Boom-year acquisitions are paying off for Jones Lang LaSalle in a big way, as the brokerage saw huge growth in its core business lines last year, even as its public peers wrestled with a historic commercial real estate downturn.
Public documents filed recently with the SEC show leasing revenue in Jones Lang LaSalle’s Americas segment was up 20 percent in the fourth quarter of 2009, compared to the same period in 2008. During the same period, leasing revenue at rival CB Richard Ellis was essentially flat.
Overall, full-year revenue in JLL’s Americas segment jumped 11 percent in 2009. Operating income leapt 28 percent, compared to a 20 percent dip in year-over-year revenue at CBRE’s Americas segment.
David Slye, who heads the brokerage’s operations in New England, attributed part of JLL’s success to mergers with Spaulding & Slye and the Staubach Co., which broadened JLL’s base while realigning the way it approaches business.
“In the fourth quarter, we saw corporate clients really grabbing hold of what we have, and the momentum of our integration coinciding with market momentum,” Slye said.
Ground Up Efforts
The firm’s $150 million acquisition of Spaulding & Slye closed in 2006, adding a significant presence in New England and Washington, D.C. The $613 million Staubach acquisition, cemented at the height of the commercial market’s 2008 boom, added a national network of tenant representation brokers.
Slye said that in addition to a solid footprint in New England and in the mid-Atlantic, Spaulding & Slye had a ground-up, markets-based approach to the brokerage business, an approach the formerly top-down JLL has now adopted and spread throughout its national network. The firm has also broken down internal barriers and brought new services to existing clients.
“It’s three firms really pulling together, and bringing that to clients,” Slye said. “The national efforts have connected with the local efforts. They’re all woven together. Integration has been the key. We’ve been allowed to pick up new business because of the broader platform. We’re building markets from the ground up, and we’ve had 18 months of Staubach’s active, aggressive tenant representation business.”
In 2009, SEC filings show that the company enjoyed robust double-digit growth in the U.S., despite a brutal commercial downturn that saw deal volume, deal size and rental rates plummet. And the company is forecasting even bigger numbers for 2010.
JLL’s 2009 leasing revenue was up 34 percent from 2008. It has grown by 108 percent since 2007. That compares to 2009’s 22 percent year-over-year slide in leasing revenue at CBRE. JLL’s property management revenue was up 15 percent last year, and has grown 60 percent since 2007.
Capital markets and hotels slumped by 38 percent from 2008’s levels, and were down 67 percent since 2007. But that segment’s revenue – just $37.6 million in 2009 – was dwarfed by leasing revenue, which drove top-line performance with $500 million. The drop was also less severe than it was at much larger CBRE, which saw sales revenue fall by 48 percent in 2009.
Transactions Over Management
Public filings from third industry heavyweight Grubb & Ellis do not differentiate between leasing and property sales revenue. The brokerage’s combined transaction services operations saw revenue dip by 19 percent in the fourth quarter of 2009, compared to the same period in 2008, and fall by 28 percent for the full year.
CBRE did not return calls seeking comment. In a recent public call with analysts, CBRE CEO Brett White said that while the firm expects continued leasing volatility in 2010, “Share now captured by the company should pay handsome dividends in the coming years as the markets recover.”
“Last year was challenging,” said Stephen Brodsky, head of Grubb & Ellis’ Boston office. “Right now, leasing volume is certainly better than it was last year. This will definitely be a better year, we know that already.”
JLL’s transaction-driven growth – Americas leasing revenue more than doubled property management revenue – stands in sharp relief to its two public peers.
CBRE and Grubb & Ellis have grown increasingly dependent on property management service income over the past two years, as revenue from leasing and sales slid sharply. In 2007, CBRE’s global sales revenue was nearly equal to its leasing revenue. Sales revenue has fallen by 69 percent since then, with leasing revenue slumping 28 percent. Property management revenue has grown by 17 percent. In 2007, leasing and sales combined for 59 percent of CBRE’s global revenue; in 2009, was just 44 percent. CBRE’s property management revenue eclipsed its leasing revenue by nearly $300 million in 2009.
Management revenue at Grubb & Ellis was $13 million bigger than transaction revenue in 2008; in 2009, transactions fell more than $100 million behind management. Leasing and sales revenue fell 28 percent in 2009, and went from 38 percent of the firm’s total revenue to 32 percent. Management services contributed more than half the firm’s total revenue in 2009.
