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Spencer Levy
2023 was indeed a milestone year for The Weekly Take as we passed 1 million listens and counting. But it was a complicated one for the commercial real estate business. 2023 can really be summed up with capital markets versus fundamentals. The bottom line is the capital markets environment is really tough with interest rates at near highs for years. But fundamentals are actually quite good in most asset classes with the exception of commodity office. And so the real question we deal with going ahead is whether the fundamentals will hang in there while the capital markets begin to heal. Here on the show, we tackle big questions about everything from market conditions to labor issues to the mysteries of new technologies and more. The impacts of global events and economic complexities affected the narrative all the time, moving more quickly perhaps than ever, and changing traditional ways of thinking about real estate. The prevailing theme, you might say, was uncertainty. And that's why our goal was always and always has been to offer a variety of useful perspectives to keep you informed, no matter how much change is in the air. On this episode, we rewind for one more dose of insights to carry us into the New Year with a nod to everyone who came on the show.
Gene Seroka
Thank you, Spencer.
Toya Everett
Thanks for having me.
Haim Israel
It's a pleasure to be here.
Michelle Butters
Thanks for the opportunity.
Cedric Bobo
Thank you for having me. This is fun.
Spencer Levy
Coming up, 2023 in review. I'm Spencer Levy, and that's right now in our annual yearly take on The Weekly Take.
Julie Ingersoll
Well, I would say the crystal ball’s ever been murkier.
Spencer Levy
With those words from Julie Ingersoll of CBRE Investment Management, we turn back the clock to learn from the trends and developments of 2023. It was indeed a year of murkiness across many sectors and business lines around the world. Now let's rewind.
Spencer Levy (clip)
Welcome to The Weekly Take. And this week, we're going to be talking about our 2023 outlook with…
Spencer Levy
Back in January, our programming season began as usual, with CBRE’s Global Chief Economist Richard Barkham leading our annual Market Outlook episode. From the get-go, it was clear that 2023 had the potential to be unlike any in recent memory.
Richard Barkham
Inflation isn't going to drop like a stone, but it will decrease over the course of 2023, allowing rates to be cut and a revival in the economy in 2024. That's the big picture.
Spencer Levy
Turns out Richard was right on the mark with his big picture assessment of slowing inflation, especially in the U.S. On the other hand, there were no rate cuts this year. Clearly, this was a tough year to forecast. We'll have Richard back in January for a new assessment and an updated outlook for 2024. But now let's continue our look at this year, turning next to a deeper review of the capital markets.
JP Conklin
Right now, there is a general overall freeze in the debt capital markets. I think lenders are struggling with how to underwrite interest rate exposure. I think borrowers are struggling with how to underwrite a deal with so much uncertainty around this Fed tightening cycle.
Spencer Levy
That was JP Conklin, the founder and president of Pensford Capital, who also hosts his own podcast known as The Rate Guy. JP joined us last spring along with Kelli Carhart, Head of CBRE’s Multifamily Capital Markets. We spoke shortly before the Fed's highly anticipated pause in rate hikes last summer.
JP Conklin
There's just a lot of uncertainty. I think everyone's really just waiting for a Fed pause so that they can start dipping their toes back in the water.
Spencer Levy (clip)
Kelli, what's your perspective?
Kelli Carhart
Yeah, I mean, it's certainly challenging. I mean, interest rates have doubled from where they were a year ago, which means we have a serious crimp on transactional volume, not only on debt but on investment sales transactions nationally. If you think about five-plus percent rates, I think the inflection point for people to want to transact is probably right around 5%. And today we're getting closer to that, which makes me optimistic that this freeze will maybe thaw a bit.
Spencer Levy
The Fed did indeed pause, then continued hiking and holding rates as the year went on. Meanwhile, many investors remained on the sidelines as it played out. In the fall, we revisited the capital markets with Cathy Marcus, Global Chief Operating Officer and Head of U.S. Equity for PGIM Jim Real Estate. She offered wider historical context, adding that clarity in the markets would take time to emerge.
Cathy Marcus
Compared to the S&L crisis. I see this very different because of the supply and because of the fundamentals. When I think about the global financial crisis, that was a very steep and traumatic fall from where we were. But it happened. It happened very quickly. Values corrected and the entire world sort of changed, whereas during this period of time it hasn't been quick and it hasn't been a universal recession, you know, lots and lots of issues with the job market. I mean, it's just so different in that way. And what we're seeing is really what you might consider to be a real estate recession. Now, you were the research person, but a real estate recession, that is not happening at the same time as an overall economic recession. And that's, I think, to me is the main difference and why it's very difficult to really predict what's going to happen here and how long it's going to take for this repricing. Because I at least have never experienced a repricing that is actually, I think from start to finish, the exercise is going to be measured in years, not quarters.
Spencer Levy
The waiting game has continued into Q4 as we hit the air – the capital markets remaining relatively quiet as the year draws to a close. But let's now focus on some of the specific sectors we've explored this year, starting with Office.
Hitendra Wadwha
I have a lot of empathy for what your industry is going through, leading to such a tectonic shift in the relationship between work, workers and workplace.
Spencer Levy
That was author and Columbia University professor Hitendra Wadhwa, who voiced cold comfort to what everyone in workplace real estate was feeling. Owners, operators and occupiers everywhere have been trying to solve the office puzzle since the pandemic ended. It's a vital area of focus at CBRE.
Julie Whelan
We know that employees want flexibility. Our Global Live-Work-Shop survey made that crystal clear. But they also want different things, and they want things like time in the office to develop their career. They want to be able to learn from mentors. They want to be able to be social with work friends. They want to frankly be part of an environment that gives them a better experience than they might have in their home office.
Spencer Levy
CBRE’s Global Head of Occupier Research Julie Whalen leads a team that's constantly exploring the office landscape around the world. Every year, Julie comes on the show to present the findings of CBRE’s Annual Office Occupiers Survey. And with office continuing to be an evolving issue. We wanted to share some perspective that didn't make the air at the time. In hindsight, I think it offers some valuable advice.
Julie Whelan
This journey is unfolding. It's a journey because we probably will never in our careers get to the end state because there's always constant and continuous improvement. But organizations are learning new ways, and we do believe that as you are creating these new experiences, creating these experiments within your workplaces, that sitting back and seeing what you want your outcome to be, and then creating and measuring the data that helps you understand quickly whether or not your strategies are working or not, and being able to execute on what is working and pull back on what's not working is really, really important. Which is why we think a project management office of being able to make sure that you have a long term vision and that your short term decisions are tied with that long term vision is so important. But the reality is that most organizations are still thinking in a relatively short-term way, and they don't have those larger organizations set up that are cross-functional, that are looking at that longer term vision. So if there's one area of improvement that I think that organizations could probably engage with, it would be that – really trying to look at the long term vision and finding ways in the short term to measure and engage with that.
Spencer Levy
Vibrancy and experience are other big words that emerge in the word cloud of workplace essentials this year. And we heard from lots of occupiers who are still wrestling with how to build these attractive qualities into their real estate at the same time as they include hybrid options and flexible spaces. With that in mind, I also want to share some extended content from our episode that featured the co-working business Industrious.
Lenny Beaudoin
The reality is, during the pandemic, organizations had to give their employees agency to perform, and they did. They can't take that trust they’ve given their employees back. They need to leverage it by having a more thoughtful way of creating vibrant experiences.
Spencer Levy
CBRE’s Global Head of Workplace and Design Lenny Beaudoin, joined us alongside Industrious founder Jamie Hodari and John Stephens from CBRE Americas Consulting. Their consensus was that return to office is also about fostering a dynamic of trust between managers and talent. Here is more from Lenny.
Lenny Beaudoin
If employees are making a choice to be deliberate about their experience, whether it's going to an Industrious office, whether it's coming into a CBD, whether it's working remote for the day, if they feel like they're being intentional in what they're being asked to do, they feel empowered to do great things. And I think organizations have to recognize they can shape these circumstances. The choice we look at our office, the way that we create experiences around the office, all of those things can be highly intentional to really unlock the potential of their workforce. And I think the smart employers are thinking about their employees in that sense, and therefore they're making their real estate manifest around those principles of creating really vibrant experiences.
Spencer Levy
We heard this from a variety of occupiers, including some who have been reinventing their workplaces to bring people together with long-term vision in mind. Ford's real estate leader, Jim Dobleski told us about Fordland's efforts to do so as part of a community revitalization effort in downtown Detroit. And White Castle CEO Lisa Ingram, a.k.a. the Queen of Sliders, described how her family's 100-year-old burger business recently opened a new headquarters after the better part of a century to attract and retain talent with their unique culture and personality.
Lisa Ingram
We went from a building that had served us well for 80 some years, but was very closed off – lots of hallways, lots of offices – to our building now, which is very open. Lots of natural light. There are no offices. I do not have an office. Everybody is in cubicles because we really believe that that's part of our open and fun culture that for you to come out of your office and then engage with people versus being just at your desk. And having that engagement sort of happen serendipitously is really a fun thing about our brand. So we have we have a slide in our building that goes from the second floor down to the first floor, which is an homage to our retail plants, because in our retail plants are two packs of two sliders go from the spiral freezer up, and then they come down the slide into the packaging area. And so that's a fun way – if you're ever having a bad day at the office, you go down the slide, you smile like a five year old. So that's wonderful. We have a throne because what castle doesn't have a throne? So we have a throne that you can get your picture taken in with the scepter. When you've been around for 102 years, you have a lot of history. And so incorporating that history into the building. So there's a timeline that goes up the main stairwell. There's an interactive electronic board that you can touch, that you can see pictures and read about all of our Cravers Hall of Famers, which are our most loyal customers or the community involvement that we have at White Castle, which is a big focus for us, or the history of the company over 102 years. And then we also have in our old building, we had a lot of wood paneling and we have this beautiful mahogany desk that was my great grandfather's, my grandfather's and my father's. And it's a beautiful centerpiece in our open lobby area.
Spencer Levy (clip)
Well, by the way, you should know, I did go down the slider first time I was here. I will be going down it again today.
Lisa Ingram
Nice. It's always a good time.
Spencer Levy (clip)
It's always a good day at the office. Yes.
Spencer Levy
So as amenities go, a multistory slide may not be practical for everyone. But you know what did make a big impact across the business world this year? New kinds of technology – from the evolving digital economy to emerging proptech, and at the forefront of it all the seemingly rapid rise of artificial intelligence.
John Stecher
Stepping back, I'm amazed how many folks believe that AI magically was created like in December of last year when OpenAI released ChatGPT. It's been around since the forties. It's based on just mathematical principles.
Spencer Levy
Blackstone CTO John Stecher offered some context, but I certainly did seem to show up in real life like never before. Sure, it hasn't taken over the world like Skynet or the Matrix or some other sinister sci fi invention. But AI did dominate conversations about everything from data to labor issues in Hollywood to Detroit, to everyday tasks in real estate and more. Make no mistake, artificial intelligence is evolving rapidly, and it's another one of the looming mysteries of the year driving a huge and potentially transformational global impact. We discussed that with Marc Ganzi of DigitalBridge, a market leader in data centers.
Marc Ganzi
We've been building public cloud for 11 years, and today we're at 13 gigawatts of leased space in the public cloud environment. And along that journey, we've spent somewhere around $3.8 trillion building the public cloud. Okay. So that's the CapEx. And there's the output.
Spencer Levy (clip)
Let's back up for one second. $3.8 trillion. Folks, that's about 10% of the size of the U.S. economy every year. That’s an enormous amount of money.
Marc Ganzi
That's a lot of money. It's a lot of money. But it shows you how much the cloud guys have invested in their own infrastructure and in third party infrastructure. Now, let's frame the opportunity. Okay. And keep in mind, 13 gigawatts, which is 13,000 megawatts of data center capacity, has been absorbed in that 11 years. There's three different reports I've looked at and you can believe the bottom end of it, which is 33 gigawatts, and you can believe the McKinsey report, which I think is 36 or 38 gigawatts. Kind of doesn't matter. Right? It's a rounding error. 33,000 megawatts is the baseline to build AI. And I'm sitting there as an owner of infrastructure saying, wow, I thought the last ten years was hard. And now I'm being tasked with ultimately where we're going over the next ten years.
Spencer Levy
And we also did one long overdue episode on ports to explore a form of industrial that had worked for years to solve a worldwide issue: the global supply chain.
Barbara Melvin
Spencer, during the pandemic our port was one of the last into congestion and the first out.
Spencer Levy
That's Barbara Melvin, CEO of the South Carolina Ports Authority and the first woman to run a U.S. operating port. She joined us with Gene Seroka, who runs the largest port in the nation, the port of Los Angeles. We heard how they adapted everything from hours of operation to equipment, labor and partner relationships and even incentives to make loading and unloading more efficient. Here again is Barbara Melvin.
Barbara Melvin
Those are just things that we did here. And truly now, for a very large amount of time we've seen no congestion, no vessel backups. And really the great news for the United States is we have more exports on our terminals right now than imports. So we're starting that resurgence of exports and that, along with a lot of capacity to bring more goods now, is really our story at this point.
Spencer Levy
Retail was interesting, too – a lot of it powered by, you guessed it, technology. We met Kenny Minzberg, the CEO of Psycho Bunny, a native online retailer whose digital sales drove a leap into brick and mortar. We heard about disruption from Mark Lore, a serial e-commerce entrepreneur who's engineering a new category of restaurant, Wonder, along with some of the most famous chefs in the world. But I think my most memorable tech-driven retail conversation was with an investor who – in keeping with our larger theme of the year – is a man of mystery. He's harnessing the power of social media, driving his real estate business with a highly followed anonymous Twitter – or, I guess I should say X – persona known as strip mall guy.
Strip Mall Guy
The reach is beyond what you can believe. For me it's a million impressions a day. So you know, that's – what? - 25 Yankee stadiums full of people. And so that's valuable, whether it's 30,000 a day, a million a day, folks are reading it around the world.
Spencer Levy
I met Strip Mall Guy at the ICSC conference in Las Vegas where we shared interesting and entertaining takes on his sector of choice and his success.
Strip Mall Guy
It's kind of like yelling into a dark room, in a way. And so they're out there. They're silent. But it's heavy hitters. I mean, I had the president of one of the NBA teams reach out and said, hey, I'm a big fan. I'm like, is this real? So next thing I know, he invites us to an NBA game. We fly out, we sit courtside, he comes out, he wants a selfie. And I'm like, how did this possibly happening? And that's just one example of what happens when you just put your content out there and it will resonate with somebody. I guarantee it.
Spencer Levy
From such a networker and influencer to an array of owners and occupiers, authors and even athletes, our guests ranged beyond core business issues to share wisdom on lifestyle and balance, efficiency and endurance, productivity, leadership and more – sharing their insights and approaches to managing at times of risk and uncertainty.
Laura Clark
Throughout my career, people have asked, you know, as a woman, how do you balance and how do you deal with obstacles? And I've always said I actually don't think I've faced obstacles because – and it's not that I haven't faced them – I think it's all about our mindset and how we perceive them. And having a growth mindset is so important. And I think that that’s served me well from a career perspective. And I think it served me well as a marathoner. And I think it serves me very well as a mom. And what that means is that I'm constantly taking whatever those obstacles are, and I say, I'm going to take those obstacles and turn those into opportunities. And I've always looked and said: You know what? There is nothing that's unreachable for me. And that's always been my mindset.
Spencer Levy
That was one of those athletes I mentioned, marathon runner Laura Clark, who by day is the CFO of Rexford, one of the largest industrial reads in the nation. And by the way, a shout out to another athlete who appeared on that show, Nicole Levenson, a triathlete who works as a CBRE Senior Marketing Specialist in our San Francisco office. Nicole just completed the Ironman World Championship in Kona, Hawaii, cracking the top 100 overall finishers out of more than 2000 competitors in the first women's only event.
Nicole Levenson
When I set a goal for a race and achieve it, it's really satisfying. In the same way I'm motivated and driven that way even in my job. I like to set goals and achieve them as well.
Spencer Levy
Way to go, Nicole. Our next pearl of business advice might not exactly work in a world championship race, although it's an interesting, counterintuitive strategy from Professor Bent Flyvbjerg of Oxford University and the I.T. University in Copenhagen. He wrote a book called How Big Things Get Done. And the big idea is that no matter how fast the world or the demands of a project come at you, in the face of many variables and often changes that arise, he told us the key is slowing down before acting. Thinking slowly, is how he puts it.
Bent Flyvbjerg
I really think this idea of thinking slow acting fast is crucial, especially because most projects are done in the exact opposite way. People think fast and then they are forced to slow because there are so many things they didn't think through that are going to come back and bite them during delivery. That's what you typically see. So we actually say that think slow and fast is the rhythm of a successful project. And think slow doesn't necessarily mean that you have to take years for it, even though some people do that. But it means you have to take sufficient time that you actually really know what it is that you're doing once you start on the expensive part of the project, which is the project delivery.
Spencer Levy
But let's face it, times of risk and uncertainty can also create fear. Which reminds me of my conversation with Rob Lilwall while a teacher by trade who became an adventure traveler. Writer and keynote speaker and now uses his trips as a source of insight for business and leadership.
Rob Lilwall
Fear is such an interesting thing, cause it’s a very helpful thing. It warns us about potential dangers which are coming up.
Spencer Levy
Rob's walked and biked across deserts, tundras, entire continents in search of wisdom. And the crux of his advice was about simplifying and setting clear goals. But what I really want to share is an extended clip from our chat that includes more of his advice about fear when it comes to taking on the unknown. It's a story about something close to home – my home, that is. It felt like an appropriate takeaway for the theme of this program.
Rob Lilwall
And I always say the way to overcome our fear is you don’t ignore it. You don't try and overcome it by willpower. You try to understand it. You ask yourself, how really dangerous is this? Who can I talk to about it? How can I reduce the danger? And kind of getting vulnerable with our fears, I think, is very, very important.
Spencer Levy (clip)
This is nowhere near the same fear of walking through the desert or cycling from Siberia, but it's a little bit of a personal story. When I was a kid, I was afraid of the dark and I was actually specifically afraid of my attic in my house. And I remember when I was young – I don't remember exactly how old I was – I might have been 12, 13. I went up to the attic, shut off the lights, and I closed the door and I just sat there. And I just looked around and waited and waited and waited for the boogeyman who never arrived. And I am no longer afraid of the dark, not just because of that, but because I faced it. But what you're saying is don't ignore your fears. Be rational about your fears, but you should face them. Is that a fair way to put it, Rob?
Rob Lilwall
Yeah. And it's so much easier said than done. And what you did, I think, is amazing. And I'd say talking to it as a key part of it, because it's easy to say, Oh, let's be rational about our fears. But it's actually pretty hard. It's the whole thing. That's such an overwhelming emotion. But talking to somebody I think can be a very good first step to trying to understand it and process it.
Spencer Levy
Talking as a way to find rationality and clarity is what The Weekly Take is all about. And for some final thoughts about that, we go back to the top of this show: to that cloud of murkiness hovering over our business. You see, there's more to what Julie Ingersoll, CBRE IM's Americas CIO, had to say about that.
Julie Ingersoll
Well, I would say the crystal balls ever been murkier. That said, going with the theme of the session of optimism, there's great investment opportunities coming our way.
Spencer Levy
And with such a sense of optimism for what's on the horizon, Julie went further – with a call to action for real estate professionals in the year ahead.
Julie Ingersoll
What I tell my team all the time is: Real estate in the olden days was boring. You buy it. You set it, forget it. You collect a coupon. What an exciting time to be a real estate investor! You know nothing. Everything's changing constantly, whether it's e-commerce or return to office. That makes it a really fun and compelling and exciting time to be a real estate investor.
Spencer Levy
Indeed. And other voices of experience share that level of optimism – no matter what ultimately shakes out from our current state of unpredictability.
Chris Ludeman
My hunch is, after having been through six cycles at my advanced age, there's going to be a unique money-making opportunity that people haven't seen since the Great Recession.
Spencer Levy
And with a final, final thought, that's Seabreeze. Chris Ludeman, Global President of Capital Markets, who's just about seen it all in a career that started at CBRE in 1980.
Chris Ludeman
The game is so different today than it was a decade ago, and I think the pace of change in our industry set will change more rapidly than we can possibly imagine. So that's going to cause people in our business, executives, to be more agile, be more creative, and not be set in their ways.
Spencer Levy
And that's our year in review. We'll continue to talk with the best minds in the business in the new year ahead, doing our part to help you to be more agile and creative and not set in your ways, to borrow Chris Ludeman’s words. I'd like to thank all of you for listening and continuing to make The Weekly Take a success, not only by tuning in but by commenting and sharing the show on Apple Podcasts and Spotify or wherever you listen.
Spencer Levy
At the top of the show, I mentioned that we surpassed 1 million listens this year, and we have continued to consistently reach more people. We were named the year's Overall Best Real Estate Podcast for Investors by Business Insider, and we received some accolades too, most recently a pair of Bronze Signal Awards for Best Business Podcast and, humbly, Host – thank you very much. But I only bring that up because those distinctions are a testament to the great crew that puts the show together week after week.
Spencer Levy
The Weekly Take is produced for CBRE by Foglight Entertainment, with episodes written and directed by Evan Kanew and produced by Gregg Backer. Shows are edited and mixed by Cooper Kanew and Travis Stewart. Our theme song was written by John Vieira and Mickey Drums.
Spencer Levy
For CBRE. The Weekly Take team is led by executive producers Brian Reed and Bradley Werner, producer Alex Mamlet and supervising producer Rae Colley, with strategy help from Jennifer Bainger and Zak McIntyre and creative and digital support from George Cunha, Shana Lengyel, Hanif Avarsaji, Emily Ozanian and Nestor Martinez. We'd also like to acknowledge our marketing leaders, Jennifer Morgan and Benji Baer, as well as our colleagues in research, Julie Whalen and Richard Barkham, and of course, the hard work of Kris Hudson in PR and the inimitable Steve Iaco, our corporate comms leader. Cheers to all of you.
Spencer Levy
We'll be back in January to ring in a new season, including our annual real estate market outlook for 2024. We'll continue working to clarify the uncertainties, keep you on top of the trends and engage you in this ongoing conversation about the world of business and commercial real estate. Thanks again for joining us. I'm Spencer Levy. Be smart. Be safe. Be well. And be merry. Here's to a joyous holiday season and a happy New Year.
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