CB Richard Ellis Juggling Several Balls in Real Estate
Brett White, who became chief executive of CB Richard Ellis in 2005, has brought the international commercial real estate firm to its present success by following a plan made in 1991.
As Gilbert and Sullivan might sing, he is the very model of a modern chief executive. Brett White, who became chief executive of CB Richard Ellis in 2005 — about a year after the company went public for the second time — is tall and rangy, with a broad smile. But looks aside, he has brought the international commercial real estate firm to its present success by following a plan made in 1991.
After Mr. White, 47, released a stellar first-quarter earnings report on Wednesday, Credit Suisse and Goldman Sachs raised their projections for the company, and JPMorgan Chase put it on its list of hot stock picks. The shares fell 40 cents, to $37.43 yesterday.
Yet despite the earnings report, analysts have questioned whether CB Richard Ellis has too many fingers in the pie, with leasing, sales and management along with commercial real estate development and mortgage banking. Although Mr. White insists that commercial and residential real estate are not linked, some also cite the increasing risk of a broad-spectrum downturn.
Mr. White, who joined the Los Angeles-based company as a real estate broker in the San Diego office in 1984, was interviewed in New York on Thursday. Following are excerpts:
Q. Last fall, you bought Trammell Crow, the famous Texas real estate company, for a whopping $2.2 billion. Was that move controversial? Is it going to be hard to swallow something that big?
A. No. In fact, part of our announcement this week was that the synergy we were expecting has worked out even better than we projected, we’ll beat our target. And the move really wasn’t that surprising: early in the 1990s, two C.E.O.s before me, Jim Didion, announced the strategy for the firm: to create a dominant global footprint and a collection of services to owners and to occupiers. We’ve since bought a pension fund and a commercial bank, among other things, plus Insignia, which is a major force in real estate in London and New York. And then Trammell Crow. In our business, it’s very important to be No. 1.
Q. You are No. 1 and Jones Lang LaSalle is No. 2, right?
A. Right.
Q. Why is it more important to be No. 1 in your business, more so than in any other business?
A. Because ours is a service business. It’s more of a clear advantage. It’s name recognition. When you go to pitch a job in Cleveland, it’s quite likely not to be a Cleveland company — the guy will probably be right here on Madison Avenue. As No. 1, we’re always invited to the dance.
Q. With all the services you offer, you have come to represent both landlords and tenants. Do you see any conflict of interest there?
A. Certainly there is opportunity for conflicts of interest whenever you represent both sides of a transaction. But we have one team representing the owners and another representing the tenants. They’re not sitting down together, not sharing notes. There’s nothing but a downside for anyone crossing that line.
Q. I read that in your unit that invests institutions’ money in commercial real estate 40 percent of their recommendations involve projects of your competitors. Does that mean that the other 60 percent of the time they recommend CB Richard Ellis?
A. Well, frankly when we don’t get the deal, it’s embarrassing. But we have a control: no employee in money management is allowed to own a single share of the company, for one thing.
Q. It has been reported that you handle leasing and sales for 85 of the Fortune 100 companies. Is that true?
A. Let me clarify that figure: it’s not exclusive; other companies do work for them, too. But it’s fair to say that percentage is unique to us.
Q. You brokered the $5.4 billion sale of Peter Stuyvesant Village and Peter Cooper Village for MetLife. Did you get the standard residential real estate commission of 6 percent?
A. (Laughs) I can’t tell you what it was, but it wasn’t 6 percent. When the sale price increases, the commission rate scales down. It was something quite a bit less.
Q. Why is commercial still strong while residential — nationally — seems to be weakening?
A. In the United States last year, for every dollar that was spent on buying commercial real estate, there were two more dollars that didn’t get placed. Two-thirds of the people who wanted in didn’t get in, so that dynamic is still in place. The other dynamic is leasing, which remains strong. The other thing is that there is still not a lot of new construction. We’ve got declining occupancy rates and increasing price rates. You and I could walk around and count the cranes.
Q. So that’s a good position to be in?
A. That’s a very good position to be in.
Q. Are you also developing new buildings?
A. Yes. Trammell Crow started as a traditional commercial developer and then evolved into a service business. They were right up there with Eddie Gordon in the 80s and 90s. As an independently operated subsidiary — we kept the name — they are building industrial, office, retail and lots of health care, primarily in the United States.
Q. In terms of sales, CB Richard Ellis will have about $5.75 billion in revenue in 2007. Is that right?
A. Well, I really can’t make that projection. You’ll have to get that from the analysts. But I will say that we were a bit over $1 billion when we went private in 2001.
Q. And has your purchase of Insignia, a large real estate company, contributed to that gain?
A. Yes. We’d had Insignia for three years now, and it’s been terrific.
Q. Insignia owned Douglas Elliman, a large Manhattan residential broker, didn’t they?
A. Yes, but they were spun off as part of the deal. We didn’t get Douglas Elliman.
Q. You mentioned Europe. Is Asia part of your game plan?
A. Oh, yes. We have 1,200 people in China alone. We’re investing heavily there: we now have eight offices in China and by the end of the year we hope to have 20.
Q. Have you had any problems dealing with the amount of bureaucracy there?
A. Well, we’re not building there. The buildings are already up, and the tenants are either there — relocating — or going there, so we don’t have a lot of direct interaction with the government.
Q. Last December, after the Trammell Crow acquisition, you said you were finished with acquisitions — at least the very big ones.
A. As we said, we have fulfilled our goals announced in 1991. So what’s left for us? There might be a couple of small things, to help us really wring the synergies. We want to go market by market, and shore up the markets with talented people and/or business lines. There’s still a lot to do.
Of course, we can never rule anything out, even a big acquisition.
Q. Like buying Jones Lang LaSalle?
A. (Grins.)
source: http://www.wilmingtonstar.com/apps/pbcs.dll/article?AID=/20070505/ZNYT01/705050443/1002/business
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