From left: CBRE top broker Mary Ann Tighe; Stephen Siegel, CBRE’s global chairman; Darcy Stacom, vice chairman; Mitchell Rudin, CBRE’s tri-state president and CEO; Robert Alexander, co-chairman of CBRE’s New York tri-state region; and John Powers, also a co-chairman of the tri-state region
As the city’s dominant commercial services firm, CB Richard Ellis has a star-studded roster of brokers and brings in business from around the globe.
Top producers in Manhattan include veterans such as Darcy Stacom, who brokered the largest real estate deal in history with the 2006 sale of Stuyvesant Town for $5.4 billion, and Mary Ann Tighe, who led the company with 5.6 million square feet leased in 2008. There’s also Stephen Siegel, the reigning godfather of Manhattan brokerage.
That’s not to mention the firm’s corps of junior brokers, and an analysis and research department that is, perhaps, the most sophisticated in the city.
But despite all of its cachet, there is evidence that the global real estate giant is in a bit of a slump in Manhattan — even as it’s holding up internationally.
While all firms have been battered by the depressed market in New York, CBRE’s challenges seem to go beyond the weak economy.
Data indicate smaller competitors such as Newmark Knight Frank (which is just one-fifth of CBRE’s size globally) are eating into the firm’s market share in leasing and landlord representation in Manhattan. And ironically, CBRE may be hobbled by its own strength — and reliance — in doing business with large corporations, many of which are now hurting.
Mega-deals (such as the $2.8 billion sale of the General Motors Building, which CBRE brokered) and massive leasing deals have come to a screeching halt.
And some clients, such as Lehman Brothers, simply no longer exist.
Because of that, Stacom, who is used to brokering gargantuan, record-shattering deals, is now planning to make a play for the under-$30 million sales market — a stunning shift, and an area that she told The Real Deal she would “attack.”
While some real estate insiders said any slippage in CBRE’s position was simply noise from a dislocated real estate market, others saw it as evidence of larger shifts.
“There is a fundamental change happening, and I think you will see those numbers continue to change,” said Richard Economou, a former senior vice president at CBRE and now executive vice president at Grubb & Ellis. “The disruption in the economy has caused many corporations to spread their work among a number of [brokerages] where formally they were content to give the majority of their work to one.”
To be fair, CBRE has held on to its dominant position both here and worldwide.
Paul Massey, who cut his teeth in New York real estate with CBRE’s predecessor, Coldwell Banker Commercial Real Estate Services, before he co-founded Massey Knakal Realty Services, said while CBRE was taking its lumps, the firm would remain strong in the region. “If you look at the overall data, it would surprise me if they were rapidly losing market share,” he said.
Edging out competition
CBRE may simply be a victim of its own success.
As the leading broker for multinational giants such as Deutsche Bank and Bank of America, the firm has seen a lot of its business disappear as those companies have lost their voracious appetite for office space.
It has also lost market share on the leasing agency front when owners at a number of the buildings it represented — Worldwide Plaza, 1330 Sixth Avenue and 100 Church Street, to name a few — defaulted on loans and the property changed hands. Additionally, after doing the heavy lifting at a rehabilitated Empire State Building, it gave up the agency this fall. Collectively, those buildings represent a loss of more than 6 million square feet.
Of course, all the city’s commercial players have seen deal volume drop sharply since Lehman Brothers collapsed last fall.
In Manhattan, investment sales volume fell 92 percent, from $40 billion in the first three quarters of 2007 to $3 billion in the same period of 2009, data from Massey Knakal shows.
Meanwhile, new office leasing fell by 19 percent in the first 10 months of last year compared with 2008, to just under 13 million square feet, CBRE statistics show.
Commercial firms have been further punished by the 30 percent fall in average asking rents from the high in 2008.
Still, CBRE’s tri-state president and CEO Mitchell Rudin said 36 percent of the office’s brokers made more money in the first three quarters of 2009 than in 2008.
Nonetheless, that leaves two-thirds of the brokers making the same or less.
While the data tracking firm CoStar Group declined to provide a breakdown of the volume of Manhattan commercial leasings by firm, some of its public data provides a window into some key trends impacting CBRE.
One CoStar list, for example, indicates that CBRE has lost market share in larger leases over the past three years. In the top 50 Manhattan office leasing deals for the first six months of 2007, the firm represented about 40 percent of both tenants and landlords. But that representation percentage fell to about 26 percent in the first half of 2008, and 22 percent in the first six months of last year.
Insiders cautioned that such reports may be misleading because they can miss deals. Indeed, CBRE executive managing director Matthew Van Buren said the firm’s own data shows it maintains an approximately 40 percent market share.
However, CBRE is also facing challenges in the usually stable world of leasing representation, where it’s the undisputed market leader.
In recent months, the firm’s market share has been whittled away, while one of its main challengers, Newmark, has been on a tear, picking up the 2.8 million square feet at the Empire State Building and 1 million square feet at 100 Church Street.
CBRE executives cringe at any comparisons between the buildings it represents in New York City and Newmark’s. That’s partly because CBRE has leasing agencies for many of the premier Manhattan addresses, such as 9 West 57th Street and the GM Building, and partly because internationally, their competition is large public companies like Jones Lang LaSalle.
Newmark, which is headed by CEO Barry Gosin, on the other hand, specializes in smaller office buildings.
Tighe noted that CBRE gave up the Empire State Building agency by choice.
“We do not believe that all business is necessarily our business. It has to fit in terms of our margins, and it has to fit in terms of how we operate,” she said.
Race for market share
While not always glamorous, leasing agency representation is hugely important in commercial real estate because it not only provides a relatively dependable stream of revenue, but also often gives a firm the inside track with landlords who may want other services, such as property sales.
CoStar statistics showed CBRE has lost almost 7 million square feet in this service area in recent months. In September, CBRE was the leasing agent for 62.2 million square feet in Manhattan; but just three months later, that total had fallen by more than 10 percent, to 55.5 million.
Simultaneously, Newmark increased its piece of the pie from 40.7 million square feet to 45.7 million. (Included in the Newmark figures are about 6 million square feet it both leases and owns.)
Cushman & Wakefield came in third, with about 39.2 million square feet.
William Cohen, executive vice president at Newmark, refused to discuss the wins. “I don’t compete with [CBRE], I cooperate with them. It would be just one hand clapping without Cushman & Wakefield, CBRE and JLL,” he said.
For its part, the famously aggressive CBRE shows no signs of rolling over.
In October, it made its first steps to recover the lost ground, winning the agency for the 430,000-square-foot 101 Sixth Avenue. And last month it signed on as leasing agent for 335 Madison Avenue, a 1.1 million-square-foot tower, and there may be more, said Siegel, the firm’s chairman of global brokerage.
And since May, CBRE hit another home run at 399 Park Avenue, where it has completed more than 340,000 square feet in sublease deals.
Meanwhile, on the investment sales side, the company appears to be holding its own. But since the market for trophy properties has essentially collapsed, it’s difficult to analyze activity.
Stacom, who heads the investment sales group of nine brokers, sold more than $400 million worth of buildings in New York during the first three quarters of last year — 13 percent of the $3 billion sold in Manhattan. But that was still far below the $5.7 billion her team sold in 2008.
On the global front, CBRE reported that its third-quarter revenues were down 21 percent from the same period a year earlier, to $1.02 billion.
And while CBRE was saddled with $2 billion in debt after its 2006 purchase of Trammel Crow, it has since eased credit fears by paying down or extending hundreds of millions of dollars in loans.
Its main global rival, Jones Lang LaSalle, reported revenues dropping by just 12 percent, to $595 million. Cushman & Wakefield had global revenues of $362 million in the third quarter, down 22 percent, figures from its Italian parent company, Exor, showed.
For the full year, analysts predict CBRE will have revenues of approximately $4 billion, a slim 2.5 percent decline from the $4.1 billion the firm recorded last year.
Privately held Newmark reports that it had $811 million in revenue in 2008, about one-fifth of CBRE’s.
Tighe, a broker and co-CEO, underscored that while firms such as Newmark have a large presence in Manhattan, CBRE dwarfs them worldwide.
While in New York, each company has a big profile, “when you actually look at it on paper [and see their global footprint], you’re like, ‘Ohh.’”
Analyst Brandon Dobell of Chicago-based research firm William Blair said despite the tough current environment, the international move toward fewer real estate firms helps CBRE in the long-term.
Overall, he held a positive outlook for CBRE, expecting its market share to grow globally at the expense of smaller firms.
Plus, he said, any challenges it might face in the tri-state area would be of little impact to the entire company. He estimated that the New York office generates under 3 percent of the approximately $4 billion in annual revenue.
Still, for the New York commercial real estate market, any change could have a significant impact on which firm has a competitive edge here.
A little history
So how did CBRE become a leading New York City brokerage, anyway?
The California-based firm has had a presence in the region for decades, since it opened an office as Coldwell Banker Commercial Real Estate Services in 1980.
But until 2003, it was a far smaller player in the Manhattan market.
That year, it bought Insignia Financial Group, an international company. Seven years earlier Insignia had purchased the city’s leading leasing brokerage, Edward S. Gordon Company, which was founded in 1972 by its legendary namesake.
Gordon was a charming but driven taskmaster who trained many of the city’s elite brokers who have since moved to competing firms. It was his company that assembled the all-star cast that remains at the forefront of CBRE’s New York office today: Siegel, Robert Alexander, Tighe, John Powers and Mitch Rudin all played leadership roles.
Today, the four top brokers — Siegel, Tighe, Powers and Alexander — form a loose but powerful advisory group providing counsel to Rudin, the office’s top manager and the tri-state president and CEO.
While their experience helps bring in business, their long tenure can chase away young agents who see few opportunities to rise. For example, at least nine brokers have gone from CBRE to the rapidly expanding New York office of the Australia-based global firm UGL Equis over the past year and a half.
They left looking for a greater chance for advancement and “seeing a very crowded top layer within [CBRE],” said Dirk Hrobsky, former senior vice president at CBRE, who now is a managing director of the 33-person New York office of UGL Equis.
Dealing with the downturn
During interviews with The Real Deal at 200 Park Avenue, the firm’s New York headquarters, CBRE’s heavy hitters provided slightly different takes on the firm’s response to the downturn.
Tighe, who has relinquished much of her management role but retains the title, said aside from cost-cutting, the firm was not making substantial changes. “I don’t think you reshape your operations strategy for a downturn … unless, of course, in terms of [cutting costs],” she said.
Two years ago it wasn’t about cost-cutting — it was about racking up transactions. “It was like, ‘Look, I am just hiring 300 people. I need space. My building is full. Get me space next door, whatever, down the block.’ So that is very different than what we see today,” Alexander, who is chairman, said.
However, now, he noted, in order to generate revenue, CBRE has been providing complex advisory services to corporate clients for a stipend based on that business. Those stipends, he said, will be credited against future commissions.
Alexander estimated that before the downturn, about 70 percent of his work was for the acquisition of space. That has now reversed, he said, to about 70 percent for dispositions.
Meanwhile, in perhaps the most concrete business shift for CBRE’s New York office since the start of the downturn, Stacom’s investment sales group is now going after property sales below $30 million, historically the domain of other firms such as Massey Knakal and Eastern Consolidated.
With encouragement from the powers that be in CBRE’s California headquarters, her group plans to hire a senior broker and two or three junior associates.
“Right now [California executives] said they believe this is actually a good time to grow into the smaller deal space,” said Stacom. “We are taking some of our resources … and the company is bringing in some resources, and we are going to attack that space.”
While Stacom is clearly ready to make an aggressive play, Paul Massey said he did not see the move as a threat.
“There is plenty of room in our market for multiple players,” he said.
Meanwhile, Stacom also made what might seem to be unusually candid telephone calls for a traditionally ego-driven industry: She phoned buyers of some of her major deals to deliver a sort of apology.
“Did I call some people as this crisis began to roll out, and say, ‘I am not sorry for the piece of real estate I sold you, but I am sorry that the timing and the credit markets are not working out well for you?’” she asked.
“Yes, I made those phone calls,” she continued. “And you know what? I did not have a single negative reaction.”
Tighe said those big sales numbers that Stacom is renowned for achieving mark the very essence of a magnificent sales broker: one who tries to present the property at its highest potential value.
Tighe recalled a story from the height of the market of a potential buyer of a building Stacom was representing.
“An unnamed owner said to me something about a building Darcy was selling, and he said, ‘I am going to buy this building, this XYZ building, as long as she sells it at a reasonable number.’ I laughed and said to him, ‘If she does that, then she is not doing her job,’” Tighe said.
The optimism that Tighe and others at CBRE exude is perhaps based in the firm’s international power and historical dominance in New York. The dominance can’t be missed in the firm’s Park Avenue office, where the walls are lined with awards and the depth of its producers is on display.
Siegel said CBRE prepared for the downturn early by making cuts to expenses, and is now preparing for the recovery.
Even the empty 11 Times Square, for which he helped assemble the land, may find a tenant, perhaps in the $80-per-square-foot range, he said.
“We are in the middle of what could end up in 700,000 [square feet] in leases, hopefully — God willing — in the next 60 to 90 days,” he said.
The economy is down now, but it will not be forever, Alexander noted. He added that when volume picks up, his firm will be ready. “When it comes down to bump-and-grind, major freakin’ assignments with big dispositions and executions necessary, there is really only one place to go. Because no one can throw the resources at it like we can,” Alexander said.
