Operator: Our next question comes from the line of Stephen MacLeod at BMO Capital.
Stephen MacLeod: Great. I appreciate the color. Just a couple of follow-up questions just relating to your commentary around the potential transaction activity picking up in the back half of next year. I’m just curious sort of how you could characterize your visibility into that? I mean, is that something that you’re hearing from your clients because they have demand pent up? Or is it more just a reflection of the macro backdrop and the rates backdrop? Just curious if you give a little bit of color there.
Jay Hennick: It’s a great question, Steve, because just 90 days ago, we gave you our best guess of — and probably not — it’s not best guess. It’s best information. Across the world on how we would be doing had market conditions remained as they were 90 days ago. And since then, we’ve seen substantial increases in interest rates. Everybody in the world is reading about lack of availability of credit and tougher credit conditions across the board. There is a lot of money in the private marketplace and being raised in private debt collection right now not yet implemented. And all of those things are having an impact on transactions. And so to me, this is just common to anybody that follows the industry when you have substantially rising interest rates, when it’s very difficult to get debt, when you’re looking at your existing portfolio and you’re saying I’ve got existing debt coming due in 12 months or 18 months and the interest rates are going to go up materially, my covenants are going to be offside, everybody in the industry is pausing, everybody.
Now there’s transactions that are happening on some trophy assets here or there. Banks are supporting their better customers but they’re supporting them at a substantially higher interest rates at low loan-to-value ratios. So when we think back to 90 days ago and see the drastic change, you’ve got to absolutely reflect on where is this going to go for the fourth quarter which we’re taking a much more conservative stance, as I said but the reality is, my view when you’re asking me for my view, my view is unless there’s stability in the marketplace around interest rates; one, unless we see lenders in the marketplace, providing debt at the same types of ratios as they did historically. And finally, sellers being more realistic about their price expectations, this is going to delay.
And that’s why we say it’s likely to be beyond the first half. Earlier in the year, we were expecting the fourth quarter to be quite strong actually, because we were expecting there to be some stability in interest rates. I don’t think anybody, anywhere in the industry anticipated the strict lending conditions and how they’ve evolved during the course of the year. So all of this to say, we remain unclear as to when that’s going to change. But when it does, it’s going to be a massive change and it’s going to happen, I think, relatively, it’s going to be slow at first but then it will take on a velocity because there’s lots of dry powder in the marketplace, banks have to lend in order to make money and there is a lot of people in the real estate sector.
It’s the biggest sector out there. So as Chris McLernon said earlier, we have for the past couple of years in our core business alone, forget all the work we’ve done around recurring revenue and how that’s transformed Colliers into a different type of diversifying services business and asset management business. We’ve invested heavily in our core business and we’re ready, willing and able to help clients not only buy and sell but most importantly finance — not most importantly but as importantly, finance those transactions. We just need a normalization to happen. So it’s — as operators in this business, it’s our job to keep our heads focused on what’s important and that is to have strong financial wherewithal, to capitalize on transactions, to continue to invest in your platform to call out costs in times like these that you can call out without having an impact necessarily on the strength of the business going forward.
So we’re doing all of those things and we believe that it’s going to translate into significant shareholder value at some point in the future. I just don’t know when it is, the end of — the middle of next year towards the end of next year, I don’t know.
Stephen MacLeod: That’s great color, Jay. And then I just wanted to follow up because I think it’s important. You mentioned, obviously, the recurring revenue business continues to hold in quite well which is significant piece of your evolution. Can you just talk a little bit about if you have any incremental color around the areas of relative strength and weakness within the O&A business? And how you see those potentially evolving going forward as well?
Jay Hennick: The beauty of our O&A business is that it is very stable. The — we’ve been very — and Chris might want to talk to this a little bit, property management for us has grown materially around the world. And it’s been, frankly, a surprise, I think, to us in some respects. And so that’s been a very positive sign. Project management continues to be very strong. And our project management is representing owners in major construction projects. And that piece of our business continues to be very strong. They are long-dated retainers, sometimes 5 and 7 years between a project beginning from estimate to completion. So we’re seeing those businesses grow considerably. Chris, is there any other areas that have been a surprise to you as you look across the board?
Chris McLernon: So I think what’s great is that in these regions, the Americas, EMEA and Asia Pacific, O&A is up year-over-year growth. So it’s balanced across the world. Some of the bright spots, Jay mentioned, property management. We’ve grown in the U.S. and this is new clients or expanding clients’ portfolios. And it’s time to see the growth in L.A., Chicago, New York, Atlanta, some of those bigger centers in the U.S. but also, you’re looking at the U.K., Netherlands, Finland, Poland, expanding property management. So it’s quite exciting there. The second pillar is our project management. We’ve got a fantastic business in India that is going all guns. Obviously, there’s strong GDP growth in India and we’re taking advantage of that.
We invested at the right time. So we’re seeing some real significant growth there. The acquisitions in Australia, New Zealand and engineering and project management are now fully integrated into the Colliers business and we’re seeing synergies on the revenue side and the cost side. So that’s quite exciting in the O&A space on a global basis.
