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Oh, Canada! Brokerage Empire Expands

Cushman & Wakefield extended its 12-year affiliation with Royal LePage Commercial in September by outright purchasing the dominant Canadian real estate brokerage. The deal, reported to be approximately $55 million, gives Manhattan-based Cushman added clout in core LePage markets such as Toronto and Montreal.

Bruce Mosler, CEO of Cushman & Wakefield, declined to comment on the sale price, but claims that the deal will make Cushman the dominant brokerage in North America. The 408 million sq. ft. Canadian office market represents roughly 10% of the entire North American market.

Privately held Cushman & Wakefield will inherit some plum markets through the deal. Toronto, for example, is the fourth largest central business district (CBD) in North America with 63.7 million sq. ft. of office space. The next largest by comparison is the 59.3 million sq. ft. Boston CBD. Royal LePage also holds sway in satellite cities like Vancouver, Calgary, Ottawa and Montreal.

“This is really strategic. We've been growing our international revenues over the past few years and expect that to continue in the future,” says Mosler, who adds that 33% of all Cushman & Wakefield revenues are generated in foreign markets. Mosler intends to push that figure up to 50% within the next few years.

The deal comes just seven months after Cushman's acquisition of Stiles & Riabokobylko, a leading Moscow-based real estate brokerage. It also mirrors the wider offshore movement of U.S. real estate brokerages. Manhattan-based brokerage Newmark & Co. forged an affiliate partnership with British brokerage Knight Frank the same week of the LePage trade.

Why go abroad? In a word, opportunity. The three largest publicly traded real estate brokerages — CB Richard Ellis, Jones Lang LaSalle and Trammell Crow — generated an average of 21% revenue growth in second-quarter 2005. Much of that revenue was derived from strong property sales volume, not to mention improved leasing activity through mid-year.

“The stocks have been up and these companies have had strong cash flows for a few years running,” says JMP Securities analyst William Marks. “We're at a point where these brokerages see acquisitions as a logical strategy, plus they have the capital to finance them.” Between May 2004 and mid-October, the stock of CB Richard Ellis (NYSE: CBG) has climbed from $20 to roughly $48 per share. Shares of Jones Lang LaSalle (JLL) have also followed a similar path over that period, trading around $45 per share in mid-October.

What's unclear, however, is the risk of acquiring brokerages while the market is so strong. As Marks of JMP notes, shares in the three largest public brokerages were trading at nine times EBITDA (earnings before interest, taxes, depreciation and amortization) in mid-October. While private deals are harder to gauge, Marks says that any successful brokerage fetches a good price these days.

So what's in the deal for Royal LePage Commercial, which becomes Cushman & Wakefield LePage in 2006? According to CEO Colum Bastable, the deal will enable his international clients to tap into Cushman's global network of offices. While these referrals were possible under the affiliation model, he expects a more seamless referral network once the deal is closed.

“The benefits of referral were good, but this will give our clients a uniform corporate culture throughout the world,” says Bastable. “There's a much stronger sense of shared purpose.” Under the terms of the deal, Bastable and most of the firm's senior managers will remain in place.


The acquisition of Royal LePage by Cushman &Wakefield gives the brokerage giant a strong foothold north of the border.

Firm: Royal LePage Commercial Cushman & Wakefield*
Headcount: 520 11,000
Offices/countries: 5/1 184/56
Revenues (2004) not available $1 billion
Strength: Market dominance in key Largest privately held real estate brokerage worldwide
Headquarters: Canadian cities Toronto New York City
*before merger
Source: Cushman & Wakefield

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