CB Richard Ellis Group, Inc.  - Commercial Real Estate Brokers - Category Directory

355 South Grand Avenue, Suite 3100
Los Angeles, California 90071-1552
(213) 613-3226
www.cbre.com

Sales

$1.6 billion

Business Description

The Americas is the largest business segment in terms of revenue, earnings and cash flow. It includes the following major lines of businesses:

• The Brokerage Services line of business provides sales, leasing and consulting services relating to commercial real estate. This line of business is built upon relationships that the Company establishes with clients. This business does not require significant capital expenditures on a recurring basis. However, due to the low barriers to entry and strong competition, the Company strives to retain top producers through an attractive compensation program that motivates its sales force to achieve higher revenue production. Therefore, the most significant cost is commission expense. In addition, the Company believes that the CB Richard Ellis brand provides it with a competitive operating advantage. This line of business employs approximately 2,120 individuals in offices located in most of the largest metropolitan areas in the US and approximately 410 individuals in Canada and Latin America.

• The Investment Properties line of business provides similar brokerage services primarily for commercial, multi-housing and hotel real estate property marketed for sale to institutional and private investors. This line of business employs approximately 480 individuals in offices mainly located in North America.

• The Corporate Services line of business focuses on building relationships with large corporate clients. The objective is to establish long-term relationships with clients that could benefit from utilizing Corporate Services' broad array of services and/or global presence. These clients are offered the opportunity to be relieved of the responsibility of managing their commercial real estate activities at a lower cost than they could achieve by managing these activities themselves. Corporate Services includes research and consulting, structured finance, project management, lease administration and transaction management. These services can be delivered on a bundled or unbundled basis involving other lines of business in single or multiple markets. This business line employs approximately 420 individuals, primarily within North America.

• The Commercial Mortgage line of business provides commercial loan origination and loan servicing through the Company's wholly owned subsidiary, L.J. Melody. The Commercial Mortgage business line focuses on the origination of commercial mortgages without incurring principal risk. As part of its activities, L.J. Melody has established correspondent relationships and conduit arrangements with investment banking firms, national banks, credit companies, insurance companies, pension funds and government agencies. Additionally, L.J. Melody participates in a partnership whereby costs are shared in the servicing of its loan portfolios, which allows for significant cost savings. This business line employs approximately 325 individuals in the US.

• The Valuation line of business provides valuation, appraisal and market research services. These services include market value appraisals, litigation support, discounted cash flow analyses, and feasibility and fairness opinions. The Company believes that the valuation business line is one of the largest in its industry domestically. At December 31, 2002, this business line had over 200 employees on staff in the Americas. It has developed proprietary technology for preparing and delivering valuation reports to its clients, which provides a competitive advantage over its rivals.

• The Investment Management line of business provides investment management services through the Company's wholly owned subsidiary, CBRE Investors. CBRE Investors' clients include pension plans, investment funds, insurance companies and other organizations seeking to generate returns and diversification through investment in real estate. CBRE Investors sponsors funds and investment programs that span the risk/return spectrum. In higher yield strategies, CBRE Investors "co-invests" with its clients/partners. These co-investments typically range from 2% to 5% of the equity in a particular fund. CBRE Investors is organized into three general client focused groups according to investment strategy, which include: Managed Accounts (low risk), Strategic Partners (value added funds) and Special Situations (higher yield and highly focused strategies). Operationally, a dedicated investment team with the requisite skill sets and location executes each investment strategy. Each team's compensation is driven largely by the investment performance of its particular strategy/fund. This organizational structure is designed to align the interests of team members with those of the firm and its investor clients/partners and to enhance accountability and performance. Dedicated teams share resources such as accounting, financial controls, information technology, investor services and research. In addition to the research within the CB Richard Ellis platform, which focuses primarily on market conditions and forecasts, CBRE Investors has an in-house team of research professionals who focus on investment strategy and underwriting. CBRE Investors has approximately 110 employees located in its Los Angeles headquarters and in a regional office in Boston.

• The Asset Services line of business provides value-added asset and related services for income-producing properties owned by local, regional and institutional investors. At December 31, 2002, it managed approximately 216.8 million square feet of commercial space in the Americas. Asset Services includes property management, construction management, marketing, leasing, and accounting and financial services for investor-owned properties, including office, industrial and retail properties. Asset Services markets its services primarily to long-term institutional owners of large commercial real estate assets. Asset Services' contractual relationships put the Company in a position to provide other services for the owner, including refinancing, appraisal, and lease and sales brokerage services. Asset Services employs more than 1,010 individuals in the US, Canada and Latin America, part of whose compensation is reimbursed by clients. Most asset services are performed by management teams located on-site or in the vicinity of the properties they manage. This provides property owners and tenants with immediate and easily accessible service, enhancing client awareness of manager accountability. All personnel are trained and encouraged to continue their education through both internally-sponsored and outside training. Asset Services personnel utilize state-of-the-art technology to deliver marketing, operations and accounting services.
• The Facilities Management line of business specializes in the administration, management, maintenance and project management of properties that are occupied by large corporations and institutions. At December 31, 2002, Facilities Management had approximately 113.1 million square feet under management in the Americas, comprised of corporate headquarters, regional offices, administrative offices and manufacturing and distribution facilities. The Facilities Management business line employs over 820 individuals in the Americas, most of whose compensation is reimbursed by clients. In addition to providing a full range of corporate services through contractual relationships, the Facilities Management group responds to client requests generated by the Company's other business lines for significant, single-assignment acquisition, disposition and strategic real estate consulting assignments that may lead to long-term relationships.
EMEA

The EMEA division has 44 offices located in 27 countries, with its largest operations located in the UK, France, Spain, the Netherlands and Germany. Operations within the various countries typically provide, at a minimum, the following services: Brokerage, Investment Properties, Corporate Services, Valuation/Appraisal Services, Asset Services and Facilities Management, with approximately 83.7 million square feet under management. Certain countries also provide Financial and Investment Management services. These services are provided to a wide range of clients and cover office, retail, leisure, industrial, logistics, biotechnology, telecommunications and residential property assets.

The Company, operating as CB Hillier Parker in the UK, is one of the leading real estate services companies in that country. It provides a range of commercial property real estate services to investment, commercial and corporate clients located in London. The Company also has four regional offices in Birmingham, Manchester, Edinburgh and Glasgow. In France, the Company is a key market leader in Paris and provides a complete range of services to the commercial property sector, as well as some services to the residential property market. In Spain, the Company provides extensive coverage operating through its offices in Madrid, Barcelona, Valencia, Malaga, Marbella and Palma de Mallorca. The Company's Netherlands business is based in Amsterdam, while its German operations are located in Frankfurt, Munich, Berlin and Hamburg. The Company's operations in these countries generally provide a full range of services to the commercial property sector, along with some residential property services. As of December 31, 2002, there were over 1,300 professional and support staff employed, of which approximately 700 were in the UK.

Asia Pacific

The Asia Pacific division has 26 offices located in 11 countries. The Company believes it is one of only a few companies that can provide a full range of real estate services to large corporations throughout the region, including: Brokerage, Investment Management (in Japan only), Corporate Services, Valuation/Appraisal Services, Asset Services and Facilities Management, with approximately 140.0 million square feet under management. The CB Richard Ellis brand name is recognized throughout this region as one of the leading worldwide commercial real estate services firms. This division employs over 2,000 individuals. In Asia, the Company's principal operations are located in China (including Hong Kong), Singapore, South Korea and Japan. The Pacific region includes Australia and New Zealand with principal offices located in Auckland, Brisbane, Melbourne, Perth and Sydney.

Competitive Strengths

The market for the Company's commercial real estate business is both highly fragmented and competitive. Thousands of local commercial real estate brokerage firms and hundreds of regional commercial real estate brokerage firms have offices throughout the world. Most of the Company's competitors in the Brokerage and Asset Services lines of business are local or regional firms that are substantially smaller than the Company on an overall basis, but in some cases may be larger locally. In addition, there are several national, and in some cases international, real estate brokerage firms with whom the Company competes. The Company believes it has a variety of competitive advantages that have helped to establish its strong, global leadership position within the commercial real estate industry. These advantages include the following:

Global Brand Name and Presence. The Company is of the largest commercial real estate services providers in the world in terms of revenue and, together with its predecessors, has been in existence for 97 years. The Company operates over 200 offices in 47 countries around the world. The Company believes that it is among the leading commercial real estate services firms in several major US markets including New York, Los Angeles, Chicago, Houston, Dallas/Fort Worth and Phoenix as well as in many other important real estate markets around the world including Hong Kong, London and Paris. The Company's extensive global reach combined with its localized knowledge enables it to provide world-class service to its numerous multi-regional and multi-national clients. Furthermore, as a result of its global brand recognition and geographic reach, the Company believes that large corporations, institutional owners and users of real estate recognize it as the pre-eminent provider of high quality, professional, multi-functional real estate services.

Market Leader and Full Service Provider. The Company provides a full range of real estate services to meet the needs of its clients. These services include commercial real estate Brokerage Services, Investment Properties, Corporate Services, Mortgage Banking, Investment Management, Valuation and Appraisal Services, Real Estate Market Research, Asset Services and Facilities Management. The Company believes that its combination of significant local market presence, strong client relationships and its scalable, diversified line of business platforms differentiates it from its competitors and provides it with a competitive advantage.

Strong Relationships with Established Customers. The Company has long-standing relationships with a number of major real estate investors, and its broad national and international presence has enabled it to develop extensive relationships with many leading corporations.

Recurring Revenue Stream. The Company believes it is well positioned to generate recurring revenue through the turnover of leases and properties for which it has previously acted as transaction manager. The Company's years of strong local market presence have allowed it to develop significant repeat client relationships, which are responsible for a large part of its business.

Attractive Business Model. The Company's business model features a diversified revenue base, a variable cost structure and low capital requirements.

• Diversified Revenue Base. The Company's global operations, multiple service lines and extensive customer relationships provide it with a diversified revenue base. Approximately 27% of the Company's 2002 revenue was generated outside the US while over 25% of its 2002 revenue was generated from its non-brokerage businesses.

• Variable Cost Structure. The Company's sales and leasing producers are generally paid on a commission and bonus basis, which correlates with the Company's revenue performance. This flexible cost structure allows the Company to maintain its operating margins in a variety of economic conditions.

• Low Capital Requirements. The Company's business model is structured to provide high value added services with low capital intensity. In 2002, the Company's capital expenditures remained low at approximately 1.4% of 2002 revenue.
Empowered Resources. The Company's proprietary data network gives its professionals instant access to local and global market knowledge to meet its clients' needs. It also enables the Company's professionals to build cross-functional teams to work collaboratively on projects. With real-time access to state-of-the-art information systems, its professionals are empowered to support clients in achieving their business goals.

Strong Senior Management with a Significant Equity Stake. The Company's senior management team consists of a number of highly respected executives, most of whom have over 20 years of broad experience in the real estate industry. The Company's senior management team beneficially owns approximately 5% of the Company's outstanding common stock.

L.J. Melody competes in the US with a large number of mortgage banking firms and institutional lenders as well as regional and national investment banking firms and insurance companies in providing its mortgage banking services. Appraisal and valuation services are provided by other international, national, regional and local appraisal firms and some international, national and regional accounting firms. CBRE Investors has numerous competitors including other real estate investment managers and investment banks.

The Company's Asset Services and Facilities Management lines of business compete for the right to manage properties controlled by third parties. The competitor may be the owner of the property who is trying to decide upon the efficiency of outsourcing or another management services company. Increasing competition in recent years has resulted in increased pressure to provide additional services at lower rates. The Company has mitigated that pressure by reducing the cost of delivery through automation and by providing services that generate premium fees. One way the Company seeks to grow the Asset Services and Facilities Management lines of business is through assignments that provide synergies with the Company's other lines of business.