Summary
- CBRE has followed the S&P throughout the year, rebounding from its March lows in a V-shaped fashion.
- Against a 10-year real estate bull market backdrop, the company grew its business significantly.
- Management has done well to pivot to cash throughout the year and the company boasts one of the best debt profiles in the industry.
- We like the company as a capital preservation hedge and believe it to be fairly priced.
Much like the broader market, CBRE Group (CBRE) has had a rollercoaster year. Up ~124% from its March lows, the company has followed a V-shape recovery, tracking almost identically to the S&P 500 (SPX) - something it has done historically.
In this article, we'll delve into the company's three main business segments, how they've fared, and what the future holds for the world's largest commercial real estate services and investment firm (based on 2019 revenue).
This is No One-Trick Pony
Throughout its storied 114-year history, CBRE has considerably grown its business, now operating in more than 530 offices worldwide, serving clients in 100 countries, and employing over 100,000 people.
In 2018, the company announced a new organizational structure, wherein its financial results are divided among the three global business segments we'll cover below.
Advisory Services: This segment comprises a broad range of services but is mainly divided into four subsegments: Leasing Services, Capital Markets, Property and Project Management Services, and Valuation Services.
(i) Leasing consists of providing strategic advice for owners/investors and occupiers/tenants of real estate. As we'll see across the different segments, what's remarkable about CBRE is the amount of value it creates both directly and indirectly. For instance, in 2019, in leases alone the company negotiated ~$168.2 billion globally. The bulk of revenue stems from account-based occupier clients, where CBRE negotiates on behalf of their clients a portion or the entirety of their portfolio. They've established a foothold in key US metropolitan areas such as Atlanta, Chicago, Los Angeles, South Florida, and New York, among others.
(ii) Capital Markets is the property sales and mortgage services arm of the company, which often go hand in hand. Again, to get a sense of how much money CBRE moves around, 2019 saw $322.6 billion worth of these transactions, with $264.4 billion coming from property sales whereas the remaining $58 billion emanated from mortgage originations and loan sales. In the US, the company accounted for almost a fifth (17%) of investment sales transaction greater than $2.5 million across all property types.
(iii) Property and Project Management Services encompass construction management, marketing, building engineering, accounting, and financial services. While these contracts could be unilaterally terminated with notice of 30 to 90 days, most of them last for multiple years, underscoring the bang for buck clients receive. These long-term relationships also enable CBRE to cross and upsell across their client base, offering leasing, refinancing, disposition, and appraisal services.
