With its agreement to buy Eastdil Secured, London-based real estate advisory firm Savills is accelerating its global ambitions to broker the biggest property sales, upping its profile in the United States and potentially sparking more high-profile mergers.
That's what commercial real estate professionals were saying on Thursday, after the firms confirmed the more than $1.1 billion agreement they say will elevate Savills, known for tenant representation, into the top ranks of full-service real estate firms.
Brokers, property firm CEOs and other executives interviewed added that the deal also could signal a coming wave of consolidation within commercial brokerages as they prepare for the next boom cycle.
“Savills has been looking for an acquisition to bolster their investment business for some time,” Bob Shibuya, CEO of Dallas-based national tenant advisory firm Mohr Partners, said in an interview. “The Eastdil acquisition gives them access to Eastdil’s blue-chip roster of landlord clients.”
The deal is “a clear indication that we’re entering another round of mergers and acquisitions in commercial real estate services,” Shibuya added. The expectation is fueled by publicly traded companies and other firms that have set aside ample cash on their balance sheets for expansion as the industry mobilizes for an expected recovery this year in property sales and other transactions, he said.
The last major wave of consolidation involving large global real estate brokerages was between 2015 and 2019, a period when DTZ merged with Cushman & Wakefield and JLL acquired Holliday Fenoglio Fowler, among other large merger deals.
“I would think that after three years of a challenging commercial real estate market, as it relates to higher interest rates and valuations coming down, that we're at the beginning of the next cycle,” Walker & Dunlop Chairman and CEO Willy Walker said in an interview. “And due to it being the next cycle, you probably will see increased M&A activity as well as increased consolidation in commercial real estate and commercial real estate services and lending.”
Evan Stone, founder and managing partner of Dallas-based Goodwin Advisors, told CoStar News that the latest deal was “brilliant for Savills and brilliant for Eastdil.”
He said “it puts Savills in the game from day one with one of the best brands in the capital markets business, Eastdil. The only worry I have — and this is with any acquisition — is will the two cultures be able to coexist. But that's not a big concern."
Stone, who has more than three decades of capital markets experience, said he believes the deal will give Eastdil more information on major United States cities where Savills has a big presence and senior executives.
Major players
The world’s largest commercial real estate brokerages — Dallas-based CBRE and Chicago-based firms JLL and Cushman & Wakefield — work with clients across a broad range of service lines including property sales, creating a steady flow of business.
That made a company like Savills a better suitor for Eastdil, according to a note on the deal from Citizens Financial Group.
“We are not surprised to see the United States-listed global property service firms take a backseat to this transaction, as Eastdil's capabilities are complementary, suggesting the potential for significant friction across the broker ranks,” Mitch German, equity research analyst at Citizens, wrote in the note.
The move also made sense geographically, with just 10% of Savills’ revenue now generated from the United States, according to Germain.
Savills and Eastdil said Thursday that the newly combined companies would rank second globally for real estate transactions above $100 million, and No. 1 in the United States. The companies didn’t provide any additional comment to CoStar News.
The deal with Eastdil “offers immediate scale and presence with key institutional real estate investors domestically,” Germain wrote.
Eastdil, meanwhile, gains relationships with customers who are already doing business with Savills on transactions besides property sales.
New York reacts
In New York — one of the world’s largest commercial real estate investment sales markets, and the United States home base for both Eastdil and Savills — industry professionals said the combination is poised to pay dividends for both firms.
“Eastdil is wonderful at sales and Savills is wonderful at representing tenants,” Craig Deitelzweig, president and CEO of New York–based real estate developer Marx Realty, said in an interview. “Having that synergy together is just terrific for both of them.
“It's sort of like chocolate and peanut butter are making those Reese's. They're going to both be the best that they are in their particular fields. They're keeping it sort of separate and together. That makes a lot of sense.”
Separate focuses mean there will be relatively little conflict, he said.
For Savills, the Eastdil acquisition will help it “become a competitor in the very small field of institutional investment sales” in New York, according to Michael Rudder, a veteran dealmaker and principal of Rudder Property Group, which specializes exclusively in the sale of office condominiums in the New York metropolitan area.
“Savills will now be able to compete for the $250 million-plus sales assignments,” Rudder said. “There are not many firms or brokers who sell buildings over $250 million. Savills will now be one of those firms. Previously, Savills did not do those sales.”
“As a combined firm, I think they will be a powerful force in our industry,” Rudder told CoStar News. “Collectively they will likely be responsible for large and important transactions that move our industry, our city and the broader business environment forward. Put together, they have the ingredients to form a true powerhouse. The combination will be fierce.”
Global expansion
The Eastdil deal is a high-profile step in Savills’ ongoing quest to ramp up business in places including North America and the Asia Pacific region.
Savills already has taken smaller steps, such as the hiring in November of a three-person CBRE team of brokers to launch a United States retail advisory services practice. One member of that Chicago-based team, Todd Siegel, was named president of United States retail.
Other firms such as Newmark have been on a run of similar deals in recent years, said Alexander Goldfarb, managing director and senior research analyst at Piper Sandler & Co.
“Real estate in general has been consolidating,” said Goldfarb, who does not cover publicly traded Savills or privately held Eastdil.
“You’ve seen it among the REITs,” he said. “The fact that we’re seeing it with brokerages is not surprising.
“Newmark has been aggressively acquiring platforms since they went public almost a decade ago. The difference has been, Newmark has been buying smaller platforms and teams, while this is an entire company.”
Future shock
While artificial intelligence is considered disruptive to industries, including real estate, Goldfarb said it is less likely to negatively affect firms involved in the biggest and most complex deals.
“With all the debate about AI, it’s a people business,” Goldfarb said. “Real estate brokerages are especially a people business. You need brokers to help you figure out your complex real estate problems.”
In his note, Citizens’ Germain concurred.
He wrote that “investors might question the steep price tag for a business that is clearly in the crosshairs of potential disruption" from artificial intelligence, according to industry skeptics, Germain wrote. But he added that “we continue to believe technology will facilitate rather than intrude on Eastdil’s platform, particularly since it tends to focus on bigger-ticket transactions.”
Walker & Dunlop’s Walker said the deal could be viewed as a statement about the continued high value of human knowledge.
“The fact that Savills paid $1.2 billion for the people of Eastdil Secured, the people, not the technology, not the assets, not the servicing portfolio, not the agency licenses,” he said. “None of those things came along with Eastdil Secured. It was $1.2 billion for the people of Eastdil Secured. That is a huge endorsement, that is a huge statement, that human capital — people — will continue to add value to commercial real estate capital markets over the coming years. If you believe that, Savills was smart in paying $1.2 billion for Eastdil Secured.”
CoStar News reporters Andria Cheng, Randy Drummer, Jonathan Lehrfeld and Candace Carlisle contributed to this report.