When it comes to commercial real estate brokerage, leasing, and most other services related to commercial real estate, CBRE Group (NYSE: CBRE) is in a class by itself. Let's take a closer look at what this almost $30 billion real estate giant does, its recent developments, its performance track record, and more.
CBRE Group company profile
CBRE Group is the largest commercial real estate firm in the world (and one of the oldest). Its predecessor firm was founded in San Francisco in 1906 and was a subsidiary of Sears in the 1980s. In 1989, it was spun out to private investors as CB Commercial.
CBRE's current form is a result of the company's acquisition of Richard Ellis's international business, REI Limited. Afterwards, the company became known as CB Richard Ellis, or CBRE for short, which completed its initial public offering (IPO) in June 2004 and became a component of the S&P 500 in 2006 (and remains one today).
CBRE provides a variety of services for investors, property owners, buyers, and tenants. In addition to property sales and leasing, CBRE provides facilities, transaction, and project management; property management; investment management; strategic consulting; and more. CBRE also holds the number one global market share in leasing, property sales, outsourcing, and development and valuation services.
The company has more than 100,000 employees worldwide and does business in more than 100 countries. And just to give you an idea of the scale, CBRE generated nearly $24 billion in revenue in 2020 -- and 90% of the Fortune 100 are CBRE clients.
About 28% of CBRE's revenue comes from its advisory services business. The bulk of the rest comes from its Global Workplace Solutions business, which includes the company's facilities management operations and its project management business.
CBRE has a relatively small investment business (4% of revenue) that provides asset management and development services. However, it's worth noting that CBRE is the largest commercial property developer in the U.S. and has $124.5 billion in assets under management globally. This isn't exactly a tiny business.
Recently, the strongest growth has come from CBRE's mortgage servicing and origination businesses, which grew revenue by 21% and 14%, respectively, year over year in the first quarter of 2021.
CBRE has a rock-solid balance sheet and actually has a net leverage ratio of zero, meaning it has just as much cash as debt. The company has $1.8 billion in cash on hand in addition to a $2.8 billion untapped credit line, giving it a total of $4.6 billion in liquidity to pursue attractive growth opportunities as they arise.
CBRE is led by president and CEO Bob Sulentic, who has been at the helm since 2012. Before adding CEO to his title, Sulentic served as CBRE's president, and in 2009, he served as chief financial officer in the midst of the global financial crisis.
Additionally, an impressive array of business experience can be found throughout CBRE's board of directors, which includes the COO of the Markle Foundation, former CEO of Staples, former CEO of Extended Stay America and AMC Entertainment, former CEO of United Airlines, and the current president of Capital One Financial Services, just to name a few.
CBRE Group news
By far, the most significant news item affecting any real estate stock in the past year or two has been the COVID-19 pandemic. And different real estate companies have been affected in different ways and to different extents.
At the onset of the pandemic, CBRE's business certainly felt the effects. Overall, fee revenue dropped by 21% in the second quarter of 2020 year over year, and while the business remained profitable, EPS was less than half of what it had been during the same quarter the year before. Advisory services income was hit especially hard, with fee revenue falling more than 30% year over year as leasing activity and commercial real estate sales activity plunged.
Loan servicing income increased, as did the company's loan portfolio, as the surge in borrowing activity brought on by record-low interest rates created a bright spot in an otherwise ugly earnings release at the height of the pandemic.
The business rebounded nicely throughout the rest of 2020. In the fourth quarter, for example, the year-over-year decline in fee revenue had narrowed to just 7%, and thanks to solid spending controls put in place at the start of the pandemic, EPS actually increased by 10% year over year in the fourth quarter of 2020.
Beyond the COVID-19 pandemic, there are a couple of noteworthy developments to mention.
For one thing, in March 2021, it was announced that in 2020, CBRE held the No. 1 global market share in commercial real estate sales for the 10th year in a row. According to Real Capital Analytics (RCA), CBRE had a 24.2% market share globally in 2020 -- that's 860 basis points (8.6%) ahead of the next-largest competitor. In specific types of commercial real estate, here's what CBRE's market share looks like: