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Major Brokerages Build Out Valuation Practices as Pricing, Transaction Processes Grow Increasingly Sophisticated

Big Moves In Low-Profile Valuation and Appraisal Industry Signal Broadening Need for Price Discovery In Waning CRE Cycle
October 6, 2016
In acquiring the Houston affiliate of independent franchise firm Integra Realty Resources (IRR) last month, JLL became the last of the major global CRE services providers to launch a valuation and advisory practice in the United States.

The acquisition, scheduled to close next week, has prompted industry speculation about the U.S. growth plans of JLL, Newmark Grubb Knight Frank and Cushman & Wakefield as CRE firms both large and small scramble to gain scale by acquiring or partnering with each other during this extended period of heightened transaction activity and price fluctuation signaling the later stages of the CRE recovery and expansion.

"If you look at valuation and advisory as being somewhat counter-cyclical, valuation of assets is still very important even in a market downturn," Michael Welch, former CEO of IRR and now a leader of JLL's fledgling U.S. practice, tells CoStar. "In valuation, we say that we like it when the market is going up and we like it when it's going down. It’s in a flat market where we tread water."

The largest full-service brokerages and independent and regional valuation and appraisal firms are hardly treading water. In August, Cushman & Wakefield valuation and advisory practice head John Busi, one of the industry's most well-respected figures, stepped down from his position after 35 years with Cushman.

Busi was succeeded by Nicole Urquhart-Bradley, whose appointment turned heads when she was named to a more limited role as president of Cushman's valuation and advisory services in the Americas, rather than the global title previously held by Busi.

Insiders say Bradley's lower-profile role may be a result of Cushman's 2015 merger with DTZ, which already held a strong presence in valuation and advisory outside the U.S. By the end of August, however, Newmark Grubb Knight Frank had scooped up Busi to lead the rebuilding of its valuation division, the latest in a slew of hiring and recruitments by NGKF, which includes the addition of capital markets experts Rob Griffin and Kevin Shannon.

"After 35 years under one banner, leaving Cushman & Wakefield was one of the most difficult career decisions I have ever made, but I was driven by the unique opportunity to evolve my practice (at NGKF)," Busi said in a statement.

Growth By Merger, or From Within?

Whether Busi will grow NGKF's valuation platform through opportunistic acquisition or organic growth is also the subject of much industry speculation.

While JLL chose to launch its U.S. valuation business by acquiring the Houston affiliate of IRR, Colliers International has grown its own division by well over 50% in four years without making a single acquisition, said Ed Alegre, Colliers president of valuation and advisory services in the Americas.

"We've looked for acquisition opportunities but we believe we still have a lot of runway for organic growth," Alegre tells CoStar. "We’ve gone from 25 dots on the map to over 40 across the country in just four years."

Alegre and other valuation experts interviewed by CoStar said the practice has recovered and expanded along with the overall market as increased levels of financing and transaction activity have clearly increased demand for appraisal, valuation, consulting and other advisory services.

"At the same time, we’re seeing interesting trends develop as the market evolves with an increased demand for faster services, more timely reports and greater accountability, combined with a quest for consistency across markets," Alegre said.

JLL and CBRE have fueled the trend of diversifying revenue streams and managing cash flows by offering a full menu of service offerings, from brokerage to capital markets to transaction support services such as appraisals.

Smaller Players Pair Up With Majors

As with the rest of the industry, smaller local, regional and franchise valuation firms are under mounting pressure to grow their footprints by aligning with the national and global platforms of the largest CRE firms.

IRR's Houston office joined JLL, which is expected to announce other acquisitions and hires in coming weeks and months. Others in the shrinking pool of independent national valuation firms such as Butler Burgher Group (BBG) in recent weeks have acquired local companies such as Denver-based Commercial Valuation Consultants Inc. (CVC).

"We don’t see a wave of acquisitions per se, but we do see a lot of independents trying to form alliances under a single umbrella and brand to achieve efficiencies and make themselves attractive for an acquisition as an exit strategy," Alegre said. "There’s a lot of jostling for positioning right now."

Welch, former CEO of IRR, said IRR needed the JLL's economies of scale and broader platform to remain competitive.

"We built what we could in the U.S. through a loose-knit affiliation of franchises, but in order to take this to a truly global platform, we needed to partner with someone like a JLL," Welch said. JLL's U.S. practice will plant flags in the top financial markets while servicing clients in other markets through existing JLL offices.

"JLL has been circling the valuation space in the United States for the past couple years, and made sure they entered with just the right partner," Welch said. "We have valuation and advisory in over 40 countries, but the U.S. was a big hole in the footprint that needed to be filled to do business across the continent."

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