Major Commercial Real Estate Firms Merge

By Dana Hedgpeth
Washington Post Staff Writer
Wednesday, November 1, 2006

CB Richard Ellis Group Inc., the world's largest commercial real estate broker and one of the most prominent real estate firms in Washington, agreed yesterday to buy rival Trammell Crow Co. in a deal worth $2.2 billion that will more than double its property management business.

Although neither company is based here, both are considered major local players. CB Richard Ellis, which manages 22 million square feet of space in the Washington area, is handling the leasing of one of the Watergate office buildings and has done leasing for Northrop Grumman Corp., Verizon Communications Inc. and General Dynamics Corp.

Trammell Crow is turning Columbia Hospital for Women in the District into a retail and residential building. It builds, buys and sells properties, and manages buildings and oversees refurbishing for customers such as Ford Motor Co., American Express Co., Bank of America Corp. and Exxon Mobil Corp.

The deal is one of several mergers that have occurred in the past few years as clients seek more efficient ways of buying, selling and leasing office space, industry experts said. Jones Lang LaSalle Inc. of Chicago recently acquired Spaulding & Slye Colliers of Boston. Three years ago, CB Richard Ellis paid $415 million for Insignia Financial Group Inc. of New York.

Yesterday's deal combines CB Richard Ellis's global operations in leasing space and buying and selling office buildings with Trammell Crow's corporate services, development and project management experience, company executives and real estate experts said.

CB Richard Ellis, based in El Segundo, Calif., is buying Dallas-based Trammell Crow for $49.51 per share in cash. The deal is expected to close by the end of the year. CB Richard Ellis stock closed up $1.81 yesterday, at $30.03; Trammell Crow closed up $9.65, at $48.75.

A Trammell Crow division that builds office buildings will keep its name and be run as a separate subsidiary; all of its development projects will proceed. Executives said it is too early to know if either company will move its local offices or if there will be layoffs.

"It means we're joining two significant real estate firms and combining them into one better organization both locally and nationally," said John Germano, senior managing director in the Washington office of CB Richard Ellis. "You're going to get a company that has more service lines and an unprecedented level of talent," he said. "There will be very little cannibalization, very little overlap."

CB Richard Ellis has 14,500 employees worldwide in 200 offices and revenue of nearly $3 billion. It has 300 employees locally.

It dwarfs Trammell Crow, which has 6,700 employees in 71 offices nationally and revenue of $896 million. Trammell Crow has a large local presence, however, managing 27 million square feet of space with 470 employees in the mid-Atlantic region, which stretches from Richmond to Baltimore. Figures were not available last night for the Washington area alone.

"We bring project management and property management," said Joseph A. Callanan, Northeast regional director for Trammell Crow. "When you put that with CB's global reach and their strong brokerage platform, that combined provides a seamless set of services that's not been seen in the industry.

"If you're a small company in Bethesda and you need space in London, we can now find the space and do the project management," he said. "Or if you're a bigger company and have large campuses, we can acquire a property for you, build a building, do the interior construction, manage it and maintain it."

Local real estate industry executives saw the deal as a logical move.

"CB has always been looking to expand their services, and they saw the development arm of Trammell Crow as something they didn't really have," said Scott Johnston, a senior vice president at Jones Lang LaSalle. "From Trammell Crow's side, they didn't have a strong global platform, so that's what each is getting from the other."

Chief executive Bob Pinkard of the real estate service firm Cassidy & Pinkard Inc., said: "CB's stock has done very well in the last few years because they've shown they have the capacity to grow, but the problem becomes that when you get as large as they are, you can't grow by simply adding a few brokers here and there. You have to acquire other companies."

Others suggested it could be difficult for the combined company to sort out the interests of competing tenants and landlords.

"I'm quite sure they have a strategy that will make the Trammell Crow acquisition a success," said Ray Ritchey, executive vice president at Boston Properties Inc. who worked at CB Richard Ellis as a broker in the late 1970s. "We have an expression here that bigger is not always better. Better is better. It's going to be interesting to see how they'll make that transition."

© 2006 The Washington Post Company