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WASHINGTON (dpa-AFX) - CBRE Group, Inc. (CBG) revealed earnings for its fourth quarter that gained ground from last year. The company said its bottom line totaled $314.75 million, or $0.93 per share. This was up from $271.50 million, or $0.81...
Forbes  Dec 6  Comment 
Looking at the sectors faring best as of midday Tuesday, shares of Financial companies are outperforming other sectors, higher by 0.6%. Within that group, CBRE Group Inc (NYSE: CBG) and Zions Bancorporation (NASD: ZION) are two of the day's...


CB Richard Ellis Group (NYSE: CBG) is the largest commercial real estate brokerage firm in the world based on their 2009 revenue of $4.17 billion. They have 300 offices worldwide and approximately 29,000 employees.[1]Their operating income in 2007 reached over $241 million in 2009, with net loss of -$27.6 million.

In December of 2006, CB Richard Ellis acquired Trammel Crow Company for $2.2 billion, boosting its 2006 revenues to more than $4 Billion and making it the first commercial real estate brokerage firm to qualify for the Fortune 500 list of largest corporations based on revenue.[2] CB Richard Ellis had its revenues more than triple between 2003 and 2007, in large part due to the acquisition of Trammel Crow and the real estate boom that lasted between 2005 and 2007.[3] However, CB Richard Ellis has faced financial challenges brought upon by the 2007 credit crunch and 2008 financial crisis. Other risks CB Richard Ellis faces include significant increases in interest rates, as well as its high level of debt; as of December 31, 2009 CB Richard Ellis had $2.1 Billion USD of long term debt.[4]

Company Overview

CB Richard Ellis is an international, commercial real estate brokerage firm whose services include tenant representation, property and agency leasing, property sales, development services, commercial mortgage origination and servicing, capital markets services, property, valuation and appraisal services, and a wide range of real estate management services.[5] In 2009 it provided services to 80 of the Fortune 100 companies.[6] It earns revenue from contractual management fees as well as charging on a per project, or per transaction basis. CB Richard Ellis' global infrastructure and brand name, as well as its full service capabilities give it advantages over smaller, more regional firms. However, the commercial real estate industry is highly cyclical, and also highly correlated to the macroeconomic state. In other words, CB Richard Ellis is susceptible to booms and recessions. Since its revenues are tied to real estate activity, economic slowdowns or recessions suppress purchases and sales of real estate, and also decrease the value of real estate and rent. This has a negative impact on CB Richard Ellis' revenues. The increased difficulty of investors to obtain credit due to the credit crunch of 2007 reduces the number of commercial real estate transactions, further hurting the revenues of CB Richard Ellis.

Business and Financial Metrics

Financial Metrics

In 2009, CB Richard Ellis posted a net income of $33.3 million from its total revenues of $4.17 billion. CB Richard Ellis had significant growth between 2005 and 2007, explained by the acquisition of Trammel Crow as well as the real estate boom that began in 2005. However, with the onsetting 2007 Credit Crunch as well as the 2008 Financial Crisis, CB Richard Ellis has had its revenues decline between 2007 and 2009.[7]

CB Richard Ellis 2005[8] 2006[8] 2007[9] 2008[9] 2009[9]
Net Revenue (In Billions)3.1944.0326.035.134.17
Operating Income (In Billions)0.3720.550.699-0.7880.242
Net Income (In Billions)0.2170.3190.39-1.050.033

Business Segments

CB Richard Ellis breaks its operating segments into five categories: 1) The Americas, 2) EMEA (Europe, Middle East, and Africa), 3) Asia Pacific, 4) Global Investment Management, and 5) Development Services.

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CB Richard Ellis' sources of revenues in 2009.[10]

The Americas (62.3% of 2009 revenue)[10]

CB Richard Ellis earns the bulk of their revenue from their Americas segment. In 2009, the Americas segment earned $2.59 billion in total revenues, posting an operating income of $181 million.[10] This was a $616 million decline compared to its 2008 revenue, with lower sales and leasing activity the main driver behind this decease.[11] Within the Americas segment, there are two major branches under CB Richard Ellis: Advisory Services and Outsourcing Services.

  • Advisory Services

Real estate services, such as providing strategic advice and execution to owners, investors, and occupiers related to leasing, disposition, and acquisition of property fall under their advisory service category.Other services under the advisory category include market value appraisals, litigation support, and discounted cash flow analysis, among others.

  • Outsourcing Services

Services under this category include property management and asset management. Outsourcing with regards to commercial real estate refers to having a management company help run your business, and does not refer to outsourcing jobs overseas. For instance, if you inherit an office building, but have little knowledge of how to run it, you can "outsource" management of it to companies that offer this service. Outsourcing offers improved efficiency, better execution, and lower costs by relying on third-party real estate experts, and has become a long term trend in commercial real estate. CB Richard Ellis offers a full range of services, from transaction management, project management, facilities management, property management, construction management as well as marketing, leasing, accounting, and financial services.

EMEA (19.6%)[11]

The EMEA segment operates in thirty three countries, most notably in the United Kingdom, France, Germany, Spain, and Russia. The services offered in the EMEA segment are along the same lines as in the Americas. In 2009, this segment had revenues of $818 million, a 24.3% decline from its 2008 revenues of $1.08 billion.[11] This decline in revenues is attributed to lower sales, leasing, and appraisal volume throughout the region, as well as an $80 million negative impact due to foreign currency exchange movements.

Asia Pacific (12.6%)[11]

The Asia Pacific segment operates in twelve countries, including China, Hong Kong, India, Japan, Singapore, South Korea, and Taiwan among others. Like the Americas and EMEA segments, the Asia Pacific segment had declining revenues in 2009 due to lower transactional volume. In 2009 this segment had total revenues of $524 million, a $33.9 million decline from its 2008 revenues.

Global Investment Management (3.4%)[11]

CB Richard Ellis provides investment management services to clients, including pension plans, investment funds, and other organizations trying to generate returns or diversification through real estate investments. In 2009 this segment earned $141.4 million in revenues, which was still a $19.8 million decline from its 2008 revenues.[12] As of December 31, 2009 total assets under management were $34.7 billion, 10% lower than at the end of 2008.[12]

Development Services (2.2%)[11]

The development services segment is operated by Trammell Crow Company, a wholly-owned subsidiary of CB Richard Ellis. They offer services, concentrated mostly in the United States, from all stages of the development process, from site identification to project close-out. The development services segment generated revenues of $87.8 million in 2009, a $31.1 million decrease from 2008.[12] This was largely due to lower construction volume and development fees as a result of the continued weak economic and real estate market.

Key Trends and Forces

Negative impacts of Credit Crunch and 2008 Financial Crisis highlight the cyclical nature of the real estate industry

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Both Los Angeles and San Francisco are among the most affected areas in the real estate market. Source: Real Capital Analytics[13]

Similar to automobile industry, the commercial real estate industry is sensitive to the overall health of the economy. Since a major source of revenue for CB Richard Ellis comes from the sale and financing of commercial properties, and the success of these transactions depends heavily on the availability and cost of credit, any disruptions in the availability of credit will negatively impact its revenue.[14] The Troubled Assets Relief Program (TARP) by the U.S. government has helped ease the 2007 credit crunch, evidenced by the 30-year fixed mortgage rate decreasing to a record low 5.13% on January 10, 2009.[15] Lower interest rates mean buyers can borrow money for less, and should make purchasing commercial real estate more attractive. However, despite the low interest rates, the national vacancy rate increased in late 2008, and the average rent per square foot decreased from $34 to $31.[16] U.S. legislation introduced in the beginning of 2009 is trying to allocate some the Troubled Assets Relief Program (TARP) funds to help commercial real estate businesses, but the results of the legislation remain to be seen[17]Therefore, while the conditions for improvement by CB Richard Ellis appear to be in place, it remains to be seen if the low interest rates and potential TARP funding actually increase real estate activity.

CB Richard Ellis Debt looms as potential problem

At the end of December, 2007 CB Richard Ellis had approximately $2.3 Billion USD in total debt, with approximately $1.8 billion USD of it taken on in order to acquire Trammel Crow Company.[18] A high level of debt imposes both operating and financial restrictions on a business, because interest has to be paid, and the loan amortized. In other words, cash generated by the company goes toward paying off debt rather than other potential business activities. With approximately $1.1 Billion USD scheduled to be due in 2011, and another $1.1 Billion USD due in 2013, CB Richard Ellis faces the challenging task of refinancing or paying off their debt obligations in the face of a cyclical downturn.[19] The resulting debt to asset ratio of 0.37 is nearly twenty times higher than its largest competitor, Jones Lang LaSalle (JLL), who has a debt to asset ratio of 0.019.[20]

Geographical concentration increases volatility of revenues

In 2007, 9.8% of CB Richard Ellis revenues came from transactions that occurred in the state of California.[21] While this is less than the 13.5% in 2006, it still represents a significant concentration of revenue tied to a single geographical location.[21] In other words risks as well as benefits tied to the region are amplified. For instance, Los Angeles and San Francisco, two of the most adversely affected real estate markets by the economic downturn, are both in California. CB Richard Ellis has also been affected in New York City, the most affected city. Compared to December 2007 in Manhattan, its December 2008 vacancy rate increased from 4.9% to 7.6%, its leasing activity decreased from 2.26 Million square feet to less than 0.72 Million square feet, and its average asking rent decreased from $68.69 per square foot to $67.20 per square foot.[22]


Although CB Richard Ellis acquired Trammel Crow Company in 2006, two major competitors remain. Jones Lang LaSalle (JLL) and Grubb & Ellis Company represent its largest competitors.

  • Jones Lang LaSalle (JLL) is a global real estate and investment service firm, providing services such as tenant representation, property management, leasing, and finance among others. In 2009 it had total revenues of $2.42 billion, and a net loss of $3.16 million. Jones Lang LaSalle competes against CB Richard Ellis in all business segments except for the development service segment.[23]
  • Grubb & Ellis Co (GBE) is a commercial real estate service firm. It provides transaction services, management services, financial services, and strategic services among others to clients around the world. In 2009 it had total revenues of $536 million, an operating loss of $106 million, and a net loss of $80.5 million. It has three business segments that compete with CB Richard Ellis: its investment management segment, transaction services segment, and its management services segment.[24]
Company Revenue (In Thousands) Operating Income (In Thousands) Net Income (In Thousands) Number of offices Employees
CB Richard Ellis[25]6,034,249698,971390,50530029,000
Jones Lang LaSalle[26][27]2,652,075 342,320256,490 17032,700
Grubb & Ellis Co[24][28]231,430 32,854 20,8421306,000


  1. CBG 10-K 2009 Item 7 Pg. 35
  2. Business Wire. CB Richard Ellis Group, Inc. Announces Agreement to Acquire Trammell Crow Company
  3. Balance-Sheet Loans Return To Commercial Lending The Wall Street Journal Online
  4. CBG 10-K 2009 Item 7 Pg. 37
  5. CBG 10-K 2007 Item 1 Pg.3
  6. CBG 10-K 2009 Item 1 Pg. 1
  7. CBG 10-K 2009 Item 6 Pg. 34
  8. 8.0 8.1 CBG 10-K 2006 Item 6 Pg. 30
  9. 9.0 9.1 9.2 CBG 10-K 2009 Item 6 Pg. 34
  10. 10.0 10.1 10.2 CBG 10-K 2009 Item 7 Pg. 51
  11. 11.0 11.1 11.2 11.3 11.4 11.5 CBG 10-K 2009 Item 7 Pg. 52
  12. 12.0 12.1 12.2 CBG 10-K 2009 Item 7 Pg. 53
  13. Investors Awaiting Bargain-Basement Commercial Property
  14. CBG 10-K 2007 Item 1 Pg. 11
  15. www.bankrate.com
  16. Richard Lee. Office market to worsen before it recovers
  17. Jeremy Pelofsky. U.S. TARP bill to help auto dealers, real estate
  18. CBG 10-K 2007 Item 7 Pg. 57
  19. CBG 10-K 2007 Item 7 Pg. 58
  20. JLL 10-K 2007 Item 6 Pg. 25
  21. 21.0 21.1 CBG 10-K 2007 Item 1A Pg. 23
  22. CBRE Research Manhattan Snapshot
  23. JLL 10-K 2007 Item 1 Pg. 5
  24. 24.0 24.1 GBE 10-K 2007 Item 1 Pg. 3
  25. JLL 10-K 2007 Item 1 Pg. 3
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