For the last year and a half, Los Angeles commercial real estate brokerage CB Richard Ellis Group has been on an expansion binge.
In February 2003, the company announced an agreement to buy rival Insignia Financial Group for $431 million, and in June it raised almost $455 million through a public stock offering.
The company, now the industry's largest, has 13,500 employees in 220 offices in the U.S. and abroad performing brokerage, appraisal and property management services.
Investors have been pleased with the company's progress; its stock closed Friday at $22.36 on the New York Stock Exchange, up 18% since the June 9 offering price.
President Brett White, who started with the company as a sales trainee in 1984, recently discussed its strategy and the state of the commercial real estate market, something he was prohibited from doing shortly before the stock offering.
Question: Your company was public in the late 1990s and then went private in 2001. Why did you decide to go public again?
Answer: We felt the company needed to be a much larger size with larger market capitalization to really be taken seriously in public markets. We spent time making sure the company was positioned in a way that it would be viewed as best-in-class or aspiring to be the best-in-class business services firm. So we went public because we did all those things.
Q: Is this a good time for other real estate brokerages to go public?
A: I do think there are advantages in the public market to having scale, to being of some size. I do think in the past our company and others suffered in public markets because the firms were particularly small. That having been said, the stock performance of our public competitors, Jones Lang LaSalle, Trammell Crow Co. and Grubb & Ellis has been quite impressive of late.
Q: Is the office market close to recovering from the recession that started in 2001?
A: We believe that the national leasing market turned the corner in early fall 2003. We're beginning to see landlord concessions decrease on new leasing deals and, in some cases, real rent appreciation. The recovery was particularly evident in Southern California. The Bay Area is lagging, although downtown San Francisco is definitely improved from where it had been. But if that market ever gets to where it was in 2000 in terms of rental rates, it will be awhile.
Q: Is there one Los Angeles County market in particular that's getting ready to pop?
A: One of the ways to tell is to watch where the investment dollars are going. They are going downtown and the Westside. There is a lot going on downtown that leads people to believe that finally the dynamics to make this a good office market again are in place. I don't think it's misplaced optimism when you hear investors talk about the prospects for downtown Los Angeles.
Q: Several big companies have left downtown in recent years, and the office market has been soft for more than a decade. Where is the growth going to come from?
A: Downtown has nice buildings, good transportation into the area and it's fairly central. I think what has kept it knocked down were a couple of things.
Go back 10 years and you have very high-quality office stock built in what were then suburban office markets on the Westside, in Glendale and other areas. The rents for that office stock were comparable to downtown, perhaps even a bit below. Then you saw downtown lose a lot of major banks, you saw a view in the marketplace that downtown lacked certain services and didn't have a residential base to support it. But those things are changing again. Today the price for office space downtown is highly competitive.
Q: CB Richard Ellis bought rival Insignia Financial Group last year. Has there been a culture clash during the integration of the two companies?
A: We believed at the time we announced the merger that we would retain the majority of brokers from both firms, though we expected some attrition. There was some overlap we couldn't accommodate, but on every measure we had for the merger -- whether it was the retention of brokers or retention of customers or achievement of expense synergies -- we beat them all. The integration has gone better than we expected and hoped.
Q: How is the brokerage business changing?
A: Starting back in early '90s you saw a polarization in our industry of companies either being huge or boutiques. That trend is still strong. If you look at the markets in which we compete, typically our strongest competitor is a boutique. I think you are going to see the industry continue to evolve toward a very small number of truly full service companies, maybe two or three, and a huge number of highly focused local boutiques that do one product line or handle one geography and do it really well.
Q: Is there a preferable White House candidate for the real estate industry?
A: The candidates from the major parties are not all that dissimilar in terms of business support. I think behind all the rhetoric they are more centrist than not. Support of business, which in turn supports the real estate market, will come with either Kerry or Bush.