CB Richard Ellis likely to ask for breaks on loans
International commercial real estate services giant CB Richard Ellis Group Inc., battered by the dismal real estate market and icy credit climate, is likely to ask its bankers for a break on repaying its loans and has continued to lay off employees, the company said Wednesday.
The announcements came a day after the Los Angeles company released financial statements showing a 94% drop in profit, which fell to $6.5 million in the fourth quarter. Revenue was down 30% to $1.3 billion.
At the same time, CB Richard Ellis has a debt of $500 million coming due in the next two years and is required to maintain specific ratios of cash flow to net debt to meet its obligations to lenders.
Falling revenue may put the company in danger of breaking loan covenants, which would allow bankers to demand full payment of the loans if they wished.
As a result, CB Richard Ellis is seriously considering asking lenders to change the terms of its loans, Chief Executive Brett White said.
“It is likely we’ll seek an amendment or waiver to certain of our covenants,” he said.
Analysts expect that CB Richard Ellis will follow the lead of many other U.S. companies, including real estate brokerages Jones Lang La Salle and Grubb & Ellis, and renegotiate the terms of its business loans as revenue from sales and lease commissions continue to shrink.
“It makes sense,” said analyst Craig Silvers, president of Bricks & Mortar Capital. “Everyone else is getting waivers or renegotiating terms.”
The analysts commended the brokerage for reducing expenses and operating costs. The company said Wednesday that it had eliminated 1,500 budgeted positions from a workforce of 29,000 since last year, mostly through layoffs and attrition. That’s 400 more positions than had been eliminated as of November.
“Right now they are doing a great job of managing costs,” Silvers said. “The problem they have going forward is that you can only cut costs so far and still service clients.”
Analysts and company executives said they hoped credit markets would ease up this year and set property sales in motion again. CB Richard Ellis has a contract with the Federal Deposit Insurance Corp. and is in line to profit from sales of properties taken over by the agency.
“We expect a change in fortune in investment sales,” said analyst Will Marks of JMP Securities. “We expect markets to open up at least an inch in 2009 and distressed selling to begin.”