Former Fixed-Income Trader Says Parent Exor SpA Remains Committed to Building on C&W's Success As A Leading CRE Brokerage
The surprising news that Glenn Rufrano was stepping down as chief executive of Cushman & Wakefield sent a shockwave through the commercial real estate industry -- in part because the former Centro Properties Group CEO had made important strides in repositioning the world's third-largest CRE services firm, which was beginning to reap financial benefits due to the recovery in property transaction markets.
Named to replace Rufrano on an interim basis was Carlo Barel di Sant'Albano, the Turin, Italy-born executive chairman of Cushman's parent company, Exor SpA. Previously an investment banker for 20 years culminating in a position with Credit Suisse, Sant'Albano was Exor's CEO when the global investment company, which also owns a controlling interest in Fiat SpA, (which in turn owns a majority share of Chrysler Group), acquired a more than two-thirds stake in Cushman in 2007.
His responsibilities with Cushman have steadily increased since then. Sant'Albano was appointed chairman of Cushman's board of directors in 2011 and leads the company's global strategic planning efforts. Since 2012, the Brown University-educated Sant'Albano, who also holds an MBA from Harvard, has served as head of the firm's Europe, Middle East and Africa (EMEA) operations. He still holds both jobs.
CoStar connected with Sant'Albano in New York during his current visit to the company's U.S. operations. Based in London, he was traveled to Cushman units over the world during the past two weeks, meeting with clients and associates in Europe, Asia and North America.
CoStar: What’s your outlook for the second half of the year for U.S. commercial real estate markets?
Carlo Barel di Sant'Albano:
It's mixed. Even though we are starting to see some improved numbers in the economy, there are frequently a couple of good numbers reported and one negative number. Occupiers and company CEOs are all evaluating this and watching very carefully -- and this leads us in commercial real estate to see that the market has responded very slowly to the improvements in the economy.
Over the past year, and especially over the past couple of months, there are more markets where things are better; areas like San Francisco and Silicon Valley, Seattle, Houston, even Boston. These are the markets that have recovered all the jobs lost in the recession. Leasing volumes are up slightly over last year, which is a good sign. Leasing volumes are trending toward improvement. We will start feeling better in the second half of this year, but we will all feel better in 2014, I hope.
Investment in U.S. secondary and to some extent in tertiary markets is coming back to life. Do you think this recovery is sustainable?
All over the world during the crisis, investors flocked to those markets that provided a real sense of stability and safety. Investors looked at those markets first. They looked at secondary markets with one eye, but they were not yet comfortable moving forward until they saw certain improvements in the economy. It’s not surprising that people are looking and starting to invest in secondary markets. We’ve seen an increasing interest in U.S. technology markets like Seattle and Austin, where investment volume doubled from last year, and investment activity remains strong in energy markets like Dallas, Houston and Denver.
That recovery in tech and energy markets is sustainable, and we’re pretty confident it will continue, barring any really big surprises. Unfortunately, we’ve had a couple of black swans over the course of the past couple of years. But in the U.S., the general sentiment is improving and certainly better than a year ago. The same is true in Europe, and in Asia, where growth has slowed down, but still growing at 4% to 5% and as high as 6% or 7% in some markets. For people to believe that the economy is much stronger, with sustainable growth, I think will take some additional time.
Are you concerned about the recent rise in interest rates and its potential effect on debt, pricing and the transaction market?
I look at it in a few ways. First of all, no one out there actually believed that quantitative easing would last forever. It had to slow down. The question is how Federal Reserve Chairman Ben Bernanke is going to manage that, and will the market react in a very smooth way. He had to slow down some of this incredible rise in the first quarter. And I think it is positive, because it means the economy over the next six to 18 months will be able to sustain itself, without what I heard in Asia called the ‘Red Bull effect’ of QE. Obviously you want quantitative easing to slowly taper off and Bernanke is going to be very careful. But I think the market knows interest rates will go up slightly, and expects it.
What we’ve seen from investors is that they are aware (of the change) and have to go back to their calculators and figure out what their returns are and whether they should structure transactions slightly differently.
The reality is, interest rates are still very low and investors still have an opportunity to look at markets and find very attractive financing. If an investor had a moment of caution due to the spike in interest rates, they would also realize that there are opportunities, and that this is the time to accelerate rather than slow down or wait and see. I’m hopeful people will see this as a sign the economy is improving and will have the courage to come off the sidelines and put some money to work. We haven’t seen those volumes consistently across countries, but I’m hopeful we’ll see some improvement over the next six months.
You have mentioned publicly that C&W may execute a major strategic transaction, perhaps involving external growth, in the near future. Can you provide any insight or updates on that?
When you’re running a company, you’re always discussing strategic opportunities. The great majority of them are bolt-on acquisitions to strengthen one part of the business, whether in a service line or in a region. We’ve done a few, one last year and one just announced in Singapore, and we’ll continue to do that. The plan is very clear - we continue to hire people, look for bolt-on acquisitions, and we have a strong shareholder supporting us to continue growing the business.
We’re well positioned across the world and we see continuous growth in many markets and also capturing market share. It’s an exciting time for us, despite a change in management. Our professionals are doing a great job in working more and more as a team, which is a big change taking place in the company. It’s absolutely critical to deal with client issues as a team, and no longer in an individualistic manner.
The company has credited former CEO Glenn Rufrano with stabilizing C&W after the recession - reorganizing business operations and building its teams and infrastructure. In your view, what are the most important additional changes that C&W needs to make as the next chapter in the company’s development unfolds, to compete effectively in the U.S. and globally with CBRE, JLL and other leading companies?
The management team led by Glenn did a good job after the events of 2009 to create a lot more discipline within the organization. Discipline flows in many different directions. One is having a clear path in terms of strategic growth, what actions are you going to take to keep growing the business? Also, our clients are global and we need to integrate the regions much more - the U.S., Europe, Latin America, Asian Pacific - and that takes discipline. It can be as simple as picking up the phone and dealing with the issues and make sure we’ve put our best foot forward with all the clients and providing value-added solutions to their issues. That’s what we need to do more of.
Once you put the initial discipline in place and created a management structure as Glenn has done, obviously there’s always going to be change. But the important thing is we’re very well positioned to continue drawing talent, and we’ve really shown we’re able to do that over the last two years, and acquire companies. We have both strong capital, very low leverage, and we are in a strong position to continue growing the business.
Was communication between the various entities and regions of the company a missing link?
When I first got involved with Cushman & Wakefield in 2007, absolutely. It was a good platform with three different regions with very little dialogue between them. Now, it is completely different. Each region has its own challenges, but my question in every meeting is, ‘What about Europe? What about Asia, Latin America, what about the U.S.?’ It’s a constant re-discussion of global efforts.
Also, any person responsible for a client who talks to me has to have a real feel with what’s happening with that client across the world. That comes from the top, and the more we instill that discipline, the better it’s going to be. One advantage we have versus our competition is really trying to break down those silos that exist in this industry and working hard to make sure we’re doing a better job for clients.
Can you give some insights into the thought process that led to the decision to make a change?
Glenn and I worked together for many years and I like Glenn a lot. I think he made good progress in positioning the firm. It was a mutual decision between Exor and Glenn that the timing was right to part ways. The company has to continue growing and these changes do happen.
How is the transition going? Is there a timeline for recruiting a permanent CEO, and is Glenn still involved?
Glenn has continued to be helpful to me since we announced the transition. For us, it’s business as usual. I’m traveling a lot and working with teams internally and globally to hire people. The search is more at the board level, and it continues. I don’t have specific timing in mind and when we find the candidate, it will be clear.
One good thing about having been so involved in Cushman & Wakefield over time, is that we don’t have to rush to a decision. We can do it in a very thoughtful and open way. When I hired Glenn, no one knew anything. It was very quiet given the amount of gossip that goes on in this industry. Now, we can actually do a search in a much more open way, which is positive.
Is C&W looking externally, or planning to promote from within the company - and is it possible you may keep the job?
The search is broad so obviously we will also look internally. I have an important role as executive chairman and I like that role; I think I can provide a lot of value added. I will perform this role for as long as they need me to ensure a smooth transition to a new leader. In Europe in most companies, there’s a separation between chairman and CEO. Because of that, I think the executive chairmanship is an important role for me. I also run Europe and have an important role and have an important role with clients across the world, so there’s plenty to do.
What different qualities and qualifications will the next CEO need to have for this next chapter of growth?
I wish there was a recipe but there isn’t. It depends on the individual’s ambitions and commitment. Each individual brings different strengths to the table. What is critically important is that the [qualified] individual will lead a business that is positioned to capture all the opportunities that are clearly available as the real estate market recovers, and will also have the support of the [Exor] board and major shareholder to really grow the business.
Much has been made in the media of Exor’s financial relationship with Cushman & Wakefield. Does the parent company remain committed to reinvesting proceeds back into Cushman to help the company expand and compete against global rivals?
The clear answer is yes. There was a lot of speculation with respect to the use of cash and a potential dividend from Cushman & Wakefield because people started mixing up Exor, Fiat’s potential acquisition of the remaining stake in Chrysler, and thought Exor needed capital for this. The reality is, for one, Exor doesn’t need money, and Fiat doesn’t need money to acquire the remaining stake. I’m not involved, but financially, they don’t - Exor has made that very clear.
The cash flow that has been generated over the last several years has all been reinvested in the business, except for a small dividend, which in part was paid to Exor because it was good financial discipline, and for the minority shareholders. People in the firm own about 25% of the shares. It’s only fair that the shareholders get a small dividend.
Exor has made very clear that C&W is an important investment for them. There are very clear objectives to continue to strengthen the business. There’s an expectation from management they want the business to be run well and continue positioning the firm to be in the top three worldwide in real estate services. They are fully supportive and they’re spending a lot of time getting to know the business better. We’re going to different parts of the regions with Exor to help them understand more about our clients and talent. I know a lot of people have made something out of this, but it’s always been a good relationship between Exor and Cushman.
So growing the U.S. business and headcount is an important part of competing globally?
Exor knows it has a strong brand and platform, and we're in a recovering real estate market. The U.S. is the largest real estate market in the world and we’re absolutely committed to growing in the U.S. The cycle is moving toward the positive, and we are one of only three players that can work globally. There’s no other name out there that can provide what Cushman & Wakefield, JLL and CBRE can provide.