Wisdom of Rumored Merger of Giants Is Hard to See Real Estate by Shelly Garcia In a big-get-bigger world, there’s not much mystery to the reports that CB Richard Ellis and Grubb & Ellis are discussing a merger. It’s no secret that brokerages are feeling the pain of a couple of quarters of reduced leasing activity. No secret that the bigger they are, the more overhead they carry, the more pain they absorb. No secret that companies under pressure to improve performance can gain economies of scale through mergers and acquisitions. Those are probably all the things that executives at CB and Grubb would say were they commenting on reports that a merger is imminent. But they are not commenting, which leaves me kind of confused by this news and the rationale behind it. First of all, how big is big enough? CB’s got 250 offices in 47 countries. Grubb has 200 offices in 29 countries. How much do you think it matters to the average tenant in the San Fernando Valley, in Poughkeepsie, in Kansas City, if, through the acquisition, Grubb, or CB for that matter, adds an office in, say, Jakarta? In Milan? Buenos Aires? A broker I spoke with (many were uncharacteristically shy about commenting for the record for this story) said it’s an image thing. Just like the adage that you can’t get fired if you buy IBM, a REIT manager probably can keep his nose clean by sticking with a large firm. But the bread and butter for most real estate brokerages, and that includes the largest of them, is not institutional accounts who buy and sell portfolios of properties on an international scale. It’s the independents, the local property owners and the local tenants. Indeed, the same brokers who pointed out that big business is corporately correct business say in the next breath, “Me? I don’t personally see any benefit.” Some of them even work with institutional clients. Which brings me to the crux of the problem I see with such a merger. Real estate brokerages are, first and foremost, a network of individual me’s who set up relationships with individual they’s, and that relationship is pretty exclusive. So much so that many brokers take their clients with them when they switch companies. So much so that most brokers, although they are affiliated with a brokerage, are paid based on a percentage of the deals they bring in. So much so that even institutional clients often select their brokers on the basis of a personal referral, not the corporate umbrella under which they operate, no matter how fancy the graphics on the brochures. “Sometimes, all things being equal, if you remind him of his cousin Bob who he really likes in Wisconsin, he’s going to pick you,” is how one broker explained the decision making process of tenants and property owners. “I’ve had it happen quite a bit.” A supermarket buyer buys Procter & Gamble because it’s got the cereals customers want. But the client/broker relationship is a game of whom do you trust. That’s why brokers find their own clients, and they keep them through their own efforts. It doesn’t matter whose name is on the business card. None of this, however, means that it doesn’t matter if two of the largest real estate brokers merge. It actually matters a lot, but not for the obvious reasons. Put bluntly, as one broker did, “We’re working our butts off for clients and you guys are selling us out.” To be sure, both Grubb and CB can use a financial boost. CBRE Holding Inc., the privately owned parent of the brokerage, saw revenues plummet 18 percent to $224 million for the quarter ended March 31. Earnings before interest, taxes, depreciation and amortization (EBITDA) sank 21 percent to $11 million compared to the same period last year. Grubb lost $5.2 million or $.35 per share and revenues declined by 27.4 percent to $58.2 million compared to last year. A merger would save a bundle. But only because there are so many duplications between both companies indeed, it’s likely each will shrink down from their current size if they are combined. But economies of scale mean little to the brokers working in the Valley, or the Westside, or any of the local markets in which these companies operate. And in a business where your one indispensable resource is arguably your brokers, what would either company really gain? Agilent Moves Agilent Technologies leased 37,300 square feet at Westlake North Business Park at 30699 Russell Ranch Road in a five-year lease valued at $5.2 million. Agilent has occupied a 53,000-square-foot space at 5601 Lindero Canyon Road, but never utilized all the space, said Dave Leit, vice president at CRESA Partners, who represented the tenant in the deal along with Bill Nichols, a broker with Corporate Services Consortium in Minneapolis. “The facility they’re in needed some upgrades,” Leit said. “The economics didn’t warrant staying there.” The company’s lease is set to expire in September. Tom Festa, Jim Lindvall and Sam Monempour, brokers with Grubb & Ellis, represented the landlord, Investment Development Services. Senior reporter Shelly Garcia can be reached at (818) 676-1750, ext. 14 or by e-mail at [email protected].
