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Colliers, Brokerage Rivals Capitalize On Disruption from Cushman-DTZ Mega Merger to Bulk Up Local Market Share

Big 4 Brokers Pursuing Heightened Pace of Local Office Acquisitions to Reap Corporate-owned Office Benefit from Investors
December 2, 2015
The reshaped commercial real estate brokerage landscape in Indianapolis and the rest of America's heartland may be a good place to start in assessing the ongoing fallout from last fall's $2 billion Cushman & Wakefield/DTZ mega merger.

Call it the 'Cushman Effect.'

On September 1, 2015, Cushman & Wakefield and the former DTZ announced the completion of their mega-merger.

On Monday, Nov. 30, C&W terminated its agreement with its longstanding affiliate in Indianapolis, Summit Realty Group. The locally based Summit had been a member of the Cushman Alliance business referral and marketing network since 2002.

But after Cushman acquired DTZ, it became the second-largest commercial brokerage firm in the market behind CBRE Group, Inc. As a result, Cushman decided to discontinue its longstanding affiliate arrangement. The firm is also expected to allow C&W Alliance agreements to expire on Monday in Cincinnati and Columbus, OH, where it also now has company-owned offices following its merger with DTZ.

That led to an opening for Colliers International Group Inc. (Nasdaq: CIGI). The next day, Dec. 1, Colliers said it will buy Summit Realty outright.

"We continue to see a migration toward firms with global, full-service capabilities," said Colliers U.S. President Craig Robinson. "Firms that are very strong in their local markets or in designated areas understand they need to be part of a global platform."

CRE Acquisition Strategy Enters New Phase

Large providers like Colliers continue to fill in their service lines, markets and specialty businesses as a result of the marketplace disruption and uncertainty created by industry consolidation, Robinson said, including overlapping operations between legacy Cushman and DTZ operations.

"When organizations are focused on massive post-merger efforts, it’s easy to take your eye off the client ball," Robinson said. "We have a really keen opportunity to reinforce our focus on clients. Great talent like brokers, producers, managers and leaders want to feel like they are in a stable, secure environment that is investing in and committed to growth opportunities for them."

In another major coup, Colliers this week landed high-profile Dallas CRE executive Steve Everbach, who will leave Cushman & Wakefield to become president of Colliers' Central Region effective in mid-December.

Recent acquisitions of local and regional firms by Colliers, Cushman and JLL suggest that industry mergers and acquisition activity has entered a new phase, trending away from blockbuster deals between national and large regional firms to focus on single-market and smaller-scale regional players.

"There just aren’t very many acquirers of size left in the market - really only Colliers, JLL, CBRE, Cushman and Avison Young are active," said Brandon Dobell, a William Blair & Associates analyst who tracks publicly traded CRE services companies. "The days of mid-sized firms like Studley, the former Cassidy Turley and others being potential acquirers are gone, and the DTZ/UGL merger highlighted just how tough it is for a non-CRE player to make a go of it in the leasing and capital markets."

Changes Roil Longtime Business Arrangements

The rush to snap up local brokerage operations and affiliates is bringing many changes to long-time business arrangements in a domino effect across several markets. For example, soon after Colliers' acquisition of Summit Realty in Indianapolis, it terminated its former affiliate in the market, Resource Commercial Real Estate.

Resource CRE's brokerage business was the third-largest in Indianapolis -- actually ranking ahead of Summit. However, Summit has something Resource didn't have - a regular stream of fee income from its substantial property management business.

Property management provides Summit with total revenues estimated to be 1.5 to 2 times those of Resource, which this week announced its own relaunch as an independent local brokerage.

"The Big 4 see the connection between property management contracts and leasing revenue and mandates, consulting, energy efficiency and lots of other services, now and in the future," William Blair's Dobell said. "I expect you’ll see Colliers and Cushman do what CBRE has been doing over at least the past decade: buy up all their affiliates to create a truly national and international platform."

"We have good competition. We’re like David with our slingshot, but there are about five Goliaths out there," said Sam Smith, principal and chairman of Resource Commercial, 45-employee firm serving central Indiana. "Colliers saw an opportunity to buy a larger company than us and own an office. We were an affiliate, and they do not get credit for [affiliates] in the public markets. By buying Summit, they get that credit, along with a larger company, so it makes sense for them and their shareholders.

"Our focus is on clients, not shareholders," Smith continued. "It doesn’t make their focus wrong or ours wrong, just different. We see an opportunity to jump in and swim against the tide. You either have to be very big and gain scale, or be a boutique and very good at what you do in order to compete. The middle is a very challenging and lonely place to be, and the remaining companies are under increasing pressure to either grow or merge."

Will Aging Local Company Founders Call It A Day?

With the CRE recovery cycle as much as six years old now, the locally owned firms that are selling out or going independent -- many headed by executives entering the later stages of their careers -- are recognizing that the largest firms are going to continue to swipe their market share.

"If conventional wisdom that cycles run from 8-9 years holds, founding owners, guys who have been around for more than 10 years, are probably thinking, 'Hey, I’m 50 or 60 years old and 2007-2010 was really painful. I’d rather take some money off the table and align with a good group of colleagues in a specialty firm, and recognize where the industry is going rather than try to power through another downturn when it comes," said William Blair's Dobell.

Perhaps more than any other, the Cushman merger has created expansion and talent recruitment opportunities for Colliers, which acquired Cushman affiliate Gateway Commercial in St. Louis a day after the merger closed on Sept. 1 as C&W transitioned to a company-owned office.

Interestingly, it was Colliers that lost a major presence in the Midwest when a series of mergers that ultimately became Cassidy Turley, and now Cushman & Wakefield, swallowed up several strong Colliers affiliates.

The C&W merger was also a factor in the decision by shareholders in Colliers International's longtime Atlanta affiliate to sell a majority interest to its former partner. Current shareholders in the office with 250 professionals founded in 1967 will retain an equity interest in the business now majority owned by the Toronto-based publicly traded company.

The transaction gives the office "access to the level of growth capital it requires to serve the expanding needs of our clients," said Bob Mathews, president and CEO of Colliers International Atlanta. "We will be unique in Atlanta as the only global public commercial real estate firm that offers local ownership."

Meanwhile another member of the Big 4 has been active on the acquisition front over the past few weeks. JLL plans to triple its local presence in Baltimore by acquiring Colliers property management licensee CIB (Colliers International Baltimore) Management LLC and brokerage CIB LLC, adding about 80 people to the team for a total of 115. Colliers announced in October it would open a corporate-owned office in Baltimore. Similar to Colliers' Summit Realty in Indianapolis, CIB brings a sizable property management portfolio with it to Chicago-based JLL.

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