CB Commercial to Buy Koll Real Estate Services in $145-Million Deal
CB Commercial Real Estate Services Group said Tuesday that it has tentatively agreed to purchase Koll Real Estate Services for stock worth $145 million in a deal that would create a worldwide power in commercial property services.
Los Angeles-based CB Commercial, already the nation’s largest commercial real estate brokerage, would nearly triple its property management business by adding Koll’s Newport Beach operation.
“The companies fit together nicely without a lot of overlap,” said James J. Didion, CB’s chairman. The combination would enhance CB’s ability to expand and to provide full-service benefits to more customers, he said.
The planned acquisition is part of an ongoing consolidation in the real estate services industry as corporate America looks more often to large, full-service companies to handle all its real estate needs. Service firms also are trying to gain size to become more efficient and to offer more services in more areas to help them avoid regional economic downturns.
Koll itself, under founder Donald M. Koll, has bought about two dozen companies in the last four years to become one of the nation’s largest property managers, overseeing nearly 200 million square feet of commercial and office space.
“There are going to be a handful of global players in real estate,” said William Rothe, Koll’s president. “This allows us to build up to be one of them.”
The combined company, he said, would be the nation’s biggest manager of commercial real estate with about 300 million square feet of space under management.
Koll Real Estate Services is one of four privately owned companies begun by developer Don Koll. One of the others, publicly held Koll Real Estate Group, is the owner and developer of the controversial Bolsa Chica wetlands project in Huntington Beach.
CB Commercial, with $583 million in revenue last year, operates in 33 countries, mostly brokering sales and leases of commercial buildings and facilities. Koll had $176 million in revenue last year.
The CB-Koll deal “certainly raises the stakes” in the commercial real estate business, said Joe F. Hanauer, chairman of Grubb & Ellis, a CB competitor. Companies will have to grow to compete, he said, or reduce in size and specialize in specific services or smaller regions.
Under CB’s acquisition, Didion said, layoffs will come primarily in the administrative and corporate areas as Koll’s operation is moved to CB’s Los Angeles headquarters. But he said it is too early to determine how many would be affected as Koll’s 2,600 employees are combined with CB’s staff of 4,300.
CB has 1,300 employees in Southern California, most of whom work in the company’s 10-story building in downtown Los Angeles. Koll employs several hundred at its headquarters.
The deal is subject to a definitive agreement, federal antitrust clearance and approvals from directors and shareholders of both companies. Didion said he hopes to close the deal by the end of July.
Industry experts greeted the combination warmly.
“I think it will help Koll’s operation,” said Al Gobar, a Placentia-based consultant. “Koll would have access to a huge sales organization--CB’s brokers.”
With the nation’s biggest commercial brokerage operation, he said, CB would be able to cross-sell Koll’s property management capabilities, bringing in new business to the company. Koll also expects to be generating business for CB.
Trading in CB Commercial was halted near the end of Tuesday as rumors hit Wall Street about the combination. The company released information after the market closed. CB ended the day at $25.75 a share, up $1.25 in Nasdaq trading.
Didion, who said he has known Koll for 25 years, said CB and Koll have been talking for two years about ways to do business together. But negotiations heated up about two months ago as Koll raised $120 million for more acquisitions.
Most of the money came in a line of credit from banks, but investors Freeman Spogli & Co. and Apollo Real Estate Advisors picked up respective stakes of 65% and 10% in Koll with a $25-million investment.
The investment left Don Koll, who has had a limited role at the company in recent years, with only 3% of the company. Ray Wirta, its chief executive, holds 12%. Analysts say Freeman Spogli and its principal, Brad Freeman, became the driving force on Koll’s end to put the deal together.
“The business reasons were just too compelling not to do this transaction,” Freeman said.
Under a restructuring, Don Koll, Wirta and Freeman will be nominated to sit on a 13-member CB board, Didion said.
Don Koll had started the property management firm in 1988 as a way to get through the recurring economic valleys in the real estate market. The operation became so successful that it turned into his biggest operation.
While acting as a consultant and director to CB, Koll will continue to operate his other three firms, including Koll Resorts International, a developer of resort properties, and Koll Construction.
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Hot Properties
Koll Real Estate Services
* Headquarters: Newport Beach
* Chief executive: Ray Wirta
* Major services: Full-service real estate firm providing property management, corporate facilities and investment advice; manages 149 million square feet of space and an investment portfolio of nearly $2 billion
* Status: Publicly traded as Koll Management Services until going private in 1994
* Employees: 2,600
* 1996 revenue: $176 million
* Purchase price: $145 million in stock
CB Commercial Real Estate Services Group
* Headquarters: Los Angeles
* Chairman/CEO: James J. Didion
* Business: Commercial real estate brokerage services, corporate services, property management, real estate market research, mortgage banking, investment management and advisory services, valuation and appraisal services
* Exchange: Nasdaq
* 1996 revenue: $583 million
* Employees: More than 4,000
Sources: Bloomberg News, Koll real estate services, CB Commercial Real Estate Services Group
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