CB Richard Ellis Group, Inc. (NYSE:CBG)
Business Review Day Conference Call
November 16, 2011 9:00 am ET
Gil Borok – Executive Vice President and Chief Financial Officer
Raymond Torto – Global Chief Economist
Matt Khourie – President
Michael J. Strong – President, Europe, Middle East and Africa (EMEA)
Michael J. Lafitte – President, Americas
William F. Concannon – Member, Global Executive Board
Mary Ann Tighe – Chief Executive Officer, New York Tri-State Region
Robert Blain – Chairman, President and Chief Executive Officer, Asia Pacific
Asieh Mansour – Head of Americas Research
[Call Starts Abruptly] It’s been real late, I suppose. But we apologize for that, we had a great video that we are using in marketing and other presentations, we thought it would be nice for you to see it. I think the jest of it was, we’re busy, we’re moving fast. And I know we’re too fast, but we’re moving fast. And I think most of you who are here know about us; and that was what we were attempting to do. So if you exclude the technical gap, we’ll move on.
Good morning for those of you who don’t know me, I’m Gil Borok, CFO of CBRE; not CB Richard Ellis anymore, but CBRE. I'm going to give a brief financial overview, wouldn’t be a business review, I can do that.
So you’re going to have to sit through me in order to get through the more interesting speakers, and we do have a great line up, you can see the agenda; like the new speakers we have some speakers that we are, have been with us for a couple of two years particularly from both Europe and Asia as well as Mike Strong and Rob Blain are both here.
So we’ve got a very interesting line up, and we have the – myself and Rich and others have the pleasure of sitting through it yesterday, and I think you will find it very captivating and interesting, and you will have insights today that as you know, you don’t normally get to us here and don’t certainly have access to all of these folks who are kindly with us today. So with that I’ll get started.
You know the forward-looking statements, and I won’t go through those. But just starting with our global market leaders slide, and I’ll just pick highlights. I think you can see, we’re putting green that we are number one in commercial real estate investment management, that’s pro forma for 9/30.
Obviously, with the acquisition of the ING REIM business, that has now put us in the number one position in that line of business, we were number one in all of the other lines of business prior to the ING REIM acquisition. And so we are highlighting that for you, because it’s an accomplishment of 20 plus year objective of the firm. And so you will see a lot more about that from Matt Khourie later this morning. But that’s the reason we wanted to highlight this slide as the standard investor slide that many of you are aware of, and we are proud to now call us number one. We have a footnote that says pro forma 9/30 in our footnote.
We are two times our nearest global competitor, public competitor but lower in terms of revenue. And in this business, many of you know that size matters and you would see a lot about size and scale and specialization during presentation.
This is again a slide many of you have seen, but our vision, which is coming to fruition and we continue to work with, it always continues the improvement in CBRE. But to be the preeminent vertically integrated globally capable commercial real estate services firm.
So definitely, to do all things real estate for owners and occupiers as represented by the wheel and our objective is to be in every major world city, leading position in every world city. In the services we provide, having the best people, we’re training them, which is what you’d expect the service business to do, protect our brand fiercely and capitalize on it, maintain integrity at all times, and last but not least, maintain industry leading margins.
That slide is core to that, what we do, we talk to a lot of you about that in terms of managing costs relative to revenue, and maybe at least sometimes we do better at it, sometimes not as good. But the overarching desire and the overarching culture is such that we manage our costs relative to revenue movement, and not the other way around, we don’t spend before the costs come in, and when we do, we certainly try to manage and pull back as you see and realize this year in the second and third quarters in particular.
Diverse client base as you know, 40% plus corporations, insurance companies next and pension funds and I pointed out; last I believe government was 3%, now 5%. That has at least impart to be with economy, but impart to do with our expanding business in government in the GCS or corporate outsourcing business. You will hear a little bit about that from Bill Concannon in a little bit, the best one, sort of slides that I would point out and let you know that it is and continues to grow.
As you know, we’re geographically diversified, some people look at and said, we’re 60% in the market. That’s not a good thing. Well, it kind of is when 60% of the business more or less is in the Americas and the maturity of the Americas market, particularly the U.S. in a lot of our service lines is more mature than it would be in Europe and Asia. But we got very big and growing businesses there in EMEA, almost 20% of our revenue is now in Asia-Pacific 15%. So we like the pie and it doesn’t mean it won’t change; and many of you’ve heard this before, it doesn’t mean it won’t change overtime, but right not we feel it’s the correct size.
Here is service slide, you can see the slide but we did that over trailing 12; 9/30. A few things to point out on a trailing 12 basis as of 9/30, the Property & Facilities Management business and the Leasing business were about the same size in terms of the pie up to 33%, 34%.
Sales was only 16%, many people worry about possible service data in the economy and so forth that might have a significant impact from a slow down in capital markets. We’ve seen that in Europe – for both, the reality is that’s only 16% of our revenue on a trailing 12 basis. When you saw what you saw in 2008, that number was significantly bigger, of course it’s a 30% or 35%. And so of course the impact on our company at that time was significantly more than it could be relatively more of a slowdown now.
So I think that’s an important point, and of course that will be at service lines showing there, get quite a bit smaller assets sales. Revenue diversification we make this point, we continue to look to moving our business more towards contractual avenues, the ING REIM acquisition for some of that goal were close to 50% contractual, non-contractual as defined. In this case sales recent mortgage brokerage are considered non-contractual, the other business is contractual, though I will admit there are pieces of those other businesses that are not contractual, but by and large contractual. So just for purposes of depicting the factors, there is a lot of change since I said, prior to the Trammell Crow acquisitions to today where we’ve moved much more toward contractual revenues and all of the things that come with that and the benefits that come with stable revenue sources.
Just a word on our competitors, we don’t comment much on our competitors. We’re trying not to, but it’s hard not to put a slide like this up, where as I said it still matters, and you can see that we are the largest by long short, not only the largest, but look at our margins 7.8%, as the video try to save check in terms of industry leading margins so far so good, we've seen that over time.
Interestingly, if you look at C&W and you look at Grubb & Ellis and the only thing I’ll say it is, they’ve been losing money in an up market so I wont say more than that other than state that fact and you can see that several of these are there in the UK market, which is somewhat of a fragmented market perhaps more so than the U.S. have that middle tier firm level have shown positive, financial positive features than just a little bit and for smaller firm have shown positive results through I think is [clearly] on the slide.
This chart many of you have seen, we’re hovering a 13% margin rounding up on a trailing 12 basis as of ’09, 13.3% margin in 2010. The point I make here is that the margin trailing ‘12 in 2010 is looking kind of between ‘04 and ’05 with a very different business model. With a business model today that significantly move way to contractual outsourcing revenues where the margins are lower. I think everybody acknowledges that.
And so, I would content that in order to achieve the margins that we are achieving at this point in the cycle, if you kind of look at ’04, ’05 and say, well that’s mainly where we are depending on who you are at, but clearly on a long-term up cycle as we are at early stages of, we’re doing pretty good on the margin lines, we still do have the aspirational goal of 20% and that’s got to come later in the cycle when the transaction businesses are significantly bigger part of the pie, when we would have presumably carried interest revenue falling to the bottom line with expense taken in the earlier years, because that’s how we have the accounts for that business. But you see over the long term with respect to the cost point, revenues have risen 16%; and we’ve seen EBITDA growth of 22% indicating the operating leverage inherent.
Here is the amortization schedule in terms of our debt, we now have the C and the D debt which was used to fund the ING REIM acquisition as well as term loan A one that closed after the quarter closed November, the trends that was $250 million effort that turned into, $300 million effort turned down our banking partners if they were kind enough to get us an additional $50 million we took it and think as a good way and we will have it there for future use, I know that way for us to make capital before we need it, but we have gotten smarter and have the right to get smarter and we have some good people thinking about these things, and you will see us we do it but right now it’s more specific purpose.
This is just the cap our pro forma there on the left side, pro forma as of 9/30 so we can see that the A1 is in there at close to $300 million there is no little bit of fees that’s the trend from 9/30 the big change from 9/30 different cash movement there as well because of the ING acquisition. Bottom line net debt $3 billion, just over $3 billion, and the ratio is right around 2.5 times, which is what we told you would be, I think it’s a little higher than that the net debt to EBITDA ratio but if you add in the proclaimed EBITDA from ING then you get to about a 2.5 times and certainly by the end of the year.
The outlook, this hasn’t changed which you saw in our third quarter but when we reiterate, early stages of recovery notwithstanding the sovereign debt issues in Europe and the potential uncertainty and slowdown in the US outsourcing fundamentals are strong, investment sales are continuing to grow (inaudible) but continuing to grow. Leasing (inaudible) that’s usually what happens in the cycle, but more focused on costs, but balanced with growth, balanced with strategic recruiting, which we feel appropriate at this time. We still maintain our guidance at $0.95 to $1.05
And then here is an appendix for those of you that are data house and ask for this, we had no way to publicly give you this. We gave you outsourcing growth for the first time in the third quarter. And we had no way, no good way, it’s only give, there is no good way to give it to you and produce it publicly for the full year of ’10 first quarter of ’11 and second quarter of ’11. So I’m just going to take through these and the product that undertake us again and so that it will go on an 8-K, which this has been filed.
So thank you for listening to some of things that many of you know and hope that there are few interesting points but more to come that will be a lot more interesting in new and fresh. And with that, we’re going to go to an economic and real estate outlook, I’m going to introduce someone you are familiar with, most of you Dr. Torto, Dr. Ray Torto and he has somebody who he is going to bring out, who you will hear from as well, but I will introduce in a moment, that’s Asieh Mansour who has joined us as Head of Americas Research.
Ray as you know is one of commercial real estate most renowned economist and forecast, he directs our worldwide team of commercial real estate market analyst and we got timely question on macroeconomic issues and the global commercial real estate market. He is currently Chairman of the Pension Real Estate Association and the Research Committee of the Real Estate Roundtable and teaches at Harvard.
Asieh, is a U.S. Commercial Real Estate market analyst, in the Americas actually say and provide insight to the America’s leadership team on economic issues and serves as a member of Americas operating management board, working with Ray on global initiatives. She’s got more than 20 years of experience as a leading real estate economist and was previously with RREEF and we are very happy to have her, so I could ask Ray and Asieh to come up and we will go to the economic section of the presentation.
Good morning. Just want to make sure we have people out there, come on and joint us. Hi thank you (inaudible) as you know I don’t want this size of the room to feel like we are paying attention to you. So, I think as you know we have been investing quite a bit in our research function to make it globally capable, vertical integrated and preeminent following our vision. And in that light we have been investing and collecting data around the globe in about 220 markets right now, putting that into world wide applications basically on the web and so we can take information at the dealer level aggregated up to the sub-market level, aggregate that up to the city level, aggregate that up to the country level, aggregate that up to the regional level and look at it globally.
So, we can help or occupy an investor client at the micro-level all the way up to the macro-deal. So, in doing that investment we have also been investing in personnel and so I am very pleased to have Asieh Mansour, with me today who is our head of research in the Americas. Asieh is one of three people we have heading up the three major regions of the world, and the other two, Nick Axford in Hong Kong, Asia and Peter Damesick in EMEA. All three of our leaders have PhDs, have over 20 years of experience in the business and can provide very strong analytical insights to our key partner and our investor clients. So today we’re going to look not at the micro level, we’re going to look at the macro levels, so macro has been a big part of the headlines and we’ll talk a little bit about that this morning and I'm very happy that (inaudible).
Unidentified Company Representative
The way that we decided to provide the presentation is I'm going to talk about the outlook for the economy given all the volatility and what our (inaudible) with some of the risk and I am very talking about expectations out for global and for the commercial real estate market both from an investor and occupier perspective, and then I think all the way towards the end the Q&A.
The first slide what we’re showing is basically (inaudible) across the event, the bar chart, the bars are world and our definition for world is probably about 220 countries where we have data, there are certain African countries that we don’t have any data but I think the 220 aggregate is a good what has happened globally and in the three major regions we had Asia-Pac, Europe and US.
Clearly the downturn in 2008 and 2009 was pretty significant. There is a couple of points I want to make about that, is that this is the first time that on a global aggregate level (inaudible) sort of world. Even if you go back 20 years and look at the Asia financial crisis long-term capital management, the global crisis we’ve never had the world or world if is the aggregate 220 countries positive or negative, so it underscores the severity of the downturn and then the recovery has been uneven clearly many of the emerging markets primarily located in the Asia-Pac region has done very well, their growth rates are much stronger, the European markets specifically Western Europe has really lagged, for obvious reasons. But I think just on the macro level, our perspective is, the world is not going to enter another recession, if you work, we’ll continue, I’m going to focus on the growth in a couple of slides.
The only area that we think more goes through a technical recession and quite of our focus is Western Europe. Right now, the growth phase in many of the major economies in Europe weigh down by some of the debt issues, is closer to 0, 0.3 to 0.5 depending on which country. And I think over the next several quarters there maybe a technical recession, but this is some negative in particular, but again it’s never going to be as severe as it was in 2008, 2009.
So our outlook is uneven recovery, but one thing that’s clear, all regions are slowing a bit. And again, a world of divergence, another way that you’d like to look at when you compare different countries, which are at different in the first half, if you look at GDP per capita, nominal GDPs 1, when you look at per capita, it’s actually a better metric of comparing different countries. And I think if you look many of the emerging markets have actually much stronger GDP per capita numbers compared to some of the industrialized countries, and I think where you wanted to make a comparison.
Unidentified Company Representative
I think the datas are already here, right. And liquidity is around the left hand side, and I think that explains a lot about what's going on in the economy. You can see it quite vividly with this slide.
Unidentified Company Representative
And again, the key important thing that many of the emerging markets, they’ve gone through their own debt issues, the Latin America, remember in the 80s, they are down, they're growing faster and the per capita income actually again is a much better way of comparing emerging markets and industrialized. And again this is how the economic balance of product shifting, so if it’s not sharp, but it’s really precursor of what's going to happen globally to the business, to the economy.
Now focusing on the US, again the US is a big part of what’s happening globally. So I’d like to take a couple of slides focus on the U.S. and in this slide it’s – the bar chart is real GDP growth and the line is, unemployment rate, couple of points to make. The (inaudible) recovery for two years it may not be like it – it may not be like it in terms of commercials to fundamental, but we’ve eight quarters of positive GDP growth.
The first step of the year we were all very optimistic, because everything seems to be coming together, but the first step of the year after the BLF recession came was actually pre-week. We almost sweat [salt state] where many of the economists, investors were thinking that we may fall into another recession clearly that did not happen and again, our expectations is that the most likely outcome for the United States is just modest growth and again, recoveries that follow financially induced recessions are just slower. So U.S. economy is still deleveraging, deleveraging as for the drag so the recoveries going to be uneven but it’s a recovery nonetheless.
For the first quarter, we had some good numbers 2.5% GDP growth and I don’t think it clearly have GDP, it’s probably the speed limit of the U.S. economy so that was pretty strong, and I think for the balance of the year the where the new data is coming the data is actually much more positive about the U.S. fundamentals. I think what the risks are to the U.S. economy policy area, whether its policy area in DC and we were ready to see what happens at the (inaudible) committee what they decide and then also in the European on the big European rules on debt issues due impact the United States to a variety of net banks maybe less likely you wanted demand. Our exports may get hit. We export 20% of U.S. export to the Europe. So again, there are lot of feedback as we would get impacted if the recession in Europe is stronger than what we expected.
But for now 2012 to a moderate growth, I think the US economy will really gain traction after 2013 and again, that’s to me that there is no major crisis in Europe more than what we are expecting today.
Now, for the news between the U.S. economy and real estate markets clearly is through the labor market and so, I think for us the labor market is key to the recovery and commercial real estate fundamentals just a couple of facts. The U.S. economy did lose 8 million jobs, we live in a country, an industrial country that has very flexible labor markets. We can fire people. That’s not the case in many part of the world. We can lay off people. So, it’s to the flexibility of the system that actually some of the corporate profitability’s look at corporations that profitability is pretty strong right now. So they were able to cut expenses.
We’ve cut 8 million jobs, but we’ve re-hired only 20%, so 1.6 million and what that tells me given where we are in the economy, that corporation are operating under very lean labor market conditions. So, the next step given that the profitability and given the level of profit per worker is very high, (inaudible) and a lot of the data that’s coming out of the labor market more unemployment insurance claim, and some of the service and a small business that pointed the right direction but the labor market seems to be recovering.
We think that we will reach the previous peak, which was in 2007 so by 2015. So, if its still going to take a while a 1% through the labors and the new job this year probably doubling next year and then reaching the prophecy by the beginning of 2015.
And with that I will turn it to (inaudible).
Unidentified Company Representative
So, I guess the part we wanted to drive home is that we are in a global slowdown. The economy is growing quite slowly and the commercial real estate as you know is sort of the economy in a [box]. We like to often think about it as, we make things in industrial space. We sell it in retail space. We count the money, deal about those things in office space all right and so the economy in a box.
So as you look at the economic outlook, we have a slow drop growth, and we expect that drop growth not to really be, we’re going to be in this situation for unless (inaudible) 7 to 10 years kind of the, but that’s what happens on the study on financial crisis. So it’s a long drag, so it’s a mean for commercial real estate. So what I want to do is, I want to show you a couple of our macro graphs, I talked about we take the data from the micro level out of that to the city, to the country, to the region and when we look at it regionally and globally.
And I have two graphs I want to show you. One is a graph of capital value industries and this is for office. And the next one is going to be office rent industries. So, this is sort of a capital transaction side of our business looking at it. And as an index, what I’ve done is, index is back to a 100 on this one as also in the next one, and I’ve just looked at the three regions in the globe and sort of said, how have they moved since the year 2000.
And there is a couple of points I’d make to you, first of all, you might notice a red dotted over here in the slide, but you notice that all the three regions as well as the global of course has rising levels starting back and the timing was actually some back in 2009, back in Asia, it was 2008 in the fourth period. So what we’re seeing is investors are stepping into the marketplace even with the downturn, even with that downturn and came in and are moving values backup, fitting that process, right?
And in fact, in Asia, we can see their almost back in the peak level they were back in 2007. And of course, that’s been driven by a very strong economy that we actually talked about in terms of what’s going in Asia.
For the United States and for Europe, there is slight increases, but we’re certainly a long ways from getting back to those previous levels. So if you look back to the capital market, if you look out in terms of the office rent market, okay. So we’re, just this is what people call fundamentals right, what’s going at the demand and supply for space, the tenant and landlord. While this shows a little bit of a different picture. I mean, you still see a peak in 2007 that crash down. We do see clearly Asia with growing economies diving to see growth in their rent in fact places like Hong Kong and come back to the previous peak, but Asia as a whole has not come back to its previous peak, which was about 165, it’s down about 140. So, but you see fundamentals are getting better, right, not in Asia, not in Europe, and not in America, they’re still pretty flat. So the question is, as you know, given the economic outlook, given the fact that drive (inaudible) to be quite slow going forward why is commercial real estate doing relatively well.
All right, and particularly why are investors stepping up instead of buying for commercial real estate. There are several reasons for that, and of course one is the spread the year between cap rates and treasuries, but there even a more important thing for you to keep in mind, I think which is driving what investors are doing, what occupiers are doing, and the way people looking at commercial real estate. And this is in this slide, which I think is a very popular slide, but I’ve got to make sure you understand it. Okay, once you do you’ll like it. What we’re plotting here is the job growth to completion ratio, so that’s what this shaded area is, okay. And we’re measuring over here.
So, right now the job growth to completion ratio is about, if you allow me to round up about four, all right. So we’re having a very slow job growth the increases in jobs, but it also have very slow growth in supply of commercial real estate. And we plotted out against the vacancy rate. And we did explore the U.S. office market, but I can do this for all property types in the U.S. And I can do the same thing for all property types across all regions and get the same picture, okay. And what the picture is telling me is that well, look we’re getting better job growth relative to supply and if you look at historically, you’d say, well, gee, when we had very strong job growth to the completions ratio here, okay, we saw vacancy rates plunge.
As we go back into the early part of 2000, we have very strong, not very strong, relatively weaker than this, job growth to completions ratios, when we still saw vacancy raise point. And what we see now is, we have actually a ratio of job growth completions, which is a little bit higher and it was back at the early part of last decade and vacancy rates are up here and we expect obviously, a lot of the things to get better. So investors are looking at this and saying, because there is no supply in this commercial real-estate market whether its office, industry, retail, multi-housing although all the marketplace is very well balanced and the expectation is quite good for commercial real estate, the investors are (inaudible) for fundamental reasons as well as for financial reasons which I think all of you are aware of. So, I think that’s a powerful graph explaining what’s, going on and now I’d let you bring it home, okay.
Unidentified Company Representative
I guess as an economist, we cant’ just give an outlook with that pointing out the risk, so I personally believe that (inaudible) highest likely that we’re going to have a way to recession. Recessions are caused by imbalances, and I think much of the imbalances that led us to the past recession, have been run out, have been resolved.
Having said that, the U.S. economy and some of the European economies are going very slowly, much more vulnerable to shocks, but I see the source of risks really free – sources of risk, policy makers may have limited options right now for jump starting the economy, look at the monetary policy already have zero set funds rate, I think for certain aspect we’re in a liquidity trap, so it’s harder to have respective monetary policy. European Union, I mean if they don’t get a comprehensive solution to their data shares, I think that is really writing out to what’s happened even in United States.
And finally premature fiscal tightening, we all agree with that debt is bad and long-term government debt will weigh on investors that they are carving out. I expect one plan to close everyone, but we have a premature fiscal tightening that could be enough to impact us much, much stronger even what we’re currently under writing.
So I think there is notching risks, but the fundamentals are fine and I think right now, much of the market volatility is more of function of fear and the true underlying fundamentals of the economy globally.
Outlook, just bottom line sustained but modest growth, commercial real estate, and what are the implications for modest growth. We think that the real estate fundamentals have trailed the capital markets and Ray mentioned why, just because it’s a positive and I think investors still like real estate the trophy core asset. And interest rates are really the low interest rates are attracting a lot of capital, top order capital and they are giving assumption that would so much debt for example many of the central banks monetize, they monetize the debt and that maybe a longer term inflationary.
So there is a lot of capital coming to real estate to trophy. But the recovery in real estate, and the value has been pretty swift to what we’ve really need to do is to see if I’m improving on fundamentals, but I think we will see an ultimately, the performance of commercial real estate is a function of what's going to happen to the economy globally. So that is the key longer term.
Unidentified Company Representative
Thank you. So, thank you.
I appreciate it. We are going to do mostly in all the format, we are going to do questions at the end, we will a 20 minutes or so time spot for moderator questions and so we can keep it moving along, we won’t take it now. So jumping down to so you remember them because we will have time to do that at the end.
At this point, we are going to move to Investment Management, which is going to be obviously an interesting section because of the ING REIM acquisition as well as our own core business, but a lot of focus will be on that. I'm going to ask Matt Khourie, Global President of CBRE Investors to come up and make that presentation. He is responsible for management of the global enterprise now and he is a member of the CBRE Global Investors Executive Committee and leadership team, as well as a member of the CBRE Global Operating Committee. Prior to joining CB industries Matt was with Trammell Crow Company for almost 30 years. And he has lot of tenure there and has transferred the stock over to the Global Investors business. So without further ado I’ll invite Matt to come up.
Okay. Good, everybody can hear me. Well, I'm delighted to be here. It's been a very interesting 12 months for me if you could imagine in our whole real estate investment management team, working on this acquisition of ING REIM, delighted to say it's completed, we closed the last piece of it. There were three pieces that we ended up buying on October 31. And so it’s nicely back in the good old view as today to be able to kind of present our business and as I go through this business overview, you will see a lot of reference to this acquisition because for us it’s a real game changer.
I thought I explain the before and the after because it’s a pretty substantial difference. As you can see 24 offices in 13 countries was our CBRE Investors legacy business. Our new business was by the way is renamed CBRE Global Investors to relate the note the true global nature of our business now is now 32 offices in 22 countries.
We got investments actually now in 26 countries, so as you can see increased our coverage by 14 countries, I will get into that a little bit later. Our AUM combined is $95 billion, so quite an increase from our previous number. 700 new employees have joined our ranks and as I’ve gone around and spend the last year meeting a lot of those 700, it’s a high quality team. It really is one of the best talent bases in the industry, so we are delighted to have it.
This next line is probably is important as any and that is 400 new clients join our roster and the reason that’s so important is one of our major objectives in this acquisition is to really grow our capital base around the globe by migrating capital from this new institutional clients that we have to other lines of business and so that is where a lot of the power of this acquisition is going to lay.
We got 55 direct funds now in 67 separate accounts. These separate accounts is a very growing business right now, a lot of the major investors around the world want more control, coming out of the downturn in last couple of years, they want to know who their partners are, or they want to own the assets themselves. So as the separate account business just around the globe is one, that I could see growing dramatically, and we intended to grow dramatically over next few years.
Here is the geographical depiction of where we are and you can see the dark green dots are our Global Investors business, light green is all the CBRE Offices.
To talk more specifically about some of the major regions that we’ve expanded in, here is a graph or a map of the existing business we had with CBRE Investors in Europe. Here you can see what this acquisition has done for our business in Europe. We’ve added nine countries in Europe, and both countries are some of the bigger economies that we really didn’t have a footprint in, and if you can see a big concentration of that lighter green is Central Europe and the Nordic, which actually are performing pretty well right now.
Here is our Asia Pacific business before, here is our Asia Pacific today. Five new countries that we’re in, we just were in two countries before, China and Japan, now we’re in seven. And some notable comments here, one is Korea, we didn’t have a presence in Korea that’s very important for us for a couple of reasons. There is some good investment opportunities in Korea today, and we are actively now investing some dollars there, but probably even more importantly there is a lot of capital now in Korea looking to invest in the US and in Europe, so we see Korea being a big place where we can export capital out of over next four or five years. I will talk a little bit about that later.
So wanted to give just a brief overview of how the year has gone, we have raised $3.2 billion in equity year-to-date and I’m combining both the legacy business of ING now with the CBRE Investors legacy business year-to-date. We've got $2.5 billion roughly a dry powder to invest globally, so we are definitely on – and I’ll talk a little bit later about where we see some investment opportunities that we’re on around the global.
We've deployed $4.3 billion in capital year-to-date, so active on the acquisition front with $4.3 billion of acquisitions. 18 direct funds that are now active where we’re either raising capital or deploying capital. So again a lot of different geographies, a lot of different risk reward profile active in all the major investment strategies. And needless to say, having a bigger platform now especially in areas where CBRE is very strong, I know we’ll hear in a second from Mike Strong and Rob Blain in their two regions. We are going to be able to even do a better job of taking advantage of the platform that we are part of. And when I talk to investors about this merger, one of the very positive benefit that they saw was the ability to even gain greater access to the information flow that reside within CBRE.
So it’s a big differentiator for us. I want to talk about some of those mergers synergies, and even more importantly what the investors sees as benefit as we went through this merger process.
Investors are looking to deploy capital as Ray just mentioned, real estate has become a more favorite asset class in the last 18-months versus some of the other asset classes and as a result they are looking for ways to deploy more capital around the world and because of our wide array now of geographies and investment profiles and open end and close end structures. We got just a better vehicle by which to serve our investors.
I talk already migrating capital around the globe very, very important and it will be the leader in the industry in doing that. One of the benefits of this mergers as I said earlier with the people, and I will talk about some of the senior management a little bit later that we’ve been able to really put in some very senior positions within our organization. So, it’s all about making the best athlete’s choices and putting them into key roles and we have done that.
We’ve had two businesses, they really had them had the scale that we would have like one is our historical securities investment business, it was about $2 billion business, prior to the merger, with the merger, with ING Clarion Securities the newly name CBRE Clarion Securities is now close to $20 billion of AUM.
So, a lot of critical math both from an operating efficiency standpoint and what we can provide resources, and so, we are really a leader in that business now, we weren’t before.
The other business that we’ve benefited by scale is out fund-to-fund business. We had a good size fund-to-fund business, our global multi-manager, we now have combined that with INGs select business, which was their fund-to-fund business. They are both about the same size, so now we’re the largest real estate fund-to-fund business in the globe, over $10 billion of 81 in that business, so again a lot of operating efficiencies, some scale we can provide to our clients.
And I’ve talked about this leveraging on the CBRE platform, but we also had now roughly 32, 33 folks in our CBRE Global Investors Research area that’s up from about 12 before the merger. So we’ve got incredible research capabilities that leverage off Ray and his whole team again very important because our investment decisions are actually research based.
Here is a snapshot of some historical revenue numbers, if you can see 2010 and this is our legacy business obviously, we had a nice increase in revenues relative to 2009. We’re very active in the acquisition business in 2010, and frankly that looking in the rear view mirror that was a very good thing because there was some great value in the early part of 2010, certainly that we brought in, I’ll talk a little bit about that later. And as you can see some good growth in EBITDA as well.
Here is a depiction of how our AUM now stacks up, so we’ve been our record of the last few years, somewhere between $30 billion and $40 billion of AUM. This merger brings us up to the mid 90s in AUM, and as you can see on the colors there, the red is Europe, so have a much larger AUM base now in the EMEA business, most of that AUM is in core assets, core and core plus.
So again, with all the turmoil going on in Europe, these assets are fairing much better than assets that are in that category. And the other big addition there would be the Clarion Securities business, which as I said is close to $20 billion.
Take another slice to our AUM separate accounts, globally the big business is well over $20 billion in that business, and as I said, we see that as a big growth area for us, a lot of investors today want to expand their separate account business. $40 billion in funds, again, before that would have been mostly value add from a legacy business. Today, that number is mostly core and core plus funds with certainly a value add component.
Unlisted securities, primarily that’s our fund-to-funds business, listed securities is our Clarion Securities business. You can see the equity raised over the last few years. As almost everybody knows 2009 was a very tough year to raise equity, so that’s likely going to be the low point in these last years, raised about $5 billion in 2010, year-to-date we’re at $3.2 billion, this is a combined number, and we feel very confident we’re going to be over to $5 billion number by the end of the year, with the pipeline and the queue we’ve got.
Acquisition activity, we’ve been very active in this arena. As you can see 2009 was the low point for us, but we’re active in 2010, which paid dividends for us, and then in 2011 this is a year-to-date number we are already at $4.3 billion, so we will be in excess of our 2010 number for 2011.
Few other operating highlights I would like to point out that give the snapshot of our performance in 2011. We had a major U.S. insurance company just award us recently, our U.S. separate account business $300 million of mandate for core and core plus acquisitions, so we are actively working on buying properties for that.
We got a Pan European Core Fund that had acquired over a $100 million of property and is raising capital now most of that properties or most of the acquisitions have been deployed in the Northern European countries. A European Shopping Center Fund that actually was a fund that came over with the ING acquisitions has acquired over €150 million of property and actively looking for new property to buy.
We think there are going to be some good buys by the way in Europe in the shopping center space and ING’s business was about 50% roughly AUM in the retail in Europe. Many fortress malls, some of the big regional malls all around Europe are owned by ING that are real expertise in this area and I think that will help us make some good buys over the next couple of years.
Talking about some opportunistic buys here in New York we had a transaction that ended up being, I believe our most profitable transition in the history of our investment management business and we talked about this last year.
1540 Broadway, which is just here in Midtown not far away. We are able to sell our interest there and a couple of transactions that netted us $208 million in net cash proceeds, 63% IRR to our investors in [ST5] and it was one of those opportunities where we are able to buy from a lender, we’d taken the property back at the top of the market. Create a value add strategy with the assistance of the New York team and thus selling our interest for a large profit if the markets recovers here.
And talk about Korea, we got $350 million in new mandates that’s the Korea National Pension Services has awarded us so we are excited about that. Most of that is going to be spend in Korea by the way, that’s where they want to aim that capital and we have been very active in the apartment business. We are very high on the supply/demand features of the apartment business.
We are one of the first to get in and buy apartments in 2009, early 2010. We are not selling those apartments to core buyers for very low cap rate, very high level of profitability on these sales and we have raised with some major institutional pension fund, which are in the U.S. $300 million of equity this year and we are going to be starting roughly $600 million of new multi-family with that money.
Let me talk about the people again in some of the real positive talent that we are able to bring in. This depicts kind of our global operating model and the top part of the slide is some of the global functions and I’m not going to go through every box, but I want to highlight a few, one is our new Global CFO, CAO is Maurice Voskuilen, and he is the former ING REIM, Europe, CFO. So we were able to interest him in taking the Global role. He is very strong. He’s going to be a great add to our Global team. He is going to move from the Netherlands to LA, so we are delighted to have him over there. And so he will be one of the new talents from ING, he is going to help run the Global firm.
I would also like to mention, if we go down and see the operating businesses there, on the lower part of the slide, Pieter Hendrikse is ING Executive, has run ING in Europe, he is now going to run the consolidated CBRE Global Investors platform in Europe, again, top-notch guy has about $38 billion of AUM in Europe and we are delighted to have him on our Executive Committee, run a big piece of our business.
Richard Price, same thing, he ran ING’s real estate investment management business in Asia. He is now on our Global Executive Committee. He is going to run the combined Asia-Pacific. And then Ritson Ferguson is another ING Senior Executive that has joined us. He is running our combined Securities business. And of the eight executives we have on our Global Executive Committee, four are ING legacy executives. So the talent that we've been able to land and putting key positions, I think is important part of this acquisition as any element.
Growth strategies, I talked about this already, we need to migrate the relationships that we now have (inaudible) 400 additional clients throughout our global investment platform. We’re going to continue to harvest new sources of capital. Australia actually is a very good place right now. We’ve been able to land some new mandates from capital out of Australia, they’re looking to deploy capital in the US and in Europe. So that’s been good. We’re also looking into expanding into the defined contribution, distribution channel.
I’ve talked about capitalizing on market opportunities, one of the great things about this environment is that there is turmoil and that leads to buying opportunities, not just here in the US, but certainly in Europe and in Asia. So we’re going to be active looking to buy projects that we can add some value to, and our strategic partners, US Fund Service has done that now for a long, long time and is going to continue to do it with their fund series.
I’ve talked about the European shopping center fund. We’re going to be active in China. We like China lot. We’ve got a 5 billion AUM today in Asia, out of our 95 billion roughly, that’s under weighted in Asia, but we see some significant growth in Asia over the years in our investment activities. And then there continues to be opportunity in the depth space certainly here in the US and there is going to be some great opportunity we think in Europe as well.
I’ve talked about expanding some of these global businesses, now that we have scale. We are going to grow this separate account business. We’re not going to do a lot of expansion into new countries. We have, as I said earlier, 26 countries where we are active in, so we’re in most of the countries we need to be. There is a couple that we may over the next few years look into, but most of our growth is going to be embedded in countries that we already have presence in.
And this is my last slide, and this talks about new investment opportunities that we are focusing on now. We’ve been very good in the first [pivot] point which is buying US operating properties with value-add, we just talked about 1540 Broadway, that’s a great example of that and, we really think that’s one of our strong future in the US.
There are going to be great buying opportunities in Europe. We are actually active, as I said, in the Nordic in Central Europe. We are waiting to see a bit how Southern Europe shakes out, so I wouldn’t say today we are actively looking there but there will be buying opportunities in our view once the things crystallize a little bit better there. I talked about China, some of the constraints that the government had put on the banks had really actually improved our ability to deploy capital there in a more productive way with a better set of economics for us than has been historical because of the constrained liquidity there, so we like residential in China.
I talk about multi-family, we are going to continue to be active in the multi-family space but at some point in time development will have to slow there, we are going to slow our development but today snapshot still looks pretty promising from a multi-family supply demand standpoint. We are going to be active in the debt space as I said, and there is still roughly $1 trillion of debt maturing over the next few years, and so there is going to be some real opportunities to get in there and buy debt or refinance on a favorable terms and without our capital partner’s debt platform to do so.
And I think Ray mentioned this, there is really a historical large spread between ten year key builds now and really cap rate and the NOIs, return on total costs that we can get.
So we think now is a good time to be able to buy projects that have a value add component to get them up to a core position from a risk standpoint and then sell them into the market. So we are going to be active doing that. That’s it.
Unidentified Company Representative
Thank you, Matt. Okay, we are going to move along. We will take break in a little bit. We do accept feedback and take feedback into account and one thing that we heard was we need a break, but it’s not yet. So there will be one coming.
I want to introduce Mike Strong, President of EMEA is here to present with us today. We decided to ask him to come so you all would recognize that Europe still exists, I’m just kidding. He is here, we’re delighted to welcome him back, he had a two or three year higher (inaudible) given that we got focus on over there and given now cost impairment efforts and slowdown in travel, but we’ve delighted to have him back this year.
To lead EMEA, not an easy job, it encompasses more than 100 offices in 45 countries with 5,000 employees and therefore 5,000 personalities. I’ve seen him operate at some of the most difficult country board meeting and he does an amazing job. He’s got 30 plus years in commercial property market and has a lot of good information, extensive first hand knowledge and I think he will feel good about Europe when you leave today.
So Mike, if you come up?
Michael J. Strong
Thank you, and good morning everyone. It’s a nice introduction. I’m still here. As Gil said, I’m responsible for Europe, Middle East and Africa and it’s almost a year, two or three years it was – the media was all about the Middle East, the impact does that going to have on our business, and now it’s all about Europe. And everyday in the media there is more and more coverage about Europe probably more coverage than it ever been before.
So I’m sure you’re asking what does this mean to businesses in Europe, what this means for real estate business in Europe, and I guess what does that mean for CBRE? So what I’m hopping to do over then next 15 minutes or so, just give you a snapshot and perhaps a bit of a more in-depth picture of what is actually going on.
I think some of may actually surprise you a bit. And in terms of our stats, this is for the full year 2010, and I’m not going to drill on any of these other than to say, during the course of 2010, we did close over 7,000 deals in the region as a whole, with the value of over $33 billion, and I think it’s fair to say that there is no other firm in Europe that could put up a set of steps that was well over the and based on this turnover and this market share this underlies, we are undoubtedly the leading firm by volume and size in Europe currently.
In terms of how our business breaks down, this two charts here with pie charts, this one is explained to you how we split, we’re also in 45 countries we actually own 24 of those. And what is depicted on these pie charts is the countries that we own, and for a while now, what we’ve been trying to do is to develop what is a truly European business, not a UK business with European off shift. So when you hear about your European firms the vast majority of them are UK businesses with European off shift. And fundamentally most of their turnover, and most of their EBITDA out of the UK, but it’s not the case there. And we’re down the journey for several years now to obviously be there our major operation in the UK. We also have to diversify way from UK into the rest of Continental Europe. And you see if you go back to 2007, the dark green segment on the left hand side is the UK. And in 2007, 48% of our revenues came from UK. The light green ties from 18% in 2007 and the rest is the balance of Western Europe and partly Central and Eastern Europe.
Our aim was obviously to grow the business, but at the same time reducing our dependency on the UK. And you’ll see that between 2007 and really on today, the UK now represents 40% of our revenue in the region.
We are growing which was strategic priority from 18 to 23 and you’ll see that the balance of businesses stayed very depending on the sort of economic performance of those countries over the last couple of years, but we’ve seen growth in Germany and we’ve seen growth in Central and Eastern Europe.
The other important component, in fact even more important is the one I just shown is our business mix. Bill talked about this right at the start, but also what has happened to the whole company has also happened in Europe. And what we wanted to do is obviously stay a market leader in the transaction business in sales, and acquisitions to investors and in leasing.
However we also at the same time retaining market leadership, we wanted to derisk from the volatility of the transaction market. So as you go back and look at 2007, which was peak of the market, you’ll see that our revenue at that time in sales which is basically investment deal was 35%. And our revenue in leasing was 33%, but 67% of our revenue came from the transaction market.
We wanted to derisk from that and you will see that if you look at where we are today and by Q3 this year. Sales has dropped to 18% now we haven’t lost market share, we have probably grown market share but the market overall has shrunk and I’m going to put a slide up in a couple of slides times to demonstrate you the scale that how the European capital markets have changed over the last three years.
But the 18% (inaudible) actually represents an increase in market share. Leasing was not seen the same pressure as the capital market and you will see that it still represents about a third in our revenues for the region as a whole and part of that is explained by increases in corporate outsourcing, which I will touch on a notebook – covering a lot more detail later.
But the big story here is the Light Green segment Property & Facilities Management, that was only 19% of our business in 2007, its 33% in our business end of Q3 2011. This is renewable contracted revenue on contracts that run for three years, five years, seven years for big corporate and for big own. This is a very, very deliberate strategy of ours to expand into the space after de-risk from the ultimately in the trading market.
So, in terms of the Europe or Europe as a whole, now obviously not all of you represent Europe but I think it’s fair to say that if you’re in Europe you’re impacted by the year result. And the issues remain, I mean they are in the media everyday, some of these vary day to day as to whether the program is fixed, how long it will take to fix but it has not been fixed at all. But I think where we are unquestionably is that we’re going to seeing relatively low levels of economic growth at least in the short-term in the balance of this year and going through next year. Depending on who you listen to you’ll hear these around 0.5% aggregate growth across Europe, maybe 1%, but the truth is, it varies country-to-country. You’ll get certain countries actually, which will go into recession, there will be negative GDP growth (inaudible).
So the aggregate I think for Europe will be growth, but not very much of it to the balance of this year and into next year. The stocks will deficit that existing Southern Europe are real, obviously the excitement in Italy over the last week has really picked up price. I mean Italy is a huge economy. It isn’t Spain, it isn’t Portugal, it isn’t Ireland. It’s only just slightly smaller than France, and it’s a very, very big economy and it’s a very real economy and I think these problems will be sorted, but it won’t be sorted immediately, it will take a few months maybe a year or two.
But paradoxically not withstanding all of that, the dynamic at least for us in the market are actually quite positive and I just wanted to touch on some of that, and explain what’s going on, and where we stand in them. This is the last part of slide; that this program is going to putout. But this depicts the European investment market in 2007 through Q3 2011. And if you look on the left hand side, the first four bars of 2007, which was the peak of the market, held this number, the turnover that year with €260 billion or real estate was traded, commercial real estate €260 billion, that fell sharply in ’08 and sharply again in ’09.
The market actually bottomed in Q1 2009. But the whole market in 2009 traded €70 billion. So you had a full €260 billion and $70 billion, huge contraction, 75% contraction in market size. Now the good news is that it recover by about 50% in 2010 when it just ticked above $100 billion about $105 billion and it’s on track to do that again of slightly more depending on how Q4 rolls out, it will be that or slightly more in 2011. So we believe that the market has found a flow and I will come back to that in a moment.
Now why has it found a floor. Now the case of properties being touched on two or three times already this morning directly or indirectly in terms of this spreads between prime real estate and treasuries and that’s very real, it’s about 4%, 4.5%, maybe more depending on which market you’re in.
So there is very much support there from equity investors in the prime end of the market, at the core, core plus end of the market, whether it’s London, whether it’s Paris, whether it is Germany and the other principal markets. And that is underpinning that base level of turnover. It’s totally prime end and we are absolutely in that space, that’s what we do. Both the sector for the week or the secondary sector, which is the secondary treasury real estate, we don’t really trade extensively in that market. We are really in the prime, prime plus component and that is holding well and the equity is still there for that component of the market.
Leasing, again for great A-space, whether it’s office space, the very best retail or the very best logistics space is holding. In fact, it’s probably growing slightly. Rent are not under pressure. It’s interesting that the slide that went of early about the, early about the average rental movement in Europe, you probably you do have to differentiate between the very best and the rest of the real estate, because the very best and rest of the real estate, a very best space that’s seeing growth in rents, in London, in Paris, even the best shopping centers the rents are holding. The lack of development funding, not in itself is restricting supply, but that’s actually a historic low supply of new offices in London today. The lowest it’s ever been. It’s the lowest that’s ever been in Paris.
So what you’ve got, you’ve got a very, very low level of supply coming into market, the deployment demand is holding, which is sustaining rent, is sustaining capital value and actually could even drive both of those up. We could actually see the yields becoming a little bit, and the prime rents could actually increase a little bit over the 12 months to 18 months, notwithstanding everything is going on in the economy.
Intermediation levels, this is a slightly different point so I’ll just cover that. Intermediation level in Europe are low, by which I mean on how much representation is there in the deals that they take. Now if you take the UK, which is probably the most material market in Europe. On capital markets and leasing deals you have virtually 100% intermediation, you have an advisor on the sell side, you have an advisor on the buy side, similarly with leasing. The fairly you get away from the UK, the less intermediation you get. So you get in France, it’s typically 40%, you get into Germany it’s 30%, get into Italy it’s about 10%.
So what this represent is a huge opportunity for us to take more market share to increase the intermediation. And what’s going to happen is, as the market internationalize, this is what happened in the UK, this is what happened in Paris, this is what happened in Germany. The internationalization drives increased intermediation. That’s not sharp spike that’s just a steady increase over time that we can take advantage of in terms of nearly of the business we can grow and how and why we can grow it. The big story there is outsourcing.
Outsourcing is present in the state for 20 years or so years and Bill was the leader in (inaudible), but its quite new in Europe. Outsourcing from Cooper is really an gambit in the last three years to five years, this has existed for longer, but in terms of scale its only really got going in the last three to five years and we’ve been a major beneficiary of being able to secure a lot of the outsourcing contract.
Similarly property and asset management, traditionally it’s been managed in-house the big investors, the big insurance company, extension fund has huge in-house teams managing their real estate. Progressively, they’re outsourcing it by putting it out. And they’re putting it out two reasons one because they’re putting it to the specialist the experts as they do.
And secondly they are putting it out because they’ve got multinational portfolio that are exceptionally difficult to manage, they are in different languages, different tax raising, different legal systems and the fewer real estate in eight to 10 countries and he want to single supply to manage that real estate fully, there are very, very few firms that you can go to, capable of doing that.
We are capable of doing that which is why we’ve been the beneficiary of a lot of the new contract with coming out and being outsourced. This is a trend but as I really just started. In terms of the opportunity and the scale over time I believe it be and then for this another spring its American. So, despite the economic environment how are we fairing, well, in fact, as of Q3 and gross revenues year-over-year were 28% down, analysts do that in an environment like that. Well, it’s because of our business mix, it’s because we’ve had a balanced business, it’s because we diversified away from just doing deals although we do a lot of deals.
And Q3 year-to-date were 18% up over prior year, and every single one of our service lines reported growth, every single one, nothing went backward year-over-year. Obviously, we concentrate absolutely on market share and market share gain, there is no independent measurement of market share in Europe, and I do measured it in London. And in London, we have a 20% plus share of the London leasing market, they do measure in capital market, there we got about a 25% share. But they don’t really measure it in the other sites and obviously we track it, we track the capital market absolutely, we track a leasing market absolutely.
And I can tell you that, very approximately across the Europe aggregated, we sit with an approximate 20% market share of all the deals that takes place how many are we involved in it’s about 20%, there are some markets that’s higher, some markets are lower where we are still developing, but that’s the number.
In terms of our strategic moves that we have made other than business as usual. Second census on retail generally has been the case for several years, but certainly five years now. We've invested heavily in building out leasing and development capability in retail, our capital markets capability. But we have a relatively small property and asset management operation within these shopping centers. The shopping center is a very, very part of the USA market.
These are difficult businesses that grow organically, and we had operations in the UK and Spain and Benelux. But we made a strategic decision that we wanted to get market leadership in the management shopping centers in Europe.
So two years ago, we bought the leading specialty shopping center manager in Italy. And this year we bought the leading shopping center manager in the Central Europe, and just two months ago, six weeks ago we bought the leading shopping center manager in Holland, it’s of particular relevance given what (inaudible) about ING or CBR global investors and the 100 plus shopping centers owned in Europe.
So we now have about 200 shopping centers under management across Europe and we are the market leader, which puts us in a very special position as it relates to giving holistic advice around retail and shopping centers. So what are our priorities, we’ve got quite a few, but they’ve been actually focused on staying and maintaining leadership across the EMEA. And we are going to do that in a number of ways, but most particularly we’re going to just stick to the strategic lines that I talked about and grow those and expand those and make sure that we take advantage of the markets that they grow.
We got an absolute focus on costs and (inaudible) let me get away with anything, and actually target themselves that is concerning people whereas discussion we spend that, obviously this is all about being in management, I don’t know actually about the (inaudible). We are looking at process re-engineering particularly around the outsourcing business in that. That is all about delivering efficiency to the customers which in turn deliver benefit to us and not just the rental as it grow, in corporate outsourcing, property asset management and facility management.
There are higher margin areas and also focused on those on real estate, finance and the whole area around helping the European banks through the situation here and we’re working for most of the leading banks in Europe in terms of strategically helping them through the space they’re currently in.
Always in line to be measured always the market leader by any metric, we’ll show you the way wherever you want to go, always the market leader off way. I believe we are and I think we certainly have every intention saying that.
Just a few transactions and I’ll be free. All of these very, very big deals and they’ve al taken place in the economic environment, that we all read about everyday in the newspapers here in the media.
The first is Regent Street in London, those of you who know London, will know that Regent Street is one of the major shopping streets in London got some (inaudible), its owned by the crown of state, which is a proxy for the queen, actually, Queen Elizabeth. And they wanted a partner to come in and help them develop the next phase of Regent Street. So we were pointing to do that. We went around the world. We went to all, real response and all the other investors and we lined up Norges Bank, which is actually the program works under the Norway, Governor of the Norway, and I took a 25% interest in Regent Street, which was an initial payment of $750 million. We closed that deal three or four months ago.
So in this market, and that’s a minority interest in which they have (inaudible) remarkable, as no other time actually in my career, some other thing we could have done a deal like that. We did admission environment. The second one is (inaudible) tower, this is a CMDS workout or a group of eight buildings in London. We get the servicing and the special servicing and we worked it around, we repositioned it and we stored all of the assets. The last one of which was the EBITDA, which was the EBITDA, which was the sale of over 500 million pounds, but the total sale was just under $2 billion. All those deals have been concluded in this market in the last 12 months.
The third one is two things, this is prudential with the UK, and this is the latest example of a change in strategy by a major investor. (Inaudible) are the single biggest invest in UK real estate, $17 billion by value.
They have outsourced the management for their entire portfolio [to up] we signed that deal in July. And we’ve mobilized that in the last two or three months. We took 85 of their people and we transitioned all of their systems on to asset. This is a prime example of a change in strategy and policy by major owners, transitioning business to suppliers like that.
The open term which is the [opera tower] in Frankfurt is in there for no other reasons than it was the biggest sale in Frankfurt this year. Its three quarters of a million square feet that outclasses the (inaudible) buyer. The front of the buyer is GIC at Singapore. Again an example of major assets in Europe are trading internationally all around the world, international campus that is coming in to buy in Europe today, not withstanding the economic environment or the uncertainties around the Europe.
Two more only, and then I’ll finish. I thought this I’m telling which is a very, very big French (inaudible). This is the biggest single leasing deal in Paris this year closed in the last four months. And this is a built through of a million square feet in seven separate buildings in the North Western part of the Paris. It is the biggest deals done is Paris for two or three years which we’ve done this year. And Oxford properties, British Land, British Land is a UK REIT, because of the lack of development finance or speculative funding for development, it’s very difficult to get these projects started which is why this actually apply.
This is a building of 600,000 square feet in the financial district of London in Leadenhall Street, all the concerns in place, the British Land couldn’t stop the development. So we introduced parts of properties, showed probably Canadian, the Canadian State Pension Fund, we took a 50% stake and the development have now started full equity to enable this development to get moving. This is going to be played into the market where this will most apply. So the returns invested are excellent.
And very, very finally, and it’s sort of with on the firm right at the start. This is Westfield Stratford. This is a new shopping center. And if you look at that picture, there is sort of the circular thing with a light on it, it’s actually the Olympic stadium, and the whole Olympic park is there. And in the foreground is Westfield Stratford, which is the biggest shopping center is Europe, and is completed six weeks ago. We did the leasing and it was 95% leased on opening. A new location on the east side of London, 95% leased and the economy you read about everyday in the newspaper. So there is life is U.S., okay. Thank you for listening.
Unidentified Company Representative
Thank you, Mike, I appreciate that. We’re going to move now to Asia-Pacific and that will be the last presentation before we take a break. Rob Blain is President of Asia-Pacific region and he has had his challenges too that come this year in the form of natural disasters and notwithstanding that the Regent has shown quite a bit of resilience as we see in our quality result and as (inaudible) elaborate on. We’re just responsible for business or business activities in 85 offices in 13 countries very spread out and with more than 8,400 employees including our affiliates. It ranges from Hong Kong, China, Taipei so Singapore, Japan and India as well as specific Australia and New Zealand is a member of the companies global operating committee and I’ll ask (inaudible) come up with that.
Unidentified Company Representative
Good morning. But I did get turn out floods in Hong Kong, but it’s a very refreshing and it’s not debated here economic today. As Gil said during the introduction we have had our challenges this year and not so much in the banking or the same challenges as Mike strong with had in Europe or EMEA, but in our place we had two earthquakes in New Zealand, we had massive floods in Queensland, Australia, and in recent times, which global in news is the tragedy with the tsunami, earthquake, and radiation issues in Japan.
Having said all that, with the offset and the resilience all those communities is quite humbling, and if you have the opportunities to visit these communities over the next 6 months, 12 months, it’s just great to see what they’ve achieved in short amount of time.
My presentation does not, or the format doesn’t vary that much from Mike’s and there is going to be similarity as you see with the slides on Asia-Pacific. With that going through all of the stats similar to Mike and notwithstanding the difficulties and all the challenges in market, we continue to still hold a dominant position in the transaction space right across Asia-Pacific. And the four major regions that dominate the Asia-Pacific platform in relation to our business and the business relationships we have with investors, occupiers, and that’s not just multi-nationals, but domestically strong regional clients, whether it’s Japanese, Chinese, Indians or in the Pacific.
The business remains very buoyant, but we have challenges like everyone else, and one of the major things that’s just is underlying is, even though Asia-Pac is in a very good position, the investment market, generally in the occupier market while expanding in that space is still slightly, was starting to show signs of slightly detenitive in particular markets due to the uncertainty of where the U.S. economy is going, and what's happening in EMEA just from an investor confidence point of view.
This slide just indicates where our revenues fit. Five year to go similar to much strong senior leadership team. We are very much in particular countries, and Pacific has always been an anchor towards the development of the Asia-Pacific business. So we took a view and credit to the senior leadership team in APAC that we wish to expand in particular markets and especially emerging markets which were China, India and Japan.
Now, you will see the percentage of the slide for Q3 2011 in Japan is slightly behind the 2007, but I can assure you that the back-end of this year in November, December, that percentage related to that will be very much online with the high level market in 2007.
We have seen greater China and India, and a lot of that growth has been in the outsourcing business. It’s similar, same as you heard from Mike strong in EMEA.
In service line, as you nearly take the slide and put on the last presentation, but which of the view to in 2007 most of the activity across Asia-Pac was in the transactions space. And if we hadn't taken aggressive stance to re-model or reengineering, rebalance that business, global financial crisis took its toll we wouldn't be in a healthy status we are today.
In most of the business was transactions driven whether it was in the four major regions within Asia-Pac. But I’m pleased to say as this pi graph indicate, we are going (inaudible) getting some resilience to the business and some sticky running through the region.
The broad Asia-Pacific trends are the main topics in media, no matter you travel is that in China or in India are the high growth markets and I’ll comment on each of those regions in a bit more detail as we move through this presentation. Still even though there is investment activity that’s challenged by the lack of liquidity or many countries such as China and Japan and to a lesser extent Hong Kong, Singapore the banks are not as active in the lending on commercial and general real estate. But we say that trend slowing for a little bit more during the end of this quarter may be quarter one, but we believe that as better product comes on board, the market sort of have the floor, the investors take a view for geographic diversification of the capital from a global perspective. We would believe that will pick up in the Q2, Q3 next year.
And we’ve had solid and good growth in our business lines. They vary in relation to in percentage terms depending on which region or which business line. Just running through quickly, in Japan, we had a very solid growth in the leasing market and even though the rents have increased from 20% to 30%. We’ve got a very strong tenant rep business and a very strong local domestic leasing business.
Interesting enough one of the business lines that has slowed in recent times, which is surprising especially after the global financial crisis right across Asia package evaluation business. A lot of institutions there and are evaluating the properties in the quarter and half year and going back to venue in your lean cycle, it’s depending on what’s the value is.
Moving into China. The chart talk about a bit more detail. But most of business in China continues to, whilst it’s challenging in some broader markets within China. The basic key corporate competencies in the two business lines are doing extremely well.
India, I just said about its revenue growth. Year-to-date, that just continue to go from strength to strength especially in the outsourcing, in the corporate real estate area, more multinationals in that especially from the U.S. and EMEA.
And business is stable, we continue to take a strategic view sourcing the market for impact players. We’re teams of individuals where they can fill the gaps within our business. We are seeing trends, which is favorable in the emerging markets, where it is very, very capable. American born Chinese or Japanese professionals, (inaudible) Indian and in the old days where packages used to be spread between experts working in these markets, and the people who have actually been at the local so to speak, those similar positions, in those key positions in all industries. The margin is decreased and the packages and the talent is very much the same. So we will see a lot more of that developing in resources space.
Asia-Pac, most of the country is compared to the Eastern Europe and the U.S., we’ve got a healthy GDP growth across the region. Domestic consumption, depending on import-export and what the U.S. is doing, it’s been a major influence in that space. But having said that, there is a lot of inter-trade between the Asian countries, which is picking up in gross revenues. China, once again I would set the slide on China, I’m going to go 20 minutes we could view whole of this afternoon on China, but once again, import-export (inaudible) and where the balance of payments are going to go and the view on where the banks sit in China is in an ongoing discussion.
The global job cut, lot of corporations and companies are monitoring their expenses by exiting individuals and groups of people. One thing I can say, in Asia, especially Greater Asia and the emerging markets, whether it’s accounting financing legals in the like, there is just a shortage of people for the expansion in those strategy across all Asia or Greater Asia, and whether it’s across with the household, some of the big legal firms by talking about thousands of people and not hundreds, quite astounding.
And higher inflation, that’s hopefully moderate, but to give you an idea, the Southeast Asian countries, the inflation is running sort of more of a 16% interest rates now for 20 in some cases, there is some adjustment if you done any?
Unidentified Company Representative
It’s one of the key markets in which is of interest of most people if Japan, China and India. I won’t go through the whole slides, due to progressing of time, but just some of the key things that office rents in Japan for example we believe that they’re at an all time low, for those who have been to Tokyo height of the market I would say 55,000 foreseeable and it’s down around 35,000 to prime high grade space. There is going to be a slight oversupply in 2000, end of 2013 to 2014. But complementing that is to drive for some of the industries, which is reestablishing themselves back into client space. And there is which has been a benefit for our business through the well I’d mentioned previous with the earthquake, the majority of the multi-national companies pulled off the shelf that they say preplanned and they are looking for secondary space within Japan, the majority of that space is in Osaka in case there is ever another tragedy so leasing division has been extremely busy supported by advisory consultancy business.
There is a raising focus amongst the Japanese corporates on divesting out of Japan we’ve seen some of the major Japanese investors coming back into the U.S. and definitely going to (inaudible) also the capital going directly into countries such as Korea, major developers moving into China and very active in South East Asia they did the structuring whatever else and that moved into India in big way, getting involved with the Indian government in the economic zones and its infrastructure et cetera.
China; where do we start? I’m happy to take questions from the session but I think there is – a biggest question is, is it just going to blow up, what’s the bubble. It’s perhaps the view of many. The central government is extremely active and extremely decisive and they’re sure there is going to be a discounting of values and there will be an adjustment or repricing in certain asset classes. There is not going to be a big bag.
The restrictions, I mean, price and we now have the Chinese implement restrictions in property sales. It’s guide largely in place now, that takes speculation out of the market. Families can only buy one apartment within a city, they can’t just buy a dozen of them. It’s controlling it. But having said that even the rate pricing which is going on with some of the developers, and this is mainly all the noise you’ll hear out in the western world is really focused on residential.
The commercial retail is extremely strong and logistics is extremely strong within the retail spaces. So in the residential space there is a lot of great opportunities coming up and Matt touched on it. There is some great quality developers out there in good provincial cities or Tier 3 cities which you would like. The banks have tightened up on liquidity and great opportunity for the lacks of funds, foreign funds except we understand China that come in on the financing basis of a joint venture and do extremely well but a lot of the concerns in our space, in the property sectors, is a little overemphasized that’s covered in the media and we encourage any of you have been to China may have a view, if you wish to come up we are happy to host and show you around.
And foreign ownership restrictions definitely slows the markets down for new entrants, but many of the people who’re already in China, they have been there for sometime, whether it’s (inaudible) all the insurance companies have been there for years. But just with the new capital coming in and that's where we're seeing the opportunities for whether CVR regarding investors to attract capital because they’ve already been in China. I have a track record in China and we see it’ll be a lot of success stories coming from what we actually monitor there.
We have some 1,600 people in China, we’re in about 14 cities and we’ve done research and also to the analysis in about 85 cities across China. So we got a good handle on, it’s a growing business.
India, I said to someone yesterday what was difference between India and China, so China is like F1, Formula One it's just octane all the way and India it's just like a diesel motor, it will chug along and do what it wishes to do at its pace. And that's exactly how the economies work.
Dynamic China slow and steady as well as India, India I don’t know how many people have gone to India recently, they’ve improved all the airports, once you get passed that there is still a lot more work to be done and opportunities to improve that broader infrastructure with roads et cetera. Having said that extremely aggressive in development of business path, all and (inaudible) that we would like to Cisco, MX, and [Milwaukee] have got massive campuses in Bangalore 30,000, 40,000 people are in those campuses and just mind-blowing to see and India is one of our definitely a growth market with a 40% improvement in the revenue this year, so it’s got its own difficulties bureaucracy et cetera. But we’ll see a lot of upside in all business lines, especially retail business thoughts and logistics
In Australia; Australia has got a two-tiered economy, as most of you would see from your own research, it’s mainly driven by the resource industry, and any businesses associated with the resource industry whether it’s in the professional services, heavy machinery et cetera, but there are some signs from research as well that demand on the (inaudible) SMEs or the smaller companies on the ground are struggling. So we see there is going to be some pain, but at the same time, the Reserve Bank of Australia is monitoring interest rates to 25 basis points of last week and are forecasting another slight drop to encourage retail spending in the like.
Our observations in matured markets, most of the activity is on license fee board in leasing and we had strong investment activity and any investment activity usually a lot of the sales, which have gone on in Australia, to be in offshore, supported by the local institutions, but definitely the German investors are active; this sovereign wealth funds have been extremely active.
And as Mike said, we’ve lowered our investments in Australia at the moment and the dollar is so strong. The majority of investing is not traded, they hold it. And diversification of capital in a risk free market, so we still see a lot of activity. In those numbers that Mike (inaudible) in Asia-Pac just comparative terms. Gross revenues are up 24% and 21% respectively in Q3, year-to-date Q3. We’ve done extremely well on the back of many challenges in Australia are up 19%, China 30%, and India 42%.
It’s fair to say as well as you saw from previous pi graphs the expansion of all that property and facilities management business is increasing dramatically. It was only five years ago when the global corporate services space and in the property facilities management space right across Asia we had about 20 people. And we have roughly around 250 people, and a lot of those people we have bored in as we’ve secured contracts and created leverage to our efficiency within the business. It’s not that we just going out and had a lot of people, we measure it. And as we’re heading down the path (inaudible) et cetera, we look at who should come and join us who can actually serve us that or work with us on building that business.
We had one significant M&A opportunity in Australia where residential mortgage valuation that may not, may much as far as seeking us what does that mean for us, but as far our business in Australia, we do roughly 200,000 of evaluation at about $200 of partnerships, which is about $40 million in the revenue side, its doing all that through IT and latest technology for the four major banks that’s the growing industry for us as well.
We do the same evaluation that we didn’t give by the way for $5.
The key priorities is to maintain our leadership and leadership comes in many forms. It’s not just being seen out in the market, but it's really just making sure leaders, whether they are at the senior level or mid-tier level are very much in touch with the people, and that’s internally and externally. We have come a long way in that regard and our (inaudible) have minimized over the years with two personnel, and anyone we have lost at any note, at any level in the business. Probably 90% of them, they are not too competitive but gone to clients or developers throughout the region.
We continue to do grow market share, but we just don't grow market share for the sake of numbers. We are looking to wear a particular trend whether it's in logistics, whether it’s in corporate services. Wherever we think the market is tracking, we'll employ the right people or we redeploy the people we have in a particular market to try and get ahead of the trend. And we can only pick those trends not just from looking at the screens, but we spent a lot of time with the clients, getting an idea of their own strategy and what they are doing, because we need to follow and get ahead of them, not just looking at screens.
Managing human resources, everyone is coming online (inaudible) in every company, we have performance drivers, we just have changed comp plans to getting people in involvement with the broader business and supporting the various business plans with a lot more vigor execution. And margins, expense management, we are prudent, but we aren’t slowing the business down.
Development, we look at what capital is available and whether we can get a return on that capital, as well as look at particular regions and get ahead as I said earlier on a particular trend and invest wisely.
Just a few transactions of note, and this is – most of those have been since June this year. In Tokyo, the Mori family started to do enough market deal in Minato-ku, it’s roughly US$65 million, it was bought by a local Japanese investor, about 100,000 square feet. It wasn’t so much not the size of deal as far as the Mori family may have so much at all and it was confidential and we did a lot of work on the advisory side to target a particular buyer who is (inaudible) part ownership and part lease return as far as income through the property.
These two here is, one in Beijing, which is on the left hand side. We represented CapitaLand and CITIC Trust, which is probably know to the investment community. That was around a $45 million deal happened in the second quarter and once again a lot of these deals under that $50 million to $100 million for the rare property are occurring throughout China, not just in the Tier 1 cities. And it’s not necessarily the firm buyer but the larger companies and the strong Chinese state-owned enterprise entities, which are coming into the market.
The building next to that is Tycoon from Hong Kong. Wharf Holdings from that building. It’s one of the old success story. We actually got our headquarters for Shanghai in that building and we have placed 80% of it within 12 months.
It is one of the project management we took responsibility with the ICICI Bank, one of the largest Indian banks from 4 million square feet and a project management. Client was extremely happy. It was roughly 15 to 19,000 people in this complex. They’ve got everything from cafeterias to gyms to everything and as I said, I’ll encourage any of you, if you’re interested in emerging markets to visit these locations.
And finally, in Australia, the essence of this deal it was in Australian fund. I’ve owned the building for sometime, and we had to secure a private family investor from Singapore and our transaction happened in August just under $400 million Aussie dollars.
(Inaudible) of time, I can see Gil dancing up there. I’d like to thank you and I’m sincere in closing, if any of you do visit Asia Pacific, especially Asia. Our offices will be very happy to have you come in and we’ll give you a lot more detail. Thank you very much.
Thank you, Rob. We were running on time before Mike and Rob got up. But let’s pay back because let them come for two years, so thank you guys very much that was a great international review. What we’re going to do now is take not a 10-minute break, but I think a (inaudible) to about 5 minutes. If you need the restroom, it is towards the reception desk to the left, a lot more complicated than our old office space, a word on that. Because we have moved to new office space, I’ve had some questions this morning about our commitment to the cost payment. In that regard, this lease was signed in 2009 I believe, and it was signed at the right time. So you can rest assure that we got a great deal from our landlord in terms of the operating expenses well over the capital contribution and we’re able to deal a space like this not only in New York, but in the couple of the other key cities as well. It’s sort of a, oh, you’re putting your money away, I’m not. It is what we’re advising our clients to do and what we did ourselves. I do ask – you’ll hear from Marianne, a little bit later, but I do have to close her, at a meeting with our clients in a particular business forum, with a particular competitive advantage (inaudible). We are commenting on the fact that the their CEO likes him to be in the stage.
And for those who know Marianne, just want to surprise you with a immediate response he said, well our CEO likes us to be in the stage, paying these prices. And that’s what we’re doing.
With that I’d like to take a five-minute break.
If you could, take your seats. And thanks we’re relatively on track. Here we got a lot more to share with you.
Thank you. We’re going to move now to the Americas and then, we’ll have a presentation on global corporate services followed by (inaudible) doing a case study, which many of you have seen in the past that all of which will be very captivating.
Mike Lafitte is here, President of the Americas. You’ve seen Mike before, those of you’ve been here, you’ve seen him before when he was in-charge of corporate services the job that Bill Concannon now has. Mike was not (inaudible) but two years ago. He oversees a big business, $3 billion of annual revenue, 19,000 employees. He is on the global operating committee of CBRE and he chairs the Americas operations board, and he has been in the commercial real estate business since 1984. So he is going to obviously give us a good overview here on the Americas. So, Mike?
Michael J. Lafitte
Thank you very much, Gil. Well, it’s a pleasure to be here and on behalf of those 19,000 employees across Americas, it’s a real honor for me to service side-by-side with each and every one of them. I’ll try to pick up a little bit of time. I know that typically the Americas business does get highlighted in this presentation. And I’ll follow a very similar path that you’ve seen from Europe and from Asia.
This is our corporate stats, we’re very proud of our market leadership position in the Americas by any measure, by revenue, by square footage, by headcount, really by any measure in every single line of business that we’re in the Americas, we are the market leader. So, transaction volume, this is 2010 stats over $70 billion, thousands of transactions and we managed about 1.5 billion square feet of property today throughout the Americas. So, we’re very proud of these stats.
Similar to the other slides, this is our cut of the US versus kind of the what sits in Canada and throughout Latin America. The Americas business has historically been very much a U.S. story, just given the 100 plus years that CBRE has been in existence in the United States. So it’s predominantly a U.S. business, but the exciting thing for us is the growth in both Canada and Latin America.
Canada has emerged for us both on the advisory side of our business, our traditional transaction side of our business, as well as our outsourcing business as quite a significant contributor to our P&L, both the top line and the bottom line, and the same thing is going on in Latin America. The emerging markets that are within the Americas really are south of the U.S. obviously. Our Brazil business, we’ve been down there for over 25 years and that’s growing very rapidly, lots of construction going on in Brazil, lots of exciting things going in Chile, Brazil and Mexico. So now that represents 12% of our revenues and is growing at a very fast rate.
You will see the priorities in a minute, and one of our top priorities is to have a market leadership position in every single market that we are in, both from a geographical perspective. These are our top 10 cities across the Americas. I could spend a lot of time talking about wins and talking about transactions that we completed in each and everyone of these markets, I don’t have time to do that. But again, market leadership, CBRE was the largest market share in Atlanta, Chicago, Dallas, LA, New York, San Francisco, São Paulo, Seattle, Toronto, Washington D.C., Houston also would be right there. So, every major market, we just saw things were notable because of their size and because of the complexity in each market. And we've grown significantly in terms of the diversification within each of these cities.
This is a slide showing a cut of our revenue by service line. Again, we’re very proud of the diversification of our business and it really bodes very well. When we hit 2008, 2009, this diversification in our overall business really helped us tremendously in terms of our performance.
The biggest shift from ’07 to our year-to-date numbers again, it’s a theme that you’ve seen and that is the property sector here. You can see the dark green going from 29% to 41% on our property and facilities management business. I’ve mentioned the 1.5 billion square feet that we managed across the Americas this is a significant operation for us and is very stable, very predictable, you wake up every January 1st and that business is there, and we’re very proud of that.
Leasing has been, held steady as you have seen in a lot of the other regions is about a third of our revenue. The dynamic of the leasing business, leases roll over. Every year there is just – there is churn on the leasing markets, people need space. And what will drive that growth going ahead will be job growth and absorption for all of our markets across the Americas, and the same kind of dynamic that you’ve seen in the capital market space again 2007 was a peak year in the capital market space for the Americas that dramatically dropped off in 2008, 2009, started to return in a significant way in 2010 and we’re seeing great growth in that business again this year.
So trends, on the leasing side, you’ve heard a lot of these things already from Aseih and Ray, as well as from some of the others. But the fundamentals of the leasing business are still quite challenged. We’re sitting somewhere around 16% vacancy rates on the office side, 13% on the industrial side. We are off from the historic highs and vacancies rates in the U.S. so the markets have been somewhat challenged on the leasing front just the pure fundamentals. But you also heard earlier that the new supply side of this equation is virtually non-existent with the exception of emerging new supply in the multi-family space. So, leasing vacancy is historically high, but we’re starting to see a solid growth for us and a very, very stale business.
The capital market side of the business, again the recovery started in 2010, we’re continuing to see that again from an ownership perspective this asset class has fared quite well relative to fixed income, relative to equities and I’ll show the slide in a minute just make returns over the last 15 years that will kind of support that notion. So lots of core pricing cap rates obviously have come down, you heard that story consistently but our markets are back, capital is available significant capital is available both on the debt and the equity side.
The debt side obviously is extremely attractive in terms of the pricing, today CMBS for the most part has gone away, still $30 billion, $40 million of estimated volume for this year probably something similar to that for next year but the GSC the life companies and the banks have come back in a pretty big way.
Appraisal evaluation very steady business as the services business and I’ll talk about those in a minute. As it relates to the Americas results very proud again just the growth that we continue to see, so every line of business is growing, our revenues year-to-date 17% for the quarter, 19% for the year, so we’re experiencing a very nice year in terms of revenue growth, top line growth as well as bottom line growth. The markets on a capital market side of the business there is also recovery 49% on our sales revenue year-to-date, we continue to have a market leadership position and we’re actually increasing that, so we are number one in investment sales and we are number one on the debt and equity finance side of the business as well.
Outsourcing I will really defer to Calvin’s presentation that will follow but this is a big part of our business here in the Americas up 13% on revenue year-to-date and I mentioned Canada, Latin America and they are continuing to increase in contributions for our business. We put up these priorities a few years ago and every line of business, every market really is living by these. We’ve organized very specifically around these key initiatives.
First is to dominate and to really lead every market that we are in. That’s a very, very important factor for us. This market leadership position is really something that we will not take for granted and so, every market is continuing to focus on that leadership position in market share.
Our people in our platform are two of these priorities and the other two are clearly are global, in asset services business and our corporate services business, these are quite obvious priorities for us, but we are rallied – we are continuing to rally around these and we’re organized around them as well.
In terms of investing back into our business, Gil mentioned this space. Our work place is very much a part of what we are and what we do. We are investing in a big way in research continuing to do that. We’re investing in a big way in IT and tools for our platform to enable our professionals to do their job better to serve their clients. So that’s where our money goes and [flows] back into the business either through M&A or back into our people or back into our platform.
We’ve brought back training over the last year, so we started back up, CBRE University, a brick and mortar facility outside of Chicago. We’ve brought back a program called the [wheel] program, which is bring in young professionals out of under grads for the most part training them, putting them to a rotational program to build that next generation. Lots of efforts around the diversity in our business, as well as just the technology investments that we’re making, so this is a significant part of what we are building to support our business.
Just a few slides on a couple of the lines of business that aren’t highlighted through Gil’s presentation and the first is the leasing side of our business. Again, this is a third of our revenue. It’s a great business for us, you’ll see some notable transactions, Mary Ann Tighe is going to talk about the (inaudible) deal in just a minute, but this again, 2,600 professionals around the space and this is a core, core business growth both on the occupier side as well as on the investor side of our business.
We are sitting in New York City, one of the most dynamic and exciting markets for the leasing business. This is a snapshot of a chart that was produced from a Cranes report in 2010 on a top 50 transactions in the market place. And you can see with a 23 of the top 50 transactions for the last 14 years, we have been number one on this Cranes list.
So, you can see by those square footage and by the number of transactions, these larger transactions the position that we have against our respected competitors here Cushman & Wakefield, Newmark, JLL and Studley.
In that slide we look very similar, if I have showed you Atlanta, I showed you Dallas, I’ve showed you a lot of the other markets that put up earlier. This is our capital markets business and you can see it’s a little hard to read on the slide 15% on the sales side is our revenue there and 6% on the debt and equity finance side of our business.
Notable transactions of $200 million and up, I won’t go through those. I don’t think we have time to do that. I’m trying to pick up a little bit of time for you Gill, almost 800 professionals in this space. This shows our current position in the marketplace on the investment sales side of the business. Again, one thing that you will note is a list of different competitors in this space. We have some competitors that are purely and only in the capital markets space. [East Hill] and HFF would represent two, there are almost exclusively in the capital markets space. Cushman & Wakefield and JLL, so you can see our position again both in terms of volume and number of transactions.
One of the other things that distinguishes us and differentiates us from our competitors in this space is, we are really we are in the large space the medium space and the small space. In the small space we have a group called the Private Client Group and in the down turn in ’08 and ’09 was smaller transaction for the most parts state intact, the larger trophy asset, the billion dollar deals really went way and so the diversification of this business for us really plays very well for us in term of the performance of that overall business.
On the debt and equity finance side as an intermediary again you will see a different list of competitors here but again you will see a familiar theme of CBRE being the largest and the market leader in this space because they just have already an secured GLL.
This slide is a little busy, but I want to make a couple of points in this. This top left chart that you see actually was a chart that’s in the Wall Street journal today and that’s a chart that is from our RCA talking about the distressed market and the volume that is as you can see clearly increased volumes of distress debt, the good news is a fair amount of that has been worked through. If you predict kind of the pipeline of maturities of CMBS and net debt and what sits in the banks that align will be relatively flat going forward its not going away.
A lot of loan sale activity going on in this space but the banks the special services are working through these properties and working through this distress. That positions us extremely well to help with that to facilitate those work outs whether through note sales you will continue to see the large portfolios in note sales side of the business.
The top right pie chart really speaks to just a sources of capital for the space. In the US especially today the bank life companies in the GSEs and GSE is primarily on the multi families space were we are very active have really filled the gap of what CMBS going away so a good state of diversified portfolio of lenders and sources of capital and the bottom chart again maybe hard to read in the audience but it speaks to the returns in real estate and how they have fared apartments, multifamily has really led the way, retail is coming back but all categories of investment performance, industrial, office, retail has performed extremely well which is why the pension fund and all the capital is coming to commercial real estate.
Our appraisal and valuation business we have the largest valuation firm in the Americas, we do something over 30,000 appraisals every year little bit different business than business in Asia but you can see on the left hand side and again this business is reinvented over the last three or four years as CMBS went away which was a huge client for this side of the business.
Really it is going to be replaced by the services the large services (inaudible) as well as the banks, very steady business, very predictable business, a nice margin business for us the one that we are very, very proud of.
And I believe this is my last slide, this is our asset services business what to be traditionally known as the property management side of our business again stable, predictable, very, very large part of our revenue the 41% actually is asset services and our FM footprint at 1.5 billion square feet. One thing that is notable in this space is we have seen very large portfolios come to market for us to bid on and we have been successfully one couple of names upon this slide read and Blackstone I would say a very noble transactions where we’ve seen 10, 20, 40, 70 million square foot portfolio is coming from either previously in-sourced models or an owner just says I want to aggregate, I want to consolidate the number of providers that we work with.
This is again our leadership position in this space is very, very dominant and we are very proud of it. So from you’ll see this list of those that we serve, these are large clients, we have a group of about 30 that we call our strategic accounts that probably make up 50% of our business here. So very coordinated with our team on the capital markets front as well as on the agency leasing side.
So Gil, I think that is it, we will turn it over to you.
Thank you very much. Thanks Mike great. We’re going to turn up to global corporate services just a word, an explanatory word, most of you know that many of our service lines are run on somewhat of a matrix based study by service line and also by geography.
So Bill can run this business globally but of course in each region Mike and Rob have significant influence on how we execute and the way coordinated in successfully running this business together, but we kept GCS a corporate service as part of the presentation for one that Bill is going to deliver and that is why you didn’t hear from us, hear about from regional leaders.
Bill is responsible for the entire business prior to that you had essentially the sales and development in client side of the business and now has the entire business under him and Bill started his career with Trammell Crow Company in 1986 and was really the founder of this idea of being able to outsource and manage space for large corporate. So we are going to hear from the authority and we are going to hear little bit excited and happening in that business and that is extreme growth business, so here we go Bill.
William F. Concannon
So very nice to hear about outsourcing from my colleagues, the EMEA, Asia-Pacific and the Americas so thank you for that. So good day everybody. As Gil said I'm going to take you through our, what we call our outsourcing business but its global corporate services and my slides will not follow the pattern that you have see thus far. That will be different. This is a corporate real estate department. The core business of GCS is real estate outsourcing, so this is where we come in and by the way virtually all Fortune 500 Companies today that operates have a corporate real estate department. This is where they manage the portfolio of assets whether they are leased around for the companies operations.
They typically over see again both owned and leased it’s a larger bank, it’s going to include, yes the retail branches that’s going to include the office space. Their headquarters space but also the data centers and operation centers. So, basically that’s entrusted to this department inside the large corporation. The typical corporate real estate Director inside the company is going to report to finance, the CFO. This was not always the case but over the last decade this discussion around occupancy cost and occupancy cost management has given rise to a lot more scrutiny around the stewardship of this asset class and this cost.
You can see on the chart the functional role, that’s really four big areas, strategic planning of the portfolio, transaction management, which is the buying, selling, leasing and sub-leasing of the space and then construction and project management followed by facilities management. There are many sub-services under each of these four areas but these are the four big areas that we manage on behalf of the client.
For example in facilities management, we are going to be looking after many accounts the energy spend for the client, okay. Its generally 4% to 5% of revenues so a $10 billion company, is going to spend roughly $500 million a year in occupancy cost. That’s the number we manage in a full service relationship and our goal then is to generate fixed and variable fees of that $500 million of cost. And I think Mike Strong said this is a 20 year old industry, this is not been around 50 years, so, that’s the real estate department, it’s a long term contracts business. We talk a lot about contracts in our business, it is a global business, it was not always that way typically with very large organizations.
Now Global 1000 type organization, acute care hospitals and increasingly the public sector both at the federal government and state government level. So what we do, our model as recommend, we sell perform with an onsite staff and also work in very close harmony with the local offices around the world and that’s really a model.
2011 has been very busy, we’ve signed a 140 contracts year-to-date which has been a new record for us. A high percentage of those roughly two thirds are from more than one service, we find it kind of reduces our margins, if we can enter into an agreement with the large organizations where we are providing more than one of those services we talked about on the last slide.
Generally, it’s three to five years some times the contracts are longer big global reach today is a big advantage. So a lot of these clients increasingly are global and we have seen a big spike in the RFPs that we respond to from the global organizations.
You can see some other facts by the way 96% retention rate is a big focus of ours. The huge focus is to keep the foundation in place drove the existing base of customers and then obviously build on that. Baxter was our first corporate client in 1990 you see there they are still client today that part of our model it is a very fundamental part of our model is to commend and really take on the people and the processes and then we put our technology et cetera. 300 clients today, 300 contract clients, these are all under three to five year contracts or longer as I said and major focus is expansion, because we don’t have a 100% market share with these 300. We have got 12,000 dedicated GCS employees that match to the 31000 globally that we have.
And this final point on the IAOP it’s the International Association of Outsourcing Professionals, ranked CBRE in their 2011 survey their top 100 survey numbers.
So we are very excited about that for two reasons one it’s the highest ranking of a real estate company in their top 100 and number two its frankly a new opportunity for real estate companies, we consider them as outsourcing state for the first time.
Okay, how do we create value for our clients. This is our value proposition slide there is really two pieces to it. The occupancy cost piece and the capital expense piece. So the way to think about this is we get called in, we went through an RFP or a consulting engagement and we work with the client to develop kind of a way forward around their organization and build this methodology around their cost structure.
So we are helping them redesign this way forward and the C Suite in these large organizations are very focused on this, because they know it is 5% of their revenues, they know it is a big, it is a very big cost. It is generally not broader, it is a core part of their business because our clients are energy companies, they are banks, they are hi-tech firms, they are healthcare firms, they are not in the real estate business.
So the focus on the left side of the chart there is really to attract the rent line item. So consolidations, occupancy costs really go after the rent. They had a (inaudible) case study we will hit this piece of it and on the right side there on the OpEx reduction piece you really are going after the day to day operating expenses attending to the indirect spend of the portfolio, it’s energy, its vendors, it’s the mechanical and electrical, it’s all of the operating expenses in the building. And benchmarking that and bringing tools to this area.
On the right side, you’re really then overseeing the capital expense attending to construction or projects win space churns or other new construction for the client. So the machine here is to create a holistic approach, you come in, you act as an adviser and you work with them to get an organizational model and a cost model that works for the client.
I wanted to just give you four quick examples of four clients, it would give you some clarity on the importance of these relationships by the CBRE but it will also give you some insight into frankly the depth of the commitment we make to these clients, and may be allow you to see not every service provider is equipped to deliver this kind of service and that’s a competitive advantage for us.
So I kept the names off for confidentiality reasons, but what you have here is a good representation of four different industries so you got healthcare, high tech, you got retail and you got government and you have four different geographies and four different service mixes. So this is just quickly go through them in order.
The first client is a project and facilities management customer, 23 million square feet in 95 countries. So indeed this is a global relationship. We are serving these clients in the Americas, in Mike Strong’s region, in Rob Blain’s region, it’s a globally coordinated contract with the leadership team in place.
It’s a five-year contract, we have 469 CBRE employees working day to day on this customer $36 million of revenue and total contract value simply is the annual revenue times to term. So that’s the first client, the second is, this is just a big U.S. company where we provide facilities management 150 million square feet, six year term, 377 employees and $37 million of annual revenue to the company, with a total contract term debt.
The third client is a little different, but it’s a full service client, it’s a smaller portfolio, but you see the revenue per square foot, the revenue per employee is higher. This is a client, where you’ll typically get a higher margin, we like these clients. But the annual revenue is $16.5 million and total contract value is $82 million, so a five year agreement as well.
The last one is just the transaction management client, so what’s unique about our client force, a big U.S. portfolio. But four years, it’s 300 million square feet, but it’s exclusive. A lot of times, when we sign an agreement will be at preferred transaction management partner, but with one of two. In this case, it’s an exclusive agreement for this client. So just gave you four quick snapshots of kinds of contracts that we look at and we operate on behalf of the company.
So this is one of my favorite slides, this is the – when we asked ourselves, when we win, why do we win slides, and we also asked ourselves to reverse, when we loose, why do we loose. And this direct client feedback, this is what our client value as part of our enterprise. Not just the GCS, but the entire CBRE Enterprise.
The first is, they love our platform, they love the fact that we’re in so many places around the world that’s and that Khourie’s presentation touched on that for investors. They love our execution capability that comes with that platform. And what comes in your mind from that is, I get consistency. I will get consistency if I deal with CBRE. The second is this idea of integration. Our model is that GCS may run the account at the account level, but we’re working with the brokerage professionals, the subject matter experts out across the United States and across the world, that’s a big part of our go-to-market.
The third speaks to our data and analytics. Our clients benefit because they have access to an enormous investment that we make around highly operationalized data on their behalf, and you saw this morning when Ray and (inaudible) spoke and Mike just put a slide up about the tools that we invest in that give our client access to analytics and data in our ability to benchmark for example operating expenses. That’s a big deal to our customers. It’s one of the reasons that we win and it’s a point of differentiation.
We’re able to make investments, the size of our company and our scale, we can make investments in our business and they know that. They ask us that, they want to know not just who’s going to work on the account, but they want to know how it’s going to work. And they want to know what’s the investments behind that relative to the IT, infrastructure or other tool.
And the last point around outsourcing expertise, we got first mover advantage; 20 years ago we’ve stayed with it. It’s a core part of our business. Our investments once again are consistent in that, and I think that it’s a source of pride for ourselves and our clients that we have a lot of knowledge about how the one real estate for a large banks. We’ve got 50 of them under contract.
Next slide is the fact that we believe replaced now. Going into 2012 for continued growth – it’s a stable business. It’s been around 20 years in the company. It’s diverse, we’ve got 300 accounts or more. Probably 700 contracts with 300 large contract customers. It’s recurring and it’s growing, so it has been growing 14% since 2004, but the most important thing and that’s why put it in bright green area it is the large market, if you added up our share beyond our significant and smaller competitor share across the business actually less than 20% tapped it’s in under-penetrated market. And we’ve done outside research and validate it with internal research, we said it’s the $60 billion less than 20% penetrated. There is a lot of headroom for growth here. And our company is enormously focused on attacking that headroom to growth.
Everyone has got a trend slide, so I am going to have one too. And it’s pretty straightforward. Pipeline is strong, I’m not going to give you the number. But it’s something we monitor very closely. And the big change here from last year, the year before, when it came together. The globalization of the business, the RFPs are now it doubled in the number of RFPs that are global.
And once again that’s a differentiator for us, significant number of full service opportunities. And we are – were companies use to have four or five service providers, they now have one or two and that’s the big change. So consolidation from the client’s perspective, they want to see new offerings.
So energy services is an example, strategic sourcing is an example, they are looking for different ways in which we can add value to their business. The fourth area is really when you think about new emerging industry opportunities for us that are virtually untapped government, retail, healthcare, I will give you a few steps on healthcare just in the US the top 20 non-profit hospitals have over 600 hospitals today. The top 15 for-profit hospitals have 580 hospitals. These, just the top, maybe 6,000, in 6,000 of hospitals, this is just the top 20 non-for profit and the top 15 for-profit. They all have access to properties and they have portfolio issues. They are under parked, they are in urban environment, they need our expertise. This is a growth opportunity for us. Modern Healthcare Magazine ranks CBRE number two in 2011 in their Construction Survey.
So we’re hitting this particular market really in many different facets. And then finally, corporate real-estate organizations are looking really to the service providers, not just us, but service providers to frankly close the skill gap in their own organizations. When kids are coming out of college these days, they are not saying, I’m going to work for IBM in corporate real estate.
Corporate real estate is not an industry that IBM or Bank of America or American Express are training people and using those dollars in-house to build a career path within these. They are looking to the outside service providers to upscale their own departments, that a big trend. It’s an area that we have a great lead, and we are in close partnerships with our clients to help us in that regard.
Okay, this is an important change since the last time we spoke as well. If you circle on the left, is our traditional point of entry. It’s where our calling offices come in. It’s how we engage in a dialogue, and it’s where we consider our core business to be if you’re added in consulting. What’s changed this, the growth opportunities and the conversations can start on the right and turn in to the left, and that’s new for us.
So healthcare and government are two what I call end-market changes, but some of these other circles, like sourcing and consulting and alternative workplace solutions, we’re working with the client rights now where it’s a Fortune 25 company. They didn’t want to talk to us about facilities management, they didn’t like the way their workplace. So, our workplace adjectives are in helping them redesign in a more productive workplace that fits the brand that they want to have in the marketplace that leads to a conversation on the left. So, new point of entry and opportunity is a pretty exciting change for us.
And then my final slide is again our key strategic priorities. I will start with customer satisfaction, so we are very limited on this client retention. It’s really important to us, our renewal rates, that’s the first goal, will always be the first goal, our entire business model for the company is based on just keeping the base happy.
Second, is continue investing in the platform very strategic investments, we’ve invested in this tool called utility inside, it gives us an opportunity at the building level, at the site level to understand what the utility cost should be and Industry Week Magazine ranked it top 42. So, we are investing in very still tool across the platform that will allow us to add more value to our clients.
The third area is this portfolio momentum we talked about in vertical markets like healthcare, big focus support is the focus around Asia and the EMEA. You saw the growth that Mike and Rob put up there as we pull away from the pac that’s our goal, having very strong operations underground in these countries in Europe and Asia is very critical.
And then the final point is we think this is a moment in time to really elevate our ability to publish white papers, our ability to elevate our thought leadership in this industry. We kind of want to position ourselves to convene the industry agenda around the future of corporate real estate management across these opportunities. So we’re going to be making further investments to stay focused and tenacious about keeping our industry leadership position.
So, Gil thank you.
Okay and I’m going to lead to the case study, this is our last formal presentation, and we’ll then move to Q&A. Those of you who have heard the case studies over the prior demand has done for us. We’ll sit and listen, because it’ll be interesting.
Mary Ann, the Chief Executive Officer of the New York Tri-State Region for us. Crain’s New York Business has named her the most powerful woman in New York, observing that Ms. Tighe has a history of transforming the face of Manhattan. Earlier this year she is going to talk about Atlanta representing Condé Nast in a historic 1 million plus square foot deal at the One World trade Center in January of ’10, she was named Chair of the Real Estate Board of New York, the first women to hold the post and the first broker in 30 years to hold that position. She has been responsible for 77 million square feet of transactions in New York City. She is a six-time winner of New York's Deal of the Year awards for ingenious brokerage, and if I go on, I’m going to talk longer than she will, so I’m going to hand it to her.
Mary Ann Tighe
Thank you Gil, so much. Thank you. Hi, everybody, this is where we try to illustrate using New York as an example of how CB Richard Ellis works sort of on the ground. I think today in some ways it’s our simplest presentation that we’ve made because normally what we’d like to do, is do it in such a way that we show you new lines of business. In fact today we really were only showing you two things, we’re showing you long-term relationship, the ongoing consulting and our transaction capabilities. And we’re showing it with our wonderful customer Condé Nast. Now I’ll not explain to any women in the audience who Condé Nast is. They are the publisher of Vogue, they are the publisher of Glamour Magazine, they are the publisher for some of the men, for the women itself, for the Men GQ, obviously the New Yorker, but global business, a 128 magazines and they consist of a lot of websites now and a variety of acts and lot of B2B publications.
The Newhouse family had a long history, I think there is a slide before this; long history with this company that actually acquired it in 1959 and the way the story goes is that this is the founding father of the Newhouse family’s business core advanced publications.
As our seniors (inaudible) I’m going out what do you want, Mitchie said, buy a new Vogue, and the story goes that he bought Condé Nast as a result of that. We have had a long history with them actually our first transaction with them again was in 1988 and what I'm showing you here is the building where we first went to visit them 350, Madison Avenue, I'll show it to you because sort of a guiding infos of this company is always looking generationally at their business from members of private company, it is looking generationally and part of it is being – the desire that pass on stable real estate cost to the next generation.
So as I see here, bought his son (inaudible) junior with building 350, Madison Avenue and is owned by the building company, the note company and when I first met him in 1988 this is where they were. I'm showing you this because I want to show you the transition obviously in downtown.
In 1996 as I said, we started in ‘88 and ’96, we did this deal which was the first deal at Times Square, it’s hard for you, you are too young to remember how Times Square was horrible and no one else wanted to move there and there were 20 years of still development that went on under the redevelopment plan. And it was Condé’s great lease in August of 1996 that kick started it because what happens is ‘96 (inaudible) in November. And I always wonder the fact that Skadden began negotiations many months before we began the Condé Nast negotiation. But in true Condé Nast style, when we act, we act to win and we act to get it done and Condé has without a doubt one of the most remarkable leases imaginable at the basis of Time Square. After Skadden came Reuters across the street 98 and then came Ernst & Young and then Time Square was all done, but everyone believed that when Condé came, all came afterwards and I’ll talk more about that later.
Okay. So in 1999 due to the deal in ‘96 for Condé to go into a building that’s going to be built, a 1.6 million square feet building, the initial commitment which was 568,000 square feet, they have the option to grow the 747 of course through the Condé style they move in 1999 and they take all the space that’s available in the building. Skadden is above them and all that was available to Condé was the 747. But what happens next is, Condé continues to grow and this is a whole sequence of various deals that we’re done, some of them wired magazine acquisition, et cetera the (inaudible) launch many things that occurred and as they occurred we began acquiring additional space for Condé Nast.
So, you can see in 2004, 2005 and 2006, we were picking up 300 quarter of a million square feet 500,000, a 105,000 square feet, again attempting again you know the irony of course was the move into Time Square was the consolidation from six different locations and now they were all together and as soon as they all were together we began building a whole new campus for Condé Nast.
Okay, the other thing has happened is that the industry has changed like, so many companies that are founded in the print world, Condé Nast has really become an online company and that has really affected the way they work, the environments in which they work and obviously the infrastructure needed to support the work that they do. So, here we are now in 2004, and I will say this is a classic Condé Nast moment, as I say we work with them constantly, regularly to find out that we think that we’ve done the big deal back in ’96.
In 2004, we have a meeting that includes Samuel House and he asked the question, what will our rents be when our lease expires, the expiration date April 2019. I don’t know how many executives you know who are asking the question in 2004, what their rent will be when it expires. But we had a very simple answer, the deal we’ve done in ’96 was so extraordinary that there were going to be whacked in 2020, it was by the way, the operating in Texas alone of the day are four times square in 2020, because they had some very favorable tax package would be significantly higher than the rent they were paying in 2004. And I did mention how we keep constantly we measure space. In Manhattan, I don’t know if you are aware of that, Condé’s measurement in 1996 and in 1999 when they moved in was nearly lower than it would be in 2019, because loss factors had increased so dramatically.
So when we said, the cost that what we’ve done is that what’s happened. This did not make Mr. Newhouse happy, and he said at that moment, we’re going to start a project and he named it Hedgehog, and I was there at the moment, we have no idea Hedgehog what a strange name to call this project. And he said it’s from the Isaiah Berlin essay which we all promptly looked at, which my colleagues and I looked at, and it’s from the story "the fox knows many small things, the hedgehog knows one big thing," and it’s the one big thing that always wins the race.
So in 2004, we start project Hedgehog. Why we do it? The idea here is to mitigate to hit the occupancy cost in 2020, what are our goals, we want to seek the right work environment, whatever that is, it’s going to support the long-term operational, financial and difficult needs, cultural needs of Condé Nast, but Mr. Newhouse said we made a splendid bargain at 4 Times Square. I want to preserve the benefit of that bargain. I do not want to lose one dime from what we’ve done.
And so we said how do we do this and we did at the county Nashville we say. We prepared, highly prepared and then we waited. Okay, preparing we are running all around looking at the magazines saying where we’re going, looking at the online business. Looking at different variety of building that 1540 Broadway to CB Richard Ellis global investors ultimately bought or testing everything out nothing is sticking, but we are not, in all honestly that what we’re doing is gathering intelligence and working with our customer.
While in 2007 more remarkable thing occurs, Hudson Yards appears and RFP goes out into the city to redevelop the rail yard. And the owner of 4 Times Square this organization are one of the barriers. And to tell you something important the original our county Nashville at 4 Times Square was structured to be a condo interest. We went way down the road in negotiations, were Condo was going to buy it’s portion of four Times Square when at the 11 hour and the good work of the (inaudible). The financial advisors of the new house family said oh no your returns are much higher in your business don’t put your capital into real estate make it lease instead.
Investors you have seen here Samuel House was unhappy with that decision, because we all know what happens, county effectively created the value of Times Square, and then was able to harvest it. So we said you know what, if we are going to Hudson Yards we are going to own our building. So we rapid fire make it a deal with the doors we are going to be their partner at Hudson Yards, county would purchase the building, the million and half plus square feet county is going to pick the architect, developer and yeah one other thing you know there is no mass transit, near this location. I mean those of you who know where Hudson Yards is but you know the number seven line is clearly to be extended and opened there. And the idea here is the number seven line is going to be the door connect directly with grand central. And so counting assets we must, we don’t go vertical, we won’t put our steel up on our part, the dialer part of the large, but we wont go vertical until we know for certain, number seven line is going to open up. That was the only basic contingency on the deal and by the way irony of ironies, I can assure you because I have been down on the tunnel. The number seven line will open in 2013 and it’s spectacular.
Okay, we maybe actually what really happened is Aspire one they dropped out and then related one and at that point our counting asset but what do we or lease it four times we were doing the deal with the dealers. The dealers were going to be able to mitigate whatever hit there was to us but now its related, we have no relationship with them, so long Hudson Yard. So our terms sheet just went into the trashbin.
Okay, meanwhile 2007 happens, 2008 happens, and suddenly the trend goes towards, lets go back to leasing again. We are doing so well with the investments, we are doing, our returns are so high we don’t want to own our real estate. It’s like okay we will start looking for leased opportunity.
Well all of this is going on, downtown, is happening or not happening depending on how you look at it. The World Trade Center state, even just selection of headline and clearly we are not going to miss our duties. We have been offering the World Trade Center state,the continent, you can’t miss it. It’s obvious a place where you can aggregate a million plus square feet and no one had any, why would we do that. So, all of the same, all the negative buys that are coming and then in 2009 the most interesting day, we’re going out on one of our periodic I’d say this there is plenty of bus to rely, the only billionaire I know who gets on buses is Samuel House and we go around the city together and looking at things.
And what has happened is, first of all, a significant number of Newhouse family member and editors and publishers of the magazines again living south of 14 Street. There were lots of people in village, living in tridecker and downtown was not that remote location.
On this particular day, we’ve gone down to see World Financial Center for doing a discussion about making the operation through split. The Newhouse family owns the New look (inaudible) they have a longtime footprint in New Jersey and under the consequence of that, we thought may be we put some of our operations into Jersey and maybe some in the Financial Center, lets see what it looks like.
At this day, I was having this photograph even though it’s not of our group. We were at World Financial Center and we were exactly in this location. And I said to Steven Newhouse come over here and take a look at this, and we are at the top of the stares where the wind the glide in, we look over at one World Trade Center and we are like wow, this is really moving ahead rapidly. And we began to talk about what’s happening in downtown.
The transportation hub, the Cortlandt transportation hub that will connect to the Fulton transportation hub, 11 subway lines that will come into the Fulton hub also will come into the Cortlandt hub, all of this connected underground. Cortlandt will also the have PATH train to New Jersey and there is this great the below grade (inaudible) course very like Rockefeller Center with much bigger and in the 21 century because they are going to have retail shop, all the parking will be below grade, none of this is going to – none of it is visible unless you go down and take a look. And by the way, it’s all happening now and it’s pretty much now it’s getting to be visible.
Let’s now talk about residential growth. It’s the Battery Park City, but in general downtown pre-9/11 had probably under 20,000 residents, now has over 60,000 residents. This year a survey about dwelling news said that Battery Park City was voted the number one neighborhood in which to raise a family in New York City. So the whole perception of living downtown was very different, and we talk about retail and all that’s happening with retail downtown, and obviously we began to focus on One World Trade Center. Now do not collapse the Freedom Tower, great deal of Port Authority money has been spent, re-branding this building to One World Trade Center and it updates you to call it the Freedom Tower.
So what happened with this is, we began to think about what would mean to the Port Authority, if Condo Nast a trend setting company, which were left to move its head quarters downtown, what would that been worse to them. Now the other aspect of this I’m going to go into this in a little bit more detail, this is first time for us.
This site itself is so profound complex and issues of security and access are so complex. But for us to do a meaningful deal, one that make it feel our precious customers secure in every respect. We had to actually become experts in this entire complex, and underneath at the end there is a lot of stuff you’d have to shoot me if I told it you, but I would tell you something that you have to do with the complexity of the transaction.
But back to preserving 4 Time Square benefit. One of the first questions we have is that what do we do with 4 Time Square lease it is 4 fleet and our mandate was to preserve the benefit. So it suddenly occurred to us, this is the Port Authority, we go to them and we say, actually all done in a single proposal, and I’ll talk about that at the very end.
We put force to them if you would invite this tenant you must do all of the filing things, and God bless them, they did everyone. We said, you’re going to take over our lease and preserver our occupancy cost through April 2019.
They had to evaluate, these are the results that they have to credit. So we’d have to have somebody whose credit was strong enough to be able to take over this basically 800,000 square foot, and as you take in the interesting. This was done before (inaudible), the only four Time Square was picked to be the developer leasing and managing agent of one World Trade Center. So the port authority made the commitment before the partner and obviously this is going to be a very big deal that’s going to turn out for everybody, because those are going to market and lease the space on a long-term basis for the port will not end up losing money on the deal.
Second big issue, we had write-off about is coming that private company the value their privacy, and there were not going to allow the Freedom of Information Act and dealing with the government agency and force them to reveal their financials even though they are going to be making a $2 billion commitment in that. So we had to get over this and so we did.
Then the other thing was sitting out there infer with the pool of federal dollars that had been plumped on the World Trade Center site to attract tenants. And we knew that in that park were remaining $56 million that’s our net present value basis that actually pays out over 20 years. And we said, we want all of that money and so we got.
And then, we signed a letter of intent August 9, 2010, I would say this is very special moment. Because we delinquently signed this letter of intent with the port authority before they picked, they were picking that ironically between related endorsed and that who is going to be the development partner. And the way we started, we want to cut the business deal with the port authority and then we want the building, both by the best or related, with the best of both world, which you see when I’m saying.
So we signed it, we’re feeling really good about this, because one of things that the port authority said to us is what lease would you like to use. And we said, we want to take the four Times Square lease just change all the map and we’re good to go. And they said fine with that, so we expected in August of 2010 that we were almost home, we thought it’s just going to be go 2010 revenue for CBRE. Now, what happened? This is the negotiating table. On the right hand side of the slide are the people who represented the Port Authority of New Jersey. There were four separate sets of lawyers. On the left hand side, relatively small group is the Condé Nast team. And with eight on this list to 46 are the people who actually sat at the negotiating table.
Just one think I can tell you is that we have to learn immediately to speak in a new language, who knew that the Port Authority had a language all its own. We learned for example, that when they said the IMS they were referring to the Integrated Master Schedule, when they refer to the REO, they were talking about the Reciprocal Easement Operating agreement, when they refer to the TAP that was the Trusted Access Program. The World Trade Center is mere of complicated thoughts as I indicated all encapsulated into acronyms.
So we got the lingo down, a legal letter by the way is how we determine what taxes are on the side. But then we also began looking at the cyclical structure and here was I think our biggest surprise in the entire negotiation. It was clearly worth once we got knowledgeable that the building had not been designed for a user, it had been designed as an icon that it is was going to be a beautiful thing that we are going to stand next to the Royal Park and Beverly that no one had actually asked how do some one actually occupy space in this building and this turns into a complex issue.
And with this I’m going to give you just two examples of it. This is how you how vent out for, you’ve got a kitchen and (inaudible) is built through the kitchen, they have a cafeteria, they have executive dining, they have [test] kitchens for their recipes. So we said, we said to see what is narrow. We are all delivers. We don’t seem to see them anywhere in the plant. They’re like, there are no louvers, you vent out at the top of the building. Now the building is over 1,500 feet in the air or 120 stories and at least that is the longest run of black iron in the history of the world and I had this vision of some gigantic man was like, a thing which you clean was trying to clean down the louvers over time. This took months to get those louvers in and by the way, they are in, they are lovely. I am sure if you talk of the architect [David Child] he doesn’t love them so much, but I assure you no one is going to say my god, those louvers are ugly.
The other thing we discovered is that when we ask the question now where will the hoist go for us to be even to build out our space. Building out a million plus square feet, we need actually to hoist into the building, and access to the site is very constrained. I’ve been showing a model out there because you said a model in the lobby out here where the agents where servicing and I was pointing out that the site is so constrained as steel comes to the site as is needed. Anyway, a bottom line is, no one had actually thought about this before. So, we had to actually develop an entire process for hoisting to occur and a whole new logistics plan. Let me show it you this way.
Everybody on this site I said, remember it’s like a 21st century (inaudible) center, all the buildings ultimately, the four great towers will be reached under ground no cars, no truck, no sanitation trucks are ever going to be seen at grade. They are going to come in down here our [theory] in the red is one, they are going to come in down here through the vehicle security center, they are going to clear through the vehicle security center, they are going to go up here and this is all under ground that big yellow line is (inaudible) tree, they are going to run up and they are going to still loading these all along the way, there is tower four, there is tower three, there is a transportation hub, there is tower two and the final stop is one, which there is a [tort] access to and there are 13 loading base at one, and that is the plan. Ironically, the first building to be completed will be the last one to be able to be accessed through vehicle security. So we’ve said what year is the vehicle security center work going to be done? And they said, 2017. And we said, we’re going to move in 2014. How am I going to get into the building and here is the other thing I must tell you.
The (inaudible) Condé, is the Condé Nast of how many articles has delivered, 15,000 deliveries a week, how many come by a truck, how many come by man, how many come by messenger, it’s a real operating company. There is no mystery about what we need it. We could tell you absolutely. We can tell you how many black cars come in the evening, what days of the week, what are our high levels. If we’re going to have a trusted access program, how our black cars are going to clear security if they all come through.
So we had data up that give you from all the years we’ve been doing that. Anyway, I always say we intended our only three-letter acronym, we call it the Interim Loading Dock, the ILD. It is a $10 million, five-day temporary loading dock, that is being built for Condé Nast until the eco-security center is done. In addition to which, Condé Nast has the right to say, how many square feet in the buildings can be leased, based on the period between, when the interim loading dock is in place and the 13 loading base are there.
I’ll give you this just to suggest you the complexity of doing it, but now I end on the note that really is the one that history will remember about that. When we sent our proposal, and I remember I indicated to you, we wrote the proposal saying please give us this. We attached the 1998 issues in the cover of Vogue that not withstanding on the structural steel of Four Time Square. And if you opened up to the inside, you would see a variety of models to list up at the construction site.
And so, we attached this to our proposal, and I wrote to Chris, the Executive Director of the portfolio at that time. I said, dear Chris, this is what Condé Nast did Four Time Square. I assure you this is what they would do for the world trade center site. And I have to tell you, I have no doubt that when one world trade center opens up but the neighborhood will be filled with tenants just as Time Square was when Condé Nast moved in. So that’s our story. Thanks, Gil.
Thank you. Okay. Thank you. That concludes the formal part of our presentation and for those in the webcast, thank you for all listening.
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