SB Equities

Most of my rantings involve commercial real estate – who is buying what, how much they are paying, how to figure out how much pay, etc.  Rarely do I talk about my actual industry - the commercial brokerage biz.  But the new year brings new challenges to this industry and I think change is inevitable, especially for the firms highlighted below:

Grubb & Ellis – You would think that the 12 years that I spent at G&E would provide an insiders view of what is happening there.  But about the only thing I can tell you is that G&E doesn’t have 9 lives – it has 3 or 4 entire cats.  The company has re-invented itself countless times over the last 40 years.  I think this time, it’s different.  The company was recently de-listed on the NYSE and is trying to do a 50 to 1 reverse stock split (no, I didn’t mistype that).  In order to retain top talent, they offered certain high-producing salespeople 100% splits.  In September, they were given a $15 million loan, actually a lifeline, by Andrew Farkas.  Farkas founded the real estate services firm Insignia and subsequently merged it with NYC brokerage powerhouse Edward S. Gordon in the late 1990s before ultimately being scooped up by CBRE.  He emerged a few years ago with a few new wrinkle, a real estate merchant banking firm called Island Capital and has grown a subsidiary called C-III into one of the largest special servicers in the US.  Island Capital’s $15 million loan to G&E can be viewed as an option to purchase.  What will happen when the option comes due is anyone’s guess, but with a current market cap of less than $10 million and growing unrest amongst the ranks, G&E clearly isn’t in a position of strength.  **UPDATE – on 1/17/12, Grubb & Ellis announced that it’s agreement with Island Capital had expired and that it entered into a subsequent agreement with BGC Partners.  BGC owns the Newmark brand, a commercial brokerage with over 30 offices in the US.  This new agreement expires 1/31/12**

NAI Global – Andrew Farkas has been busy.  This past June, it was announced that he was considering the purchase of NAI Global.  Unlike G&E, who’s brokerage offices are primarily owned by the corporation, NAI is a managed network of affiliates.  Nearly all of the 350 offices are individually owned and pay a franchise fee of sorts to NAI Global.  By potentially acquiring NAI Global, Farkas would take over control of these franchise agreements.  Although no definitive date has been set to complete this acquisition and little additional details have been released since June, many believe that the sale could culminate as soon as the end of this month.  How this relates to the potential G&E acquisition is an even larger unknown, as Farkas could choose to continue to run both platforms individually or somehow merge the two brands into one (assuming he chooses to buy both).  ** UPDATE – on January 26, 2012, NAI Global announced that the pending acquisition by Island Capital had been completed.**

Colliers International – Colliers was in the Cleveland market for about a decade via an affiliate agreement with long-time local brokerage company Ostendorf Morris.  However, the two split ways in 2010, with Ostendorf Morris returning to an unaffiliated independent and leaving Colliers without a home in Cleveland.  The Colliers brand has privately-owned affiliate offices in Columbus and Cincinnati so Cleveland would be a natural fit for the Colliers flag.  But despite searching around for the last year and a half, the company still hasn’t made its way back into this market.

Ostendorf Morris – As detailed above, this long-time Cleveland brokerage firm split ways with Colliers in 2010.  This split hampers the company’s ability to service large multi-market clients, at least in the minds of many corporations.  The company had success being independent for many decades prior to it’s affiliation with Colliers and has been independent again since 2010, so they don’t appear to be in any huge hurry to find another flag.  However, the rumored loss of long-time Fortune 500 company Goodyear as a client could change the company’s thinking.

Real estate brokerage companies are under more pressure than ever.  Slower deal velocity, lower sale prices and lower rents have collectively resulted in a smaller overall revenue pie.  As brokerage companies scramble to at least maintain revenue and perhaps even grow it, change is inevitable.  And 2012 should clearly be a year some of this change occurs.