slow growth and 0:17:57.400 --> 0:18:00.280 very little inflation pressure with a flat yield curve, it's 0:18:00.320 --> 0:18:03.440 just it just promotes gross Gina Martin Adams, thank you 0:18:03.520 --> 0:18:05.439 so much for taking the time out of your very 0:18:05.440 --> 0:18:08.000 busy schedule. Gina Martin Adams, Chief Equities, try to just 0:18:08.119 --> 0:18:10.720 for Bloomberg Intelligence, and when she talks about a flat 0:18:10.800 --> 0:18:32.200 yield curve, indeed go and I think San Francisco most 0:18:32.200 --> 0:18:34.639 people would agree as kind of the birthplace of the 0:18:34.800 --> 0:18:37.800 gig economy. Start your own company, start your own website, 0:18:37.840 --> 0:18:39.760 start your own app. But when you do that, you 0:18:39.840 --> 0:18:42.360 need a place to work. And that is why shared 0:18:42.480 --> 0:18:46.760 workplaces have become really commonplace in this new economy. Elton 0:18:46.840 --> 0:18:49.639 Quas a general manager for the North California region for 0:18:50.000 --> 0:18:52.840 we work on the largest shared workspace companies. He joins 0:18:52.920 --> 0:18:55.000 us here live Alton. Thanks for joining us. Thank you 0:18:55.040 --> 0:18:57.240 so much for having me. I mean, you've got to 0:18:57.240 --> 0:18:58.800 have the easiest job in the world. I mean I 0:18:58.840 --> 0:19:01.680 could rent space in the Northern California Bay Area market. 0:19:01.760 --> 0:19:04.800 How hot is it. It's amazing. So we started off 0:19:04.840 --> 0:19:06.560 here in the Bay Area in two thousand and eleven. 0:19:06.560 --> 0:19:09.040 The company we work started in New York City in 0:19:09.080 --> 0:19:12.120 two thousand ten, and since then we have thirty locations 0:19:12.119 --> 0:19:14.399 here in the Bay Area over ten cities. Uh So 0:19:14.480 --> 0:19:16.719 we go anywhere from San Jose all the way up 0:19:16.720 --> 0:19:19.400 to Mill Valley, and then we just recently announced Sacramento 0:19:19.440 --> 0:19:21.720 as well. So no matter where you live or work, 0:19:21.840 --> 0:19:23.840 you have a place to be. So one thing that 0:19:23.880 --> 0:19:26.960 I'm struggling to understand is what's the barrier to entry here, 0:19:27.040 --> 0:19:30.880 especially as other community commercial real estate operators start to think, 0:19:31.200 --> 0:19:33.359 you know what, the gig economy is here to stay. 0:19:33.600 --> 0:19:37.000 We're gonna do cooperative workspace to definitely. So as a member, 0:19:37.040 --> 0:19:39.000 there's actually no barrier to entry. What we do is 0:19:39.040 --> 0:19:42.000 we provide flexible workspaces for any size of company. So 0:19:42.000 --> 0:19:45.440 whether you're a fortune or you're entrepreneur, you could sign 0:19:45.520 --> 0:19:48.520 up today and start working tomorrow. Actually um, and you 0:19:48.560 --> 0:19:50.359 don't have to pay the capital expenses, you don't have 0:19:50.440 --> 0:19:53.240 to design the offices, everything is done for you. Um. 0:19:53.280 --> 0:19:56.480 If you are another I guess industry leader trying to 0:19:56.520 --> 0:19:58.600 get into the coworking space, that might be a little 0:19:58.600 --> 0:20:01.159 bit tough, just because we have foreigner locations around the 0:20:01.200 --> 0:20:04.280 world and that is continually to grow. Every single day. 0:20:04.760 --> 0:20:07.120 On average, we actually open two locations a day, which 0:20:07.119 --> 0:20:11.320 is pretty exciting globally. And what what why that's important 0:20:11.359 --> 0:20:14.040 is because a member at one location is a member 0:20:14.080 --> 0:20:17.080 around the globe, and you really have membership anywhere, and 0:20:17.119 --> 0:20:18.800 so you have a home in a place to work. 0:20:19.080 --> 0:20:23.480 So what is kind of a typical We Work member 0:20:23.600 --> 0:20:25.560 UM is it kind of a single purses and a 0:20:25.640 --> 0:20:28.840 small company. What's a typical one looked like? Absolutely? So. 0:20:28.920 --> 0:20:31.800 Our enterprise business is growing tremendously, and we started that 0:20:31.840 --> 0:20:35.320 in two thousand seventeen. Really, UH overt of our member 0:20:35.320 --> 0:20:38.520 base now is enterprise companies and they take full floors, 0:20:38.560 --> 0:20:41.240 they take an entire building, and we do everything full 0:20:41.240 --> 0:20:44.639 service for them, from designing building and then operating the 0:20:44.640 --> 0:20:47.040 space with our community management teams. UH so that is 0:20:47.040 --> 0:20:49.480 a growing segment. We also have an MLB segment where 0:20:49.640 --> 0:20:52.320 if you're medium to large sized business, you can get 0:20:52.359 --> 0:20:54.840 a full space a headquarters space for you, so no 0:20:54.920 --> 0:20:57.040 longer you have to go through the hasshole of finding 0:20:57.040 --> 0:20:59.000 your own real estate and then finding your own general 0:20:59.040 --> 0:21:01.480