Bellwether HFF Reports First-Quarter Earnings Downturn

Citing continued dislocation in the capital markets, the parent company of commercial real estate capital intermediary Holliday Fenoglio Fowler LP, HFF Inc., reports a steep drop in first quarter revenue compared with the same period last year. The Pittsburgh, Pa.-based company’s first-quarter 2008 revenue of $32.2 million represented a 42% decrease from the $55.5 million in revenue over the first quarter of 2007.

HFF, which ranked No. 3 on NREI’s annual Top Lenders Survey in deals arranged in 2007, or $26.4 billion, also reported a first-quarter net loss of about $1 million, compared with net income of $3.2 million in the first quarter of 2007.

In an earnings statement, John H. Pelusi, CEO of HFF, explains, “Our first quarter results clearly reflect the turbulent and volatile conditions in the global and domestic capital markets, which have seen an unprecedented level of writeoffs by both domestic and international financial institutions, as well as a softening U.S. economic environment, especially on the consumer level.”

Pelusi said the conditions continued to erode the “already tepid investor confidence in nearly every aspect of the fixed-income debt markets resulting in further negative pressures on the repricing of debt and equity risk.”

HFF reported that as commercial real estate lending activity dropped in the first quarter — especially on the capital markets front — the company’s production volume for the first quarter was down by roughly 60% to $4 billion on 166 transactions, compared with over $10 billion on 336 transactions for the first quarter of 2007.

The company placed over $2 billion in debt financing in the first quarter, a decline of over 56% compared to the first quarter of 2007. Volume of investment sales were down as well to about $1.5 billion in the first quarter, a roughly 66% decline from the first quarter of 2007.

The company also generated an operating loss of $1.5 million for the first quarter, compared with an operating profit of $7.7 million for the 2007 first quarter. HFF attributes the decline in operating profit to a decrease in production volumes and related revenue in some of its capital markets services platforms. Expenses were also down about $11 million, as the company saved on commissions and other incentive compensation.

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