Q1 2025 CBRE Group Inc Earnings Call
[music]
and many more. Thank you. Thank you.
Speaker Change: Greetings and welcome to the CBRE first quarter, 2025 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Chandni Luthra, Global Head of FPNA and Investor Relations. Thank you. You may begin.
Speaker Change: Good morning everyone and welcome to CBRE's first quarter 2025 earnings conference call. Earlier today we posted a presentation deck on our website that you can use to follow along without prepared remarks and an Excel find that contain additional supplemental material.
Speaker Change: Today's presentation contains forward-looking statements, including without limitation statements concerning the macro-environment, our business outlook, our business plans with capital allocation strategy, and our earnings and cash flow outlook.
Speaker Change: Forward-looking statements on predictions, projections on other statements about future events, these statements involve risks and uncertainties that may cause actual results and trends to differ materially from those projected.
Speaker Change: for a full discussion of the recent other factors that name-packed these forward-looking statements, please refer to the morning earnings release and our SEC finding.
Speaker Change: We have provided reconciliations of the non-GAAP financial measures discussed on our call to the most directly comparable GAAP measures , together with explanations of these measures in our presentation
Speaker Change: I'm joined on today's call by Bob Sulentic, our Chair and CEO , and Emma Giamartino, our Chief Financial Officer
Speaker Change: Throughout our remarks, when we cite financial performance relative to expectations, we are referring to actual results against the outset we provided on our fourth quarter of 2024 earnings call in February , unless otherwise noted.
Speaker Change: Also, as a reminder, our resilient businesses include facilities management, project management, property management, loan servicing, valuations, other portfolio services, and recurring investment management fee
Bob Sulentic: Our transactional businesses comprise property sales, leasing, mortgage origination, carried interest and incentive fee in the investment management business and development fee. With that, I'll turn the call over to Vaughn.
Thank you, Chandni, and good morning, everyone.
Bob Sulentic: CBRE had a strong start to 2025 across our lines of business and around the world. Notably, as the first quarter ended, most of our businesses were performing better than expected, and our new business pipelines were strong.
Bob Sulentic: This was equally true for both our resilient and transactional businesses.
Bob Sulentic: Since then, driven by uncertainty created by the tariff situation, our outlook has become less clear.
Bob Sulentic: Even in light of this, our current activity levels and new business pipelines continue to be strong, just somewhat less than they were.
Bob Sulentic: Looking at our Q1 results, we were particularly pleased with the performance of our project management and building operations and experience segments in their first quarter of existence.
Bob Sulentic: Both segments generated strong financial results and evidence the type of operational and strategic gains we were hoping for and expected when we reconfigured the business this way.
The gains included shared client access.
Bob Sulentic: Insights into opportunities for product development and stronger positioning to pursue certain types of M&A.
Bob Sulentic: Another notable example that has quickly emerged is the ability to migrate strong leaders into more compelling positions.
Bob Sulentic: This is great for our emerging talent and great for CBRE.
Bob Sulentic: CBRE's strategy is underpinned by broad and deep capabilities across the dimensions of commercial real estate, asset type, client type
Service Type and Geography [inaudible]
Bob Sulentic: We couple this with a strong balance sheet, strong cash flow, and the experience and willingness to invest aggressively.
[inaudible]
Bob Sulentic: This positioning allows us to drive resources into both steadily growing resilient businesses and high margin transactional businesses.
Bob Sulentic: The current market uncertainty aside, we are encouraged by the prospects that our strategic positioning and resource set have created for sustained, resilient growth.
Bob Sulentic: With that, I'll turn the call over to Emma, who will discuss the quarter and our outlook.
Emma Giamartino: Thank you, Bob. First quarter core EBIDA increased 27% and core EPS by 10% compared with last year's first quarter. Recall that last year's Q1 included a large one-time tax benefit. Without that benefit, core EPS grew 39% year on year.
Emma Giamartino: These strong, consolidated results include an approximately 2% to 3% currency headwind in the quarter. To better reflect operating performance, I will reference growth rates and margins in local currency throughout the remainder of my remarks unless otherwise noted.
Emma Giamartino: As Bob noted, we saw strength across our platform as our resilient businesses generated net revenue growth of 17% for the quarter, nearly matching the 18% increase in our transactional businesses. On a trailing 12 month basis, resilient businesses accounted for over 60% of our total SOP.
Emma Giamartino: Turning to our segments, advisory services had a particularly strong start to the year. Net revenue growth of 16% exceeded expectations led by strong leasing and capital markets activity.
Emma Giamartino: Global leasing revenue growth accelerated to 19% in Q1, from 15% in Q4 of 2024.
Emma Giamartino: The U.S. was particularly strong as overall leasing revenue increased 24% driven by a 38% increase in office leasing revenue, which breached its highest level for any first quarter.
Emma Giamartino: We saw continued strong activity across Gateway markets, with each of the six markets delivering greater than 30% growth and over 55% growth in aggregate. At the same time, many non- Gateway markets, including Atlanta, Dallas, Houston and Miami, delivered double-digit growth.
Emma Giamartino: US retail leasing was also very strong, up 34%, and industrial leasing saw 12% growth as third-party logistics companies drove higher demand.
Emma Giamartino: Outside the US, leasing trends were notably strong in Southeast Asia, especially office leasing in India as well as in certain countries in Europe .
Emma Giamartino: Capital Market's activity was also strong. Global property sales revenue increased 13%. Once again, led by a 26% gain in the US, which saw a significant uptick in multi-family and industrial asset sales. Outside the US, we saw notable strengths in continental Europe .
Emma Giamartino: Our mortgage origination business had another strong quarter with 53% growth in origination fees.
Emma Giamartino: US loan origination volume rose 69%, led by strong activity from banks and insurance companies on the back of continued outside growth and refinancing, as well as strong demand for acquisition financing.
Emma Giamartino: Overall, advisory SOP rose 31%, delivering strong operating leverage as SOP on net revenue margin increased by more than 200 basis points.
Emma Giamartino: In the B.O.E. segment, net revenue grew 22% with strengths across facilities management, property management, and contributions from industrialists which we acquired at the beginning of this year.
Emma Giamartino: In facilities management, the enterprise business has strong demand from clients, instructors such as technology, life sciences, and health care. We also had a particularly strong quarter with hyper-skilled data center clients.
Emma Giamartino: In our local business, revenue grew by double digits, with continued outside growth in the US as we expand our market share, as well as continued strength in the UK. Strong property management net revenue growth slightly exceeded expectations.
Emma Giamartino: This segment is benefiting from enhanced operating leverage, primarily resulting from last year's cost deficiency initiative. Discontributed to 38% SOP growth and 100 basis points of net margin
Emma Giamartino: Turning to the project management segment, we have completed the first quarter after combining CBRE's Legacy Project Management Business under Turner & Townsend's leadership.
Emma Giamartino: Revenue grew 9%, in line with our expectations, with continued mid-devil digit growth from legacy Turner and Townsend and mid-single digit growth from CBRE Legacy Project Management.
Emma Giamartino: As we have outlined previously, we expect the Integrated Project Management Brazil to more closely resemble Turner and Townsend's growth and margin profile over time.
Emma Giamartino: In the legacy turnaround towns and business, we had strong wins in infrastructure in the UK and Middle East as well as large new program mandates in real estate and the pipeline looks solid.
Emma Giamartino: Project Management SOP Margin on Net Revenue continued to improve year-and-year, driving SOP growth of 14 percent, and it is noteworthy that this margin does not yet reflect the cost and operating synergies of bringing these two businesses together.
Emma Giamartino: In our REI segment, Investment Management operating profit was up 43% year-on-year exceeding expectations primarily driven by higher net promotes and recurring asset management fees.
Emma Giamartino: AUM ended Q1 at $149 billion, up about $3 billion since the end of Q4, driven by net inflows, higher asset values, and favorable currency movement.
Emma Giamartino: Our development operating profit was in line with expectations. We continue to grow our US and process portfolio, starting 12 projects in the first quarter, compared with 26 in all of 2024 and capitalizing an additional five deals.
Now I'll discuss free cash flow, leverage, and capital allocation.
Emma Giamartino: Trilling 12 months free cash flow was nearly $1.5 billion, reflecting 93% free cash flow conversion above the high end of our targeted 75 to 85% range.
Emma Giamartino: We've purchased nearly $600 million worth of shares since the end of the fourth quarter, underscoring our commitment to return capital to our shareholders and the unrealized value we see in CBRE shares.
Emma Giamartino: In total, we deployed approximately $1 billion of capital year-to-date across M&A, and end of the quarter with net leverage of less than one and a half turns.
Emma Giamartino: Our capital deployment strategy remains consistent with our historical practice. We prioritize M&A and principal investments into our RRI business, and we'll balance our spend with shared purchases as long as our share price remains attractive.
Emma Giamartino: Absent large scale M&A or the onset of a recession, we continue to expect to end the year with under one turn of net leverage. We are willing to lever up to two turns for the right acquisitions.
Emma Giamartino: Heading into Q2, our strong Q1 performance, strong pipelines and strong current activity would have prompted us to raise our full year guidance to the high end of the range we sent in February .
Emma Giamartino: Aston increased interest rate volatility or recession, we are maintaining our 2025 core EPS guidance range of $5.80 to $6.10 Aston, Stephen Sulentic, Stephen Sulentic,
Emma Giamartino: Given our success in increasing the resilient parts of our business and our strong balance sheet, we are better positioned than ever before to not only weather a recession, but to take advantage of the opportunities created in a downturn.
With that operator, we'll open the line for questions.
Emma Giamartino: Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Emma Giamartino: You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Emma Giamartino: Two of our first many questions as possible. We ask that you each keep to one question and one follow-up. Thank you.
Speaker Change: Our first question comes from the line of Anthony Paolone with JP Morgan, please proceed with your question.
[inaudible] Dr. Prada Prada Prada Prada Prada Prada
Speaker Change: Thanks and good morning. I think Bob, you mentioned the pipeline is still strong, just somewhat less than maybe what it was. Can you maybe give us a little bit more color or detail on kind of what's been changing over the last few weeks, whether it's a more weight and sea, whether deals have been canceled, maybe whether...
Speaker Change: There are certain regions that stand out as changing the most, or business lines, just any context around some of the more recent changes would be great.
Speaker Change: You bet, Tony. And I want to stress you. You said it. And I want to stress it. It's...
Speaker Change: Things didn't go from good to bad. Things went from really good to not as good. We ended the quarter with strong pipelines and as we've gone through to...
Speaker Change: Better part of April we've seen really good activity, but we have seen some implications.
Speaker Change: of what's going on with the tariffs. So for instance, let's start with capital raising in our investment management business. We raised almost $5 billion in the first quarter. We were surprised that we raised that much. And we ended the quarter with a lot of enthusiasm and some of the capital sources from around the world that
Speaker Change: invest into our funds and the accounts we manage have slowed down a little. So our expectations
Speaker Change: have gone by the end of the first quarter, had gone beyond where we were going into the year. And I'd say we kind of pull back roughly consistent with where we were going into the year now.
if you look at project management.
Speaker Change: A lot of activity in project management, a lot of activity in Emma called it out in her comments and things like infrastructure, some big programs in projects around the world.
Speaker Change: But some corporates now who are uncertain about what's going to happen with them due to the tariffs, whether we might go into recession, have started to slow down on some of their bigger programs. So we went from
Speaker Change: A really enthusiastic picture to one where there's some toppings out there.
Speaker Change: On Leeson, you know, one of the ironies with what's going on right now, industrial outperformed. That wasn't ironic, but it just, the market was good and industrial outperformed and office outperformed by quite a bit.
Speaker Change: We think industrial is going to come back kind of to where we thought it was going to be going into the year. We don't really think that's going to be the case with office. What we have going on with office right now
Speaker Change: is two dynamics. One is a scarcity circumstance, and it's not just pork avenue. It's...
Speaker Change: All over the gateway markets and other big cities in second, third-tier markets.
Companies realized that office space is important to them.
Speaker Change: They realized that there is somewhat of a return to the mean and that they're forcing that in some cases and it's happening on its own in some cases.
Speaker Change: And as a result, because there hasn't been much new office space created over the last years, last few years for obvious reasons.
Speaker Change: The office space that's out there is in big demand and the choppiness that we're now seeing in people's confidence about the economy is really not impacting
Speaker Change: There enthusiasm for leasing office space that much at this point so that's the one area where we probably don't see a lot of change. There's some big office leases that have big tenant rep.
Speaker Change: The people are pulling back a little bit from, but we're not seeing a lot of change there.
Speaker Change: We're continuing to see some good opportunities to capitalize development deals because what's going on now is keeping other capital sources out of the market and we've talked kind of that linked over the last couple of years about.
Speaker Change: when things are like they are now, you can gain real advantage there. So that's kind of the picture we're seeing out there. I don't know if there's anything you would add to that. I think you capture and follow it.
Thank you.
Speaker Change: You know, I guess as we look out, this has been an area where you've been pretty confident about the growth and I guess, you know, you finish projects and then you have to replace them. And so I guess like, what can we look at as we start to look out the next few years at the replacements are going to be, you know...
Speaker Change: being enough to net to sort of the growth level that you've kind of talked about, like kind of in the double digits and stuff here, like, especially given, like you said, some of these things may pull back a bit, like, is it just the pipeline that you say you have or, you know, how do we...
Kind of look at that
Thank you very much.
Speaker Change: It's really important to kind of dissect what's going on with our project management business. So the markets...
Speaker Change: We're going to be potentially a little slower in some areas for the reasons we've already articulated on our prepared remarks and in that response I gave you your first question, Tony.
Speaker Change: But you have to look at specifically what's going on inside CBRE and inside the combined CBRE turner and towns in business. We are in the door and doing work for a lot of big corporates.
Speaker Change: that had opportunities that we weren't positioned to execute on because they were big complex projects.
Speaker Change: We have Tramble Crow Company that sources land sites and can do land development for big projects that we weren't positioned to execute on ourselves
Turner and Cowson had opportunities.
Speaker Change: that they didn't have the talent to execute on. So in the United States, Turner and Townsend did not have a sizeable platform. They didn't have the ability to take on certain things. So...
Speaker Change: There's the trajectory of the market and the volume activity broadly defined in the market. There's also the positioning of our combined business.
Speaker Change: that provides just a much better overlay to whatever the market circumstances are than we had previously. And again, we now have a, I think one of the things is going to surprise
Speaker Change: People that watch our company over the next couple years is just how much different that project management business is.
Speaker Change: than it used to be. It's got 15,000 project management, program management and cost consultancy professionals. It's got a huge opportunity that it was, that it was lightly penetrating here in the United States. So there's going to be a market circumstance that we're all going to learn about.
It's going to be impacted to some degree by...
Speaker Change: tariffs in a recession or not. But then there's going to be the business we've built in the trajectory of that combined business relative to what it would have been, have we not combined those businesses, and that's where a lot of...
or enthusiast for the growth of that business comes from. [inaudible]
Thank you.
Okay, thank you for everything.
[inaudible]
Speaker Change: Thank you. Our next question comes from a line of Julian Blouin with Goldman Sachs. Please proceed with your question.
Thank you.
[inaudible]
Speaker Change: Yes, thank you for taking my question. I think you mentioned in the release that you're maintaining guidance, absent increased interest rate volatility or recession.
Speaker Change: I guess, can you give us a sense of what a recession would look like for your earnings just given how much higher the mix of resilient businesses are now versus in prior recession, how much better would your earnings sort of hold up this time around?
Yeah.
Thanks, thanks, Julien.
Bob Sulentic: So first I just want to comment on our guidance. We maintain our guidance. We do think there's a wider range of outcomes than we thought back in February when we first provided our guidance for the year. And it's difficult to provide specifics, but we can frame how we're thinking about where we'll end up on the year.
Bob Sulentic: and these components are really important to acknowledge. First, it's absent tariff uncertainty.
Speaker Change: as Bob alluded to in his remarks, going into the second quarter, given the strong performance in Q1, given the momentum we're seeing in Q2, we would have likely increased our guidance from the range that we set at the beginning of the year.
Speaker Change: Now, we would end up in the high end of our range if we simply flow through our Q1 out performance.
Speaker Change: The mid-point of our range would mean something like leasing and capital markets flows down in the back half of the year and on a downside it would mean that those transaction revenue flows down even more but we're likely not in a recession.
Speaker Change: In terms of your question around a recession, it's difficult to frame that because of the severity and degree of a recession can vary significantly. But what we do know is because we are significantly more resilient than we were even...
Speaker Change: was resilient. So we've we've meaningfully increased the resilience of our business and those, that was resilient.
Robert Sulenti, Bradley Burke, Emma Giamartino
Speaker Change: Thank you. That's very helpful. And I guess turning to sort of capital markets activity, it sounds like things continue to progress well thus far in April . It's just maybe not quite as strong as they were. What are you seeing maybe in terms of your pipelines of future capital markets activity or broker opinions of value? What is that telling you about where we could trend in the second quarter? [inaudible]
So, I'll speak to what we saw in the room.
Speaker Change: Q1 and then what we're seeing in the beginning of Q2. Through Q1 with strong capital market of activity,
particularly in February .
Speaker Change: in March. It's slowed down somewhat but not to a meaningful degree. When you got into April , there was somewhat of a pause because of the significant amount of uncertainty, but we're not yet seeing any of that impact our transaction activity.
Speaker Change: In the first few weeks of April , our investment sales activity is very strong, it's actually accelerated on the loan origination side.
Speaker Change: We saw a significant increase in rate locks when the tenure fell below four for a short period of time. So activity is continuing and our pipelines remain very strong and our belief is as long as rates on the capital market side.
Speaker Change: The tenure I'm speaking to doesn't go above 5%, activity is going to continue.
Thank you very much. It's very helpful.
Speaker Change: Thank you for watching. Please subscribe to my channel. And I will see you in the next video.
Speaker Change: Thank you. Our next question comes from the line, Ronald Kamdem, with Morgan Stanley , please proceed with your question.
Ronald Camden: Hey, just two quick ones. So one is just on on the project management business going back to that and
Speaker Change: I think the comments said the margins do not reflect the cost of operating synergies and so on and so forth
Speaker Change: Just curious if you can give us some high-level thoughts and just the margin profile of that business and sort of in this environment, are there any other sort of tools that you could use to protect margins?
So, um...
Speaker Change: We believe the long-term margin for entire project management segment should trend towards what the legacy Turner and Townsend project management margins have been, which is, you know, have trended towards...
the mid-to-high teen French.
Speaker Change: and our legacy project management business has had a margin that's lightly below that. So what you're seeing in our results is the blend of that margin.
Speaker Change: It's a little below 15%. We think simply through cost and synergies for tendencies that you really haven't gone after. Back office integration will be able to improve that margin over the next couple of years.
Speaker Change: All right. And then my second question is just on just just capital allocation, obviously the buyback and the quarter. Just curious how you know conversations are going on the acquisition front and a market like this, do they sort of die off? Do you become more opportunistic? Any color there would be helpful. Thanks.
Speaker Change: You know, Ronald, as it relates, I know you're talking, you say I was, you're talking to M&A, right? Exactly.
Speaker Change: Yeah, so a couple things. First of all, we have refined and refined our M&A strategy over the past few years. We did a lot of strategy work we talked about last year last year and we have a very clear view as to where we want to do M&A in the business now.
Um
Speaker Change: And what we're finding is that as the markets remain choppy, the kind of companies that we're interested in, and part we're interested in because they really like the idea of being part of our platform.
Speaker Change: and it's our observation in the various conversations we're taking part of now that to talk to this build momentum for us in the M&A work we're doing.
Speaker Change: and we would expect that to be the case and we would expect the approach we take to M&A to play out.
Speaker Change: Nicely in a difficult market. I mean, you know, we've, I've been around now for multiple downturns and we always talk about OG when things get tough, we'll take advantage of it. And you know, we do the varying degrees. I don't think we've ever been as
Speaker Change: Well positioned to take advantage of a downturn as we are now, because of our balance sheet import, but also because of the success we've had with the kinds of companies that we're interested in acquiring and are interested in being acquired by us.
helpful. Thank you.
Speaker Change: Thank you. Our next question comes from the line of Stephen Sheldon with William Blair, please proceed with your question
Good morning. Thanks for taking my questions.
Speaker Change: Maybe starting with Bob, I really appreciate the detailed commentary on Tony's prior question, but wanted to drill down a little more on the industrial leasing outlook. You know, great to
Speaker Change: I hear about the app performance there in the first quarter, but I would just think it would be tough for clients to make leasing decisions right now with industrial footprints given all the moving pieces until there's more care of clarity. So curious if you have any additional color on what you're seeing there, especially later in the quarter and so far in April .
Speaker Change: Well, it is tough to give more clarity than we've given.
But here's...
That's what we think. We think that there's-
Speaker Change: kind of, as we called it, outperformance in industrial leasing that we saw through the first 90 days of the year is going to come back a little, and it's going to come back to where we thought things were going to be. I will say that the uncertainty, we've talked about it at length here, what we think is going to happen and how we think it's going to play out, and one of the
Speaker Change: Ways we've concluded that you can look at it is a lot of momentum was with 3PLs and the reason 3PLs is because...
Speaker Change: The primary users of the space have decided the uncertainty is going to cause them to back off on commitments a little. So they instead, at least from the 3PLs, it gives them more...
Speaker Change: and we think we're going to continue to see that, but we're not going to see that to the degree that we saw it in the first quarter and so...
Speaker Change: You know, to be a little redundant here, we're kind of assuming that industrial leasing is going to be back to where we thought it was going to be when we entered the year, which is kind of flatish to 2024.
Speaker Change: Okay, got it. That's very helpful. And then maybe just a quick follow up for Emma. If we do see macro trends deteriorate, become a bigger headwind, how would you think about managing the cost structure? You obviously had some efficiency initiatives in recent years.
Speaker Change: I think CBRE always seems to be operating pretty leanly. So there are levers you could pull the support profit trend, I guess if top line trends do deteriorate.
Speaker Change: quickly react and take action when we need to around our cost structure and we've always talked about our cost structure being inherently variable. Our commission move our commission cost move with revenue or decline with revenue.
and with Lairra Transactional Business Flex.
Speaker Change: with Revenue. And the other levers we have are typical discretionary expenses. We can pull back when we need to hiring. We can pull back if we need to very quickly. We have a lever with recruiting. If that's something we think makes sense.
Speaker Change: But the main point is that we have the ability to act and we've shown that in the past two recessions for downturns for real estate.
Speaker Change: and maybe just wouldn't kind of go into hiring. I guess, have you have CBRE changed hiring plans for the year?
Good night.
Perfect. Thank you.
Speaker Change: Thank you. Our next question comes from Lyon of Manus, Ebike, with Evercore ISI. Please proceed with your question.
Speaker Change: Good morning and thanks for taking the question. This is Madison for Steve Sakwa.
Speaker Change: Just one of the quickly asked about one item and that is currency headwinds. I know you quoted around two to three percent of headwinds in the first quarter. The dollar has obviously weakened a little bit since in April . So I wanted to check in and see if you have any thoughts around how currency headwinds potentially may impact the second quarter more than the first quarter or what your general outlook is and how that is fitting into kind of like the guidance fringe.
Speaker Change: Forward Curve. Those headwinds are pretty much entirely removed, so they would be reversed. They become tailwinds in the second quarter, but I do want to emphasize, because we all know that this is moving very quickly and it's pretty volatile, so it's difficult to project, but we'll actually happen over the next three quarters.
Speaker Change: Great. I mean, for sure that makes a lot of sense. There may be one follow-up question on capital usage. For, you obviously used to run, I think, around 600 million worth of fare by bags so far, and we wanted you to see if that was maybe changed. How do you think about chair refrigerators going into the second quarter, as obviously the macro-environment has changed? You're open.
Speaker Change: So our capital deployment strategy has been unchanged for a few years now. We always prioritize M&A and REI co-investment.
Speaker Change: and we're actively looking at a number of deals in our pipeline across both of those pieces.
Speaker Change: and if those convert, that school will prioritize with our capital and if we're seeing that there's a slowdown in M&A or REI which we're not seeing right now, then we'll bounce that out with Jerry Purchases as long as we believe our price is attractive.
Perfect. Thank you. That's it for me.
Speaker Change: Thank you. Our next question comes from the line of Peter Abramowitz with Jeffrey. Please receive with your question.
Thank you.
Thank you.
Speaker Change: Yes, thank you for taking the question. First, just wanted to go back to one of Emma's comments. I think you mentioned that as long as the tenure remains the well 5% is kind of the...
Speaker Change: The key level that you can sort of maintain your pace in capital markets activity and deals will still happen. I guess I just want to make sure we're interpreting that correctly, is that? I guess you think even up to that 5% level you can kind of...
Speaker Change: Hitwood in your guide in terms of this, I believe you call it for the slow and steady recovery in capital markets of the world.
Speaker Change: So there's a lot of elements that go into whether or not capital market activity will continue and specifically to loan origination. We see activity continue as long as...
Speaker Change: And so we are confident that that activity will continue but it's yes it's right staying below a certain level but they also need to be stable. The volatility grace of it just causes investors to pause.
Speaker Change: Right, that's helpful. Okay. And then, Sir, just to clarify one of your other comments, I think was that activity slowed right after, right at the beginning in the small foot has actually accelerated since was that in reference fiscal loan origination or advisory sales as well. It sales in March sales flow so much, but it's just one month it's hard to see a trend and it's picked right back up in April .
Speaker Change: Okay, got it. And then one more, maybe it's just kind of a thematic question for Bob stepping back.
I'm just thinking about
Speaker Change: You know, kind of the political risk in the broader sense with this administration. I think one of the thoughts out there is that we could have, you know, these rolling 90-day extensions with the terrorists as the White House negotiates.
Speaker Change: and this could go on for a very long time. So just kind of curious, how do you think longer term about, you know, how to discount that uncertainty and such a fluid situation as you think about the future of your business? Because it is certainly kind of a unique situation.
Well, it is Peter very unique and um...
Speaker Change: You know, I think it's fair to say that we don't have any [inaudible]
Speaker Change: Insight into the uncertainty that others haven't already articulated. The big banks have reported and they've given their view on that and they spend a whole lot more money to try to figure out that kind of stuff than we do.
Speaker Change: We've adjusted our view of things to take into account considerable uncertainty, which
Speaker Change: causes us to have a view of a higher risk of recession than-
We had this for...
Speaker Change: which causes us to have a view of the higher risk of...
Speaker Change: People being on the sidelines because they just don't want to act in certain times. And that's all factored into what we've said about.
Speaker Change: The performance we expect for the rest of the year, and I don't think we have...
Speaker Change: It's not that we're unwilling to declare beyond that, we just don't have an insight beyond that.
Speaker Change: It all assumes a lot of uncertainty, a lot of choppiness and a risk of recession that we didn't have before.
All right, that's all for thank you the time.
Speaker Change: Thank you. Our next question comes from the line of powder gastronomy with Raymond James. Please proceed with your question
Patrick O'Shaughnessy: Hey, good morning. Your non-GAAP reconciliation alluded to a wind down of a business within real state investments. What's that referring to?
It's referring to a telford
Got it. Thank you.
Speaker Change: And then, when did the industrial deal close and how should we think about the financial contribution from that business?
It closed in mid-January. So, uh...
for the majority of the vast majority of Q1.
Thank you.
Speaker Change: Is there anything you can share in terms of the expected revenue contribution or margin profile? We haven't provided those details
Speaker Change: Thank you. Our next question comes from the line of Jade Rahmani with KW, please proceed with your questions.
Thank you very much. Can you give any color on wardrobe, the margin gains in advisory and POE?
Jade Romani: In that revenue was pretty close to our forecast, so operating leverage was much stronger. Just wanted to see if there's any further point you can make on that. It was much stronger, even considering the revenue growth within capital markets and leasing.
Jade Romani: So advisory, it is incremental margins on a transaction revenue. We are as spoken to both leasing and investing sales and loan origination activity, which is all higher margin, came in above our expectations.
Jade Romani: Within BOE, the 100 basis points of margin expansion in the first quarter, was in line with, you know, what we saw in the back half of last year, and that was all of the cost-saving initiatives that we started mid-2024 and you're seeing the run rate continues to flow in.
Thank you.
Speaker Change: Okay, thanks very much. You've been leaning into key areas as the market went through a correction over the last couple of years, specifically in REI and data centers.
Speaker Change: and I was wondering if you're seeing any slowdown in activities within data centers, whether it be...
Speaker Change: You know new deals or leasing and then on the REI side are you changing how you think about making new investments considering growing uncertainty around construction costs.
To see.
Gene: The way to think about us as it relates to data centers is we're a service provider, not an owner.
and we had a really good quarter with data centers.
. . . . . . . . . . .
Gene: We have a data center services business that includes an M&A deal we did called direct line which provides some additional technical services that go beyond what we had done historically very good.
Gene: Very good quarter for that business. That acquisition is meaningfully outperforming underwriting. Turner and Townsend is a big project manager of the creation of new data centers.
Gene: They have a lot of work going on. They have seen some pullback from some of the hyperscalers that we've all read about but they're pretty much...
Thank you. Thank you.
Gene: Act capacity in terms of their ability to do that kind of work, so you're not seeing that impact us.
Speaker Change: Tremel Crow Company has kind of a unique role in the data center of the world. They've... they've...
or in a position to acquire land.
Speaker Change: Crake the improvements you need on land, both the kind of soft improvements in terms of entitlements and then the hard improvements in terms of gaining access to electricity that makes that land a lot more valuable than it was when they acquired it. We think that that is going to play out for us this year. Thank you very much.
Speaker Change: is not likely to roll through our business this year relative to what we thought we were going to do with that business and we've seen a good start to the air and expected to be a strong finish to the year.
Speaker Change: Okay, and then just a follow-up to that was on the construction costs, if just broadly trammel crows changing at all, how they're thinking about new investments considering, you know, uncertainty around construction costs.
Speaker Change: The first thing I want to comment on is risk in the in-process portfolio associated with construction cost that might be impacted by tariffs in Tramil Crow Company.
Speaker Change: A significant portion of it is either complete or near complete and leasing up or just ready to be sold, so that just definitionally wouldn't be impacted by the costs associated with tariffs.
Speaker Change: When you go to the stuff that's under construction, much of that is protected by GMP contracts, so if they're cost increases, you'd be protected there and beyond the GMP contracts, we have contingencies.
Speaker Change: Inside our budgets, and when we report the amount of profit we have captured in our portfolio, we assume those contingencies will be used. So, if the contingencies get chewed up by some cost increase than that's...
Speaker Change: significantly covered beyond those GMP contracts by the contingencies we carry.
Speaker Change: But even beyond that, I think there is a little misunderstanding of if you build a hundred dollar project what goes into it.
Speaker Change: Probably half of the project or more is land, engineering, cost, sight work costs.
Speaker Change: commission on lease-up, etc., that won't be impacted at all. And then when you get to the other half, the construction costs, there's a huge component of construction costs that are driven by labor. There's a very significant portion of construction costs.
Speaker Change: that are a material source here in the US, not from overseas. And then there's a smaller portion that would be sourced from places where the terrorists might impact at that. When you roll all that through the number and overlay the GMP contracts, there's just...
Speaker Change: Not a lot of risk from tariffs in that portfolio of projects.
Speaker Change: and then when you look at future projects, a lot of dynamics will come into play.
But if we see costs increases...
Speaker Change: and if we see inflation roll through our economy as a result of those constant creases.
Speaker Change: the cost of construction that goes up as a result of tariffs. We're very attentive to what might happen in this regard, but we're feeling pretty well. Thank you very much.
Mitigated at this point.
Speaker Change: Thank you. Our final question this morning comes from the line, Asset Burger, with City. Please proceed with your question.
and many more. Thank you. Thank you.
Seth Berge: Hi, guys. Thanks for taking my question. I just wanted to go back to some of your comments on leasing. Can you provide any kind of color as the? Thank you very much.
Seth Berge: You know, if you're seeing any differences between smaller or larger tenants or, you know, US tenants versus kind of global tenants.
Thanks.
Seth Berge: So, I can give you high level both office and industrial driving, self-growth globally, unoffice, pretty much all metric thrips, square footage term rented up slightly. On the industrial side, as you would expect, square footage is up slightly, terms up slightly and rents been flat.
Speaker Change: Thank you. Ladies and gentlemen, that concludes our time for questions. I'll turn the floor back to Mr Sulentic for any final comments.
Bob Sulentic: Thanks everybody for joining us today and we'll talk to you again when we report our second quarter earnings.
Bob Sulentic: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.