Confronting Cushman’s challenges

A behind-the-scenes look at Glenn Rufrano's plans to position C & W for a rebound

New York /
Jul.July 01, 2010 07:00 AM

Glenn Rufrano
In February, hours after Cushman & Wakefield announced it had
tapped him to replace Bruce Mosler as CEO, Glenn Rufrano took a call
from a reporter about speculation that four of the firm’s top New York
investment sales brokers might be leaving.

Rumors had been circulating for months, and the national trade
publication Real Estate Alert wrote in January that competitors were
looking to poach the team.

“I didn’t even know what she meant,” Rufrano said, explaining that
he was not aware there was friction that might cause the team to leave.

That question may have blindsided him, but it was just the first
of many challenges Rufrano has confronted since accepting the top job
at Cushman.

With the punishing economic downturn, the brokerage lost $127
million in 2009, the worst performance among the Big Four commercial
firms. While most of that red ink was from onetime expenses like
restructuring and moving into new offices, it can also be traced back
to the fact that Cushman relies more heavily on revenue from sales and
leasing deals than on longer-term corporate arrangements and
consulting. A lot of that work goes to competitors like CB Richard
Ellis and Jones Lang LaSalle.

But it’s more than money troubles plaguing Cushman.

In New York, which is its largest office, Cushman lost market
share last year in investment sales as transactions slowed down. The
company is also in the midst of a corporate restructuring — both to
beef up a division that targets those prized long-term contracts with
corporate clients and to increase collaboration among brokers and
teams. That has led to internal turmoil and layoffs (including four
last month), which has hurt morale, according to insiders.

The restructuring has been a long time in the making, with efforts
starting more than five years ago, when Cushman hired Boston-based
management consultant Bain & Company for about seven months, partly
to help get the firm’s teams working together more.

Still, Rufrano, with a compact frame and personable demeanor, was
generally relaxed during an interview in a glass-walled conference room
at the firm’s new corporate offices in Midtown last month — except
when he was discussing plans to confront top brokers to change the way
teams, or “silos,” at the firm interact.

“We are in a market not dissimilar to the late ’70s or mid-’90s,
when the economies were in really rough shape,” Rufrano, 60, told The Real Deal.

He noted, however, that while the company has been beaten up a
bit, it survived the worst of the downturn. In fact, its market share
for leasing in Manhattan grew in 2009 from the year before.

Now, he said, “the wind is at our back.”

Global sprawl

Rufrano, who took over as CEO on March 22, has gotten a quick
tutorial on the inner workings of a company that, according to public
records, was the third largest commercial services firm in the world
last year, with $1.5 billion in global revenue.

He’s spent about half of his short tenure traveling to a sampling
of the firm’s 231 offices in Asia, Latin America, Europe and the United
States, all in an effort to assess the firm’s strengths and weaknesses.

Although he was used to commuting half a world away for his last
position, as CEO for a $2 billion Australian mall company, Rufrano said
he was not expecting the global breadth of Cushman, and the myriad
opportunities and pitfalls in its different markets.

“I did not understand the global nature of the firm,” he said,
noting that in pockets of Asia there is significant development
business, while in the U.S., greater revenue can be found in capital
markets and leasing.

But whether the firm is in a relatively powerful position, as it
is here in New York, or in a weaker foothold, such as in China, “we are
going to fight and kick just like anybody else who is trying to
increase market share,” he said.

Cushman has been operating in New York since 1917, but the company’s
ownership changed hands near the top of the market in 2007 when the
Italian company Ifil Investments, which also owns car giant Fiat,
purchased a 71.5 percent stake in Cushman for $625 million. The balance
of the company is owned by Cushman management and employees.

Ifil — a public company which is now called Exor — is controlled
by the famed Agnelli family (the New York Times has referred to them as
the Italian version of the Kennedys).

When Ifil first came in, Cushman was being led by Bruce Mosler, a
respected broker and former president of U.S. operations who was tapped
to take over in January 2005. During the early years of Mosler’s tenure
revenues soared, peaking in 2007 at $2 billion. But many insiders felt
the company had a problematic territorial culture that discouraged

While observers say all firms are hurt to some extent by powerful
teams with their particular fiefdoms, Cushman has a reputation for its
especially rigid “silo” structure. These silos are not inherently
harmful (indeed, by fostering competition among coworkers, they can
motivate brokers to make deals). But they can prevent the best team
from working on a particular assignment, and can create confusion with
clients, who at times get calls from multiple teams at Cushman looking
to represent them.

Now, with the new market conditions, the stakes are even higher
for Cushman to overcome whatever structural problems may be hobbling
the firm. All of the commercial brokerage players are repositioning
themselves to prepare for a market rebound — and Cushman can’t afford
to be left behind.

Holding it together

Rufrano, who is under a five-year contract, said his goal is to
improve the balance sheet enough to allow Exor to consider a broad
range of options, including an initial public offering or a sale.

His goal is to “provide for our shareholders options for a variety
of liquidity events,” he said. “It could be an IPO, it could be a
merger, it could be a sale, but none of those are imminent, and none of
those are at the top of [Exor’s] list.”

And Rufrano does not seem to be unnerved by companies in distress.

In 2000, he took over New Plan Excel Realty Trust, a New
York-based real estate investment trust in financial disarray following
an unwieldy merger. He shored up the balance sheet of the company,
which owned shopping centers, and prepared it for a $6 billion sale in
2007 to Centro Properties, a global mall owner in Australia.

Centro in turn became saddled with debt that threatened to bring
the company down (in part because of the purchase of New Plan), and
hired Rufrano to take over as CEO in early 2008.

Asked whether he was partly responsible for the high leverage at
Centro, Rufrano blamed company management for making a bad decision in
the way it structured the acquisition.

And despite the fact that Centro logged a $3.5 billion loss last
year, Rufrano was credited in the Australian media for holding the
company and its creditors together as it teetered through what could
have been a fatal stretch.

Rufrano noted that dealing with the massive amount of red ink at
Centro has given him some perspective on Cushman’s 2009 loss, and
confidence that he can turn things around.

“To me it was just a reflection of the marketplace; I didn’t think
[Cushman’s losses were] so bad,” he said. “I came from a business,
Centro, [that] lost $3.5 billion in 2009.”

But critics, who asked to remain anonymous, said Rufrano came from
a traditional corporate culture and was not familiar with the
all-important job of recruiting and retaining brokers. In fact, he
failed in his first effort to keep the New York investment sales team
that left in May for Jones Lang LaSalle. And some observers predict
that more defections will follow.

The four brokers — Scott Latham, Richard Baxter, Jon Caplan and
Yoron Cohen, who left with all but two members of their 13-person team
— contributed to putting the firm on top of the CoStar Group ranking
in 2007, with $7.3 billion in investment sales in New York.

Rufrano defended his attempt to keep the team, which involved a
spirited 30-day push. A key problem was the three capital markets teams
at Cushman — investment sales, investment banking and Sonnenblick
Goldman, a real estate financial services firm that Cushman purchased
in 2007 — that need to agree to on how to divide deals. There is some
overlap, insiders said, but in general the investment sales team is
meant to handle property transactions, the banking division structures
financing for corporate clients, and Sonnenblick Goldman arranges
financing for institutional clients, private equity and REITs.
Ultimately, the challenge of making them all work together proved to be

“So we agreed it would be best for us to have them part, and they agreed it was best for them to part,” Rufrano said.

But sources suggested that the behind-the-scenes haggling might
have been even more complicated than Rufrano let on. Insiders familiar
with the views of some of the four brokers said they left in part
because of restrictions imposed in a contract with Sonnenblick Goldman
that required Sonnenblick to get a guaranteed commission in certain
types of deals.

That restriction was set to expire this summer, a source said, further adding to the muddled explanations for the departure.

Cushman’s remaining two-person investment sales team is being led
by Helen Hwang, an executive vice president who sources said was
planning to leave with the Latham team but agreed to stay at the
eleventh hour. And in a departure from the past, it is now working very
closely with members of the Sonnenblick and investment banking teams on
pitches, even as it searches for new brokers to recruit.

Some critics said retaining the junior members of the team smacked
of desperation, while others said Cushman would remain a credible sales
force when combined with the other two teams at the firm.

Internal competition

A senior real estate executive who asked not to be named said the
silo culture, and disputes about how to split up commissions, was what
drove the four top brokers from the company.

For example, critics point to the $225 million sale-leaseback at
the New York Times building at 620 Eighth Avenue. That deal did not
include Cushman’s investment sales team, a logical participant of a
sales deal.

But sources defending Cushman said the four brokers were left out
because the deal was structured as a financial transaction, rather than
a bona fide sale.

A Cushman spokesperson provided data to show that teams do, in
fact, frequently collaborate. In 11 of the firm’s 23 largest
tenant-side assignments for Manhattan last month, multiple teams
represented the client. (That, however, leaves 12 where only one team
was running the show.)

Opinions about Mosler’s anti-silo campaign differ.

Some say Mosler, who declined to comment for this article, was too
accommodating to Cushman’s powerful brokers to rein in the practice.
Others argue that on his watch, revenues increased and collaboration

When asked about Mosler’s tenure, Exor said in a statement, “We are grateful to Bruce for all he has accomplished.”

While some Cushman executives, such as Joseph Harbert, COO of the
firm’s New York region, were quick to say silos are no longer an issue,
others, including Rufrano, believe challenges remain.

“I think it is an issue,” Rufrano said. “Do you think I am worried
about how to deal with these si-los? No. Do I have enough guts to deal
with the silos? Yes. Will I be effective? Time will tell.”

Frank Liantonio, executive vice president and head of Cushman’s
U.S. capital markets division, said in New York he has been putting a
stronger emphasis on collaboration since the investment sales team
left. In fact, on a recent pitch to a lender that controls a
“significant” distressed property in Manhattan, which he would not
identify, all three parts of the capital markets team were present.

Shifting focus

One strategy Rufrano is pushing to counter Cushman’s heavy
dependence on transactional revenue is to grow its traditionally weaker
corporate services division, which provides building management,
leasing and advisory work to corporate portfolios. If successful,
expanding that division could provide a broader and more consistent
source of revenue.

In the first quarter of 2009, corporate services, which the firm
refers to as “client solutions,” represented just 23 percent of net
revenues globally, compared with transactions, which accounted for 51
percent, Exor filings showed. By contrast, at CBRE, about 40 percent of
revenues are derived from outsourcing, which is similar to Cushman’s
“client solutions.”

“If you can build a business with more good credit, stable income,
and also have the transactional business alongside it … it could be
good for the value of the company,” Rufrano said.

Cushman does not want to kill the goose that lays the golden egg. The
firm was ranked third globally in transactional revenue in 2009, behind
CBRE and Colliers International, according to National Real Estate
Investor Magazine.

Indeed, amid the market tumult last year it managed to increase
the amount of tenant-represented leasing transactions it did in
Manhattan by 19 percent to 4.5 million square feet, while at the same
time CBRE’s tenant-rep leasing fell by 32 percent to about 5 million
square feet, each company said. Both firms stayed relatively stable in
landlord representation, with Cushman at about 3.4 million square feet
and CBRE at about 4.5 million square feet. The CBRE figures were for
deals of 5,000 square feet or greater.

Meanwhile, in addition to beefing up new areas of business,
Cushman already has several internal shake-ups underway. Over the past
year and a half, the firm has trimmed its Manhattan employee head count
by 12 percent to 1,675. Nationally, its stable of investment sales
brokers fell from 129 in December 2008 to 100 last month, Cushman
officials told The Real Deal.

A three-decade Cushman veteran and member of the board of
directors, John Santora, was tapped early last month to be CEO of the
newly expanded global corporate services division. He was transferred
from CEO of the Americas, overseeing about 75 percent of the company’s
revenues, to his new post, overseeing only about a quarter of the

Rufrano said putting Santora in charge of a smaller division was
not a slight, but instead a strategic choice designed to help a
critical part of the business grow.

Rufrano and others at Cushman also said the overall situation was
improving. Rufrano pointed to an increase in revenues in the first
quarter, and a loss in the quarter of just $22 million, far smaller
than the $60 million loss the firm saw in the year-earlier quarter.

Competitors said the firm currently has a particularly strong
roster of tenants looking for space. In fact, a source at a rival firm,
who shared numbers from an internal analysis, said Cushman is
representing 22 of the 49 tenants looking for space of more than
100,000 square feet.

Richard Economou, executive vice president at Grubb & Ellis,
said Cushman was well positioned this year. “They’ve got some very
talented, serious brokers and the respect of many of the clients. They
are formidable competition,” he said.

Rufrano was philosophical about his competition and about keeping Cushman brokers at the company.

“Everything looks greener [to brokers] on the other side, because
you are coming from tough times and now it is getting a little better,”
he said.

“The chore for companies like ourselves,” he added, “is to work as
hard as we can to minimize those losses. We have to take the offensive
… and bring people in.”

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