With Changes Afoot In The Brokerage Business, Firms Dread The Middle Market
By many accounts, Grubb & Ellis’s decline was as much a product of the company’s place among the dense field of other brokerage firms as it was deficiencies specific to the firm such as bad management.
The company was solidly middle market, not a small company that specializes only in a certain region or limits its presence to select cities but, on the other hand, not nearly as big as global giants like CBRE (CBRE) or Jones Lang LaSalle.
The company’s size put it in an awkward spot. It didn’t have the obvious expertise or manpower to dominate or emerge as a leader in any particular market and it also didn’t have the worldwide network to cater to clients, such as large corporations, who might overlook shortcomings in particular areas for the conveniences of its sweeping reach.
“The real estate services business has evolved more and more into two models, the global model where you have mulitiple service lines and very broad geography to service clients around the globe,” Glenn Rufrano, the chief executive of Cushman & Wakefield (CWK), told The Commercial Observer. “Then you have the niche models. Anything in the middle is hard because either you’re competing against a global company with clout and infrastructure or a niche player who does a single job in a single location better than anyone.”
“Grubb is a fallout from this,” Mr. Rufrano added. “It’s not niche or global.”
Among the effective niche players according to Mr. Rufrano are firms like Eastdil Secured, a company that consistently ranks at the top of the heap in the city for handling investment sales deals despite being smaller than many of its competitors, including C&W.
C&W itself, Mr. Rufrano said, is in a rarefied category of global firms like JLL (JLL) and CBRE that can cater to corporate clients with worldwide real estate needs.
But, as the Grubb & Ellis situation demonstrates, established heirarchies in the always-tumultuous brokerage industry have begun to shift. In recent years, both JLL and CBRE have made substantial acquisitions to distance themselves even more from the rest of the pack, with JLL taking over the Staubach Company in 2008 and CBRE buying Trammell Crow in 2006. Now the financial firm BGC Partners’s acquisition of Grubb & Ellis out of bankruptcy court in recent weeks appears to be a push to create another major real estate services platform.
Last year, BGC Partners also bought Newmark Knight Frank, a firm that has national offices but that many brokers still consider a predominantly New York-centered brokerage power. BGC’s acquisition connects NKF not only with a more nationally oriented brokerage platform but also BGC’s technological capabilities; the firm develops systems and provides services to trade securities and says it can apply its infrastructure to the brokerage industry.
BGC’s emergence and JLL and CBRE’s increasingly unquestioned size advantage would seem to create questions who may be pushed into that dreaded spot in the middle of the pack.
C&W itself has been mentioned as a company that may find itself in that awkward position. Rumors have circulated for years the firm could be an acquisition target, talk that, whether or not it was true, seemed to hold the implication nonetheless that eventually the company would have to do something to avoid going it alone. In 2009, murmurs about a potential deal for JLL to buy C&W became so widespread, C&W issued a release, in an unusual move, to dispel the talk.
Fueling more recent chatter about the company was the appointment of Carlo Sant’Albano, an executive at C&W’s partent company EXOR, as the head C&W’s operations in Europe, the Middle East and Africa. Some observers of the firm saw Mr. Sant’Albano’s hiring as a sign that EXOR is taking a more direct hand in the affairs of C&W and that perhaps the Italy-based parent company is contemplating some type of sales strategy for C&W. EXOR has long been thought to want to take C&W public or trade the company to a suitor.
In fact, Mr. Rufrano, with his years of experience running Centro Properties, an Australian based public real estate investment company, was largely regarded as the man EXOR was bringing in to oversee C&W’s possible public offering when he was hired in 2010.
According to Mr. Rufrano however, C&W’s place in the market is far from tenuous and the rumors are just that.
“We want to grow but it isn’t size for the sake of size,” Mr. Rufrano said. “Size doesn’t matter, profit matters, that’s my mindset.”
With that said, Mr. Rufrano pointed out that C&W has been growing, by 1900 people over the past year he said.
“We added roughly a third of that in India, a third in Asia and the other third in the Americas,” Mr. Rufrano said.
Mr. Rufrano, a genial and well regarded executive with a reputation for whipping corporate balance sheets into shape, was treated as a welcome leader in an industry where companies are often helmed by broker-managers.
Mr. Rufrano chuckled at the most recent rumor The Commercial Observer had heard: that C&W might be the next addition BGC would seek to add to its growing services empire.
“I’m not surprised, in the two years I’ve been here I’ve heard Jones Lang LaSalle is buying us, CBRE is buying us,” Mr. Rufrano said. “What I can tell you is C&W is not for sale. The owners are fine with our performance and there’s very little debt on the company.”
In a market where change appears to be afoot, Mr. Rufrano said that C&W would continue to chart the course it has in recent years during his tenure; building up areas, such as investment management services for real estate assets, where it has been lacking.
Mr. Rufrano also rejected the notion that C&W was eager to go public, pointing out that EXOR is flush with cash and not in a rush to liquidate its investment in the company.
“There’s no pressure on C&W to go public,” Mr. Rufrano said. “I understand that over time they could need liquidity. Their wants and desires will be theirs. But as CEO I am not focusing on going public or not.”