Investigating ownership

The wave of potential foreclosures and workouts concerns Studley executives, too, particularly because the fallout could affect tenants they represent. The company recently hired a former Lehman Brothers investment banker to assess the complex mix of senior debt, mezzanine financing and other subordinated debt that frequently underlie office properties that Studley's clients occupy or could occupy.

The goal: to identify potential problems with a building's ownership that could create unease and uncertainty among tenants, Colacino says. For example, the company wants to determine which capital providers would have a claim to a building with a complicated financial structure to ensure that obligations such as tenant improvement dollars are met. That's particularly true if lenders force an ownership change between the time a tenant signs a lease and when it moves into the space.

Landlords may also be bleeding capital reserves to pay the mortgage, he adds, which could delay the replacement or repair of critical building infrastructure. Ultimately, that could disrupt a tenant's everyday operations.

"The capital structure complexities on some buildings will take years to unwind, so we're doing a much greater level of financial and organizational due diligence," Colacino says. "That was something we never would have thought about 10 years ago."

Traveling back in time

For some real estate providers, focusing more on property management and consulting represents a return to the past. Newport Beach, Calif.-based Voit Commercial Brokerage is rebranding itself as Voit Real Estate Services and will offer brokerage, property management, and other services for banks, financial institutions and landlords.

The firm, which is part of Voit Cos., offered property management services years ago but sold the business in 1999. Like other service providers, Voit Real Estate will concentrate on troubled assets and loans.

"We're going to provide a single point of service for properties and portfolios," says John Pierce, a managing partner with Voit Real Estate. "We're going to see a landslide of workout deals."

Princeton, N.J.-based NAI Global, meanwhile, is establishing an auction business to help distressed owners and lenders find buyers for their properties or loans, says CEO Jeffrey Finn. Coined Commercial Property PowerSale, the service will give sellers the choice of sealed bids or live auctions, or a combination of both.

Finn says the process marries the Resolution Trust Corp. of the 1990s with the online marketing technology of today to elicit interest from as many buyers as possible. The firm also will help some sellers wring out extra value from the properties before going to auction by trying to improve occupancy, reposition assets or operate them more efficiently.

"This is a mechanism to create a market and find a balance between buyers and sellers," Finn says.

Harsh market

Moves among brokerages to concentrate greater efforts on asset management and other fee services won't entirely make up for the plunge in leasing and investment sale revenues.

CB Richard Ellis, for example, reported that revenues from investment sales totaled $869.7 million in 2008, a decline of 48% from 2007, according to the company's year-end earnings report.

Those revenues won't improve much anytime soon. Only $5.7 billion in properties traded hands during the first two months of this year, according to Real Capital Analytics. That represents a decline of 83% from the same period last year.

What's more, property management and other fee-based businesses typically provide lower profit margins than commission-based services, noted Brandon Dobell, an analyst with William Blair & Co., in a February research report.

Still, the push to build up fee businesses is bearing fruit. CB Richard Ellis generated $1.7 billion in revenue from property management last year, a 23% increase over 2007. The company reported that it added 33 new corporate clients and expanded services for 32 existing clients in 2008.

During the fourth-quarter earnings conference for CB Richard Ellis in February, CEO Brett White told analysts he expected the property management business to keep growing as more landlords and corporations try to cut costs.

"Outsourcing is a business that we believe will continue to provide a great cushion in this difficult environment," White remarked. "We think that the business is going to be an ever-larger percentage of the overall revenue and profit of the firm."

Joe Gose is a Kansas City-based writer.

BIG DEALS SLOW DOWN

Despite a falloff in investment sales, some brokers have handled large transactions. Through mid-March, buyers still showed interest in New York, Washington, D.C., and Bridgewater, N.J.

Property Name	City	Sq. ft.	Price	Seller's Agent
Sotheby HQ	New York	493,000	$370 million	Jones Lang LaSalle
Bertelsmann Building	New York	906,287	$356 million	Eastdil Secured
Techworld	Washington	757,904	$265 million	HFF
Sanofi-Aventis HQ	Bridgewater	669,703	$230 million	Cushman & Wakefield
New York Times HQ	New York	750,000	$225 million	Cushman & Wakefield
Source: Real Capital Analytics