CB Richard Ellis Group Inc. has agreed to buy ING Group's real estate investment management business in a $940-million deal that would make CB Richard Ellis the global leader in that business.
Los Angeles-based CB Richard Ellis, already the world's largest commercial real estate brokerage, said that the proposed transaction, announced Tuesday, would substantially increase its footprint in Asia and Europe by taking over ING Group's 20 investment offices and 760 employees.
Investment managers raise money from pension funds, universities and other institutional investors and buy commercial real estate such as offices, warehouses and shopping centers on their behalf. The properties produce income for their owners through rents and could be sold at a profit.
In addition, investment managers collect fees for creating and managing the real estate portfolios for their clients. Analysts consider the asset management business less volatile than the transaction brokering business, which rises and falls with sales and leasing activity in the market.
The acquisition of Netherlands-based ING Group's real estate investment business "is certainly a good strategic move for CB because it gives them a much more stable stream of income," said Ben Thypin, director of market analysis at Real Capital Analytics Inc.
"They were a sizable force in this business before, but this really puts them at the top and changes the fee composition of their revenue substantially," Thypin said.
Investors place more value on predictable recurring revenue, which asset management fees provide, he said. CB Richard Ellis closed at $25.34, up 71 cents, or 3%.
The ING Real Estate operations are to become part of CB Richard Ellis Investors, which is an independently operated business unit of CB Richard Ellis Group. Also included in the purchase is ING Group's Clarion Real Estate Securities, a U.S.-based business that buys securities such as stocks and bonds issued by real estate companies on behalf of large investors.
The proposed deal doesn't include ING's U.S.-based investment management operations.
The deal is set to close in the second half of this year if regulators in the U.S., Europe and Asia approve.
Combining the ING business "with our existing Global Investment Management operations, will provide us with a significantly enhanced ability to meet the needs of institutional investors across global markets with a full spectrum of investment programs and strategies," said Brett White, CB Richard Ellis' chief executive. "Our firms fit together well, and our investment program offerings are highly complementary."
CB Richard Ellis plans to finance the acquisitions with cash on hand and borrowings under its secured credit facility.
The company beat Wall Street's expectations in the fourth quarter with a profit of $95.1 million, or 30 cents a share, up 48% from $64.3 million, or 21 cents, a year earlier.