The headline on January 2, 2008 from Grubb & Ellis Company announced “Dylan Taylor Named Acting President of Global Client Services,” and explained that Maureen Ehrenberg was no longer with the company as of December 31, 2007. Thus began a year of fast-moving personnel changes, mergers, acquisitions and seismic ups and downs (mostly downs) in the market for many of the major corporate real estate brokerage and investment firms that also provide corporate real estate and facilities services in the global marketplace.

 

We mention this headline first for two reasons: chronologically, it was the first event to occur in 2008; and, Expense Management Solutions became a beneficiary of this event when Maureen agreed to join Expense Management Solutions as a principal and manage our corporate real estate services consulting practice as announced on April 28, 2008.

 

Only three weeks earlier, on December 10, 2007, Grubb & Ellis had announced the completion of its merger with NNN Realty Advisors, Inc. As a result of the merger, Triple Net Properties, one of the nation’s leading sponsors of securitized 1031 tenant-in-common (TIC) exchange programs, and NNN Capital Corp., a registered broker-dealer, are now indirect wholly owned subsidiaries of Grubb & Ellis Company. Scott Peters took the helm of this new organization as Grubb & Ellis President and Chief Executive Officer.

 

This model, a global real estate services powerhouse with an investment arm and a services arm, is similar to the approach taken by other leading corporate real estate organizations like Cushman & Wakefield, C.B. Richard Ellis, and Jones Lang LaSalle. However, 2008’s economic downturn with its corresponding pounding of the market for corporate real estate has resulted in a turbulent year for such companies.

 

Other noteworthy mergers, acquisitions and personnel changes during the first half of 2008 include:

 

The aggressive merger and acquisition activity of C.B. Richard Ellis catapulted the firm into the Fortune 500 for the first time in 2008, debuting at number 404.

 

On January 23, 2008, CBRE announced the appointment of Raymond Torto, Ph.D. to the newly created position of Global Chief Economist to help develop strategy for both CBRE and its clients. Dr. Torto was formerly Principal and Managing Director of Torto Wheaton Research.

 

On May 12, 2008, it was announced the Diane Paddison, CBRE’s President of Client Accounts, Global Services had jumped to Prologis to serve as Executive Director of Global Operations and will succeed Walter C. Rakowich as the company’s President and Chief Operating Officer in 2009. Jim Wilson was named to succeed Paddison at CBRE.

 

Meanwhile, Jones Lang LaSalle was on a global buying spree as indicated through their various press releases:

 

On May 21, 2008, Jones Lang LaSalle announced that Bryan Jacobs, who had served as Managing Director in the firm’s Corporate Solutions practice, was named International Director, elevating him to the top management tier. On June 2, 2008, Ted Glimp, previously of CB Richard Ellis, joined the firm as Managing Director of Corporate Solutions, filling the position previously held by Jacobs.

 

As a result of the Jones Lang LaSalle acquisition of Staubach, CEO Roger Staubach joined the firm’s Board of Directors on July 11, 2008 with the title, Executive Chairman, Americas.

 

On May 13, 2008, Grubb & Ellis signaled its confidence in Dylan Taylor, removing “acting” from his title and cementing his position at the top of the Global Client Services organization.

 

On July 11, 2008, news broke that Scott Peters had resigned as CEO, but would continue to focus on his roles with the Grubb & Ellis Healthcare and Apartment REITs. Since this time, Gary Hunt has served as Interim CEO while the firm searches for a replacement.

 

On July 22, 2008, James Jones, formerly of CB Richard Ellis, was named Executive Vice President of Operations, and will be responsible for the company’s merger integration efforts, operations, research and the Grubb & Ellis Affiliate Program.

 

Cushman & Wakefield expanded its global presence as evidenced by the following press release headlines:

 

 

In May 2008, Cushman & Wakefield named John C. Santora Chief Executive Officer for the Americas. He replaced Tony Marano, who announced his decision to step down effective June 30.

 

In July 2008, Pierre Bergevin was named President and CEO of Cushman & Wakefield LePage with offices in 12 cities across Canada. He replaces longtime head Colum Bastable who will remain with the firm as chairman of Canadian operations.

 

As industry consolidation and repositioning continues, the list of key personnel moves from one company to another is much too long to report in this article, and it is not clear that there is a winner in this game of musical chairs. More likely, the end result is simply a stirring of the pot, the results of which will be more evident by the end of the year.

 

Revenues for the second of quarter at Jones Lang LaSalle fell by 2%, although revenue for the first half of the year is 5% above 2007 levels. However, net income for the firm has dropped significantly, at $.73/share in Q2 2008 vs. $2.32/share in Q2 2007 and $.82/share in the first half of 2008 vs. $3.12/share in the first half of 2007. This is primarily due to the difficult real estate market and tight credit conditions. Referring to the string of acquisitions listed above, as well as additional transactions that occurred in the second half of 2007, Jones Lang LaSalle reported that those acquisitions contributed EBITDA of almost $9 million in the first half of 2008. However, integration costs of $1.6 million and amortization of $4.3 million reduced their operating income performance. With revenues remaining strong in a difficult economy and net income dropping sharply, their focus will be more active management of their operating costs throughout the second half of the year. Expect a much lower level of M & A activity throughout the remainder of the year.

 

Jones Lang LaSalle reports that economic conditions are actually boosting demand for real estate services outsourcing, and that its Corporate Solutions business is benefiting as a result. Specifically, the company has won eight major multi-regional assignments that include contracts with Lenovo, Nokia and Boston Scientific. In addition, they have verbal awards on four additional assignments, and have renewed eight existing contracts. Jones Lang LaSalle currently reports approximately 1.2 billion square feet under management.

 

Jones Lang LaSalle stock price on January 1, 2008: $71.16

Jones Lang LaSalle stock price on August 1, 2008: $48.99 (down 31.2%)

 

Cushman & Wakefield is a privately held company, and there is much less information available to report. Of course, the big news (now old news) was the selling of a majority stake in Cushman & Wakefield by the Mitsubishi Estate to the Italy based investment firm IFIL at the end of 2006. According to IFIL’s Q1 2008 financial report, Cushman & Wakefield reported a loss of 24.1 million euros in the first quarter. 2Q 2008 reports were not published at the time of this writing. IFIL too has struggled, declining from just under 5.92 euros/share on January 2, 2008 to just under 3.75 euros/share on August 1, 2008, a drop of approximately 36%. Cushman & Wakefield reports to have over 500 million square feet under management globally, and provides services for over a billion square feet. In April, Cushman & Wakefield reported that British Airways had appointed the firm as its exclusive real estate adviser on its global portfolio outside of the United Kingdom. In July, Hard Rock International appointed Cushman & Wakefield their retained property advisor across Europe and Citi named Cushman & Wakefield one of three preferred EMEA real estate advisors. Other wins this year include global lease administration and document management for GE’s 340 million square foot portfolio and a 5 year renewal for integrated services for the 2.6 million square foot AIG Center in Houston, TX. These joined other existing Cushman & Wakefield corporate services clients including Cadbury Schweppes, Ericsson, Ford, GlaxoSmithKline, Orange, Procter & Gamble, and Nokia.

 

In the Q2 2008 Grubb & Ellis earnings conference call, the firm reported a second quarter loss of $5.1 million and a loss of $11 million for the first six months of the year, compared to an $11.8 million profit in the first six months of 2007. However, the downturn is primarily driven by the investment and transaction portion of the business. Grubb & Ellis reported that management services fees increased 15% during the second quarter of 2008 and predicted that their global client services business is positioned to deliver record results for the year.

 

Throughout the first six months of 2008, Grubb & Ellis reported that it had retained all of its major client relationships and had recently renewed or expanded the scope of transaction and facilities management work for several clients, including AJ Gallagher, Qwest, Safeco and United Stationers, and had added a large multi-market engagement for a Fortune 50 financial services firm. As of June 30^th, Grubb & Ellis Management Services reports approximately 218 million square feet under management. At the same time, it is also clear that Grubb & Ellis has focused on cost savings through reductions in headcount, specifically in their transaction services and management services operations.

 

Grubb & Ellis stock price on January 1, 2008: $6.41

Grubb & Ellis stock price on August 1, 2008: $3.29 (down 48.7%)

 

The same corporate real estate market that is creating turbulent times for other firms, has hit CB Richard Ellis hard as well. According to the transcript of their Q2 2008 Earnings Conference Call, CBRE’s revenue for the quarter was $1.3 billion, some 12% lower than in the second quarter of 2007. Year-to-date, revenue is down 6%. EBITDA for the quarter was down 61% and is down 44% year-to-date. Again, lower sales and leasing activity were the main drivers of this decline, while property and facilities management revenues grew 29% in the second quarter.

 

CB Richard Ellis reported five new corporate services clients, including Visa and Dr. Pepper – Snapple. They also expanded their relationships with six clients, including General Electric, and Piedmont Health, and renewed relationships with eight clients including BP America and Bank of America. This is in addition to first quarter activity in which eleven new accounts were added including Fireman’s Fund and Nestle, expansion of service in ten accounts including Dow, Cisco, Hertz, Eastman Kodak and A.T. & T., and renewal of eleven accounts including IBM and VW. CB Richard Ellis currently reports total global square footage under management of 1.7 billion square feet.

 

In spite of these successes, Brett White, President and CEO of CB Richard Ellis Group said that, “2008 earnings per share could be down versus the prior year by as much as 40% to 50%.” CB Richard Ellis reported expense reductions brought about through the acquisition of Trammel Crow in 2006 in excess of $100 million and stated that “the Company is positioned correctly for this market downturn.” However, the CB Richard Ellis strategy continues to include a focus on “acquisitions of good firms out there that are feeling extraordinary pressure in the current marketplace.” In other words, be ready for more volatility and consolidation in the corporate real estate and facilities services marketplace in the future.

 

CB Richard Ellis stock price on January 1, 2008: $21.55

CB Richard Ellis stock price on August 1, 2008: $13.45 (down 37.6%)

 

It is clear that all of the corporate real estate companies with major investment and transaction operations will continue to struggle along with the downturn in the global economy. Predictions for an upturn in economic conditions continue to be pushed farther into 2009. Management services for all of these companies are a bright spot in their businesses, but in any event will not make up for the shortfall. Whether or not difficult conditions on the investment side of these companies will impact their surging, but proportionately smaller corporate services side will bear watching over the next six months. For companies in existing contracts with CRE and facilities service providers, it will be important to monitor staffing levels, already strained in some cases simply because of the limited availability of qualified personnel, as both Grubb & Ellis and Jones Lang LaSalle explicitly referred to hiring freezes in some areas of their companies in their public statements, and all refer to ongoing efforts to reduce operating expenses in the face of falling revenue and challenging real estate markets.

 

To talk to a corporate services expert at Expense Management Solutions and find out how we can help you to lower the costs of delivering corporate real estate and administrative services across your enterprise, and manage your outsourced services relationships more effectively, call us at (508) 460-7014, or e-mail solutions@expensemanagement.com. 

 

 

For a free reprint of the article, ""Locking in the Benefits of Outsourcing: Innovation, Cost Reduction, and Continuous Improvement at Microsoft," authored by Chris Owens of Microsoft and Michele Flynn of Expense Management Solutions and published in the CRE Leader magazine, send an e-mail requesting a copy to teplansky@expensemanagement.com with your name and e-mail address.

 

 

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