LinkedIn Quits China

Plus: Commercial real estate is relocating in the ‘burbs. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 10, 2023

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TOGETHER WITH

Good morning.

TikTok parent company ByteDance may be heading into a new, and may we say slightly unexpected, industry: books. At least, that’s what a recent new trademark registered by the company (and first spotted by Business Insider) would suggest.

The 8TH NOTE PRESS trademark includes potential products and services such as an e-reading app, a marketplace for both e-books and physical books, and a social networking space for bookworms to connect. Sounds intriguing, though we’d have guessed that the near infinite amount of personal data ByteDance has collected via TikTok user habits would tip them off that nobody has the attention span for entire books anymore.

Morning Brief

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Are strip malls the new real estate lifeboats?

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LinkedIn leaves China.

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Wendy’s takes Google to the drive-thru.

Real Estate

Can Suburban Retail Save Commercial Real Estate?

Go ahead and work from home all you want. Just know you’re making matters even worse for banks, which have enough problems right now.

Fund managers are flagging the next domino to topple in the ongoing liquidity crisis: commercial real estate, which, surprise surprise, continues to struggle in the post-pandemic, work-from-home era — and is propped up by loans owed primarily to regional banks. But not everyone in the sector is experiencing the same pain. In fact, the very same pandemic forces have made the suburbs… cool?

Crying Like It’s 1991

If the doomsayers are to be believed, the $20 trillion-plus commercial real estate sector may be headed for its biggest bust since the early 1990s — back when the Fed took a sudden u-turn on longstanding low-interest rates, crunching both banks and overleveraged real estate developers hooked on cheap cash. Nearly 300 banks failed between 1990 and 1991, according to the FDIC. Citibank nearly went under. History, it sure seems, has a nasty habit of repeating itself.

Rising interest rates are creating a similar crunch today, exacerbated by scores of office buildings abandoned by couch-loving laptop warriors. And the bill is about to come due on the industry’s pile of debt. “There’s a maturity cliff for a lot of this real estate in the next few years, a significant portion of which is funded by regional banks,” one anonymous chief executive of a large US bank recently told the Financial Times. “Commercial real estate is leverage on leverage on leverage […] if people are forced to quickly unwind that leverage it can pop up in other places.”

Still, the sector — and the small and mid-size banks that own roughly 70% of commercial real estate loans — may have a ringer in the mix this time around. It’s a little place called Suburbia, USA:

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Out-of-city retail spaces are seeing a massive resurgence. Both Site Centers and Phillips Edison, two large shopping center owners, reported record high occupancy and leasing in first-quarter earnings reports.

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Meanwhile, mall purveyors Simon Property Group says overall occupancy rate is over 94%, a hair short of pre-pandemic norms, while foot traffic is up from last year.

In fact, according to real-estate firm CBRE, the second half of 2022 marked the first time since at least 2013 that urban retail space vacancies surpassed suburban levels. Maybe all your friends who ditched city life were right.

Nowhere Like New York: At least one group is enjoying the New York exodus: the ultra-rich, who see the vacuum forming from fleeing institutional players as a once-in-a-lifetime chance to own a piece of the New York skyline on the cheap. Of the eleven New York office building acquisitions in the last six months of 2022, seven were by wealthy individuals, smaller developers, or family-run companies, according to a recent Bloomberg report using Savills data. New York City office buildings: the Hermes handbags of commercial real estate.

– Brian Boyle

Corporate News

LinkedIn is the Latest Setback for Western Companies in China

(Photo Credit: Greg Bulla/Unsplash)

LinkedIn is out of a job in China.

This week, the popular social media platform announced it’s shuttering the Chinese version of its job search app, InCareer, and laying off more than 700 employees worldwide. While LinkedIn is a multi-billion dollar recruitment platform with hundreds of millions of users around the globe, it is facing an increasingly common problem in Silicon Valley: the inability to compete with China’s domestic offerings.

This Town Ain’t Big Enough

InCareer launched in 2021 and had some success, garnering more than 57 million users. But that’s small potatoes compared to Chinese online recruitment platform Zhaopin’s 320 million users. LinkedIn Learning, Marketing, and Talent will still operate in China, but there could be further cuts in the future.

“Though InCareer experienced some success in the past year thanks to our strong China-based team, it also encountered fierce competition and a challenging macroeconomic climate,” LinkedIn CEO Ryan Roslansky said in a company message to employees.

LinkedIn is far from an outlier. Western imperialists used to control the spheres of influence in China, but that’s no longer the case. With the ever-intensifying China-US trade war, Beijing has grown more and more self-sufficient, relying on homegrown companies and making it incredibly difficult for foreign businesses to succeed. Plenty of corporations that seem too big to fail in America or Europe are doing exactly that in China:

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Amazon, Yahoo, and Google are among some of the biggest companies that failed to capitalize in China, and clothing retailer Forever 21 is on its third attempt to establish itself in the country. Despite political tensions, strict compliance laws, and tough domestic competition, China remains one of the largest retail markets in the world with more than 1.4 billion people, making it difficult for Western companies to ignore.

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Problems materialized for Uber as soon as it entered the nation in 2013. The app supported Western credit cards as payment, not third-party wallets like WeChat and Alipay, which most locals preferred. Uber uses Google Maps to locate drivers and destinations, but Google Maps has been blocked in China since 2010. Plus, Didi, a China-born app that connects riders with established taxi companies, already had a vice-like grip on the rideshare market. Uber pulled out of China in 2016.

Why Can’t We Be Friends? Maybe Beijing and Washington will kiss and make up someday. Last November, presidents Joe Biden and Xi Jinping met at a G20 summit in Indonesia and committed to better communication. And earlier this week, Chinese Foreign Minister Qin Gang said “The top priority is to stabilize Sino-US relations, avoid a downward spiral and prevent any accidents between China and the United States.” However, he blamed a recent ramping up of tensions on the US, likely referring to the balloon fiascos at the start of this year. While sounding diplomatic, he was basically saying “sorry, not sorry.”

– Griffin Kelly

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Tech

Google Partners With Wendy’s For Drive-Thru AI

Get ready for some sparkling AI-generated chit-chat the next time you pull into a drive-thru.

Fast-food giant Wendy’s has called on Google to help it build a generative AI chatbot that can take food orders from drive-thru customers. The point of the chatbot will be to speed up drive-thru lines, although Wendy’s CEO Todd Penegor told/warned The Wall Street Journal that the chatbot will be “very conversational”.

Do You Want AI With That?

Wendy’s is not the first fast-food chain to try automating the drive-thru experience. McDonald’s started testing out Alexa-like voice assistants at its drive-thru restaurants as far back as 2019 but with decidedly mixed results. TikTok videos of part-exasperated, part-amused customers interacting with the bot started to go viral in February this year. In one video, the Robotic Ronald McDonald ended up totting up an order for $250 worth of McNuggets.

Wendy’s says it’s training its AI chatbot with Google and plans to get it into drive-thru kiosks next month. Rather than just sticking Google’s Chat-GPT rival bard into some Wendy’s-branded screens, the job will require a lot of customization:

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The bot will have to recognize Wendy’s-specific slang for its products — “JBC” for junior bacon cheeseburger, for example.

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It will also have to learn to tune out any background noise like engines, horns, or hungry children savaging each other in the backseat.

Even a chatbot which makes the occasional snafu could scale well for Wendy’s, which has seen a huge shift toward drive-thru dining. The company told the WSJ that while drive-thru food made up 30% of orders before the pandemic, it now accounts for 80%.

Blackmail’s Such An Ugly Word — Robots Prefer ‘Extortion’: Corporations love cutting costs through automation, and for some introverted consumers taking the humanity out of, say, checking out at the grocery store has been a blessing. But sometimes companies go a step too far in trying to simply replicate a human teller rather than thinking through why a robot is actually useful. In a WSJ piece published on Monday, some consumers expressed their outrage at the growing number of self-checkout machines that ask for a tip, with one person describing it as “emotional blackmail.” If Chat-GPT’s initial public outing is anything to go by, AI will only get more emotionally manipulative the more sophisticated it becomes.

– Isobel Asher Hamilton

Extra Upside

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All about the Hamiltons: TurboTax will send $30 checks to millions after settlement.

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Dude, where’s my car? Security fixes haven’t slowed Hyundai and Kia thefts.

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