Effective today, Ray Wirta is CEO of a bolstered real estate services juggernaut as the official merger between CB Richard Ellis and Insignia/ESG was formalized this morning. This will elevate CBRE into the top ranks of the New York City real estate services universe, while strengthening its already-strong hold on several key markets. The new entity will boast 14,000 employees and revenues of more than $1.7 billion. It will also alter the brokerage arena in several key markets.
For Wirta, who is based in CBRE’s Los Angeles headquarters, the merger is clearly a strategic victory. In his first media interview following the merger, Wirta spoke with NREI inside what was, only hours ago, Insignia’s spacious MetLife Building offices.
In the New York City market, Wirta said the deal is a quantum leap for CBRE, which tried fruitlessly for years to penetrate a market dominated by Insignia.
Last summer, CBRE began poaching high-level brokers like Mary Anne Tighe and Darcy Stacom from rival firms Insignia and Cushman & Wakefield, but that strategy wasn’t in the end enough to secure the New York market.
Asked if the deal hinged on beefing up its New York City market presence, Wirta says that CBRE "wouldn’t have driven as hard on the deal" if New York City weren’t part of the deal. The merger will catapult CBRE into the No. 1 position in New York, along with Boston, Washington, D.C. and Los Angeles, according to Wirta. CBRE’s European operations will be strengthened in London and Paris, he adds.
"We were already No. 1 in many markets, so the merger will just allow us to spend more money on technology and training," he says. As big as CBRE was — and now is — Wirta said that it still only represents 3% of the global real estate services business. If you take the top five or six firms collectively, says Wirta, that percentage is only 6% to 7% of the global share. "I think there’s a long road ahead in terms of industry consolidation," he said.
When asked why CB Richard Ellis bought Insignia, Wirta responded that "size brings us a competitive advantage." He also said that Insignia and CBRE are "complementary" operations.
In terms of integration risk, Wirta downplayed the potential for even more Insignia broker defections. He did admit that since the merger was announced, Insignia has lost some large management assignments — in fact one of them, says Wirta, was a 24 million sq. ft. portfolio. Insignia’s first-quarter 10-Q filing refers to this portfolio, whose owner chose to self-manage the property based on the looming merger. But losses such as these were anticipated by the architects of the deal, he says, and built into the equation in advance.
"We’ve had months to prepare for this merger, so the integration has been underway for a while now. But the integration brings with it a long period of uncertainty," he says. Wirta was vague on whether or not that period has ended yet, though he did say that "everyone knows what will happen" despite the apparent uncertainty surrounding the integration. When pressed on this point, he said that the biggest integration risk will likely be communication between employees who are uncertain about their new roles.
"This is a little like a time out during a game," explains Wirta. "You see the coach with some chalk diagramming a play and you think: How could there be a new play out there? Turns out there isn’t, which means it’s all about execution. And that’s why certain teams continue to win, which is what real estate is all about." As coach of this new team, Wirta’s abilities to execute plays and ensure that teammates work well together will be tested.
But one leasing broker, who is a competitor of the new CBRE powerhouse, isn’t too wooried about him faltering. "Wirta is, first and foremost, an incredible dealmaker. That’s what he’s good at, and this merger is just another example of it," says the Manhattan leasing broker, who asked not to be named.
For more industry reactions to the merger, please see story "On the Merger, Off the Record."