Real estate services companies on buying spree

By Ilaina Jonas

NEW YORK (Reuters) - Real estate services companies are buying each other even as the global credit crisis slows merger and acquisition activity in other sectors of the U.S economy.

The firms, which help global companies locate, own, rent, buy and manage their real estate properties, also manage funds for investors in commercial real estate.

Unlike other sectors, they have been able to keep up M&A activity because of the nature of their business, the compensation structure of the industry and the credit crunch, which has greased the acquisition wheels.

Jones Lang LaSalle Inc (JLL.N) closed on a $613 million deal on Friday for tenant representation firm The Staubach Co., founded by football legend Roger Staubach and, in a smaller deal, bought green technology company ECD Energy and Environment Canada on July 7.

So far this year, Jones Lang has acquired 11 companies, mostly outside the United States, versus 13 for all of 2007. Industry leader CB Richard Ellis Group Inc (CBG.N) has acquired 12, compared with 14 in all of last year. Privately held Cushman & Wakefield has snatched up five, compared with eight last year.

The sector remains highly fragmented with the top four players accounting for just about 21 percent of the industry, as of the end of the second quarter.

"What you're seeing is occurring because of the fragmentation of the industry, and also, fundamentally, clients are demanding a global platform with robust services," Bruce Mosler, Cushman & Wakefield's chief executive, said.

Cushman & Wakefield is intent on beefing up its investment management business, which currently has $10 billion in assets under management.

Sales of U.S. commercial real estate are off about 80 percent from last year. Brokerage fees have evaporated. So real estate services companies have been feeling pressured to diversify.

While their clients grew and expanded around the world, the U.S. real estate services sector consolidated, enabling the larger service providers to follow their customers. The sector is being divided into those with global capabilities and niche specialists.

"Everyone else, I believe, will end up going by the wayside," CB Richard Ellis CEO Brett White said. "Our view is, when opportunities come along we need to be able to pursue them, almost without regard to market cycles or the conditions of the macro business at that time."

Except for Jones Lang's Staubach acquisition, most purchases this year have been midsized deals under $100 million, and have added a strategic location or capability to a real estate services company's offerings.

Cushman & Wakefield bought P&D Real Estate, of Turkey, to expand across Europe. CB Richard Ellis' bought Toronto-based Tempest Management for its expertise in project management services to corporations and governments in Canada.

The ECD acquisition enables Jones Lang LaSalle to help customers manage all their real estate in a more energy efficient manner and analyze the costs and returns of doing so.

"In a challenging market such as this, clients need more advice more often than ever," Cushman & Wakefield's Mosler said. "A company that has a diverse set of expertise can, in this particular marketplace, be more helpful to their clients."