CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm with $27.7 billion in revenue and $141.9 billion in AuM as of Dec. 31, 2021. The company holds leading global market positions in its leasing, property sales, occupier outsourcing and valuation businesses. CBRE has more than 105,000 employees and is operating in over 100 countries.

  • Tucker, Lynch & Coldwell, the earliest predecessor to CBRE, was established in the aftermath of the 1906 San Francisco earthquake
  • The three partners, Tucker, Lynch and Coldwell set up their real estate brokerage company as they saw a big opportunity in the rubble of the 1906 earthquake and fire
  • By the 1940s, CBRE grew to become one of the largest commercial real estate services companies in the western U.S.
  • In the 1960s and 1970s, the company went public and expanded both its service portfolio and geographic coverage to become a full-service provider with a growing presence throughout the U.S.
  • Over the next decades, CBRE achieved significant geographical and service areas expansion through multiple acquisitions
  • In 2015, revenue topped $10 billion for the first time
  • In 2018, the $20 billion revenue milestone was reached
  • In July 2021, CBRE acquired the UK multidisciplinary professional services firm Turner & Townsend for £960 million and a 60% stake

A LEADER IN REAL ESTATE ADVISORY, MANAGEMENT AND INVESTMENTS

CBRE reports its operations through three business segments: (1) Advisory Services, (2) Global Workplace Solutions and (3) Real Estate Investments.

(1) Advisory Services provide a comprehensive range of services globally, including (i) leasing, (ii) capital markets (mainly of property sales and mortgage services), (iii) property management and (iv) valuation services.

  • (i) Leasing Services: CBRE provides strategic advice and execution for owners/investors, and occupiers/tenants of real estate, primarily in connection with the leasing of office, industrial and retail space. In 2021, CBRE negotiated leases valued at more than $140.0 billion globally
  • (ii)  Capital markets services, CBRE provides property sales and mortgage services, which are closely integrated to meet marketplace demand for capital markets solutions. During 2021, CBRE closed approximately $477.8 billion of capital markets transactions globally, including $388.7 billion of property sales transactions and $89.1 billion of mortgage originations and loan sales
  • (iii) Property Management Services: CBRE provides property management services on a contractual basis, primarily for owners of and investors in office, industrial and retail properties. These services include marketing, building engineering, lease administration, accounting and financial services. As of December 31, 2021, CBRE managed 2.7 billion square feet of properties globally for property owners/ investors
  • (iv) Valuation Services: CBRE provides valuation services that include market-value appraisals, litigation support, discounted cash flow analyses, feasibility studies as well as consulting services such as property condition reports, hotel advisory and environmental consulting. During 2021, CBRE completed over 564,800 valuation, appraisal and advisory assignments, including residential valuations in Asia Pacific

(2) Global Workplace Solutions provides a broad suite of integrated, contractually based outsourcing services to occupiers of real estate and consist of (i) facilities management and (ii) project management services. There is significant cross selling of account-based Advisory services, particularly leasing, property sales and portfolio administration, for Global Workplace Solutions clients.

  • (i) Facilities Management Services: involves the day-to-day management of client-occupied space for traditional office space, such as headquarter buildings, regional offices and administrative offices, as well as facilities serving specialized industries, such as data centers, life science and medical facilities, distribution warehouses, government facilities and retail stores. As of December 31, 2021, CBRE managed approximately 4.4 billion square feet of facilities on behalf of occupiers
  • (ii) Project Management Services: can be provided on a one-off or programmatic basis to owners, investors and occupiers of real estate in local markets. On November 1, 2021 CBRE acquired a 60% ownership interest in Turner & Townsend, a global professional services company specializing in program management, project management, and cost consulting across the commercial real estate, infrastructure and natural resources sectors

(3) Real Estate Investments includes: (i) investment management services provided globally; (ii) development services in the U.S., U.K. and Continental Europe; and (iii) legacy flexible office space solutions.

  • (i) Investment Management Services: CBRE provides investment management services to pension funds, insurance companies, sovereign wealth funds, foundations, endowments and other institutional investors seeking to generate returns and diversification through investment in real assets such as real estate, infrastructure, master limited partnerships and other assets. AUM totaled $141.9 billion at December 31, 2021 (compared to $122.7 billion at December 31, 2020)
  • (ii) Development Services: CBRE pursues opportunistic, risk-mitigated development and investment strategies for users of and investors in commercial real estate, as well as for its own account. CBRE's development business is active in industrial, office, residential multi-family/mixed-use projects, life sciences and healthcare facilities of all types (medical office buildings, hospitals and ambulatory surgery centers) and retail properties. At December 31, 2021, CBRE had $18.5 billion of development projects in process
  • (iii) Legacy Flexible-Space Solution Provider: CBRE's former flexible-office-space solutions business, CBRE Hana, LLC was integrated into Industrious National Management Company LLC in which CBRE has a 40% stake

EXPANSION IN THE GLOBAL PROJECT MANAGEMENT OFFERING

In November 2021, CBRE completed the acquisition of a 60% stake in Turner & Townsend for £960 million ($1.3 billion).

CBRE's acquisition is in part because it expects a surge in infrastructure and alternative energy investments in the years to come. According to CEO Bob Sulentic, the owners and corporate tenants of many of the properties CBRE administers and leases have prioritized actions to minimize their carbon footprints.

  • The 75-year-old Turner & Townsend is renowned for its project management responsibilities on high-profile projects like the London skyscraper known as the Shard
  • The company has clients in 46 different countries and 8,000 employees worldwide
  • With this acquisition, CBRE reinforces its project management capabilities which is one of its highest strategic priorities

“This is a very exciting step that advances CBRE’s diversification strategy across four dimensions – asset types, lines of business, clients and geographies [...]. Public and private sector infrastructure investment and the drive to a low-carbon economy are fueling secular growth opportunities in project management. Turner & Townsend is by far the best firm to help us realize our ambitions for this business. Their first-rate brand and capabilities – when combined with our own – will enable both firms to best serve clients and capture the sizeable opportunities in the marketplace.” Bob Sulentic, CBRE's president and chief executive officer.

In recent years, CBRE has increased its emphasis on assisting building owners and corporate tenants in lowering their energy emissions. Earlier this summer, CBRE announced that a SPAC it created had merged with Altus Power, a company that builds and operates solar power installations. The deal valued Altus at $1.58 billion.


REMOTE WORK AND E-COMMERCE HAVE EMERGED AS A NEW THREAT

The pandemic had a significant impact on the office and retail market worldwide. Despite the significant disruption, the market is now in a phase of recovery.

According to J.P. Morgan's 2022 commercial real estate outlook, hybrid work and e-commerce are two trends to watch into 2022:

  • Hybrid work is here to stay: Offices' future is still mostly uncertain. Employers, however, are accepting hybrid work across industries. Even tech companies, many of which were comitted to entirely virtual work, are renting offices in large U.S. cities. Due to the tight labor market, companies are also turning to hybrid work as a recruitment and retention strategy
  • The impact of the e-commerce pandemic boom: The impact of e-commerce on the retail market might be overblown as consumers still prefer to eat at physical outlets, get their hair cut, and make other in-person purchases. Although retail vacancies decreased by 20 basis points in 2021, they were still high at at 10.4%, according to Victor Calanog, Head of CRE Economics for Moody’s Analytics

Despite these two trends, CBRE saw its office and retail continue to rebound in the first quarter of 2022 from COVID-suppressed levels while multifamily and industrial maintained strong momentum.

"Commercial real estate markets also are healthy with office, retail, and multifamily fundamentals improving, and industrial fundamentals remaining strong in core markets." Emma Giamartino during the Q1 2022 earnings call.


RECESSION FEARS AND DECADES-HIGH INFLATION

The largest shopping mall owners in the U.S. claim that despite mounting concerns about a potential recession and decades-high inflation that is putting pressure on consumers' finances, retailers are still moving through with plans to establish new outlets.

  • Owners of retail real estate are optimistic despite warning signs coming from all corners of the sector
  • Companies like Walmart, Target, Best Buy, Gap, and Adidas have recently reduced their sales or profit forecasts as consumers cut down on other purchases as a result of rising oil and grocery prices

Meanwhile, some cities are seing record office-vacancy as recession fears mount and the appeal of remote work dampens demand for new space.

  • According to a research by CBRE, downtown Toronto's office vacancy rate increased to a record-high of 11.9%, or nearly half a million square feet, in the second quarter

Interest rates rise could slowdown CBRE's business in the second quarter of 2022.

  • "If interest rates rise as expected, there will be slowdown in parts of our business in the second half of the year, which will be offset by our secularly favored parts of our business." Emma Giamartino, during the Q1 2022 earnings call

THE MARKET

In 2021, based on data retrieved from Statista, the estimated value of the global commercial real estate market was approximately $33.6 trillion. The Asia-Pacific region had the largest market size and was valued at over $11 trillion, slightly higher than Europe, Middle East, and Africa (EMEA) and North America.

According to Research And Markets, the global commercial real estate market is expected to register a CAGR of more than 10% from 2022 to 2027.

  • Urbanization, commercial sector digitalization, and increased foreign investments are set to boost the commercial real estate market growth
  • The commercial real estate industry is highly fragmented and competitive, the majority of companies are strategically investing in partnerships, acquisitions, etc. to grow their businesses
  • The market segments with the largest investments include office, retail, and logistics
  • Despite the pandemic's disruption, investments will be driven by strong demand for office space, falling vacancy rates, and rising rents

EXPERIENCED MANAGEMENT

CBRE is lead by Bob Sulenic, who began his real estate career with Trammell Crow Company in 1984 where he was Chairman of the Board until the company merged with CBRE in 2006.

Bob Sulenic

  • Bob Sulentic has been President & Chief Executive Officer of CBRE since December 2012
  • Prior to becoming CEO, Mr. Sulentic served as President of CBRE, with responsibility for all business segments. In addition, he served as the company's Chief Financial Officer in 2009, during the depth of the global financial crisis. Earlier, Mr. Sulentic served as Group President for CBRE’s EMEA, Asia Pacific, and Development Services businesses
  • Mr. Sulentic holds an M.B.A. from Harvard Business School and a B.A. in Computer Science from Iowa State University

Emma Giamartino

  • Emma Giamartino is CBRE's Global Group President, Chief Financial Officer & Chief Investment Officer
  • Previously, Ms. Giamartino was CBRE’s Global Head of Corporate Development. Ms. Giamartino joined CBRE in February 2018 to lead CBRE’s M&A activities in America. Prior to joining CBRE, Ms. Giamartino served as Director of Corporate Development at Verizon where she executed M&A transactions and strategic investments across Verizon’s core businesses
  • Ms. Giamartino holds an M.B.A. from Columbia Business School and a BSc in Electrical Engineering from Duke University

Chris Kirk

  • Chris Kirk serves as CBRE’s Chief Operating Officer
  • Mr. Kirk joined CBRE with the acquisition of Trammell Crow Company in 2006. He held several senior management positions at Trammell Crow Company, including Chief Operating Officer and General Counsel, and oversaw asset management, legal/risk, human resources and corporate communications and marketing
  • Prior to joining Trammell Crow Company in 2001, Mr. Kirk was a partner in the Dallas office of Vinson & Elkins, where he was a corporate finance, securities and M&A lawyer

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. CBRE Group, Inc. is the world’s largest commercial real estate services and investment firm with $27.7 billion in revenue and $141.9 billion in AuM as of Dec. 31, 2021
  2. CBRE reports its operations through three business segments: (1) Advisory Services, (2) Global Workplace Solutions and (3) Real Estate Investments
  3. In November 2021, CBRE completed the acquisition of a 60% stake in Turner & Townsend for £960 million ($1.3 billion), a company renowned for its project management responsibilities on high-profile projects
  4. Despite the popularity of hybrid work and the e-commerce boom, CBRE saw its office and retail continue to rebound in the first quarter of 2022 from COVID-suppressed levels
  5. Interest rates rise and recession fears could slowdown CBRE's business in the second quarter of 2022 as demand could stall and financing become more expensive
  6. The global commercial real estate market is expected to register a CAGR of more than 10% from 2022 to 2027 with urbanization, commercial sector digitalization, and foreign investments as main growth drivers
  7. CBRE is led by an experienced team and headed by Bob Sulenic, President & Chief Executive Officer of CBRE since December 2012

FINANCIAL CHECK

For the first quarter of 2022, CBRE delivered a consolidated adjusted Ebitda of $732 million, up 56% year-on-year. Revenue amounted to $7.3 billion, up 23% year-on-year on the back of strong property sales growth globally and office and retail rebounding from COVID.

  • GAAP EPS was up 48% to $1.16, while core EPS grew 72% to $1.39 (GAAP EPS was $0.23 below core EPS, mostly due to the mark-to-market valuation of CBRE's noncore investments)
  • Corporate overhead grew approximately $23 million from Q1 2021, but fell $40 million compared with Q4 2021. CBRE continues to expect overall corporate overhead to decline slightly from 2021 levels for the full year
  • Advisory Services net revenue reached a first quarter record of $2.2 billion, up 32% from Q1 2021
  • Global Workplace Solutions net revenue grew over $400 million or 27% to $1.9 billion. Absent of the Turner & Townsend acquisition, net margins declined slightly from prior year, CBRE expects this margin pressure to subside toward the end of the year
  • Real Estate Investments revenue increased 34% to $284 million
  • Investment management AUM reached a record of nearly $147 billion. AUM growth was driven by $4 billion of net capital inflows and higher property valuations, which were partially offset by unfavorable FX rate
  • CBRE repurchased more than $390 million of shares in the Q1 2022. Year-to-date through May 3, CBRE had repurchased shares for a total amount of $627 million

THE BOTTOM LINE

The Good

  • CBRE, as one of the world's largest commercial real estate services and investment firm, is well positioned to benefit from the growth of the commercial real estate market
  • With the acquisition of Turner & Townsend, CBRE is transitioning from a conventional real estate company that mostly focuses on sales and leasing brokerage to one that offers investors and corporate tenants a wider range of services

The Bad

  • Rising yields and recession fears might hamper demand for commercial real estate, which is already under pressure as hybrid work is becoming increasingly popular

THE STAKE

We do not have a stake in CBRE yet. CBRE is a large commercial real estate services and investment firm, through its operations in multiple verticals of the real estate market, CBRE can generates strong returns to investors under bull and bear cycles while offering investors portfolio diversification into real estate.

  • We will start a stake if CBRE manages to preserve its top and bottom line through its diversified range of activities in the wake of higher rates and recession fears
  • We will stop considering if rates and recession fears materially impacts CBRE's financials in the second half of 2022

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Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

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