CB Richard Ellis to Buy Insignia
Los Angeles-based CB Richard Ellis, the nation’s largest commercial real estate brokerage, agreed Tuesday to buy New York rival Insignia Financial Group for about $415 million in cash, as the industry continues to struggle with a glut of office space and a dearth of lease transactions.
The deal, which is expected to close in June, would give CB Richard Ellis the substantial presence in New York it has sought for years. But it also would create considerable overlap in several markets, including Southern California, that could lead to job cuts.
What’s more, it would combine corporate cultures that may conflict. Insignia is known as an aggressive, street-smart shop that pursues the biggest deals and represents many large tenants. CB Richard Ellis has a more stodgy reputation as a landlords’ broker that handles property listings of all sizes.
“Insignia is the perfect, hand-in-glove complement for our global platform,” Ray Wirta, chief executive of CB Richard Ellis, said in a statement. Executives at both companies declined to comment beyond a news release.
In Southern California, privately held CB has more than 800 employees in 17 offices; Insignia has 500 workers in eight offices in the Southland, mostly in the same areas as CB’s.
Combined, the companies would boast annual revenue of more than $1.8 billion, generate $90 billion in annual property sales and leasing transactions and have 16,000 employees in 47 countries.
The firms would keep the CB Richard Ellis name, as well as its Los Angeles headquarters, and be headed by Wirta.
Insignia Chairman and Chief Executive Andrew Farkas would stay on the job through the close of the sale this summer. Stephen Siegel, chairman of Insignia’s U.S. property brokerage operation, would become CB’s global brokerage chairman.
The prevailing notion in the real estate industry -- and a factor behind the Insignia acquisition -- is that the largest brokerages benefit by getting business worldwide from multinational corporations that prefer to work with one firm.
But Joe Faulkner, managing director of competing brokerage Grubb & Ellis’ Los Angeles office, disagrees. “Usually it’s balkanized” by region, said Faulkner, who founded a brokerage and ran it for 10 years until it was acquired in 1992. “Nobody really hires you as a one-stop shop.”
Insignia is feeling the effects of the commercial real estate slump. Through the first three quarters of 2002, its revenue was down 13.6%, to $525.2 million, compared with the same period of 2000, when the real estate market peaked.
In the last couple of years, the industry has suffered from contractions in the economy that have prompted many companies to scale back their demand for office space. Vacancy rates continue to increase, said Howard Sadowsky, vice chairman of brokerage Julien J. Studley Inc., while rents at most office buildings continue to fall.
“We thought in the first or second quarter of 2003 things would improve,” Sadowsky said, “but it hasn’t and probably won’t for a considerable amount of time.”
Business owners who are uncertain about the economy and the possible effects of world events, such as a war with Iraq, are reluctant to make commitments, he said, so the number of leases being signed has dropped substantially.
CB would pay $11 for each Insignia share, 31% more than Insignia’s Feb. 6 closing price, a day before the company announced that it was in talks with CB. Insignia shares rose 22 cents Tuesday to $10.85 on the New York Stock Exchange.
To help pay for the acquisition, CB is set to receive a cash contribution of as much as $145 million from its biggest investor, Blum Capital Partners, headed by San Francisco’s Richard Blum.
Blum, who is married to U.S. Sen. Dianne Feinstein (D-Calif.), gained a controlling interest in CB in July 2001.