世邦魏理仕集團 (CBRE) 2007 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the CB Richard Ellis second quarter 2007 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Senior Executive Vice President and Chief Financial Officer, Mr. Ken Kay. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to CB Richard Ellis's second quarter 2007 earnings conference call. Before we get started this morning, I would like to introduce our new Senior Vice President of Investor Relations, Nick Kormeluk. Nick joined CBRE in mid-June and comes to us from Albertson's where he held various positions including running Investor Relations. We're very pleased to have him aboard and I'm sure that many of you on the call will spend a significant amount of time with Nick, in addition to Brett and myself over the coming days, weeks, and months. I'm now turn the call over to Nick to get us started.

Thanks, Ken and very glad to be aboard. Last night we issued a press release announcing our financial results for the second quarter of 2007. This release is available on the home page of our website at www.CBRE.com. This conference call is being webcast live and is available on the Investor Relations section of our website. Also available at our website is an earnings presentation deck which you can use to follow along with our prepared remarks. A PDF version of the presentation will be available in the link marked supporting materials after the call ends. An archive of the webcast will be available on the Investor Relations section of the website for three months. A transcript of the call will also be available on the website.

In a minute, I'll turn the call over to our senior management team. In addition to Ken, our management team members participating today include Brett White, our President and Chief Executive Officer; and Mike Lafitte, President of Institutional and Corporate Services. But before we begin, I must remind you that our presentation today contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our growth momentum in 2007, future operations, the impact of acquisitions, and future financial performance. These statements should be considered as estimates only and actual results may ultimately differ from these estimates.

These forward-looking statements are reflective of the information we have on the day of this conference call and except to the extent that it is required by applicable securities laws, CB Richard Ellis group undertakes no obligation to update or publicly revise any of the forward-looking statements that we make here today. For a more detailed discussion of these forward-looking statements and the risks and other factors that could cause results to differ, please refer to our second quarter earnings press release dated July 30, 2007 and filed on Form 8-K, our first quarter 2000 report filed on Form 10-Q and our current annual report on Form 10-K, all of which are filed with the SEC and available at the SEC website at www.SEC.gov. We may make certain statements during the course of this presentation which include references to non-GAAP financial measures as defined by SEC regulations. As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures which are in the appendix in today's presentation. With that, let me turn the call over to Brett White, our President and CEO.

Thank you, Nick. Good morning, everyone. We're going to start on slide 3. As you have read in our press release, we had a strong second quarter. Each of our major geographic markets and all of our lines of business posted excellent results. Globally, organic revenue growth was approximately 30% marking the 19th straight quarter of double digit year-over-year organic growth. Our global investment management business performed exceptionally well this quarter driven by increased carried interest revenue and investment management fees.

We continue to be very pleased with the success of our business combination with the Trammell Crow Company as evidenced by new business won since the transaction has closed, strong client retention, and our ability to achieve significantly more net expense synergy savings than initially projected. An item that Ken will talk about it a bit later.

Please now turn to slide four. Briefly, our second quarter 2007 performance highlights revenues $1.5 billion or 65% higher than the prior year quarter. Adjusted net income of $157.3 million or 99% higher than the same quarter last year. Adjusted EPS of $0.66 per share, a 94% increase compared to the prior year quarter and finally, normalized EBITDA of approximately $267.6 million, 80% higher than the prior year quarter. Based upon these results, and our view of the balance of 2007, we're raising our full-year 2007 guidance to an approximate 50% improvement in earnings per share over 2006. Let me turn the call over to Ken Kay to take us through the financial deck. Ken?

Thanks, Brett. Please turn to slide number five. This slide reflects the Company's operating results for the second quarter. The second and third columns from the left represent the 2006 second quarter reported results for CBRE and the resulting variants when comparing the quarter over quarter performance. As you can see, we have also added our 2006 results including Trammell Crow company's operations prior to the December 20, 2006, acquisition date. And the resulting variance in the remaining two columns. We believe comparing our current quarter results against 2006 including Trammell Crow Company's operations prior to the December 20, 2006 acquisition date and the resulting variance in the remaining two columns. We believe comparing our current quarter results against 2006, including Trammell Crow Company is a more meaningful way to view our improved performance.

On a pro forma basis, revenue increased by $347.8 million or 30% from last year. As Brett mentioned, this growth was supported by strong performance in all service lines and geographies. Cost of services as a percentage of revenue decreased from 54.3% for the second quarter of 2006 to 53.1% for the current year quarter primarily attributable to the mix of revenues with a higher composition of revenue in noncommissionable, primarily from the global investment management and development services segment. The increase in operating and administrative expense is primarily due to increased costs related to the Trammell Crow integration. Higher carried interest incentive compensation accruals as well as higher bonus accruals resulting from improved performance. Excluding one-time charges, operating expense would have increased 23% and as a percentage of revenue, decreased from 32.6% for the second quarter of 2006 to 30.8% for the current quarter.

Equity income increased by $15.6 million or 151% primarily due to higher dispositions within selected funds in our global investment management segment and in our development services business in the current year. Minority interest expense has decreased by $1.2 million, primarily driven by higher minority interest income associated with the development services operations partially offset by higher minority interest expense associated with Aucma in Japan. Excluding one-time costs, EBITDA for the quarter improved by $104.6 million or 64%. This improvement reflects the positive impact of increased revenue and operating leverage inherent in our business model as well as the continued benefits of the combination of CBRE with the Trammell Crow Company.

Please turn to slide number six. This slide reflects the Company's year-to-date operating results for the second quarter. We have provided this information for your reference but will not be devoting time to discuss this in our prepared remarks.

Please turn to slide number 7. Our second quarter 2007 EBITDA margin improved significantly. Excluding merger related charges and integration costs related to acquisitions, EBITDA margin for the second quarter of 2007 was 18% as compared to 16.5% for the second quarter of 2006. Representing a 9% increase. On a trailing 12-month basis, EBITDA margin was 16.7% as compared to 15.2% for the same period last year. Which is primarily due to our strong revenue growth coupled with operating expense controls.

Please turn to slide number eight. Our second quarter 2007 GAAP or reported earnings per share of $0.59 per share includes one-time charges while our adjusted earnings per share was $0.66. These one-time charges are enumerated on the slide.

Please turn to slide number nine. The cash balance at June 30, 2007, of $438.2 million was $193.7 million higher than at December 31, 2006. The increase was primarily attributable to strong business performance in the first half of 2007 partially offset by the payment of bonuses and debt paydown. The decrease in restricted cash was primarily due to the payout on outstanding shares of Trammell Crow Company common stock that were tendered during the first half of the year. The decrease in trading securities was primarily due to the sale of the investment in Savill.

Please turn to slide number ten. Currently liabilities excluding debt decreased by approximately $396.4 million. This fluctuation is mostly due to a seasonal debt decrease in accrued bonuses and profit sharing as well as the payment of remaining purchase consideration for Trammell Crow Company common stock. The outstanding balance on the multicurrency revolving credit facility was $41.7 million at June 30, 2007. Reflective of the borrowings from several of our foreign operations. In the second quarter, we paid down $125 million of the senior secured term loan tranche A. The decrease in the senior secured term loan tranche B reflects the required quarterly amortization. In July, we paid an additional $75 million of term loans. We expect to achieve an annual interest savings of approximately $14 million as a result of our deleveraging efforts to date in 2007.

The development services business finances its projects with third party financing sources. The majority of these real estate loans are recourse to the development projects but nonrecourse to the Company. As of June 30, 2007, other debt includes a nonrecourse revolving credit line balance of $47.8 million related to the development services business. The outstanding balance of the real estate loans was approximately $444.9 million, of which only $17.2 million of these loans were recoursed to the Company. Minority interest increased by $84.6 million, primarily due to the consolidation of a fund in which there is a 90% minority share holding.

Please turn to slide number 11. Our net debt to EBITDA multiple at June 30, 2007, was 1.65 times as compared to 2.25 times at the end of December 31, 2006. Our trailing 12-month interest coverage ratio was 6.74 times. Our weighted average cost to debt was approximately 6.8% at June 30, 2007, which is consistent with our rate at December 31, 2006.

Please turn to slide number 12. The second quarter of 2007 trailing 12-month internal cash flow was $672 million. Capital expenditures net were $45 million for the trailing 12-month period. For 2007, we anticipate capital expenditures net to approximate $60 million, excluding one-time expenditures attributable to the integration of Trammell Crow Company.

Please turn to slide number 13. The integration of Trammell Crow Company is proceeding extremely well and we're successfully integrating the two businesses with minimal disruption to the operation. Our efforts to obtain the initial $65 million target for full year net expense of synergy savings are complete and we've now identified additional significant savings opportunities. Consequently, we're now forecasting an annualized savings of $90 million and expect to realize 60% of those savings in 2007 as we will continue to focus our efforts on streamlining the two operations and building an efficient infrastructure. Let me now turn the call over to Mike Lafitte to discuss operations.

Thank you, Ken. Slide 14, please. This slide depicts the strong growth we achieved last quarter across business lines around the world. For comparison purposes, we have included our 2006 results including the operations of Trammell Crow Company prior to the December 20, 2006, acquisition as we believe it is a more meaningful way to view our improved performance. Our results have benefited from generally favorable market conditions around the world coupled with the integrated global platform that we have built in order to serve client needs across disciplines and geographies. I would like to point out a few highlights.

First is our continuing strong performance in Europe and Asia Pacific. We continue to make gains in both leasing and investment sales businesses in these regions. We're now the largest commercial real estate services provider in Europe and Asia Pacific combined by a significant margin. Operations in both regions have strong momentum and continue to capture market share. Meanwhile, our America's operation despite its formidable size posted solid organic growth.

With the completion of the Trammell Crow Company acquisition, we've become the leader in global integrated outsourcing. We intend to invest in and grow this business in coming quarters, ad future years to solidify and expand our market position. Outsourcing services now account for 22% of revenue up from 15% a year ago. We now have over 250 corporate outsourcing accounts including 19 new accounts, one thus far in 2007. Investment sales in capital markets, activity continued to show the strong performance that's characterized this business for the last few years. Leasing markets in the U.S. got off to a slow start in 2007 but resumed double digit growth in the second quarter, fueled by stronger activity and rising rents. Performance in investment management has been outstanding. We achieved strong top-line growth due to higher carried interest revenue as well as increased asset management fees. Total assets under management rose 16% from year end 2006 to $33.2 billion. We raised $5.2 billion in new capital for investment.

Slide 15, please. This self-explanatory slide reflects some of our major successes during the second quarter of 2007. I'll only highlight three of them although each one is noteworthy. First, CBRE renewed and expanded its agreement with Washington Mutual to provide real estate services for the bank across the United States. Covering approximately 3,000 sites totaling nearly 25 million square feet of facilities. Secondly, CBRE advised the consortium led by Irish financier Derek Quinlan on the purchase of Citigroup's European headquarters at Canary Wharf from the seller Royal Bank of Scotland. This U.S. $2 billion sale of the 1.2 million square foot Citigroup skyscraper is the second largest single property transaction ever in the U.K. Incidentally, CBRE also represented HSBC Bank to sell the largest single property transaction in the U.K. Third, CBRE has been appointed leasing agent for One Lujiazui a new office building rising in Shanghai's financial district. The 38 story building totaling 1.1 million square feet is scheduled to be completed by the end of this year.

Slide 16, please. In the Americas, second quarter revenue increased 56% to $934 million. Excluding the impact of one-time items, EBITDA was $131.4 million for the second quarter, an increase of $34.8 million or 36% as compared to the second quarter last year. Capital flows in the commercial real estate continued at high levels in the first half of 2007. Overall, U.S. investment sales rose 46% from a year ago to $181.1 billion according to Real Capital Analytics. A record level. This total excludes privatization transactions such as Blackstone's acquisition of EOP.

CBRE investment sales activity surged 72% to $35.1 billion, once again, exceeding the strong growth rate for the market overall. According to RCA, we achieved a 19.4% market share for the first half. Up from 16.4% in the same period last year. As these numbers suggest, demand for commercial property remains strong. The tightened standards for CMBS debt and wider spreads have affected higher leveraged buyers, however, well capitalized investors such as pension funds and investment funds have remained highly active and evaluation has become more rational. Offshore investors also remain a steady source of investment demand reflecting the global trend towards the movement of capital across borders. The continued improvement of occupancy rates and rapid increasing rents continued to support investor confidence.

As for leasing after increasing in the first quarter, office vacancy rates return to their extended pattern of declines in the second quarter with a decrease from 12.7% to 12.4% according to Torto Wheaton Research. While the decline was modest it was also broad based with well over half of the markets nationally showing lower vacancies for the quarter. Downtown markets saw a 30 basis point decline to 9.9% and suburban markets declined 10 basis points to 13.9%. Reflecting the strength of the office market, the rental growth accelerated during the quarter. Increasing by an average of 7.1% year over year. Outside the Americas, we continue to execute well against our strategy and our results tell a compelling story, of strong growth, higher profitability, and increased market share.

We're the largest commercial Real Estate services provider in both Europe and Asia Pacific combined and continue to aggressively build the CBRE brand and market position. The diversity of revenue in these regions positions us well to capitalize on global capital flows and improving leasing fundamentals. In EMEA, revenue increased by 72% to $330.8 million for the second quarter of 2007 compared with $192.2 million for the same quarter last year. This revenue increase was mostly organic and driven by strong performance in the United Kingdom, France, Germany, and Spain. EBITDA excluding one-time charges was $67.7 million which represents an increase of $31.4 million or 87% as compared to the second quarter last year.

The European economy is performing more strongly than had been anticipated at the beginning of the year. The regions with above trend growth such as Spain, the U.K. and Scandinavia continue to perform well, but most notable is the emerging recovery in countries such as Germany, Italy, and the Netherlands which had been lagging. This strong economic performance is being reflected in the leasing markets with the office market seeing high levels of activity. The high level of leasing activity is resulting in continued rental growth although markets across Europe are are at different stages of the rent cycle. With well-established tenant rep and agency leasing platforms throughout Europe, we're ideally positioned to the take position of the leasing recovery in Europe.

Investment volumes continue to increase year on year. Across Europe, investment in commercial real estate totaled 113 billion euro, or U.S. $156 billion for the first half of 2007. Representing an increase of 12% from the same period in 2006. Demand is strong across all locations and for all property types with activity increasing most rapidly in France, Germany, and the Netherlands. Cross border activity continues to be an important investment market driver with foreign buyers still demonstrating a healthy interest in Europe.

In Asia Pacific, revenue totaled $121.8 million for the second quarter of 2007. An increase of 40% from $87.2 million for the second quarter of 2006. This revenue increase was predominantly organic and was driven by improved performance in Australia, China, Singapore, and Japan. EBITDA was $23 million which represents an increase of $10.9 million or 90% as compared to the second quarter of last year. The performance of Asia's commercial real estate markets remained robust in the second quarter. Supported by sustained inflow of capital into the investment markets. China and India remain the leading beneficiaries of this trend.

Hong Kong, Japan and Singapore continue to attract a high level of investment interest. Across both Australia and New Zealand, strong investor confidence and significant inflows of capital continued to drive investment activity. Buoyed by the robust economic growth and rising disposable income in the Asian region, demand for prime retail space continues to increase in the second quarter. International brands continue to expand in the region most notably in China, Singapore, Vietnam, and Hong Kong. In the Pacific region, the Australian retail sector also saw stronger results. CBRE is ideally positioned to take advantage of these trends with the diverse business mix focused on both capital and leasing markets.

Slide 17, please. The global investment management business also continues to show strong growth. Revenue totaled $83.8 million for the second quarter of 2007. A 210% increase from the $27 million recorded in the second quarter of 2006. This increase was mainly due to higher carry interest revenue earned as well as higher investment management fees in the U.S. and the U.K. EBITDA was $41.1 million which represents a significant increase of $37.2 million as compared to the second quarter last year. Assets under management in the investment management business continued to grow in the second quarter increasing by 55% versus last year's second quarter and by 8.5% for the first quarter of 2007 to $33.2 billion. During the first half of 2007, we made acquisitions of $4.2 billion and dispositions of $1.4 billion.

Slide 18, please. For the second quarter of 2007, the Company recognized $24.5 million of carried interest revenue and recorded $12.8 million of carried interest incentive compensation expense, with the vast majority pertaining to future periods revenue. Excluding the incentive compensation expense pertaining to the future periods EBITDA for the second quarter of 2007 would have been 53.7 million as compared to 10.8 million for the same period in 2006. Equating to an EBITDA margin of 64% for the second quarter of 2007. As of June 30, 2007, the Company maintained a cumulative remaining accrual of such compensation expense of approximately $37 million which pertains to the anticipated future carried interest revenue.

Slide 19, please. Revenue for this segment totaled $19.9 million for the second quarter of 2007 while EBITDA was $4.4 million. EBITDA was impacted by purchase accounting for the Trammell Crow Company acquisition which dictates the write-up of assets to fair value upon acquisition. Generally, eliminating any gains in the near term. Excluding the impact of purchase accounting, the Company's earnings would have increased by approximately $4.1 million from gains on real estate sold during the second quarter of 2007. Despite not being able to recognize these gains on sale, the Company does receive the related cash. Development activity remains strong in the second quarter of 2007, evidenced by our inventory of in process and pipeline projects at June 30, 2007, which totaled $9.6 billion, a high for this business. I'll now turn the call back over to Ken.

Thanks, Mike. Please turn to slide number 20. Our first half 2007 results reflect the health of the markets for our businesses. And the growth that we've been able to achieve due to the strength of our global platform. Our second quarter was improved by approximately $0.07 per share of income from our investment management business that we had expected to receive in the fourth quarter of 2007. Additionally, we benefited from a lower tax provision rate due to the recognition of positive discreet items. Our current view of the tax provision rate for the full year 2007 is approximately 34 to 35% which is above the second quarter rate but several percentage points below the rate previously anticipated for the full year.

Based upon the strength of our first half results, the updated view on the tax provision rate for the year, our outlook for the balance of the year including the anticipated overachievement on energy savings from the Trammell Crow integration and our usual conservatism, we are increasing the full-year guidance for 2007. We now expect to generate full year diluted earnings per share growth of approximately 50% excluding one-time charges as compared to 2006 performance. Let me turn the call back over to Brett to wrap up.

Thank you, Ken. As you know, we have a practice of introducing you to various members of our senior management team by asking them to participate on our quarterly earnings call. Mike Lafitte who now runs our global outsourcing business is one of the many, many stars who joined us from the Trammell Crow Company. I want to thank Mike for his participation today. Mike, did a terrific job.

Before we conclude the call and go to Q&A I want to spend a few moments on the state of the market and drivers in our business. As you know, we have long stated that there are two primary drivers to our business model. First, the performance of global economies reflected in GDP growth, strong absorption rates of commercial real estate, relative to new supply and higher rental rates. We continue to see very strong market fundamentals intact. GDP rates around the world continue to be solid. There is relatively little new capacity coming to the market due to tight credit controls over spec of the building thus fueling positive fundamentals in rental and absorption rates.

The second driver of business is the performance of the capital markets. Specifically, the continued allocation of equity capital as a commercial real estate and institutional investors preference for commercial property as an asset class. As for the debt markets, there has been volatility lately but not enough to disrupt the investment transactions that continue to close in the markets. As debt becomes more expensive, we see more equity buyers able to win deals versus the leveraged buyers resulting in an orderly rebalancing and support of asset buyers with significant cash deploy. Improving underlying market fundamentals driven by the economy continue to support the commercial asset class and attract investor interest.

As you have now heard from today's call, the Company continues to perform exceptionally well following the enhancement of our global services platform derived from the business combination with the Trammell Crow Company. And even absent the Trammell Crow contributions, we continue to achieve significant organic growth. The Company's dominant industry position and brand, our unparalleled breadth of services, broadest geographic reach, together with a relentless focus on execution will serve the Company well for creating even more value for our clients and investors. Operator, with that, I I would like to turn the call over to Q&A.

(OPERATOR INSTRUCTIONS) Our first question is from Mike Fox with JPMorgan.

Congratulations on another very strong quarter.

Thanks, Mike.

With regard to the outlook for the second half, it doesn't sound like the volatility in debt market is having that much of an impact especially given the well capitalized buyers. Can you talk about -- do you expect somewhat of a pullback from the very high levels that we saw in the first half, in the second half, to a more historically normal level?

Mike, it is a good question. I'm sure it is a question that many of the callers today wanted to ask as well. You got in first. Good for you. I would tell you that, as you know, our practice is to rely upon the data to make our forecast and to try not to speculate based on issues we can't support with data. I would tell you this. At the moment our pipeline's in the capital markets are at historic levels. We're seeing a terrific inflow of capital to commercial real estate as an asset class. Our metrics attract properties under bid, properties on market, properties in closing or at very high levels, historic high levels. And so that is the data we have right now.

Now, we don't want to be pollyanish and completely ignore the fact that the debt markets have been rocky of late because they certainly have particularly the CMBS market. I think it is important to keep in mind what's occurring in the commercial mortgage market is quite different than what has been occurring in the subprime market and residential. As an example, I think, Mike, you know this and most of the callers do, delinquencies and defaults in the commercial mortgage arena are almost de minimus. Certainly in the very, very, very low single percentages. So, at the moment, at least, there certainly isn't any issue as we look at the pools of commercial mortgages around the quality of those mortgages. I think that's a very important metric to keep in mind.

What we have been seeing is that the cost of debt has been increasing. By the way, I would footnote that and remind you and I think, Mike, you know this, that in the last 13 years, we've had ten year treasuries rise six of those 13 years. In all six of those 13 years, our revenues have increased and they've increased at an average of 15% at the top line. So, in an absolute sense, rising interest rates don't particularly worry us but as I mentioned, we are seeing the cost of capital rise and we're seeing that flow through in some instances, to repricing of debt on commercial property acquisitions that are in the market place. At the moment, buyers and sellers of properties have been able to work through those issues quite well. And as I have said, as of our call today, the pipelines that we track show no impact from the unsettledness in the CMBS or CDO markets.

Okay. Great. Then with regard to your corporate clients, especially those you have likely gained through the Trammell Crow acquisition, can you talk about their appetite for sale lease backs?

In terms of the Corporate clients that we have, their appetite for sale lease backs, sure. As we have Mike on the call, I can take a stab at this, but we have the expert on the line. Mike, do you want to tell us what you're seeing among your corporate customers in terms of their appetite to engage until lease back transactions take properties off the balance sheet?

Well, we've certainly seen that trend over the last three or four years. It really depends corporation to corporation in terms of what drives -- what drives their motivation in terms of how they think about their balance sheet and how they think about what is core versus noncore when they think about what they want to own, what they want to lease and have more flexibility. But they certainly perceive that the market is very healthy. The investor interest in corporate sale lease back is probably at an all-time high. We've seen a fair amount of that transaction activity and still continue to see it. Three or four years ago, the corporate client was focused on shedding vacancy. That trend really has been accomplished. And for the last two or three years, we've seen a lot of companies view sale lease backs as an opportunity, yet some will shy away from it because they view -- wanting to really have a balance of what they own on their balance sheet and what they would deem core that they really want to own and control long-term. It is certainly a very good and strong market. We see that activity continuing.

Okay, great. One final question for Ken. With regard to the increase in the synergies, can you talk about some of the items that allowed you to bring it up so significantly. Then just to clarify, that's all expenses, right the $90 million. It doesn't include any significant revenue synergies that you could achieve over the next few years?

That's correct. That's the net expense synergy savings number. So any upside, if you will, in terms of some of the revenue synergies that we've talked about from cross selling opportunities that we have that are significant are not included in that number. It is really doing more in terms of achieving the $90 million versus the $65 million is really doing more of what we had talked about relative to the $65 million. But just to a greater extent, because as we've gotten further into the integration process, the opportunities to do so are just greater. Obviously the biggest component are people savings because the professional services firm that we both work or are. So, it is the biggest savings or added savings to really people. There are also peripheral costs and when we started to look at obviously the opportunity to leverage, kind of the consolidated purchasing power that we have, from a contracting standpoint, we also found some additional opportunities there as well.

Okay, great. Thanks a lot.

Thank you.

Our next question comes from the line of Jennifer Pinnick with Morgan Stanley. Please go ahead.

Good morning. Can you hear me?

Yes, hi, Jennifer.

Oh, okay. I had a follow-up question on the CMBS market and what you're saying is a orderly repricing. Can you talk a little bit about the magnitude of the repricing of the assets and what it is doing to cap rates?

Sure. At the moment, Jennifer, the repricing is -- I would put it in the category of not particularly material but let me give you an analogy, maybe it will put it into a better light. What we've seen in the last couple of months is a situation where, I think, some of the lenders are having to widen spread on what they're accepting and their follow through sales, certain tranches of the debt that they are replacing. So what they're doing is going back to the primary borrower and saying listen, we were offering you a rate of X. We're going to raise that rate now by 5 basis points. We're 7.5 basis points. Again, these are not big moves. So, what happens is the buyer has a choice. The buyer simply can expect the higher cost of capital. They can go back to the seller and say look, I was willing to buy it at X price. I now need to lower the price by a percent or a small portion of the percent. It is in these ranges, Jennifer.

So, cap rates really has not had be a impact on cap rates. It hasn't had a big impact on pricing. The comment in the script around order repricing I think really is this. Is what we're seeing in the market place is the highly leveraged buyers, in particular the TX have been in essence levered out of the market. What you're seeing is when we're taking properties to market, we're seeing a fairly orderly group of bidders come in within a fairly narrow range of pricing and that pricing today is still a bit higher than it was last year. And it is pricing that sellers seem to be very, very willing to accept. But the only repricing comment I think really is more in our view, the market feels a little bit more rational to us. And moving towards that, I think that more mean rate of growth we've talked about for the last three years that we've been telling you is overdue to exist in the market. All good news in our view.

I think the important note here is that notwithstanding the unsettledness in the CMBS market and the CDO market, it really isn't flowing through as a major impact on pricing. It really isn't causing any volatility in cap rates. I think, Jennifer, the problem I'll question that perhaps I'll just ask for you which would be a natural follow on as well, when would you see a problem in the capital markets? That would happen, Jennifer, if it the cost of debt rose so fast and so significantly that buyers and sellers took a time-out and just said look, at the moment, we can't underwrite because we can't figure out where the cost of debt is going. We're going to take a couple months and just sit it out and see what happens. That is certainly not happening at the moment. In fact the opposite is happening. We're seeing very, very strong inflows into the space at the moment. But that would be, I think, the event that you could look to in the future if it were ever to happen that would cause what I would call material repricing or inflation of cap rates. Again, that is not occurring at the moment and to be frank, at the moment we don't see it occurring.

Thanks. A question on the outsourcing. Is there any significant up-front cost that you will need to incur rolling the outsourcing platform to Asia Pacific in Europe?

It is -- fortunately, Jennifer, for us, we have been in Europe and Asia very, very long time. And we've had this footprint of offices and service lines in Asia and EMEA for a very long time as well. We are not a company that is exploring new markets to do business in or starting new business lines in either Europe or Asia. What the acquisition of Trammell Crow did was it brought us some intellectual capital, some terrific intellectual capital such as Mike and the many many people that work for Mike to allow us to do a better job in those markets than I think we've been doing in the past. We're doing a good job as it was, now we're going to do a better job.

For us, our systems have been in place in those markets for a long time. We've mentioned on many previous calls that this is not a company that you should expect is going to be talking about taking large expense hits because we have to build a platform in these markets so those platforms have been built for years. At this point, our investments in the outsourcing business while significant, on our P&L, SG&A lines, is not particularly material. Although the investments are significant. What things are we investing in? We'll continue to invest in technology and systems to support, the client, at the client level. But again, all of the systems and we just had a very deep call on this the other day, to gut check this, all of the systems that we think we need to serve clients in a best of class fashion exist in the Company. Have existed for a couple of years. At this point, it is ringing the synergies from those client relationships and expanding our client relationships through the selling of additional products.

Great. Thanks. And one small follow-up. On the site on page 14 of the revenue breakdown, when you're comparing year over year including Trammell Crow, that's the number that includes the attrition this year of the personnel?

We're all diving quickly to page 14, Jennifer. Give us a moment.

Jennifer, no, it's Ken. No the -- including Trammell Crow basically is kind of adding what CB's results were for 2006 with Trammell Crow's results for 2006.

I guess the answer to the question, Jennifer, is that the compare for 2006 includes all of the revenues that Trammell Crow produced in 2006 whether or not those people are here today, the 2007 numbers are obviously the actual numbers for 2007. I should make a note on this as well, Jennifer, I know that for those that watch the Company, if a broker in Toledo leaves to go to a competitor, it is big news in Toledo. I want to be very gracious about this but I do want to make this point. This company, CB Richard Ellis, is now the -- a company that has acquired two very large competitors in the business, insignia, and Trammell Crow. The way I think about that, Jennifer, is one of the great components of this company now is that we're a company that's populated by the best people from really what three of the largest companies in the commercial Real Estate derivatives business CBG and Trammell Crow, and Insignia. That's the good news.

Unfortunately, we simply cannot accommodate a lot of the folks that were resident in those companies. Folks that might have been good performers at Trammell Crow at our measure simply don't make the cut. So, a lot of those folks we've either asked to leave or when they came into our system and saw what was around them and felt they couldn't compete they left on their own. To us, that was all underwritten in the deal. It was absolutely expected. In fact, as we mentioned, we were overachieving on our combined revenue expense synergy number and we have had, in the areas that we look at, as important to this deal, and that is people that are serving our largest customers, people that are in the outsourcing world, key management, in the Company, we've had virtually no attrition and so again, you're not going to see any impact on the numbers here from attrition you've seen that it wasn't particularly material to the Company.

Great. Thank you very much.

Thank you. Our next question comes from the line of Jay Habermann with Goldman Sachs. Please go ahead.

Good morning. Sloan is here with me as well. Ken, just a question for you. I guess, going back to guidance and your increase in guidance from I guess up -- I guess it was 25 to 30%. Now you're saying up 50% for the full year. From the high end, it is roughly $1.93 and now you're going to roughly $2.23. I'm just curious because before it was roughly 15% from organic. 15% from the Trammell Crow transaction. Can you just sort of break out in more specific detail what sort of the key drivers are of that incremental -- that additional 20% of growth?

Let me just -- if I could, this is Brett jump in for a moment and then turn it to Ken to give you a discreet answer if he wants to. I want to be very clear about this. Every firm in this business right now is benefiting from a terrific market. And I think that what you're seeing not only at CBG but other firms in the industry is we're all enjoying a very good market right now. That's coming through our numbers and our competitor's numbers in a very significant way. So, just to be clear about this although we would love to take credit for everything you're seeing here today, I think it is important to note that we're enjoying a very, very favorable market at the moment and we're enjoying results from that. Ken, in terms of our guidance?

I think it is difficult to kind of bifurcate it the way that you're looking at it because obviously one of the factors that we've taken into account with regard to increasing our guidance is enhanced synergy savings. You have to understand the synergy savings are coming from both the Trammell side and also the CB Richard Ellis side. You get into a bit of a debate in terms of which of the companies they come from. So, it is not easy to do it that way. What we factored into the numbers obviously is the enhancement to the synergy savings, an improved tax rate, and overall, what we're seeing in the market place, the strong first half that we've had and kind of the outlook for the balance of the year. It is really kind of a combination of all of those factors and to bifurcate it really wouldn't necessarily be I think the appropriate way of addressing it.

Do you think the mix is roughly the same though, sort of the half and half, what you had forecasted at the start of the year?

I'm not going to try to even break it out that way. Obviously we're getting a tremendous amount of lift from Trammell Crow. We've got a lot of the benefit in our enhanced guidance really coming from strong, organic growth really on a global basis. As I said before, the synergy savings that are coming from both of the two companies. So, I really don't want to get into trying to kind of assess whether it is 50/50 or 60/40 or those types of things. I think it is just a combination of all of those positive factors.

I think another way to answer this is we are enjoying good results from both sides of that equation. Both market lift and the hard work that Ken and his team are doing on the synergy savings.

Certainly appreciate the comments on the impact of CMBS and I guess lack there of an impact thus far on cap rates and transaction activity but can you comment on the levered buyer? That's certainly had a big impact on the market of late. What percentage would you say of your investment sales activity over the last 12 months has been related to the sort of highly levered buyer? 80% plus loan to value.

That's a good question. Virtually all of our buyers delever to some extent. Our traditional buyers of institutional commercial real estate tend to use leverage traditionally in the call it 60%, 65% range some less, some a bit more. Really starting about 2001, when new trades came, started to move down significantly, we saw the entrance in the market place of very highly leveraged buyers. And those folks were, depending on which one you want to look at, some of them were using leverage in the 80, 85% range which is still, I think, we would look at that as -- in the traditional band at the outside of the ban but certainly there are a lot of buyers in the good markets always using that kind of leverage. But there are buyers who were creating capital stacks that you could argue were actually 105% of valued real estate was contained in various sources of leverage and equity. And those buyers and these are generally in the category of these tech buyers, are pretty much gone. And by the way, they were squeezed out awhile ago. This isn't something that happened two weeks ago. This is something that happened really about a year ago.

What percentage of our business were those buyers, the story I told last year was if we took a $50 million asset to market, we had 30 bids on that asset and by the way, if we had 30 bids last year, we've got 30 bids this year. But if we had 30 bids on that asset, you would find 28 of them within probably a 5% band of valuation. You would find maybe two or three that were a couple percent higher than that. Those were the very levered buyers. They prevailed, I'm going to give you a rough guess because I don't have the numbers. I would say they prevailed in less than 10% of the property bids and again, their exit from the market was -- we never saw it in our numbers. I think a way to think about this is -- and we talked about this last year is there have been a huge number of institutional buyers on the sideline who were getting outbid by these folks, not by a lot but by enough that the institutional buyer didn't want to reach for the deal.

The institutional buyers have come in with a vengeance the last couple of years. As you've heard now, anecdotally around the market place, we believe that in 2006 and the first half of 2007, for every dollar that got placed in commercial real estate as an investment, there were -- depending on who you listen to, there were many dollars $2, $3, $4 that are staying out there trying to get a place that couldn't find a home. As those buyers exited, these high leverage buyers, there were plenty of folks to step in their place.

Looking at sort of the REITs and the real estate trust trading and asset value, do you anticipate sort of that platform being sort of an opportunity for you to build your investment management division and I guess what sort of interest are you seeing from those institutional parties to just step up at this point in the cycle?

I think that -- I can't comment on why REITs are trading where they are trading, I don't know and that's--.

Your appetite obviously to pick off potentially a portfolio.

Yes. Well, in our investment management business, we absolutely look at growing that business not only through discreet acquisitions and assets but through acquisitions and portfolios or in some cases, operating entities. I think that your point is well taken. It is something that we have looked at. Are looking at and will look at. If we think valuations are appropriate. We have been in the investment management business a very, very long time. And I think sometimes and by the way, we think our competitive advantage in that business is our ability to underwrite. We have more data around and knowledge around the asset class we believe than any other company that invests in commercial real estate. But we're careful about our investment. So, if those operating entities are priced at what we think could be attractive for an acquisition of a bulk of assets, absolutely we would take a look at that.

Then investment management, can you also give us a sense of the incentive fees that you have sort of built in at this point given a lot of those investments that were made over the last five, six years and any impact you expect from this proposed tax legislation on carried interest?

Let me answer the first question first. I'll let Ken ponder the second question second. I don't think there's any impact at all. The investment management business, we have a number of funds in the market at this moment. I think it is less than 20. About 20 funds out in the market place. We're realizing various types of promotions and incentive fees on a very, very regular basis. We do not talk about or disclose publicly what we think the value of those incentive fees will be or when we'll realize them. Really, it is for your benefit as much as ours. Incentive fees are calculated in our -- the way we run our funds when the funds are liquidated and we've added up what our limited partners have had in return. We've paid a promoter or incentive fee. To speculate what those fees might be today is simply speculation. As I mentioned earlier in the call, we prefer not to do that. I would simply say that our business model investment management is to have a number of different funds pursuing different strategies and to realize various types of promotions and incentive fees on a very regular basis. We're doing that at the moment. Ken, impact of capital gains or not?

Really, no impact to the Company. The Company's income from investment management businesses is taxed at ordinary rates. Some of the dedicated executives and team leaders are afforded the opportunity to be taxed at capital gains rates. So, to the extent that legislation would be passed, that would be onerous to that, it would be an impact to the specific participants but not to the Company.

Okay. Brett, lastly, can you just give us a sense of your sort of intention to build out Asia Europe, where do you see revenues growing over time and what sort of acquisition opportunities are you seeing there?

Sure. Well, as we have talked about, we're -- the dominant commercial (inaudible) firm in Asia and Europe combined, we tend to remain in that position. But to do that, we need to constantly invest in the business. Again, the good news for us, I mention this on Jennifer's question is we have the platform in terms of footprint that we believe we need for Asia Pacific and Europe. I would say the one exception to that is our growth in mainland China. As you know, we're very focused on margin. And we've been very careful about how we invest in mainland China. We now believe -- I mentioned this actually two calls ago, we now believe that the time is right to expand our presence in mainland China. By the way, we have -- and have had close to ten offices in mainland China for awhile. Our goal is to have about 20 within 12 months and we're well along that path at the moment. Those investments are again on our SG&A line are de minimus. And the P&L. You're not going to see any material diminution in margin in the short term because of the opening of offices in mainland China. But we're doing it.

The other investments we'll make in our Asia Pacific business would be the same investments we would make in the Americas or EMEA. That's primarily a talent recruiting which is certainly where we spent an awful lot of our time in some cases talent retention which unfortunately we spent some of our time on that as well. But again, those investments are not particularly immaterial and again, I think that the important point here and we've made this I know on many calls is that we think one of the advantages we have in the market place in terms of our financial performance is the fact that our platform was built out awhile ago and we're now -- the additions we make there are incremental, not foundational.

Margins should hold up you think Internationally?

I think so. I think that -- who knows where the markets will had lead, at the moment we're seeing really terrific performance out of all of the markets. Right now, I think you would agree the consensus view is that non-U.S. GDP may very well eclipse U.S. GDP this year and that -- we like that. We've got a good spread of revenues now around the world. You asked a question about where our business may be in years to come. And we mentioned before that we would like to see a more even waiting of our revenues and profits between Europe and Asia combined and the Americas. We're moving along that road fairly quickly. Of course, the Trammell Crow acquisition was all U.S. so that changed the percentages again a bit more in favor of Americas. You should see in the coming quarters and coming years a ever more significant performance out of EMEA Asia Pacific as a percentage of the whole.

Great. Thanks for all of the information.

Thank you. Our next question comes from the line of [David Borgmann] with Wachovia Securities. Please go ahead.

Good morning.

Hi, David.

Thanks for taking my questions. I just had a few. I was wondering if you could frame up, maybe help us understand some of the divergence that's going on in the market in the United States between maybe real estate on the grassroots level in terms of the capital markets and rent growth and what you see going forward versus a lot of the news headlines you see on big high profile transactions and more CBD environments. As well, is that a trend that's also taking place Internationally?

So just -- I want to make sure I understand the question, David, you mentioned a divergence occurring in the market place. Just tell me exactly what you mean so I can give you a good answer.

What I mean is pricing, investment flows, rent growth, commercial real estate fundamentals like you talked about earlier in Tulsa or just more outside of the Manhattans of the world. How does that environment look compared to L.A., San Francisco, New York, and then also is that an environment that you see currently taking place Internationally.

Sure. Good question. And let me first tell you that it is possible and appropriate, at the moment, where we are in the market, to generalize and to say that generally speaking, large markets and midsize markets and that's where our business is primarily located, are all enjoying a confluence of both very healthy leasing fundamentals and a very robust capital markets environment. So, whether we're talking about New York City or we're talking about Riverside, California, I would tell you that both of those -- both of those spots are seeing a healthy market. To use those two examples, the office vacancy rate in New York City at the moment is something like 6.1%, the office vacancy rate in Riverside is 9%. Those are very good numbers.

The areas of weakness if you can call it that remain the same they were two years ago and last year and that's areas, some areas of Ohio, as an example, Cleveland with an office vacancy rate of almost 18%. Detroit with an office vacancy rate of 20%. That would give you -- and by the way, Toledo at 16%. These are the markets that I talked about two, three, four quarters ago as the markets that weren't enjoying the robust recovery that the larger markets or the markets on the Coast were enjoying. But by the way, that has been a broader economic story for well on a decade.

In terms of Internationally, I would say that the International story looks a lot like the America story with a couple of exceptions. We mentioned in the call, I believe that Mike touched on this, that we're now seeing very interesting and good recovery out of Germany, out of the Netherlands, out of Italy. Markets that had not been doing particularly well the last few years are now doing quite well. To that extent, I think Europe again is a lighting indicator of what you saw in America as perhaps a couple of years ago.

Now, across Europe, virtually all of the markets look to be in very good shape. Either in full recovery or now just entering recovery. I would put Netherlands and Italy and Germany in that just entering recovering phase. All good news for us. We're very leveraged toward the commercial leasing markets in Europe. Interestingly, about half of our transactional revenues in the first half of the year in Europe were sales, about half were leasing. We're a strong player in both those businesses. Asia Pacific, markets generally speaking all in quite good shape both on leasing and capital flows. So, again, I don't want to call this a perfect environment. A Goldilocks environment but it is darn close. We're all watching the credit market with interested eye, but at the moment, they have not had any material impact on the business we do. And we feel pretty good about where the markets are at the moment.

How much does what's going on in the U.S. CMBS market with spreads now at 1998 levels, how much does that transfer over really or does it at all from a financing perspective into the Asia Pacific and EMEA regions?

Well, I think it is -- the way I would describe it is it transfers in a sense that it is like a flu. And you may not be feeling it in the direct underwriting of an asset in Belgium but you're aware that CMBS spreads are widening in the states and it is something you're watching carefully. So, what's happening, the cost to capital is going up. And whether it is a CMBS on a written asset in New York or it is a life company or a pension fund underwriting that the debt in Belgium, that cost to capital is moving up. But nonetheless, it is what we've seen for going on six years now. The strength of the appetite for the asset class has moved through a number of issues that, in the past, I think would have slowed the market down. Rising rates. We've been seeing rising rates now for many quarters. That is a fact. Nonetheless, the appetite for commercial real estate continues to grow. We've seen -- we've seen in 2001, 2002, 2003, and early 2004 you had a worsening commercial leasing picture. Nonetheless, the trade in commercial real estate continued to increase. Now we see dislocation and unsteadiness in the CMBS market. It depends on where all of that goes. At the moment, the impact has been de minimus. If it gets much worse, it could become something more material. At the moment, it isn't.

Could you help us -- maybe quantify or just qualitatively, the impact that the large portfolio transactions, the privatizations have had over the past 12 months to your results because if you look at more of just like single asset transactions, it doesn't -- growth really there is muted over the last couple of years. How much does that sort of environment or with the privatization transaction, portfolio transactions, how has that affected your results because as I understand, deals such as, like Archstone, deals such as EOP probably wouldn't get done anywhere near the terms they did in today's environment.

I just want to make one comment on your prior question. One of the dynamics out there in the market place right now that I think bears noting is -- and this also refers back to the comments made on the tick buyers, in (inaudible) market place buyers come in and buyers come out at different profiles. At the moment, we're seeing some very interesting investment from what I call petro dollars out of the Middle East. And of course China now is becoming a very interesting player on the global capital scene. I just want to make that point because that capital that's coming out of China and coming from the Middle East is having a material impact on the market.

Now, to your question on portfolio sales, I would describe first of all, our -- the impact on our revenues from privatization is not material. We do participate in most privatizations in one form or another certainly in many, many of the privatizations we're hired as an appraiser to value the portfolio while they're doing due diligence. In some cases, we're hired to advise on the purchase and in some cases, we're hired to advise on the sale. In many cases, we're hired to work on asset sales once the acquirer has taken over the portfolio.

I think the more material impact to us long-term will be that these private owners and they're now private owners, whether or not they're pay to privatization will pick up, stay the same, or diminish, I don't know but I can tell you that the amount of assets that have moved from public to private material and that's good for our industry. It is good because these private owners tend to outsource everything. They don't self-manage. They don't use their own employees to lease these assets. I would make a comment that I think in many cases, that that is a more efficient and better way to run the portfolios. So, we like that trend. We like the idea that these very smart private buyers say look, we know what we're good at. We're good at finding value in an asset class. We're not good at is managing or leasing buildings, we're going to hire the world's best providers or one of our competitors to do that. That puts revenues into the industry with which we should get at least our market share and frankly, I suspect we'll get much more than our market share of that new revenue to the industry.

Just one more question. I appreciate all the time you've given us on this call. Just regarding buy side representation. I understand it is a little bit more of a trend overseas. I was wondering if you could talk about what that might look like in the U.S. and whether cross border transactions maybe helped that along. And also put a time frame on maybe you've seen that grow and becoming more meaningful to the business.

Sure. That's a very good question. In Europe and Asia Pacific, the traditional model for engaging in investment property disposition work is to represent both the sellers of the properties but to also have a very strong business around representing the buyers of properties. And that has been our model in those markets for many, many, many years. In the states, our own model historically has been weighted more heavily toward representing sellers. That's changed the last couple of years where our investment property specialists are spending quite a significant amount of time on buyer representation in the market place as well. That really is a result of the fact that the complexion of buyers is changing and has changed in the states. A lot of the traditional institutions in the marketplace, a by-product of the United States have been very comfortable going to the selling broker to acquire properties. Today, we have a lot of buyers in the market place such as the private buyers who don't necessarily have that expertise and then hire advisers to advise them on the purchase side. That's really a strategy and consulting engagement which we're very good at. So, we're now seeing a material increase in our work and representing buyers in the states and I suspect you're going to see that as a component of our business growing very quickly this year and in the coming years.

I appreciate it. Thank you very much for your time.

You're welcome.

Thank you. Our next question comes from the line of Jeff Kessler with Lehman Brothers. Please go ahead.

Well, it is -- thank you very much for letting me on the call. By the way, good numbers, folks. The -- I guess most of my questions obviously have been asked already. But I think that one of the things I did ask at the investor day and what I would like to follow-up with is that you've had now a good six months of Trammell Crow under your belt and granted the first couple of months was just pure finding the pieces and the question that I asked before at investor day was wrapped around the ability to begin to start generating revenue in the outsourcing business in the management and design -- design business, I'm sorry. From Trammell Crow, turning that over into revenue for CB Richard Ellis and vice versa, getting the Trammell Crow -- getting the Trammell Crow functionalities out into Europe and Asia Pacific. So, I guess the question is it has something to do with cross selling but it has a lot to do with just getting the two businesses together and beginning to sell what you've put together now as CB Richard Ellis. How far into that are you? And are we going to begin to see some real revenue growth incremental to -- incremental to what you have just published. Via this combination of getting their skill sets into yours.

Let me give you a broad answer but I'm going to ask Mike to give you some anecdotal evidence around this. We've mentioned before, Jeff, and by the way it was a good question at investment day, it it is a good question today. We've mentioned before that our work around thinking about how these businesses would combine and playing that combination was really done before we announced the deal so by the time we announced the deal, Halloween last year, we had a very, very agressive plan in place to go and meet with all of our top clients in the outsourcing world. If you look at our top 215 clients in that world, we lost a whopping total of two. In this integration. That's counting both Trammell and CBG clients. That's an amazing statistic.

I will tell you that the reason that we retained virtually everybody was we went out and met with them and of course, in those meetings, we're not only talking about why our two firms came together but we're selling and we're talking to these clients about why the platform we have we believe now is demonstrably improved over any of our competition and why working with CBG is to our client's advantage. I'm pleased to tell you that virtually all of our clients seem to agree with that. And reengaged with us. We have very robust and very deep account teams on all of our major accounts and those account teams are embedded with the client. They're working side by side with those clients 12 hours a day. Six days a week. And as part of that work, they are making sure that our clients are aware all of the things we have available to them in terms of service and products. I would tell you that our clients are very interested in those enhancers and some products that are engaging us to explore expansions of our engagements with them. That's both in terms of product line and in terms of geography.

I don't want to name clients but I'll tell you that I've been very, very impressed with the engagement our largest clients have had coming from Trammell Crow around the proposition that we can service them in non-U.S. markets in a very, very compelling way. That's something Trammell was unable to do, stand alone, it is something we do exceptionally well and I would tell you that some of our largest clients coming from Trammell seem to be very impressed with that ability that we have and very interested in engaging us in that area. With that, Mike, perhaps you could just give a little anecdotal evidence around what you're seeing in terms of the large corporate institutional customer engaging you on expansion of products and services we're offering them.

I would echo, Brett, exactly what you said, in terms of first of all, our client feedback has been tremendous. From across the globe in terms of the reaction to the deal and in terms of the expectations of service and delivery. Specifically in the U.S. certainly two deals that we announced this quarter, I think were evidence of kind of the idea of cross selling Regions Bank and Washington Mutual both examples of extending, expanding, renewing, large clients, very large 20 plus million square foot, full-service accounts where we're now deeper and the services that we provide for both of those institutions are deeper than they were before. I would also mention, the Corporate services business was and is truly a global business.

When you say deeper, getting more of the client's wallet?

More of the client's wallet. More of the services spent outsourcing more functions, perhaps taking things that were in house. And going deeper. Or I'll talk in a second just about kind of customer buying trends but absolutely, both of those things. The business was already global. It still is global. Our pursuit team, our management structure, our functional leadership is a global team. So, we're operating the business as a global business. Not just as a U.S.-based business at all. Certainly on the Corporate side. Again, a lot of integration cross borders on the investor side as well which leads to issues like the buy side that we talked about earlier.

On the trends, you just have to consider that the trends we continue to see are consolidation of the number of providers that the occupiers are using. Consolidation of the industry itself. The need for the global solutions. End to end full-service. We're seeing that trend very, very strong. So, the customer buying behavior continues to look for innovation and strategy and we're seeing real evidence, our pipeline is deeper than it has ever been and we're seeing both cross selling opportunities with existing customers but also a strong pipeline of new clients.

So, the obvious follow-up to this is not just in the U.S. but in Europe and in Asia, the idea here is greater wallet share and are we going to -- tangible evidence of this is going to be seen when? You can say now but are we going to really see it in the numbers beginning -- are we talking 2008 now?

Mike, let me answer that question. Jeff, I think that it is -- you need to keep in mind that this is a company that puts up very, very significant revenues across many, many business lines. So, the way we think about our business, Jeff, and the way I think you're going to see the numbers is this business and the investment pieces around this business is it is a collection of terrifically integrated but very diverse businesses, any single business in and of itself, if it moves up 5% or 10% in a quarter or a year may not be a material change for you as you view the numbers. It is very material to us and very important to us. But if Mike wins five new customer engagements in the next quarter, you're not going to see it in the numbers. Here's what you are going to see.

Year over year, as we move forward down the road and we continue to grow this company and build this company, the outsourcing component of this company is becoming more material every day. And a very, very important and significant part of our business. But this isn't the kind of business that's going to -- we're going to sit on the call next quarter and say wow, look at the numbers for the Company and this is all due to an uptick in outsourcing. The Company is too big to feel that impact. It is much more a story of putting the pieces together and watching a very coherent growth pattern through the combination of rate performance out of all of our businesses.

Again, I assume I'm toward the end of the queue here so I'll make this last question very quick. It is an easy one. The $0.07 of investment management gains that you believe or was described as being shifted, my understanding -- my assumption is that -- is that this is -- the likelihood this is simply going to be replaced by other investment management gains that you may or may not get later on in the year.

No, I think what we're saying is that that $0.07 was really income that we had expected to get in the investment management business in the fourth quarter of this year. But because of timing of transactions and such, we were able to recognize it in the second quarter as opposed to the fourth quarter.

Right. And again, my question to you is the assumption is that given the uncertainty of whenever you can take these types of gains, the possibility exists that other gains could be taken in the fourth quarter.

I think--.

Just the way you moved up -- just the way you were able to move up some into the second quarter, there could be other things out in 2008 that could be moved up into 2007 if it came to that?

Jeff, let me make a very clear and strong point here. We don't move these gains. These portfolios become -- they liquidate in the marketplace when they liquidate and we realize those gains when we realize them. We don't have the ability to move a gain a quarter to quarter and wouldn't do so if we did. What happened in the second quarter is in our budget for the year, a certain liquidation occurred. We thought it would occur in the fourth quarter. It occurred in the second quarter. Could there be other realizations that occurred in the fourth quarter? Sure, there could. It is just as likely that there won't be. And what Ken is telling you on the call is you should assume there won't be.

Thank you very much.

Thank you. And we have one more question in queue. It is from Will Marks of JMP Securities. Please go ahead.

Thanks. Hello, Brett, Ken and Mike and others. I'll be fairly quick. One is on the investment management side on page 17. The revenues, $59.3 million that you called the noncarried interest portion. Should we assume that that's somewhat of a run rate for that part of the business?

Yes. It is ongoing revenue. Or annuity revenue. So, the reason we characterized that differently than the carried interest is because obviously the carried interest as Brett just talked about has timing issues. We recognize that obviously when funds liquidate and we actually receive a distribution. With regard to kind of the investment management portion or the blue bar, that $59 million, we consider that really kind of ongoing annuity type revenue that will benefit out. It is closely tied to kind of the assets under management that we have and obviously as assets under management continue to grow quite nicely, we would expect that component of revenue to grow as well.

Great. And then another question on your balance sheet. Did you give any -- have you given any guidance in terms of where you -- how much debt you expect to pay off during the year?

No. We haven't. What we've talked about in the past is that we plan to pay off a significant amount of what we've already -- through today's date, obviously we talked about paying off an additional $75 million of the debt in July or post the end of the second quarter. So, a little bit ahead of $200 million for the year. Obviously our plan is as we generate internal or free cash flow to use a healthy portion of that to continue to pay down debt but we haven't given the targets. All I can say is that we do plan to pay off a good portion of that or as much as we can by the end of the year.

Great. My final question related to the balance sheet. Is on the notes payable on the real estate. Can you just give me a little reminder or overview of what that really means? Is there interest expense on the balance sheet related to that? I understand it is non recourse to you but just maybe explain what that is.

No, it is not interest expense on our P&L relative to the pit of those projects. So, the interest expenses on our P&L is really reflective of kind of the borrowings that we have.

Sure. But this is all debt related to Real Estate that is to be developed through that division of the Company?

Yes. It is. It is all real estate. So, as we talked about before, the recourse portion of that is quite minimal. But that is all project specific debt.

Great. That's all for me. Thank you.

Thank you. No further questions in queue.

Thank you, operator. Thanks everyone for joining us on the call. We'll look forward to talking to you next quarter.