John Minks is no stranger to jet lag. Over the past four months, he's visited Paris, Seoul, Moscow and Mexico City from his base in New York City. That's a 34,572-mile circuit, yet it covers only a fraction of his turf as Jones Lang LaSalle's president of global client services. The firm's reach extends to 260 offices in 78 countries outside the U.S.
The Chicago-based brokerage is one of several firms exporting real estate services overseas. In the past decade, the largest American real estate brokerages and broker networks have forged interests in more than 100 countries. These empires cover plenty of ground, but they do so in vastly different ways.
Jones Lang LaSalle has embraced a corporate-owned approach with satellite offices abroad. Meanwhile, CB Richard Ellis and Cushman & Wakefield, the two top grossing U.S. brokerages in 2004, favor a combination of corporate-owned and affiliate offices. Brokerage networks such as Colliers International and TCN Worldwide adhere to a pure affiliate model in which all foreign offices operate under their individual brands but maintain strong ties to the network.
During the early 1990s, the affiliation model was roundly embraced by CBRE and Cushman & Wakefield. Both firms launched similar network campaigns in 1995 to broaden their European, Asian and Latin American footprints. That was before a wave of mergers helped each firm bulk up on global talent.
“You have to remember that this game is no longer just about dots on a map,” emphasizes Minks of Jones Lang LaSalle. “It's all about how these dots are connected and how you can service clients in Mexico City as well as you do in Chicago. When I send a client to China, that client knows exactly the level of service he is going to get.”
Therein lies the dilemma for any multinational client: choose between a loosely bound network of outposts vs. a centralized empire that answers to one office, or a combination of both. The networks claim that their method singles out the best local talent and harnesses their individual strengths, but advocates of the corporate-owned model argue that their approach ensures greater consistency across the board, from financial oversight to implementation of best practices.
To be sure, Cushman & Wakefield and CBRE, whose combined book of business includes many of the largest companies in the world, employ both methods. While there's no magic formula for success, industry veterans say that the wholly-owned model holds some clear advantages.
“Most corporate users want their service provider to have control of the relationship. It can be very difficult when you have an affiliation model that covers a panoply of different brokerages all over the world,” says Dennis Donovan, principal at real estate consulting firm Wadley-Donovan Group.
Jones Lang LaSalle has good reason to focus on its global platform — offshore growth represented the bulk of its revenues in 2004. Indeed, the company's European and Asia-Pacific markets accounted for more than half of the firm's $1.2 billion in revenue.
Many of the clients that Jones Lang LaSalle services in these foreign markets are U.S.-based giants such as Procter & Gamble and Siebel Systems.
Not to be outdone, Manhattan-based Cushman & Wakefield is ramping up its global operations. In 2004, international business accounted for 30% of Cushman & Wakefield's total revenues of $1 billion. CEO Bruce Mosler has said publicly that he wants to ratchet up that figure to 50% within the next three years.
|Jones Lang LaSalle||Cushman & Wakefield||CB Richard Ellis||Colliers International|
|Number of Foreign Offices||260||169||170||247|
|Number of Countries||78||46||50||50|
|2004 Revenues||$1.2 billion||$1 billion||$2.4 billion||$1 billion|
|Offshore Revenues||$672 million||$300 million||$734 million||$440 million|
“We believe that the wholly-owned model is clearly better, and that's what we sell,” declares Minks. “It's our responsibility to ensure that standards are being met on a global scale.”
The globe-trotting executive insists that there is no other way to keep these outposts accountable. Minks acknowledges, however, that the Jones Lang LaSalle model requires more money, training and management acumen than an affiliate office.
“The upside is we own these offices, we know the people and they've all signed a code of ethics statement,” he says.
A centralized management structure is a huge selling point to a multinational firm like the Whirlpool Corp. The Benton Harbor, Mich.-based appliance manufacturer controls 50 million sq. ft. of global industrial and office space. Roughly 25 million sq. ft. of Whirlpool Corp.'s real estate portfolio is located outside the U.S. Most of its offshore operations are in Latin America and Asia. Carl Nedderman, director of corporate real estate at Whirlpool, signed 125 leases globally last year.
Two years ago, Nedderman hired Jones Lang LaSalle to coordinate both construction and facilities management for the entire Whirlpool portfolio. “Jones Lang LaSalle's biggest selling point was that it was global,” recalls Nedderman. When asked why Whirlpool didn't tap into a global brokerage network instead, Nedderman indicated that consistency of service was a key issue. “Real estate transactions, both large and small, require a lot of attention. The problem with affiliates is that you just don't get as consistent a service from them and there's often a conflict of interest,” he says.
What type of conflict? According to Nedderman, an affiliate is more likely to do what's in the best interest of the firm rather than the network. “Unless there's a really big payout for that broker, you can't assume they're looking out for you in a foreign market. Broker networks decrease in value to firms doing business globally.”
As recent as 2001, Whirlpool was still using the services of Colliers in Asia because of Colliers' strong track record in that market. But two years later, Whirlpool consolidated its real estate service providers and opted to go with Jones Lang LaSalle. “I only dropped Colliers when our activity level went down in that region, and I could get more clout by consolidating my business with one vendor,” Nedderman says.
An internal restructuring at Whirlpool also led Nedderman to choose one service provider. Between 1997 and 2005, Nedderman's real estate staff dwindled from 15 employees to five. Now, each staff member oversees roughly 10 million sq. ft., or the equivalent of five Empire State Buildings.
“For this reason, I need people representing us on the ground that I can trust. I also have more clout with Jones Lang LaSalle because all of my business is with them,” says Nedderman.
But no one expects the affiliate model to fade away anytime soon. Both CBRE and Cushman & Wakefield use it on a limited basis. Boston-based Colliers, the third-highest grossing brokerage in NREI's 2005 Top Brokerage Survey, uses only the affiliate model. “We find the best firms and choose to work with them exclusively,” says Margaret Wigglesworth, president and CEO of Colliers.
These offices are not partnerships in the strictest sense of the term, though affiliates do enter into a stockholders' agreement with Colliers. She believes that agreement helps keep each party's interests aligned. And that, she claims, is how Colliers provides accountability between offices. “It offers us some central authority.”
As of mid-March, Colliers International is affiliated with 247 offices located outside the U.S. and scattered throughout 50 countries. In 2004, Colliers posted roughly $1 billion in revenues. Roughly half of that amount, or $440 million, was generated outside the U.S. “The bottom line is that all real estate, like politics, is local. We enjoy a long-standing relationship with the blue-blood local firm in these markets. We call it local depth and global breadth,” says Wigglesworth.
TCN Worldwide, another brokerage network, has offices in 56 foreign countries. Similar to Colliers, Dallas-based TCN manages a global empire of affiliate offices in places like Shanghai and Europe. Rather than pay out a percentage of their gross fees, affiliates pay TCN on a sliding scale, depending on the size of their market and other factors.
President and CEO Ross Ford says that the TCN model identifies the best-in-class brokerages worldwide and then signs them on as partners. “These local firms are already profitable enterprises before we even go into these markets,” says Ford.
In 2003, for example, TCN researched the largest Asian market by meeting with several existing brokerages on the Chinese mainland. After a nine-month search process, TCN settled on Beijing real estate brokerage Beijing Asia Property, which had “excellent financials,” Ford says.
A cornerstone of the TCN model is the assumption that local real estate firms are equipped to do the best job. That drives TCN's bottom line, but what's in it for the local brokerage? “This allows it to compete with the biggest firms on a global basis through the TCN network,” Ford responds. TCN offices generate more entrepreneurial drive than corporate-owned outposts in foreign markets, Ford believes.
“Our view is that these firms aren't giving up their identities. That's what makes them successful, and we just establish partnerships with the strongest players,” he says. If accountability is a concern, Ross says that every TCN affiliate has a designated “relationship manager” whose job is to troubleshoot each firm's book of business.
The TCN model also enables a potentially disgruntled client to call the owner of each firm directly rather than seek out the CEO of a global corporation located thousands of miles away, says Ford. One additional benefit of the network platform in general, adds Wigglesworth of Colliers, is that “we don't have to close an office if the local market experiences a downturn.”
One way that a network like Colliers can win business from the likes of Jones Lang LaSalle is to simply have a presence in markets where its competitors haven't yet set up shop. For example, software maker Siebel Systems, a client of Jones Lang LaSalle, hired Colliers to handle office leasing in Dubai. The reason? Jones Lang LaSalle doesn't have an office in Dubai.
That's a clear victory for Colliers, but in general the affiliate brokerage model raises some concerns, says Linda Jansen, vice president of facilities and real estate at Siebel Systems. “The reason that brokerage partnerships don't cook as well is that the compensation issue is different,” she says. Jansen is concerned that an affiliate broker just isn't as motivated to service a client as well as a broker who hails directly from the firm. “Brokerages are complicated resources to begin with, so you don't want to be managing a bunch of these relationships,” she says.
Still, Jansen admits that Jones Lang LaSalle isn't perfect. “They have some really weak offices, and we don't work with them in places like Zurich, Melbourne [Australia] and Austin [Texas],” she says.
A half-and-half approach
CBRE, the Los Angeles-based brokerage behemoth, has adopted a mixed-bag approach to expansion. Thus, 81 of CBRE's 170 non-U.S. offices are affiliates, while the other half are wholly-owned by the parent company.
Michael Strong, chairman of the EMEA Division (Europe, Middle East, Africa), says that CBRE chooses to affiliate in the smaller European markets where a huge volume of deals isn't at stake. “We have wholly-owned offices in all of the principal economies of Europe. Our policy is to own, unless it's a very small market.”
CBRE has affiliate offices in southern France and Spain, for example. Even though the volume of business generated by these offices is small, Strong says that CBRE constantly monitors the affiliate offices.
Unlike Jones Lang LaSalle, CBRE relies on an affiliate office in Moscow. Eastern and Central Europe remain emerging markets for CBRE, but Strong would not offer a timetable on when, or if, the Moscow affiliation would be elevated to a wholly-owned office in the future.
Staying close to home
Not every brokerage is intrigued by global expansion. Marcus & Millichap, based in Encino, Calif., is content to focus solely on domestic deals. President and CEO Harvey Green says that it's hard enough just running a national operation, let alone a global empire. “There are so many differences in the U.S. by region. It can be very difficult to ensure that each office is delivering the same level of service.”
For that reason, says Green, his firm is determined to build a national delivery system that can service clients in virtually every U.S market. Although Marcus & Millichap isn't in every state yet, it does have 44 offices in the continental U.S., including one that recently opened in Hawaii.
So, what is the next frontier for Marcus & Millichap? “Secondary and tertiary markets,” says Green. “If we can move clients' capital from a market where assets are trading at a 6% cap into a market where they're trading at a 9% cap, the fee they pay us is an investment that will definitely generate a return,” he says.
Green adds that it's possible that Marcus & Millichap will eventually pursue markets outside of the U.S., but not anytime soon.
Clearly there is no one-size-fits-all model, but sources say that going forward issues of control, trust, and ease of communication will take center stage. “The real advantage to using one global brokerage is that there's only one relationship to manage,” says Barbara Hampton, vice president of knowledge management at CoreNet Global, an organization forcorporate real estate executives.
The global brokerage model boils down to financial control, she says. If a client is relying on a dozen separate service providers in as many foreign cities, some links will be weaker than others. What's more, says Hampton, this arrangement leaves it up to the client to police each office independently.
“There's really no substitute for financial control,” she says. “At the end of the day, you can go to upper management and find someone to help you.”