(For more Reuters columns on deals, click [DEALTALK/])
(Adds details of ECD acquisition)
By Ilaina Jonas
NEW YORK, July 11 Real estate services
companies are buying each other even as the global credit
crisis slows merger and acquisition activity in other sectors
of the U.S economy.
The firms, which help global companies locate, own, rent,
buy and manage their real estate properties, also manage funds
for investors in commercial real estate.
Unlike other sectors, they have been able to keep up M&A
activity because of the nature of their business, the
compensation structure of the industry and the credit crunch,
which has greased the acquisition wheels.
Jones Lang LaSalle Inc (JLL.N) closed on a $613 million
deal on Friday for tenant representation firm The Staubach Co.,
founded by football legend Roger Staubach and, in a smaller
deal, bought green technology company ECD Energy and
Environment Canada on July 7.
So far this year, Jones Lang has acquired 11 companies,
mostly outside the United States, versus 13 for all of 2007.
Industry leader CB Richard Ellis Group Inc (CBG.N) has acquired
12, compared with 14 in all of last year. Privately held
Cushman & Wakefield has snatched up five, compared with eight
The sector remains highly fragmented with the top four
players accounting for just about 21 percent of the industry,
as of the end of the second quarter.
"What you're seeing is occurring because of the
fragmentation of the industry, and also, fundamentally, clients
are demanding a global platform with robust services," Bruce
Mosler, Cushman & Wakefield's chief executive, said.
Cushman & Wakefield is intent on beefing up its investment
management business, which currently has $10 billion in assets
Sales of U.S. commercial real estate are off about 80
percent from last year. Brokerage fees have evaporated. So real
estate services companies have been feeling pressured to
While their clients grew and expanded around the world, the
U.S. real estate services sector consolidated, enabling the
larger service providers to follow their customers. The sector
is being divided into those with global capabilities and niche
"Everyone else, I believe, will end up going by the
wayside," CB Richard Ellis CEO Brett White said. "Our view is,
when opportunities come along we need to be able to pursue
them, almost without regard to market cycles or the conditions
of the macro business at that time."
Except for Jones Lang's Staubach acquisition, most
purchases this year have been midsized deals under $100
million, and have added a strategic location or capability to a
real estate services company's offerings.
Cushman & Wakefield bought P&D Real Estate, of Turkey, to
expand across Europe. CB Richard Ellis' bought Toronto-based
Tempest Management for its expertise in project management
services to corporations and governments in Canada.
The ECD acquisition enables Jones Lang LaSalle to help
customers manage all their real estate in a more energy
efficient manner and analyze the costs and returns of doing
"In a challenging market such as this, clients need more
advice more often than ever," Cushman & Wakefield's Mosler
said. "A company that has a diverse set of expertise can, in
this particular marketplace, be more helpful to their
An acquisition reduces the time needed to be proficient in
a specialty or new localities, executives said.
Unlike property purchases or acquisitions in other
industries, commercial real estate services acquisitions do not
involve a lot of debt or hard assets.
"We're principally buying customers and staff," Jones
Lang's Chief Financial Officer Lauralee Martin said. "It's
relationships and clients. They're coming to us with those
profits. They generally have relatively flexible compensation
schemes that match up against that."
The acquired employees are paid based on performance, which
gives the buyer some level of protection against ending up with
an expensive dud.
The current economic downturn also has shifted power to the
buyer. The Staubach deal calls for Jones Lang to pay much of
the cost of Staubach over five years and includes and
additional $114 million based on performance.
Could Jones Lang LaSalle have achieved those terms last
year in better economic times?
"No, absolutely not," Martin said.
(Editing by Leslie Gevirtz, Gary Hill)