Andrew McDonald is prepared for a West Coast scrap.
The president of Cushman & Wakefield’s western region plans to continue an aggressive push into new markets in 2020, which will pit his brokers up and down the coast against entrenched powers CBRE and JLL.
For McDonald, who joined Cushman Realty Corp. in 2001 to work with John C. Cushman III, high-growth markets such as L.A. and Texas are key targets for his stable of multifamily, investment sales, debt and leasing brokers. He’s also overseeing the firm’s operations and strategy in Colorado, Arizona, Washington, Oregon, Nevada, Utah and Mexico.
In an interview with The Real Deal, McDonald talked about his team’s performance in 2019, the most promising markets on the West Coast, the potential of downtown L.A.’s office market, brokerage competition and more.
The following has been edited for length and clarity.
Has Cushman’s approach changed since it went public last year? How are you dealing with competition?
If we go back to 2014-2015, I don’t think anyone would necessarily say that we were a global competitor to JLL or CBRE. I think that we competed, but we weren’t probably on equal footing. I think you fast-forward to today, nearly five years later, and that has changed dramatically. We are now the third largest real estate services firm globally, and that simply was not the case pre-merger.
I think that the reality of this is that the industry will continue to consolidate. I think vendor consolidation is something that we’ll see going forward for the foreseeable future. I think that more and more companies are looking for a single provider that could solve for any and all of their needs, in any locations around the globe. And so the competition is always going to be fierce, clearly, but we really like where we’ve been competitively. Those are very good companies, JLL and CBRE, and I would imagine they think of us in the same way.
Last year, Cushman & Wakefield’s Greater Los Angeles business had about 60 million square feet under management, with an estimated 3,000 transactions valued at $29 billion. By contrast, transaction value for 2017 was $8 billion. What are you seeing as 2019 comes to a close?
Well, I don’t have the actual figures on transactions or on the total volume, but that’s because we don’t have that until probably the end of the year. What I can tell you is that 2018 was our best year ever at the company, and 2019 is going to be better in Los Angeles, so we continue to grow. We’ll see where we end up by the end of the year, but we’re seeing extremely strong growth both in revenue and profitability.
I would tell you that it is a fair comment and statement to make that financially, 2019 is substantially stronger than 2018’s results, we believe. That’s three straight years of very strong growth across all of our disciplines. That’s in leasing and in capital markets, that’s in our asset services business, and that’s in our project development services or project management businesses. Those are four of our biggest businesses we have in Los Angeles.
What do you see as the biggest trends in the L.A. commercial real estate market right now?
We’re so fortunate to have a disparate economy, right? When you have that you have many, many different trends going on at the same time. Very luckily, I think, at this point in time some of those industries have collided, most notably the industrial e-commerce rebuild, in addition to entertainment content and technology.
We see an incredibly strong industrial market going into 2020. On the warehousing side of that, I think you’ll see a strong trend for supply chains to creep closer and closer to the consumer doorsteps. I think those fulfillment centers, those distribution channels, are literally only going to get closer and closer to the neighborhoods.
I do think that for scale, that downtown Los Angeles will be the location of choice over the next few years for large employers.
Why is that?
It’s very hard for large employment growth to continue in many parts of Los Angeles. That’s not necessarily a traffic issue, that’s more simply a scale issue. The large employers that we’ve seen taking down large blocks of space on the Westside have fewer and fewer choices, and I think that the transportation, the mobility issue, and the availability to grow in and around the core of Los Angeles will only be more appealing.
I think mobility, personal mobility, really kind of has a major influence in that. I think that everything from e-scooters to rental car sharing, bike sharing and ride sharing, all has an immense influence on I think where employers are located.
At Mateo was an example of where we were the leasing agent for both retail and office on a spec development, and were able to negotiate a very large lease with Spotify. At the time, that was a near record-setting lease in its overall valuation, and I think it was very helpful to plant a flag and provide an argument that the Arts District was something that had been vetted by large employers.
Overall, how do you view the L.A. economy right now?
I think we’re the beneficiary of an incredible economy in greater Los Angeles, and I would really include that just to be Southern California.
The economy just continues to expand. We’ve been the beneficiary of incredible job growth for years, outpacing the nation in many of those years.
Los Angeles gets a lot of hype as being the entertainment capital of the world, which it is. But what many people don’t realize is it’s the logistics capital of the world. Of course, we have two of the largest seaports in America, and the absolute explosive growth of e-commerce and the port volumes we think will only continue to fuel demand for industrial and last-mile warehousing.
How many people are working at your L.A. operation?
We have just around 600 people in all, across six offices in the Greater Los Angeles area. In Downtown L.A., we have just about 200. There’s probably only one place where we would consider opening another office right now under the right conditions, and that would be somewhere in the San Fernando Valley.
How are you prioritizing expansion in the west?
We will continue to look at Texas and Southern California to deploy probably a disproportionate amount of our capital on growth, and that’s for a couple of reasons. One is that we are following demographic changes in those two parts of the world – Texas has explosive job growth, Southern California the same. But we also view where we are in both of those markets … we believe that we have an exponential ability to grow. I would say in Austin, Houston and Dallas that we have room to grow across almost all of our service lines. In Southern California we do as well, but mostly on the occupier side, the multi-family side.
Can you talk about your priorities for 2020?
If you’re asking specific business priorities, we have a real strategy around data and analytics that is an incredibly important priority for us as a firm. That is something that we spend an incredible amount of time right now working with a couple of different folks, both internally and externally, on better understanding all the data that we have. Where it’s all warehoused, how it can come together to service our clients.
Another is with regards to how we recruit and train our next generation of folks, and I’ll be specific to brokers. What we’ve done it’s a kind of a 180 on how we engage that young talent today. The historical model was, come in for no salary, kind of starve for a couple of years, and see if you can make it, right? And that did nothing. That doesn’t help the talent that will help the clients. And so what we have done is we’ve put together a very comprehensive program, which trains people, on salary, for a year before they move into any one of our disciplines, but especially into brokerage. And so they get an education with us too, the entire suite of services of our business before they are, in essence, a fee-earning professional.