Market Data

U.S. Real Estate Titans Merge With Global Partners

In reaction to the ever-shrinking marketplace and the globalization of the U.S. economy, the commercial real estate industry has rushed to increase its international presence. Over the past two years, several real estate titans have teamed with foreign real estate firms to expand their borders. This merger activity allows them to offer seamless service in the world's major markets, which is a requirement for the growing number of multinational clients with whom they are working.

Recent Global Mergers
Lend Lease Corp. Ltd.'s 1997 purchase of U.S.-based Equitable Real Estate & Management started the major acquisition trend. However, Lend Lease, an Australian real estate conglomerate with market capitalization of $4.9 billion, decided to concentrate on investment management instead of leasing and property management. The company later sold Compass Management & Leasing — which was included in the deal — to LaSalle Partners. These deals illustrate that the purchase of real estate companies is a two-way street — U.S. companies both can purchase or be purchased by foreign companies. They also illustrate that not all pieces of an acquisition may fit with a particular company.

In another merger, cash created from the sale of its subsidiary Insignia Financial Group allowed U.S.-based Insignia/

ESG to purchase the United Kingdom operations of Richard Ellis St. Quintin in 1998 for $81.5 million. Insignia/ESG also has a presence in Italy through Insignia/CAGISA and in Germany through RE GmbH. The company plans to spend an additional $200 million on further acquisitions in Europe while focusing on commercial property management.

In 1998, Los Angeles-based CB Commercial acquired REI Ltd., the holding company for all Richard Ellis operations outside of the United Kingdom. At the time, the merger created the world's largest real estate company with about 9,400 employees in 30 countries.

Earlier this year, CB Richard Ellis announced that it was bringing the largest Japanese real estate company, Ikoma Corp., into its global network. Ikoma/CB Richard Ellis is the name of the new entity with 22 offices in Japan. CB Richard Ellis subsequently announced that it had acquired LirAntunez Properties S.A., a real estate company based in Santiago, Chile.

After the initial CB Richard Ellis merger, Chicago-based LaSalle Partners agreed to merge with the London-based Jones Lang Wootton in October 1998, creating the world's largest integrated real estate services and investment management company. Jones Lang LaSalle has a market presence in 34 countries.

During this same time period, New York-based Cushman & Wakefield purchased the London-based Healey & Baker for $112 million, creating a company with more than 7,700 employees in 129 offices in 39 countries. Combined nationwide annual revenues reportedly will reach $700 million.

The pace of international mergers of commercial real estate service firms has hastened over the past two years. Although many of the major U.S. players already have partnered with foreign firms, these partnerships will seek to expand their market presence by purchasing or affiliating with real estate companies in untapped markets. However, the merger process is not painless. Different cultural and management philosophies must be integrated in order for mergers to be successful. Once the integration growing pains are overcome, leaner and meaner organizations will emerge that will be highly competitive throughout the world.

George Green

George Green is a policy representative/senior economist for investment real estate at the National Association of Realtors in Washington, D.C.

Sept.Oct.99

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