Japan's third-largest real estate company and the U.S. subsidiary of its second-largest builderare among the investors who bought Coldwell Banker Commercial Real Estate Group last week, a signal that Japanese investors may no longer be content to merely buy U.S. office buildings or finance them.
Kajima Construction Co. and Sumitomo Realty & Development Co. have joined several other U.S. and foreign investors to buy the brokerage firm from Sears, Roebuck & Co. for about $300 million, according to a newsletter that Coldwell Banker distributed to employees last Wednesday.
Coldwell Banker's management disclosed the names of only a handful of U.S. investors when it announced the sale last Monday, leading to speculation that it was trying to downplay the involvement of foreign investors in the deal.
Details on Offer
Disclosure of Sumitomo's and Kajima's investment in the company came as Coldwell Banker's top management jetted around the country last week, meeting with employees to give them more details about the deal and offering assurances that the sale doesn't jeopardize the jobs of the brokerage's 5,000 employees.
However, some analysts said that because the buyers were taking on a substantial debt the transaction could force Coldwell Banker to consolidate more of its 99 offices and lay off some workers to bolster its cash flow and pay off the loan.
The company already has consolidated some of its offices in Florida and Texas over the past year to cut costs. And although Coldwell Banker's Southland operations are faring well, many of its other offices are believed to be losing money.
"Under-performing brokers and under-performing offices can't be kept very long, and the debt Coldwell Banker has just taken on might make management move faster toward closing offices and letting people go," said Scott Muldavin, senior real estate economist for the Roulac Real Estate Consulting Group of accountants Deloitte Haskins & Sells.
Experts said last week's sale marks the first time that Japanese interests have purchased part of a national commercial brokerage firm and provides further evidence that Japanese interests are no longer content to merely acquire U.S. buildings.
"Until recently, most of the Japanese's involvement in U.S. real estate involved buying buildings or loaning money on them," said Stan Ross, co-managing partner of consultants Kenneth Leventhal & Co.
"Now, we're starting to see them extend into other segments of the real estate business--leasing, developing and the like."
The Japanese companies involved in the purchase of Coldwell Banker "have gotten a leg up on their competition," Ross said, because commercial brokers are among the first to know when buildings or buildable land are about to go up for sale.
Under terms of the deal, Coldwell Banker's 4,990 employees will be allowed to participate in ownership of the company and could end up holding as much as 50% of its private stock.
The Los Angeles-based company's 49-year-old chairman, James J. Didion, played a key role in putting the deal together and will remain in his post.
Outside investors will own the rest of the company. They include the Carlyle Group, a Washington-based merchant banking company; members of the wealthy Mellon family of Pittsburgh, and other U.S. and foreign investors who have not been disclosed.
Financing for the deal is being put together by Bankers Trust Co. and Sumitomo Bank, which is linked to Sumitomo Realty & Trust.
Analysts, and even some of Coldwell Bankers competitors, say the company will be better off on its own. Some of Coldwell Banker's managers have privately complained that Sears "ignored" their company to concentrate on retailing and other businesses, and Didion himself said last week that he was "excited by the opportunity of being independent again."
The involvement of Sumitomo Realty, Kajima and other foreign companies is expected to bolster Coldwell Banker's efforts to snare more business from the Japanese, who have been stepping up their investment activities in Los Angeles and many other cities.
Those companies' efforts to get into other segments of the real estate business, such as development, could also help Coldwell Banker diversify beyond its prime business of representing commercial landlords.
For now, observers said, the biggest challenge facing Coldwell Banker's management team is to keep top producers from defecting to competing brokerage firms.
"Management has to immediately let people know what the plans are, and assure that they'll remain in control," said John G. Russell, president of the western region of Grubb & Ellis, parent of one of Coldwell Banker's biggest competitors. "When people don't know what's going on, they become unsteady."
Competitors say that at least a dozen Coldwell Banker brokers have joined other companies since Sears announced plans to sell its commercial brokerage firm last October.
Particularly painful was the departure of brokers Jerry Hess and John McRoskey, two top Coldwell Banker brokers who recently defected to Cushman Realty's West Los Angeles office.
Hess alone was responsible for leasing seven of the 11 high-rises in Century City and has sold many of the Westside's most prominent buildings, including the Century City Shopping Center and the sprawling ABC Entertainment Center--transactions that pumped millions of dollars into Coldwell Banker's coffers.
"They are losing the wrong kind of people," Cushman Realty President John C. Cushman said last week. "I assume my company is indicative of their problem."
Although the involvement of Japanese companies could boost Coldwell Banker's efforts to get more business from foreigners, that may also scare away many other investors, said J. D. Haskell, president of commercial broker the Seeley Co.
"I'm not so sure that aligning yourself with a certain bank (Sumitomo) is a great idea--it might turn off a lot more Japanese and American investors than it will attract," he said.