CBRE Shares Hit New Heights Despite Climate of Uncertainty

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What are investors to do when a high-growth stock hits a new 52-week high even as insiders have started selling off shares?


That’s the question being posed about CB Richard Ellis Group Inc., the nation’s largest commercial real estate broker, whose share price has doubled since coming public a year ago.


The company’s two large equity investors Blum Capital Partners in San Francisco and Freeman Spogli & Co. in Los Angeles pared their holdings in a secondary offering in December. Blum still owns 27 percent of CB Richard Ellis, down from 41 percent, while Freeman Spogli holds 5.4 percent, down from nearly 10 percent.


Brad Freeman, founder of Freeman Spogli & Co., said the company held onto the investment far beyond its typical holding period. “We have been in the investment for 11 years, and that’s one of longest holdings,” he said. “They’re the largest in the industry, they have great cross-border capabilities and can provide multiple real estate services to large clients.”


Late last month, Richard Blum, who is chairman of CB Richard Ellis’ board, sold roughly 4 million shares and pocketed about $152.6 million, according to Thomson Financial. A call to Blum was referred Blum Capital’s general counsel, who did not respond.


Despite the sales, CB shares hit $40.09 on June 1 before settling back under $38. Analysts say that insider sales, along with the company’s high debt load, are the biggest risks to future share-price increases.


“While the financial sponsors appear to remain committed to CB Richard Ellis, we believe it is possible they may continue to sell shares at opportune times,” Patrick Burton, an analyst at Smith Barney, wrote in a recent report.


Burton has a $45 price target and believes the company is gaining market share from competitors Jones Lang Lasalle and Trammell Crow Co.



Assessing major markets


Investors have flooded Yahoo Finance and other bulletin boards with comments about a recent ranking by Investor’s Business Daily, which uses a proprietary database to pick stocks with strong potential for price increases. CB Richard Ellis ranked No. 9 on a list of 100 stocks for a combination of key stock measures such as return on equity, sales growth, profit margins and rising mutual fund ownership.


More fundamental may be whether velocity returns to the leasing markets in Los Angeles and New York, which contribute nearly 30 percent to overall revenues.


Brett White, the company’s president, who was to succeed Ray Wirta last week as chief executive, doesn’t worry much about any potential economic downturn.


“We had terrific financial performance during the downturn because we’re deep in business lines that are counter-cyclical,” White said.


“When the economy is tough, like it was from 2001 to 2004, what you see is the Fed lowers interest rates and a low interest-rate environment is very attractive to customers who want to buy or refinance investment-grade properties particularly large institutional investors who are moving capital from equities to hard assets,” he said.


White is particularly bullish on Southern California, where the company’s market share is twice that of its nearest competitor, Cushman & Wakefield Inc.


While some players in the office market are guarded, CB Richard Ellis, Cushman & Wakefield and others project a sharp rise in occupancy rates and asking rates in L.A. and other key cities during the second half of 2005.


“All the measures that we would look at to predict recovery are pretty much in place for the office market, both in the U.S. and elsewhere,” White said on the company’s first-quarter conference call.


Future profitability will depend on whether significant cost savings can be achieved from the $431 million Insignia purchase. White said the deal was “a lot of work” and “time-consuming” and that the company’s “proven record of large acquisitions” is one of the reasons investors continue to be attracted to its story.



Staff reporter Kate Berry can be reached at (323) 549-5225, ext. 223, or at

[email protected]

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