“Sad day” in LA: CBRE’s corporate exit latest blow to dented office market

Real estate services giant shifts HQ to Dallas; industry pros say high taxes is “becoming an issue”

Los Angeles /
Oct.October 30, 2020 01:00 PM
CBRE CEO Bob Sulentic; the firm has shifted its global HQ from LA to Dallas. (CBRE, Getty)
CBRE CEO Bob Sulentic; the firm has shifted its global HQ from LA to Dallas. (CBRE, Getty)

CBRE’s decision to shift its global HQ from Los Angeles to Dallas wasn’t mentioned on the company’s third-quarter earnings call Thursday. But the move, which the Dallas Morning News first reported earlier that morning, didn’t go unnoticed.

“It’s yet another sad day in the city of Los Angeles,” said Ryan Leaderman, a real estate attorney at Holland & Knight’s L.A. office.

CBRE, the world’s largest real estate services firm, later confirmed the change.

“It was always cool to think of them as an L.A. company since most of the biggest real estate companies were based in New York,” said Jay Luchs, an L.A. commercial broker with Newmark, who spent 12 years at CBRE. But Luchs said he didn’t think headquarter locations are significant for large companies. “As long as you have top agents who understand the market it doesn’t really matter,” he said.

The move comes as the pandemic continues to upend the office market, taking its toll on brokerages that have endured months of losses, with many forced to trim staff and cut budgets and salaries.

While CBRE said it did not foresee any layoffs, relocations or changes at its Downtown 400 South Hope Street office — or any of its other California locations — the move comes at a difficult time for the struggling L.A. market.

Office leases plunged 61 percent in third quarter compared to the same period in 2019. Meanwhile, a CBRE report earlier this month showed L.A. office vacancy had climbed to 15 percent in Q3, from 13.7 percent in the second quarter and 12.6 year-over-year. Across the city, office leasing hasn’t been this bad since the Great Recession, according to CBRE. Overall office occupancy fell by 2.7 million square feet, adding to a plunge of 1.9 million square feet in the second quarter.

CBRE was the second largest publicly-traded real estate company headquartered in L.A. County. The top company remains Pasadena-based Alexandria Real Estate Equities, according to Los Angeles Business Journal’s ranking.

A CBRE spokesperson said the switch “simply formalizes the way we have operated for many years.” CEO Robert Sulentic told the Dallas Morning News, “we are happy to be moving here, and we are going to give Dallas a lot of growth.” The company will maintain its 25 offices across California, in addition to the space it maintains on South Hope Street, which it leases. CBRE sold that 26-story, 700,000-square-foot building in 2016 for $330 million.

Sulentic was formerly the head of Dallas-based Trammell Crow, which CBRE acquired in 2006. He has an office in the Texas city and splits his time between there and L.A. The company occupies 90,000 square feet at its Dallas office at 2100 McKinney Ave., Real Estate Daily News reported.

CBRE posted $245 million in net income for the third quarter, a near 10-percent drop year-over-year. The firm, which has about 100,000 people in more than 530 offices worldwide, recently made layoffs and budget cuts to trim costs, The Real Deal reported earlier today.

Industry pros said the symbolism of a top brokerage shifting its corporate headquarters out of L.A. was more significant than the move itself.

Luchs said real estate companies will remain in New York because it is still “the center of the financial world.” Increasingly, he said, firms will fan out to less expensive cities in the Midwest or the South.

Carl Muhlstein, a commercial broker at JLL, called CBRE’s decision “logical.” He said L.A.’s “taxes and housing prices are just really high.” Among them is a $1.27 tax on each $1,000 earned by locally-based businesses.

California’s taxes on businesses and business executives far surpass what Texas imposes. The Golden State has a flat 8.85 percent corporate income tax rate, while the Lone Star State is one of six states with no corporate income tax.

Texas is also one of six states with no personal income tax. California, meanwhile, has a graduated personal income tax with the highest earners paying 12.3 percent of their earnings to the state, on top of federal income taxes.

Besides the taxes, there’s California housing. “There’s a much higher cost of housing for employees here,” said Eric Sussman, an adjunct professor of accounting at UCLA. “You can retain talent at lower wages in Dallas.”

California could reach a point, Sussman said, where further corporate taxes could mean a “net loss of state revenue” due to the exodus.

In the last decade, large firms like Toyota, Occidental Petroleum and Jacobs Engineering have all moved corporate headquarters from the L.A. area to Texas. Northrop Grumman and Nestle USA also shifted HQs from L.A. to Washington, D.C., and Virginia, respectively.

“L.A. is devoid of headquarters,” Leaderman said. “Our taxes are high, and our services are not great. It’s becoming an issue.”


Related Articles

arrow_forward_ios
Beyond Meat founder and CEO Ethan Brown, Hackamn Capital Partner's Michael Hackman and renderings of 888 Douglas. (Beyond Meat, Hackman, 888 Douglas)

Beyond Meat inks 280K sf lease at Hackman’s 888 Douglas

Beyond Meat inks 280K sf lease at Hackman’s 888 Douglas
8633 Wilshire Boulevard and Skanska's Clare De Briere (Google Maps)

Skanska ramps up in LA, plans office project in Beverly Hills

Skanska ramps up in LA, plans office project in Beverly Hills
LA’s Office Market Was Slow Through The Fourth Quarter (Getty)

LA’s office market in Q4 kept sinking

LA’s office market in Q4 kept sinking
Rockpoint Group’s Bill Walton with 5900 Wilshire Blvd. and Silverstein Properties’ Larry Silverstein with US Bank Tower (Google Maps, Getty, Wikimedia Commons)

LA’s biggest office sales of 2020

LA’s biggest office sales of 2020
From left, Michael Rosenfeld and Century Plaza, Jose Huizar and City Hall, Jeff Bezos and 1801 Angelo Drive (Getty Images)

LA’s biggest real estate stories of 2020

LA’s biggest real estate stories of 2020
Hollywood 959 office complex and Russell Geyser (Photos via First Property; Getty)

JH Snyder sells Hollywood 959 complex for $186M

JH Snyder sells Hollywood 959 complex for $186M
Electronic Arts CEO Andrew Wilson and 4820 Alla Road (Getty, Del Rey Campus)

Video game maker EA downsizes LA office footprint

Video game maker EA downsizes LA office footprint
A rendering of the project (Credit: SKANSKA via Commercial Observer)

Skanska building its first ground-up LA development

Skanska building its first ground-up LA development
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...