Bob Sulentic: Well, we expect it to grow slightly this year and likely more next year. There’s some choppiness in certain coastal markets, but the fact of the matter is some big occupiers are coming back into the market aggressively, some well-known companies, and we aren’t of the mind that leasing for the industrial asset class is going to decline this year or next year. We feel good about, it’s not going to have the explosive growth that it had in 2021, etcetera, but it’s, it’s not going to be a declining leasing of business in our view.
Operator: Thank you. The next question is coming from Michael Griffin of Citi. Please go ahead.
Michael Griffin: Great. Thanks. I wanted to go back to the commentary around office leasing. I think it definitely seemed positive relative to what maybe our expectations we’re, but can you unpack that in terms of where you’re seeing the leasing get done? Is it mostly on the trophy and Class A products, or is it spread out between the higher quality stuff and then more commodity space?
Bob Sulentic: A lot in the higher quality assets, Michael? We’re seeing record rental rates in some of the bigger markets in the higher quality assets New York, as an example. We’re seeing financial institutions and business services companies in particular taking more space. Tech is way down, but for us to have this leasing picture and tech be off the way it is, we view that as good news for us because there is nobody that pays attention to tech that thinks long run they won’t, A, get more of their people back in the office and B, grow, be disproportionate growers relative to the rest of the economy. So we expect that part of it to come back And then there are some second tier markets, may not be second tier forever, but what’s going on in Nashville is pretty well documented, and there are other places that have that flavor to them. So those are the things that are contributing to what we’re seeing in office leasing.
Michael Griffin: Thanks for that, Bob and Emma, you talked about, I think, the $50 million tax benefit in the quarter. Adjusting for this, I think it would be about $0.61 of earnings in the quarter. Is that the right run rate and cadence that we should think about to get to the midpoint of the full year guide, or how should we think about that.
Emma Giamartino: For the tax rate specifically for the year, it should be about, I think, a little over 19%. Excluding the tax benefit, it’s around 22%. Does that answer your question or are you just specific about.
Michael Griffin: Yeah, yeah, no, that does it and then just one last one. I noticed that you didn’t provide the 2025 outlook. I think relative to last quarter in your presentation, is the expectation still to return to peak earnings growth in ’25 or get close to it?
Emma Giamartino: Yes. And all of our discussion around the path to reaching peak earnings in 2025 is to provide a framework around how we’re thinking about the trajectory of our business, but that path has remained unchanged and we believe it’s achievable where we sit today and that’s driven by continued low double digit growth across our resilient lines of business at the SOP level and then on transactional side, the SOP does not need to get back to 2019 levels for us to achieve that record level of EPS next year. Great.
Operator: The next question is coming from Peter Abramowitz of Jefferies. Please go ahead.
Peter Abramowitz: Yes, thank you. So most of my questions have been asked, but just one on the transaction markets here. Cushman mentioned on their call, it seemed to be a pretty direct relationship in that investment sales, for them at least, were stronger to begin the first quarter when the rate outlook was much better, and it kind of slowed in March and April as rate expectations have gone up. So just trying to get a sense from what you see in your business in terms of the relationship between rate expectations near term and how things are happening on the ground. Just curious, your comments on kind of what you saw in the business as it directly relates from a rate perspective.
Emma Giamartino: So it varies across regions in the US. That is what we saw later in the quarter. There was an uptick as rates increased, but in EMEA and APAC, we didn’t see that trend, just given that there is different dynamics going on there and EMEA is ahead of the curve in terms of their recovery in the sales market.
Bob Sulentic: Got it. And then one other on the transaction market, could you just talk generally about kind of the role of distressed sales in the market? Have you seen that kind of start to thaw it all, whether in the first quarter or going forward?
Bob Sulentic: There’s been some distressed debt activity, selling of distressed debt. There’s also been some activity, I’d call it more pending activity, of selling debt portfolios that aren’t distressed just because people’s concern about their debt portfolios. They may sell non-distressed portfolios at a slight discount. The assets that are really distressed are office B&C office buildings, and there aren’t a lot of buyers in the market for those assets right now. We do expect that there will be buyers for those assets in the market, but the pricing probably has to come down more than it has.
Operator: The next question is from Patrick O’Shaughnessy of Raymond James. Please go ahead.
Patrick O’Shaughnessy: Hey, good morning. Just one question from me. In your prepared remarks, you spoke to investments in certain initiatives that you are discontinuing. Can you provide some color on what those are and to the extent that they were strategically important to you or not?
Bob Sulentic: Yeah, Patrick, they weren’t strategically important. We may have at one time thought they were more strategically important than we do now. In fact, that’s almost inevitable given that we were spending money on them and we’ve stopped. But what happens in a business that’s growing, and even though our sector in our company have slowed down considerably in the last couple of years, our GWS business hasn’t. That business has been growing. And when you have a growing business, you tend to look for opportunities to add initiatives to address the growth opportunity. You also tend to, because you have a lot of growth opportunity, take your eye off them a little bit when they don’t work and we built up some of that across GWS.
The fact of the matter is though, if you look at that business for the quarter, that was a m of $5.8 billion revenue business. The cost problem that we had net of this medical issue that Emma described is in the $15 million to $20 million range, spread across a $5.5 billion plus business. So it was lots of little things here and there. None of our strategically important efforts in that business have changed in any significant way. We haven’t. I mentioned earlier in my comments, we have a big strategy effort underway with our strategy team now. We’re looking at the parts of the business where we think there’s real growth opportunity and where we intend to invest in a big way and our view of the growth opportunity with enterprise FM customers, with project management, for corporates, with project management, for green energy and for infrastructure, with our local FM business, none of our broad based growth aspirations or growth initiatives have been altered as a result of the cost issues that we’re after now and what we’ve been talking about.
Operator: The next question is coming from Anthony Palloni of JPMorgan. Please go ahead.
Anthony Paolone: Thanks. I think you may have just answered this, Bob. I was just going to ask about that sort of the other half of the costs outside of medical that crept up on you in GWS, like kind of what happened there and just how it changed so quickly in like, I guess the last few months. So I don’t know if you had anything else to add on that front.
Bob Sulentic: Yeah, Anthony, I’ll add. First of all, I really think to put it in perspective, you got to pay attention to the size of that number relative to the size of that business. Again, it’s $15 million to $20 million of cost that hit the bottom line in a negative way relative to what we had expected if you ignore the medical thing, roughly. Is that right? Okay. And again, that was a $5.5 billion plus business. It’s a little bit of cost here and there, but it’s something we stay on very closely, and we’ve taken aggressive action in that business to already address it. We think most of what will need to be done to correct the problems that we saw in that business will be done this quarter. And we’ve also done some rationalization across our whole services business, which resulted in those businesses reporting to our Chief Operating Officer, Vikram Kohli, and elimination of leadership layer at the CEO level of those businesses.
And there’ll be other actions consistent with that down through the businesses.
Operator: Thank you. At this time, I would like to turn the floor back over to Bob Sulentic, Chairman and CEO, for closing comments.
Bob Sulentic: Thanks, everyone for being with us and we look forward to discussing our second quarter with you in about 90 days.
Operator: Ladies and gentlemen, thank you for your participation and interest in CBRE. This concludes today’s event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
