Suddenly tenant representation firms are the next big thing. Now that Chicago-based Jones Lang LaSalle (JLL) has formalized its purchase of Dallas-based The Staubach Co. for $613 million, the few remaining independent tenant representation firms are scrambling to reshape the niche industry. The merger capped weeks of intense speculation.
With the Staubach purchase, JLL substantially beefs up its tenant rep business overnight. The combined firm will operate under the JLL brand, which means the end of a 31-year era for founder and former pro football quarterback Roger Staubach, a legendary figure in Dallas.
But don't cry for Roger. Under terms of the deal, Jones Lang LaSalle is putting up $123 million in cash, $100 million in stock at the transaction close and the balance in cash over five years for all of the outstanding capital stock of Staubach Holdings Inc.
Life in the commercial real estate services arena post merger is expected to be anything but tranquil. Many industry pros predict that brokers on both sides of the deal will jump ship, and several tenant rep firms are waiting in the wings in eager anticipation of the talent grab.
“I don't think the sale is any reflection on the tenant rep model. It was an opportunity to sell,” says Bill Goade, CEO of Boston-based Cresa Partners, a tenant rep firm with 700 employees in 45 offices spread across 40 major markets. “I'd be fairly surprised if there wasn't some significant repercussion in terms of talent that might look at other opportunities, primarily from Staubach, but also in several local markets where Staubach would dominate the JLL people. Some of the JLL people might be looking. We look at it as a great recruiting opportunity for us,” adds Goade.
One industry source predicts that New York-based Studley, another leading independent tenant rep firm, is putting itself up for sale. One potential suitor is British-based DTZ, which was Staubach's global partner prior to the merger with Jones Lang LaSalle.
Certainly any independent firms will have to battle a new industry behemoth. After the Staubach merger closes in the third quarter, JLL will have 33,700 employees around the world and 11,500 in the Americas with the addition of more than 1,000 Staubach employees. The transaction also will add 14 new corporate offices to JLL's 54 in the Americas, bringing the total corporate offices in the Americas to 68 and globally to 184.
Post merger, tenant rep represents 16% of Jones Lang LaSalle's revenues, which could help balance out slower areas of the business. “The tenant representation product provides a cyclical resiliency as existing leases have a contractual life, and that contractual life leads to new transaction opportunities,” notes COO Lauralee Martin.
Still, Goade vows to go it alone, predicting Cresa Partners will grow its transaction volume by 50% to $250 million by 2012. “That is easily achievable, and it will come not by opening new offices but by growing some offices that are too small in the bigger markets. The opportunity we may have with Staubach and JLL people right now to help us in those markets is important to us, and we are moving quickly.”
THE GROWING JLL EMPIRE
2007 Revenues: $2.7 billion
Number of employees: 33,700
Number of offices: 184
Stock price (June 25): $63
52-week high: $124.99 (07/16/07)
52-week low: $56.68 (01/22/08)
Sources: Company reports, stock tables