Acquisition aids CB Richard Ellis’ global plans
With strong global demand for office and industrial space fueling a worldwide commercial real estate boom, it makes sense for property service firms to get bigger.
Brett White intends to stay the biggest.
White is chief executive of El Segundo-based CB Richard Ellis Group Inc., which has cemented its position as the world’s largest commercial real estate services company in recent years by snapping up rivals while expanding its own business.
CB Richard Ellis built on its lead Wednesday, completing the $1.9-billion acquisition of rival Trammell Crow Co. The addition of Dallas-based Trammell Crow’s clients means CB Richard Ellis now has service contracts with 85 of the Fortune 100 companies.
“We will end up with two or three truly globally capable service firms and thousands of small local boutiques,” White said. “There won’t be much left in the middle.”
As a broker of sales and lease transactions as well as a property manager, CB Richard Ellis helps clients move operations around the world and looks after their properties. With globalization gaining steam, many companies are finding that they have real estate needs in far-flung locations.
A U.S. investment bank, for instance, might need space for a new office in China. Or a British-based flooring manufacturer might want to buy a factory in Chile. CB Richard Ellis has offices in those countries and 46 others and has units that specialize in real estate financing, appraisal and investment advice.
The company’s “global reach means that it is one of a few real estate firms capable of handling complicated real estate transactions for large multinational corporations,” a recent Standard & Poor’s report said.
Its size also “helps generate economies of scale that few other real estate firms can match,” the report added.
Risks to growth include a possible downturn in corporate demand for space and increased competition from the likes of Jones Lang LaSalle and Cushman & Wakefield. A sharp rise in interest rates could put off real estate investors.
For now, however, CB Richard Ellis’ growth strategy has fans on Wall Street, said analyst Craig Silvers of Bricks & Mortar Capital.
“Their stock performance has been tremendous,” he said, with a gain of about 70% this year, including a 10% bump that came after the Trammell Crow acquisition was announced Oct. 31. That compares with an average gain of about 30% for real estate investment trusts, Silvers said. Shares of CB Richard Ellis rose 4 cents Wednesday to $32.66.
Profit totaled $193.5 million in the first nine months of this year, up 59% from the same period a year earlier. Revenue was $2.4 billion, up 23%.
Investment in commercial real estate is growing more moderately after a torrid pace from 2001 through 2005, White said, but large investors are still “highly interested” in acquiring properties such as offices and warehouses.
CB Richard Ellis is not the only firm following the “bigger is better” mantra.
On Tuesday, New York-based Cushman announced that an Italian family had purchased a majority stake in the company from Rockefeller Group International Inc., a unit of Tokyo-based Mitsubishi Estate Co.
Trammell Crow was a mid-size brokerage, property manager and developer known for its blue-chip clientele. It was founded in 1948 by a former Navy officer named Trammell Crow, who still lives in Texas. His company had a reputation for button-down professionalism during an era when real estate brokers were often viewed as freewheeling lone rangers.
“We are very proud of Trammell’s role as a patriarch, and we want to retain the company culture” he created, White said.
With the addition of Trammell Crow’s 6,700 workers, CB Richard Ellis will have 21,000 employees. There will be few layoffs in Southern California, White said, but nationwide there will be some cuts in duplicative management and administrative posts. He declined to say how many jobs would be lost.
CB Richard Ellis has been trying to ease employee anxieties about the acquisition by giving them what White called “tactile” information, such as where they will sit and with whom they will be working.
CB Richard Ellis has had ample practice at absorbing other companies. In 2003, it bought rival Insignia Financial Group for $431 million. Trammell Crow is likely to be the last large acquisition for a while, White said, but the company is always bringing in small firms.
“We are looking at over 100 small companies at any given time, and we might buy between 10 and 20 a year,” White said.
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Top brokerages
The world’s largest commercial real estate brokerages, by 2005 transaction value, in billions
CB Richard Ellis
(Headquarters: El Segundo): $150
Cushman & Wakefield (New York): $69
Newmark Knight Frank (New York): $41
Grubb & Ellis (Chicago): $40
Jones Lang LaSalle (Chicago): $36
Trammell Crow* (Dallas): $22
Studley (New York): $21.1
Staubach (Addison, Texas): $21
Marcus & Millichap (Encino): $20.9
*Acquired by CB Richard Ellis
Source: Commercial Property News
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