Speaker 1: Welcome to the Bloomberg Penel podcast. I'm Paul Swinge you.
Speaker 1: Along with my co host Lisa Brahma Waits, each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Our next guest is a great
Speaker 1: person to talk about Bay Area real estate, Susan Loenberg.
Speaker 1: She's president of Loenburg Corporation based in San Francisco. Susan,
Speaker 1: thanks so much for joining us. When when when people
Speaker 1: think about the San Francisco or Bay Area real estate
Speaker 1: think they think about the residential side and people being
Speaker 1: priced out of their homes and they can't move here
Speaker 1: and the cost of living is maybe even worse than
Speaker 1: New York. But you focused on the industrial side of
Speaker 1: the market. Tell us about how that market is today.
Speaker 1: Is that as perhaps overheated as a residential side, it
Speaker 1: is amazingly overheated. Um, we are shocked at the rents
Speaker 1: were getting. We're getting rents, you know, and higher in
Speaker 1: industrial than we had underwritten deals for for years. Um.
Speaker 1: It's part of the barrier we have here is there's
Speaker 1: a huge demand and growth due to the Internet business
Speaker 1: and new businesses developing that send out They don't need
Speaker 1: the bricks and mortar of a retail, but they act
Speaker 1: like one over the Internet. So that changed the business
Speaker 1: greatly and caused a huge upsurge in demand. The other
Speaker 1: thing we're really facing the barriers the cost of construction.
Speaker 1: When you talk about it's not just the price of
Speaker 1: land going up, it's every metal stud has gone up,
Speaker 1: goes up two to three times a year, and cost
Speaker 1: you know, all the things that go into building and
Speaker 1: building rebar metal. Um. What municipalities are looking to developers
Speaker 1: to balance their budgets. I mean, so, Susan, you're actually
Speaker 1: in the hottest area of commercial real estate right now,
Speaker 1: fulfilment centers, warehouse space. People are saying this is the
Speaker 1: area to get into given how the Amazon, the amazon
Speaker 1: ification of retail. Thank you, I have. Really it's struggled.
Speaker 1: It's struggled my time. UM. I'm just wondering how much
Speaker 1: competition you're seeing right now. And you know, with pricing,
Speaker 1: do you think that you're getting good value right now
Speaker 1: on a buy? No? I think the values are terrible.
Speaker 1: We haven't bought anything since two thou because you've got
Speaker 1: two things going on. You've got money being very cheap.
Speaker 1: You've got rents being at their historical highs. I mean
Speaker 1: beyond the beyond. We and um less than twenty years ago,
Speaker 1: we underwrote a project here in San Francisco, and we
Speaker 1: thought maybe we could get seventy eight cents square foot.
Speaker 1: We're hitting it out of the bark. We we just
Speaker 1: did a deal at two fifty two dollars and fifty cents.
Speaker 1: I mean, that's true. So the cost of goods and
Speaker 1: the cost of you are going up. How they say
Speaker 1: there's no inflation, I don't personally get, but so so
Speaker 1: that I'm wondering who's buying and you know they are
Speaker 1: they at risk of some some pretty big losses. UM.
Speaker 1: You know, here's the deal. I think. I think that
Speaker 1: the difference for someone like me who I buy one off,
Speaker 1: I buy one building, I go after I chase buildings.
Speaker 1: When you're a real you're not that one building doesn't
Speaker 1: have to stand on its own. It gets put into
Speaker 1: a big portfolio and if it performs at two percent,
Speaker 1: it gets absorbed in that great deal that you did
Speaker 1: ten years ago. That's pumping out, you know, fift So
Speaker 1: when you put those together, you get a good return.
Speaker 1: You get a stock return, you don't get a real
Speaker 1: estate return. And reads fundamentally changed the way people look
Speaker 1: or way read people. They can buy things at a
Speaker 1: lower cap right than we can. So if we ask
Speaker 1: you to kind of look into your crystal ball a
Speaker 1: little bit, how long can this Bay Area expansion continue?
Speaker 1: Because it's just it's been ten years plus. I said
Speaker 1: it was going to be seventeen. Okay, I said it was.
Speaker 1: I said it was going to be nineteen. Um, you
Speaker 1: know there's got to be a correction. We're not going
Speaker 1: to see O eight again. We're just not going to
Speaker 1: see two thousand and eight. It's a Bay Area losing business.
Speaker 1: I mean, I'm not going to move my fulfillment center here.
Speaker 1: If it's so so expensive, Why would't I go to Austin,
Speaker 1: Texas or Salt Where are your customers? Right? Well, presently
Speaker 1: I'm just kind of sending it everywhere, right, might not,
Speaker 1: I don't know, I guess you would, but you know,
Speaker 1: the look, people want to live here. You know, at
Speaker 1: the end of the day, you know, I'm a native
Speaker 1: San Francisco. I was born here, and it kills me
Speaker 1: when people who have moved here ten fifteen, two years
Speaker 1: ago say, oh, the city has changed, the city has changed.
Speaker 1: And I say to them, Okay, here's the deal. If
Speaker 1: you don't want to live in a dynamic, diverse, totally
Speaker 1: exciting city, moved to with all due respect to Peka,
Speaker 1: moved to a small town in the Midwest. It will
Speaker 1: be fine, you'll enjoy it. It'll be great. Go with
Speaker 1: the one sing. But if you want to be in
Speaker 1: a dynamic city that you know, you've got food, you've
Speaker 1: got arts, you've got you know, you can go skiing
Speaker 1: into I was you know, this is it? People want
Speaker 1: to live here? Yeah? Well, and I hear you and
Speaker 1: and and you know, just to speak to what you're
Speaker 1: talking about, Paul. As we were driving in and we
Speaker 1: just saw all the cranes just coming up. I mean
Speaker 1: every couple of feet you just see a crane, just
Speaker 1: buildings coming up. I'm wondering. You're talking about how you
Speaker 1: haven't bought anything since two thousand fourteen. Are you selling?
Speaker 1: We have sold a couple of things. We have sold.
Speaker 1: We're very good buyers and were terrible sellers. What do
Speaker 1: you mean by that? I don't like to sell, but
Speaker 1: I never met anything I didn't want to buy. But
Speaker 1: but but I'm wondering, were you compelled to sell because
Speaker 1: because the prices were just so high? No, that's not
Speaker 1: my that would not be my motive. If that won't be,
Speaker 1: then I'd be out. Then I would retire and just
Speaker 1: play golf. That's why would just sell the business. Because
Speaker 1: keep so keep in mind are the way we have
Speaker 1: constructed our small business is it's all about cash flow.
Speaker 1: People say to me, what's your portfolio worth? I have
Speaker 1: no idea, and I could care less. It's worth what
Speaker 1: someone's gonna buy it, but it's gonna pay me for.
Speaker 1: The things we have sold have been like a single
Speaker 1: tenant building that was sort of special purpose. The tenant
Speaker 1: wanted to buy it, a user wanted to buy it.
Speaker 1: They were more strategic sales than they were um aspirational sales.
Speaker 1: Let's call it, you know, or taking advantage of this
Speaker 1: heated market. Because our our whole thing is that we
Speaker 1: would rather have met really good and healthy cash flows
Speaker 1: to disperse to our partners and to ourselves than worry
Speaker 1: about value. Because the rent is more important to us
Speaker 1: are the are the lending Is the lending community here
Speaker 1: concerned about the I would be, But the capital is
Speaker 1: still available. It's still available because it's yes, the capital
Speaker 1: is absolutely still available. We're speaking with Susan Loeenberg, president
Speaker 1: of the Loenberg Corporation, who is speaking here at the
Speaker 1: Eisneramper real Estate Summit in San Francisco. I'm curious you
Speaker 1: said that we're not heading toward another two thousand and
Speaker 1: eight collapse. Can you give us some analogy? What are
Speaker 1: we heading towards a correction? So what does that look like?
Speaker 1: I think it's I think it's I think it could
Speaker 1: be twenty. I think it could be twenty depending on
Speaker 1: what happens with trade. So now, okay, here's something in
Speaker 1: verse that's gonna totally countersay what I'm doing. So now,
Speaker 1: with China, my understanding is in the wine industry, where
Speaker 1: we're very heavy, um wine is not they're putting the
Speaker 1: brakes on exporting wine to China because China saying, oh, well,
Speaker 1: you know you want they're playing that game, Well, they
Speaker 1: gotta put it somewhere. Every year, that wine's got to
Speaker 1: come off the vines. It can come out. I mean
Speaker 1: we can arrange. Okay, well, I'm gonna put my single up.
Speaker 1: We can easily have stiff delivered to you. You mentioned
Speaker 1: the Wine country. How did the fires impact any of
Speaker 1: your properties because there was such terrible news, such terrible loss. Yeah,
Speaker 1: it didn't affect it at all. We had it virtually
Speaker 1: had no effect other than my partner's calling me constantly saying,
Speaker 1: have we burned down yet? And I'm saying no, we're fined.
Speaker 1: But but but it does raise a question, especially as
Speaker 1: we hear about climate change and some of the effects
Speaker 1: with respect to drought, with respect to fires in California,
Speaker 1: how how are your colleagues responding to that. I think
Speaker 1: everybody's got their head in the sand. I don't think
Speaker 1: people were really responding to it. All. That must stand
Speaker 1: in high value since it sounds great. But yeah, this
Speaker 1: sounds like it's not going to topple that much though,
Speaker 1: because you just have there's too much demand to be here.
Speaker 1: People want to live here. It's a great place. First
Speaker 1: of all, if you're in I guess Austin, Texas would
Speaker 1: be one. You could truck it in from Houston, you could,
Speaker 1: you know, if that's where your markets. But so much product.
Speaker 1: I have an apartment that overlooks the bay, and thank
Speaker 1: you very much, and I'll probably lose it in the
Speaker 1: downtown because but you see just containership after containership after
Speaker 1: containership coming through the bay, and then you see these
Speaker 1: ships leave half filled. I mean, there are so many
Speaker 1: products coming in here that are being distributed from here. Yeah.
Speaker 1: What about the tax changes. I mean, I know that
Speaker 1: people have been talking about how, you know, this faut deductions,
Speaker 1: how that's affecting property values and it's affecting where people
Speaker 1: are deciding to live. I mean, I understand with industrial
Speaker 1: properties is a lag time with respect to where people live,
Speaker 1: and then how that affects into the commercial properties. But
Speaker 1: I'm just wondering, you know, is that something that people
Speaker 1: are talking a lot about. You know, I I would
Speaker 1: be nervous, to be honest with you about if I
Speaker 1: were a homebuilder, I'd be kind of I'd be a
Speaker 1: little nervous right now. I'd be cautious about what I
Speaker 1: were going to bring out of the ground because I'll
Speaker 1: give you an example. Um, my assistant, I've got her
Speaker 1: into a house. It was great, she she saved it
Speaker 1: was you know, I showed her how it would all work,
Speaker 1: and she could deduct the interest in the property tax
Speaker 1: as well. Her deduction. She got back last year four
Speaker 1: thousand dollars, she told me this year she got yeah. Right.
Speaker 1: But she's in the house though, so she's not gonna
Speaker 1: go She's not going to lose the house. She's just
Speaker 1: not going to spend as much, right because she doesn't
Speaker 1: have that extra whatever. The number is twenty one dollars
Speaker 1: to go maybe buy some new clothes or buy a
Speaker 1: washer dryer. So that's going to have some effect. And
Speaker 1: that's we and we've seen that on the East Coast
Speaker 1: as well in the metro New York area. Susan Loenburg,
Speaker 1: thank you so much. Susan as president of Lohenburg Corporation,
Speaker 1: joining us live here in San Francisco at the Eisener
Speaker 1: Amper real Estate Conferences, and thank you so much. Well,
Speaker 1: we're about halfway through the first quarter earning season. I
Speaker 1: think by and large we're going into earnings people where
Speaker 1: I think pretty bears looking for three to four decline
Speaker 1: in SMP earnings numbers seem to have come in a
Speaker 1: little bit better. To see how much better we welcome
Speaker 1: our next guest, Gina Martin Adams. Gina is the chief
Speaker 1: equity strategist for Bloomberg Intelligence. She is in the Bloomberg
Speaker 1: eleven three oh studio. Gina, thanks so much for joining us.
Speaker 1: What is your take here a little more than halfway
Speaker 1: through the quarterly earning season? Um, thank you for having me, Paul.
Speaker 1: So far, so good. As you alluded to, expectations were
Speaker 1: pretty low, so you know, take it for what it's worth,
Speaker 1: but companies are on track to print about a one
Speaker 1: percent decline in earnings year over year. That assumes that
Speaker 1: everyone who was reported, plus all of the expectations come
Speaker 1: in as as expected, we'll get about a one percent
Speaker 1: to client in earnings on a year of a year basis.
Speaker 1: That's obviously substantially better than the four point one percent
Speaker 1: to client that analysts were expecting at the start of
Speaker 1: the season. So companies are beating what I would have
Speaker 1: considered to be a very low bar. The big change
Speaker 1: over the last week relative to prior weeks was actually
Speaker 1: we had more companies even guide for better earnings for
Speaker 1: as a whole than guided lower. And this is a
Speaker 1: big shift because for months and months and months now
Speaker 1: we've had companies, you know, kind of hammering down forward
Speaker 1: expectations as a component of every earning season. If we
Speaker 1: can continue to see this recovery and guidance emerge, and
Speaker 1: then then over the next several weeks, that could really
Speaker 1: start to shift expectations and change some people's opinions with
Speaker 1: respect to the outlook for earnings. I I don't think
Speaker 1: a lot of people are expecting a whole lot this year.
Speaker 1: This is important. I want to just make sure we
Speaker 1: get that right and kind of hammer at home or
Speaker 1: the past week, more companies have upgraded guidance going forward
Speaker 1: for the rest of the year. Uh than anything else.
Speaker 1: That's really interesting to me. I'm wondering where is that
Speaker 1: growth coming from. Well, it's unfortunately so what we find
Speaker 1: is very few companies actually provide guidance anymore these days,
Speaker 1: so we don't want to read too much into it.
Speaker 1: But frankly, the biggest driver of the turnaround in growth
Speaker 1: is a turnaround from earning suppression in the first half
Speaker 1: to slightly better performance in the second half for more
Speaker 1: cyclical industries, in particular those industries that are exposed to
Speaker 1: overseas economic conditions. Tech and industrials really stand out. UH.
Speaker 1: Groups that had a bigger compression and earnings expectations on
Speaker 1: tougher comparisons in the first half of this year. Their
Speaker 1: comparisons ease into the second half year. Some of that
Speaker 1: is due to tax so it's uh, you know, it's
Speaker 1: it's not one big story driving recovery. I think it's
Speaker 1: different industries and sectors that are experiencing really strong decline
Speaker 1: in the first half of this year, with a modest
Speaker 1: bounce back expected in the second half. So, Jeanne, we
Speaker 1: heard from the Fed and the chairman yesterday kind of
Speaker 1: still on the sidelines, kind of status quo. So my
Speaker 1: guess is that kind of brings the earnings picture or
Speaker 1: keeps the earnings picture very much in focus for investors.
Speaker 1: So how do you think about the back half of
Speaker 1: the year. Clearly, I think the expectations were for a
Speaker 1: better second half of the year. Uh does that still
Speaker 1: hold for you? Yeah, it does. I think for the
Speaker 1: market it's going to be a story of more give
Speaker 1: and take. Right, the first part of this year has
Speaker 1: been all about valuation expansion driven by much easier than
Speaker 1: expected FED policy, at least much easier than expected back
Speaker 1: in December, right, and that shift in FED policy has
Speaker 1: allowed for rally and bonds, which has elevated valuations in
Speaker 1: the equity market. Now, the FED seems to be pretty
Speaker 1: you know, it was presenting a pretty persistent message of yes,
Speaker 1: we're on hold. We don't know if that next move
Speaker 1: is going to be up or down, so we're data dependent.
Speaker 1: Now that creates a different environment for stocks, right. We've
Speaker 1: alrea rerated to anticipate much easier monetary conditions going forward.
Speaker 1: We have to contend with this whole is a Goldilocks
Speaker 1: or is it not? Because if growth gets too hot,
Speaker 1: that's great for earnings, but that's not great for bond
Speaker 1: prices and multiples. It's not great for our anticipated FED
Speaker 1: increase um. Right, So I think that you could have
Speaker 1: tighter monetary policies slightly offset better growth into the second half,
Speaker 1: which just creates a more volatile condition, a dicier situation
Speaker 1: for stocks than that which existed in the first half.
Speaker 1: It doesn't necessarily eliminate the overall bolt trend. So I
Speaker 1: want to get your sense on the micro aspects of
Speaker 1: the macro that we're seeing. We saw productivity jump the
Speaker 1: most since two thousand fourteen in the first quarter. I'm
Speaker 1: wondering how much of this is people are actually, uh,
Speaker 1: you know, just working harder and then are going to
Speaker 1: get paid for it. And how much is it that frankly,
Speaker 1: companies don't have to pay people as much as perhaps
Speaker 1: they would have otherwise had to pay them, and they're
Speaker 1: just working harder. In other words, Uh, those margin part
Speaker 1: where it's just aren't there to the degree that we
Speaker 1: expected them to be. Right, Yeah, I think that that's
Speaker 1: a really good point, Lisa, And it's um, you know,
Speaker 1: the answer is very tbd. I think one of the
Speaker 1: things we struggle with is economic data, you know, is
Speaker 1: going to very accurately capture what we pay in a
Speaker 1: monetary wage, but may not accurately accurately capture payments of
Speaker 1: other forms. Right, increasingly, individuals um in the workforce are
Speaker 1: getting paid via healthcare allowance, they're getting paid via other
Speaker 1: forms of benefits, not necessarily through accelerating wages, which are
Speaker 1: much easier to measure so as opposed to you know,
Speaker 1: flash back to the nineteen fifties and nineteen sixties when
Speaker 1: a lot of these measurements were developed. You could just
Speaker 1: measure an average hourly wage. Now half of our workforce
Speaker 1: is on a salary, not an average hourly wage UM.
Speaker 1: Many of our much of our workforce has you know,
Speaker 1: additional benefits that are paid through corporations. That was certainly
Speaker 1: not the case fifty years ago. So I think part
Speaker 1: of it is a measurement issue. What we see in
Speaker 1: the SMP five hundred, frankly, is quite a bit of
Speaker 1: evidence that suggests companies have a degree of pricing power
Speaker 1: UM instead of recording sort of pressures with respect to
Speaker 1: escalating payments to companies. The pressures on the margin lines
Speaker 1: are more about companies spending a little bit too much
Speaker 1: an environment of slower revenue growth. So there's a lot
Speaker 1: of moving parts in this story. I'd say that the
Speaker 1: biggest the biggest problem is the economic data doesn't always
Speaker 1: match up with the experience of corporate America. So, Gina, we're,
Speaker 1: you know, ten plus years into this economic cycle, we've
Speaker 1: stock markets back are near all all time highs. What
Speaker 1: sectors tend to perform better in such an environment? I mean,
Speaker 1: work should investors kind of be thinking from a sector perspective? Yeah,
Speaker 1: I think every cycle is different, UM. In terms of
Speaker 1: our sector allocation model. Right now, it implies that you
Speaker 1: probably want to approach the market with something of a
Speaker 1: barbelled strategy where and it fits very well with this
Speaker 1: notion that the easy gains are done. We're moving from
Speaker 1: an environment in which the rising tide lifted all boats
Speaker 1: to an environment where investors have to contend with Yes,
Speaker 1: earnings growth is probably going to improve, but if it does,
Speaker 1: it probably means that the economy is strengthening, and that
Speaker 1: may mean tighter monetary policy going forward. So you balance
Speaker 1: those two things, and I think the result of that
Speaker 1: is you want to mix of cyclical and defensive industries
Speaker 1: toward the top of your sector allocation. One thing we've
Speaker 1: seen all cycle is growth stocks outperforming value stocks. I
Speaker 1: don't think any evidence has a surface to suggest that
Speaker 1: that strategy is suddenly going to flip on its head.
Speaker 1: Growth is still very very much in demand, still continues
Speaker 1: to outperform value, despite you know, investors that are pounding
Speaker 1: the table on these valuations spreads widening. I think structurally,
Speaker 1: when you're an environment of very very slow growth and
Speaker 1: very little inflation pressure with a flat yield curve, it's
Speaker 1: just it just promotes gross Gina Martin Adams, thank you
Speaker 1: so much for taking the time out of your very
Speaker 1: busy schedule. Gina Martin Adams, Chief Equities, try to just
Speaker 1: for Bloomberg Intelligence, and when she talks about a flat
Speaker 1: yield curve, indeed go and I think San Francisco most
Speaker 1: people would agree as kind of the birthplace of the
Speaker 1: gig economy. Start your own company, start your own website,
Speaker 1: start your own app. But when you do that, you
Speaker 1: need a place to work. And that is why shared
Speaker 1: workplaces have become really commonplace in this new economy. Elton
Speaker 1: Quas a general manager for the North California region for
Speaker 1: we work on the largest shared workspace companies. He joins
Speaker 1: us here live Alton. Thanks for joining us. Thank you
Speaker 1: so much for having me. I mean, you've got to
Speaker 1: have the easiest job in the world. I mean I
Speaker 1: could rent space in the Northern California Bay Area market.
Speaker 1: How hot is it. It's amazing. So we started off
Speaker 1: here in the Bay Area in two thousand and eleven.
Speaker 1: The company we work started in New York City in
Speaker 1: two thousand ten, and since then we have thirty locations
Speaker 1: here in the Bay Area over ten cities. Uh So
Speaker 1: we go anywhere from San Jose all the way up
Speaker 1: to Mill Valley, and then we just recently announced Sacramento
Speaker 1: as well. So no matter where you live or work,
Speaker 1: you have a place to be. So one thing that
Speaker 1: I'm struggling to understand is what's the barrier to entry here,
Speaker 1: especially as other community commercial real estate operators start to think,
Speaker 1: you know what, the gig economy is here to stay.
Speaker 1: We're gonna do cooperative workspace to definitely. So as a member,
Speaker 1: there's actually no barrier to entry. What we do is
Speaker 1: we provide flexible workspaces for any size of company. So
Speaker 1: whether you're a fortune or you're entrepreneur, you could sign
Speaker 1: up today and start working tomorrow. Actually um, and you
Speaker 1: don't have to pay the capital expenses, you don't have
Speaker 1: to design the offices, everything is done for you. Um.
Speaker 1: If you are another I guess industry leader trying to
Speaker 1: get into the coworking space, that might be a little
Speaker 1: bit tough, just because we have foreigner locations around the
Speaker 1: world and that is continually to grow. Every single day.
Speaker 1: On average, we actually open two locations a day, which
Speaker 1: is pretty exciting globally. And what what why that's important
Speaker 1: is because a member at one location is a member
Speaker 1: around the globe, and you really have membership anywhere, and
Speaker 1: so you have a home in a place to work.
Speaker 1: So what is kind of a typical We Work member
Speaker 1: UM is it kind of a single purses and a
Speaker 1: small company. What's a typical one looked like? Absolutely? So.
Speaker 1: Our enterprise business is growing tremendously, and we started that
Speaker 1: in two thousand seventeen. Really, UH overt of our member
Speaker 1: base now is enterprise companies and they take full floors,
Speaker 1: they take an entire building, and we do everything full
Speaker 1: service for them, from designing building and then operating the
Speaker 1: space with our community management teams. UH so that is
Speaker 1: a growing segment. We also have an MLB segment where
Speaker 1: if you're medium to large sized business, you can get
Speaker 1: a full space a headquarters space for you, so no
Speaker 1: longer you have to go through the hasshole of finding
Speaker 1: your own real estate and then finding your own general
Speaker 1: contractor and then arc texture firm. All that is provided
Speaker 1: UH through us, which makes it really easy. And then
Speaker 1: we have the creative community that is part of the
Speaker 1: UH we Work community, and that is our heart and
Speaker 1: bread and butter, and it keeps the energy alive in
Speaker 1: our spaces and in every single We Work location that
Speaker 1: you go to, you'll see a membership level such as
Speaker 1: hot desk or dedicated desk or some private offices that
Speaker 1: are for the smaller UH companies to allow them to groom,
Speaker 1: and we also connect them with other community members to grow.
Speaker 1: So we worked a file confidentially for an initial public offering,
Speaker 1: and it raises a question about the growth opportunity. You're
Speaker 1: talking about some of the growth areas, but the degree
Speaker 1: to which growth and can accelerate given the fact that
Speaker 1: we Work, I believe is the biggest commercial property user
Speaker 1: in both San Francisco as well as in New York.
Speaker 1: So already kind of saturated in those areas. Given that fact,
Speaker 1: I mean, these are all sort of marginal sort of gains,
Speaker 1: is there another sort of big acceleration in the growth
Speaker 1: of We Work. So what I would say in terms
Speaker 1: of we Work is where global platform and with our
Speaker 1: member or base, we can do a lot with that.
Speaker 1: UM the WE company as a whole now has different
Speaker 1: avenues and business lines that UM we play a part in.
Speaker 1: So we have we Work, which is the workspace mission,
Speaker 1: and then we have we Live, which is our living mission,
Speaker 1: and then we have we Grow, which is our education mission.
Speaker 1: So through that we're building really communities outside the walls
Speaker 1: of just we work. How much attraction have you gotten
Speaker 1: with we Live and we Grow? So the two of
Speaker 1: those are just beginning and they're really exciting. We're getting
Speaker 1: a lot of demand. Both of them are in New
Speaker 1: York City right now. Um, we're looking for expansion, but
Speaker 1: those are just in the early stages and I think
Speaker 1: there's a bright future ahead for us. So in this
Speaker 1: Northern California Bay Area, we've heard all day how expensive
Speaker 1: real estate it is, how new construction is expensive. What
Speaker 1: are the economics for we work in this marketplace? Definitely?
Speaker 1: So for we Work, I think the value add that
Speaker 1: we're able to provide for companies coming into the Bay
Speaker 1: area is a flexible workspace. And as you know, today,
Speaker 1: companies are so agile, they're growing so fast, their headcount
Speaker 1: projections are changing every single day, and the lexibility allows
Speaker 1: them to really kind of take care of their business
Speaker 1: and not have to work about the facilities management aspect
Speaker 1: aspect or the office space management aspect. And if you're
Speaker 1: adding another ten two hundred people tomorrow, you need the
Speaker 1: flexible space to grow without adding a tenure lease, and
Speaker 1: we Work allows you to do that on flexible terms
Speaker 1: but costly for you to get the most for you
Speaker 1: to get this space, it's very expensive, so you're bearing
Speaker 1: that big cost, right. We have relationships with some of
Speaker 1: the largest landlords and we continue to grow that presence
Speaker 1: and the portfolio presence with landlords across the world. Really
Speaker 1: uh So, definitely, it is expensive we work, and um
Speaker 1: I would say the real estate market here is expensive.
Speaker 1: But I think the beauty about we work is we're
Speaker 1: able to go into any city around the world, and
Speaker 1: our entrance into San Mateo or entrance into Palo Alto
Speaker 1: or entrance into Sacramento are just a few examples where
Speaker 1: we're able to connect the workforce to the places where
Speaker 1: people want to work, which also decreases commute times for
Speaker 1: a lot of people. So companies don't necessarily need to
Speaker 1: be in San Francisco exactly. Yes, we know that a
Speaker 1: lot of tech companies want to have presents, but they
Speaker 1: don't need to have their entire headquarters here, and we
Speaker 1: provide them with the agile warkspaceed solution to to provide
Speaker 1: for that. But if they also want to have a
Speaker 1: presence in San Jose as well as San Francisco, they
Speaker 1: can do that and they don't have to work with
Speaker 1: too many different operators to make that happen. Elton Quark,
Speaker 1: thank you so much for spending the time. Elton Quacks,
Speaker 1: general manager for the Northern California region at We were
Speaker 1: joining us here from the Eisner amper A real estate
Speaker 1: summit in San Francisco. Tesla is in the market with
Speaker 1: an offering of stock and bonds a little over two
Speaker 1: billion dollars as it tries to shore up its balance sheet.
Speaker 1: To see get some deeper analysis of this, we welcome
Speaker 1: Joel Levington. Joel is a senior credit analyst for Blueberg Intelligence.
Speaker 1: He joins us on the phone. Joel, thanks so much
Speaker 1: for joining us. Uh, it seems like a move in
Speaker 1: the right direction for this company in terms of its
Speaker 1: balance sheet. Is it enough? Paul, You're You're absolutely right,
Speaker 1: and uh, I think it is enough, certainly for if
Speaker 1: you assume that the company should be at least re
Speaker 1: cash flow break even, and I think it should be
Speaker 1: a little bit better than that. It should be able
Speaker 1: to pay down all of its deep maturities over the
Speaker 1: timeframe and also keep a decent amount of liquidity on
Speaker 1: the balance sheet. So Joel, can we just talk about
Speaker 1: the capitulation here, because This really is capitulation. And basically
Speaker 1: Elon Mosk have been coming out and saying we don't
Speaker 1: need more capital, We're doing great. Now it comes out
Speaker 1: we need more capital. We need it from the equity markets.
Speaker 1: We needed for the depth markets. I mean, what what
Speaker 1: caused this this sort of turnaround here? Well, I think
Speaker 1: it boils down to Lisa is operational execution. You know,
Speaker 1: if you look at what he was saying on the
Speaker 1: earning skulls just a week ago, is that he really
Speaker 1: wanted to hold capital tight and force his company to
Speaker 1: perform better. That hasn't worked out the way that he
Speaker 1: had hoped for and as a result needs additional liquidity.
Speaker 1: So I would say, you know, he on his company,
Speaker 1: the company hasn't performed the way it needs to and
Speaker 1: hence needs the band aid of additional liquidity right now.
Speaker 1: So Joel Health has uh testlas bonds performed. It's I mean,
Speaker 1: if you're if you're a bond investoris company, you're really
Speaker 1: taking some risk here. The company, as you know that
Speaker 1: really hasn't had any They've been free cash flow negative.
Speaker 1: So how have the bonds performed and kind of what's
Speaker 1: the expectation here? Sure, that's a great question. Uh, the
Speaker 1: bonds actually traded in a pretty narrow range between eighty
Speaker 1: four and eighty eight dollars. Uh, you know over the
Speaker 1: past year or so, and today they're up about a
Speaker 1: point and a half, so at about eighty six and
Speaker 1: a half, so the rate in the range that they
Speaker 1: have been. That said, the auto sector has performed very
Speaker 1: well this year on on risk adjusted returns, and so
Speaker 1: it has been a major laggard. So you know, like,
Speaker 1: where do you go from here? I don't really think
Speaker 1: it breaks out of its range until it can show
Speaker 1: some operational improvement. If that's shown, I do think that
Speaker 1: you could see the bonds, um, you know, see more
Speaker 1: mean reversion than what's already happened today. So I'm struggling
Speaker 1: a great You did put this in a perspective in
Speaker 1: a really great way tool, which is basically, yeah, there's
Speaker 1: a rally, but it's pretty tepid. Right, We're not talking
Speaker 1: about massive gains here in the bonds. I'm trying to
Speaker 1: figure out why investors are constructive at all on this
Speaker 1: capital ray has given the fact that Tesla seems to
Speaker 1: be burning through the through, burning through their cash and frankly,
Speaker 1: the capitulation does speak to execution issues. You're totally right, Lisa.
Speaker 1: I think we have a lot of deals that are
Speaker 1: going on, particularly in autos, which you know as an example, Addie,
Speaker 1: and it's the same thing a couple of weeks ago.
Speaker 1: It's really on the hope or promise for stronger tomorrow
Speaker 1: is what you're banking on if you're an investor right now,
Speaker 1: and that you know, at least with that with with
Speaker 1: both companies actually hasn't turned out to be the right call. Eventually,
Speaker 1: I think that will be for Tesla, but um, you know,
Speaker 1: again you kind of wonder how long it will be
Speaker 1: given that they've repeatedly missed expectations to me, I guess
Speaker 1: the key catalyst here after the liquidity event would be
Speaker 1: to get a CEO in place that would be a
Speaker 1: strong operator. How about a in your management team that
Speaker 1: actually stays um the yes right. So the question I
Speaker 1: have so if you're an equity or or bond investor here,
Speaker 1: what is what's kind of the metrics the one or
Speaker 1: two metrics that you're looking at that from an operational
Speaker 1: perspective that tells you, hey, I think they've really got
Speaker 1: this thing going. That's a great question, Paul. I would
Speaker 1: say the two things that people really look to are
Speaker 1: the volume of production that comes out, and that's really
Speaker 1: on the model three. And I think what what people
Speaker 1: are really focused on is getting volume at seven thousand
Speaker 1: a week or higher. And then I think the other
Speaker 1: things you have to look at is operating margins UH
Speaker 1: and moving those towards peer like levels, which would be
Speaker 1: an even a margin somewhere and kind of like the
Speaker 1: nine to eleven percent range. If you could do that,
Speaker 1: you'd have a much stronger profile here at a certain point.
Speaker 1: Could the positive sort of movement that we're seeing in
Speaker 1: the bonds and the stocks the stock is up two
Speaker 1: also come from the fact that Elon Musk is sort
Speaker 1: of being realistic. I think so, and you know, I
Speaker 1: think really what's what's embedded into the stock are two issues.
Speaker 1: One was liquidity concern that would that continue to grow,
Speaker 1: and the other is the execution issue. Today, what you're
Speaker 1: seeing is an alleviation of the financial risk side. Right.
Speaker 1: The liquidity will be fine, it'll be sound, and it's
Speaker 1: a reminder that a fifty billion dollar company can go
Speaker 1: back into the capital markets and get more money if
Speaker 1: it needs to. The other side remains a wide open
Speaker 1: question and UM and unfortunately today you won't resolve that
Speaker 1: answer right but right now people are interested in the
Speaker 1: immedia and not necessarily the long term. Joel Lovington, thank
Speaker 1: you so much for being with us. Joe Lovington, Senior
Speaker 1: credit analyst for Bloomberg Intelligence. Thanks for listening to the
Speaker 1: Bloomberg PANL podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney,
Speaker 1: I'm on Twitter at pt Sweeney. I'm Lisa abram Woit's
Speaker 1: I'm on Twitter at Lisa A. Bramwo. WIT's one before
Speaker 1: the podcast. You can always catch us worldwide on Bloomberg
Speaker 1: Radio