ews wrap
Public Companies Take Q2 Hits
As Economy, Deal Volume Slump
The second quarter reports are in for
some of the industry’s biggest names
and the results aren’t pretty.
Los Angeles-based CBRE reported
Q2 net income of $16.6 million, or eight
cents per diluted share, compared to
$141.1 million, or 59 cents per share, in
the same quarter a year earlier. In a
statement, Brett White, CBRE’s president and CEO, attributed the decline to
a shift in market conditions. “As we
anticipated, the leasing business turned
down from the strong
first quarter, especially in
the Americas and the
UK, reflecting weak eco-
tor with Lehman Brothers who monitors CBRE, is not surprised by the company’s Q2 results. “A material portion of
CBRE’s top-line revenues comes from
brokerage activities such as investment
sales and leasing transactions. It’s fair to
say in the current environment that
activity has slowed,” says the New York
City-based analyst.
Smotrich emphasizes, however, it is
important to make a distinction between
predominately transaction-oriented companies, like CBRE and Grubb, and ownership entities. “The equity REITs we follow that own properties benefit from
long-duration leases,” he says. “Even
“It’s fair to say in the current
environment that activity
has slowed.”
ROSS SMOTRICH, LEHMAN BROTHERS
nomic activity and decreasing business
confidence,” stated White. “Investment
sales activity remained quite soft due to
a broadening of the credit market turmoil and a continuing gap between
buyer and seller expectations of property values.”
Meanwhile, Grubb & Ellis charted a
net loss of $5.1 million, or eight cents a
share, in the second quarter. For the first
six months of ’08, the net loss tally was
$11 million, or 17 cents per share. The
Santa Ana, CA-based firm attributed the
drop to a non-cash charge of $8.9 million for catch-up depreciation and
amortization related to the reclassification of assets held for sale to ones held
for investment. Also, year-to-date, the
company absorbed merger-related and
integration costs of $7.6 million resulting
from Grubb’s union with NNN Realty
Advisors LLC in late 2007.
In light of the subdued deal environment, Ross Smotrich, a managing direc-
though there is some volatility in the
underlying real estate markets, the fact
that they have long-term leases with credit tenants provides stability of cash flow
and, to some degree, growing cash flows.”
Yet several REITs did register lackluster Q2 results. For instance, Vornado
Realty Trust reported a quarterly FFO
total of $208.3 million, or $1.27 per
diluted share, down from $281.7 million, or $1.72 per diluted share, in the
second quarter of 2007. Post Properties
Inc. weathered a Q2 net loss of $27 million, or 61 cents a share.
Ultimately, Smotrich says, ownership
companies will be impacted if the economy continues to deteriorate. “That
said, historically, what has negatively
affected real estate is oversupply and
you’ve not seen significant overbuilding
in this cycle,” he says. “So when the
market comes back, it will bounce back
a bit more robustly than it has in the
past.”—Maria Wood
Arden Launches
National Expansion
Arden Realty Inc., the owner of 220
office buildings comprising more than
13. 3 million sf in western markets, plans
a national expansion that will take the
West Los Angeles-based company into
other regions of the US. Arden chief
investment officer Michael Lynch says
that the firm will be looking primarily
for value-add and core-plus office properties in Midwestern and East Coast
markets.
Lynch notes that Arden already has
acquisition directors in those two areas
as part of the direct investments business unit of Arden’s parent, GE Real
Estate. The office portion of the direct
investments group will be rolled into
Arden as part of the national expansion.
“While the Arden name will be new
in those places, we already have good
people there, with good networks, so it
should be a fairly seamless proposition,”
Lynch relates.
“We are not going to be in every market,” he continues. “We will probably be
more bi-coastal with key interior locations.” These will include, at minimum,
Chicago, Denver and three Texas cities:
Austin, Dallas and Houston.
Arden will be looking for buildings
that present an opportunity to add value
through leasing or physical repositioning, Lynch says. Despite the economy,
there are still some places where there
are below-market rents that can be
raised, the CIO points out, noting that
the company has also added value to
many properties through its energy
management group and other green
building practices.
How soon Arden purchases properties is difficult to say because of current
conditions, Lynch says. “We are going to
be careful, but we are going to be consistently out in the market looking for deals
that meet our return requirements.”
Although the company would hope
to close a deal or two before the end of
the year, it all depends on what comes
to market. “I suspect that as we roll into
2009, there will be pressure on some
