When CB Richard Ellis officially acquired Insignia Financial Group in July 2003 it was the shot heard around the commercial real estate industry. The firm's $431 million buyout of New York-based Insignia created the largest real estate services company in the world.
The mega-deal is reflected in this year's rankings, vaulting CBRE into the No. 1 spot on NREI's annual list of Top Property Managers. At the end of 2003, CBRE reported 822 million sq. ft. under management compared with 705.7 million sq. ft. a year earlier when it held the No. 2 spot behind Jones Lang LaSalle.
CBRE now employs a workforce of 14,000 people in 48 countries with annual revenues estimated at $1.7 billion. Such girth gave CBRE an edge in landing what could prove to be the largest office management assignment of the year. In April, CBRE was awarded the management and leasing contract for the 4.5 million sq. ft. Sears Tower in Chicago.
“CBRE on its own would not have won that assignment, and Insignia on its own would not have won it,” says Jana Turner, president of asset services for Los Angeles-based CBRE. The combined resources of the new firm were key to gaining that business, she emphasizes.
The change in management and leasing duties at the Sears Tower coincided with the purchase of the building by 233 S. Wacker LLC, a New York-based investment group. The new owner was keen on CBRE's leasing plan, the management team, security resources, and a Web-based building portal that provides an innovative way to manage the building and communicate with tenants, Turner notes.
Competition Heats Up
CBRE's acquisition of Insignia comes at a time when the entire property management industry is facing both intense competition and pressure to deliver value to clients. “People are focused on doing more with less and growing the top line (revenues), while still providing the best service,” says Peter Roberts, CEO for the Americas at Jones Lang LaSalle in Chicago.
Although Jones Lang LaSalle fell to the No. 2 spot, with 725 million sq. ft. of space under management at the end of 2003, the firm continues to fatten its own portfolio. In March, the firm assumed the operation of 16 shopping centers for Atlanta-based L&H Real Estate Group. With the addition of the L&H properties, Jones Lang LaSalle now manages 54 regional shopping centers, making it the largest third-party manager of regional shopping centers in the U.S.
The red-hot investment market has heightened competition for property management assignments. Investment sales activity among office, industrial, retail and apartment properties topped $60 billion during the first five months of 2004 with average cap rates down about 120 basis points to 7.8%, compared with 9% recorded at year-end 2002, reports Real Capital Analytics.
“In order to be competitive and invest money, our investor clients have to pay top dollar,” Roberts says. “Therefore, they are extremely focused on maximizing returns for those assets and their competitive position in the marketplace.”
Clients Want Added Value
The active sales market also puts more management and leasing contracts up for grabs as properties change hands. In the midst of that landscape, property managers are striving to retain and attract business by delivering value to the client.
“Value is a function of a number of things. It's not just operating cost efficiently, it's adopting the client's viewpoint and working toward long-term income appreciation,” Roberts says. In order to better understand the goals of its clients, Jones Lang LaSalle assigns client relationship managers. That manager serves as a point person for understanding owner objectives and delivering service to the client.
“The challenge is not only delivering value to clients, but helping clients make the connection that what happens with a technician managing a pump in the boiler room can have a direct impact on profit and loss in the boardroom,” says Trevor Foster, global director of management services for Dallas-based Trammell Crow Co. Trammell Crow ranks fourth in the Top Property Managers survey with 398.2 million sq. ft. under management.
Managers are working to add value with steps ranging from implementing energy efficiency programs to reducing the amount of space a company owns or leases. Real estate services firms also need to show the client how such steps can produce tangible results, such as boosting a client's stock value, Foster says. “You have to be more business-minded today.”
A SAMPLING OF 2004's LARGEST PROPERTY MANAGEMENT DEALS
| Management Company | Deal | Size | Location | Client | Date |
|---|---|---|---|---|---|
| Jones Lang LaSalle | 16 regional shopping centers | 7.5 million sq. ft. | Florida, Illinois Indiana, Iowa, Ohio Texas, Wisconsin | L&H Real Estate Group | March 2004 |
| CB Richard Ellis | Sears Tower | 4.5 million sq. ft. | Chicago | Wacker LLC, New York | April 2004 |
| CB Richard Ellis | San Tomas Business Park | 500,000 sq. ft. | Santa Clara, Calif. | LNR | May 2004 |
| Source: Company information | |||||
