Times are good in the commercial real estate industry.

National sales by publicly traded commercial brokers were up 32 percent in the first half of 1999 from the like period a year ago, according to researcher SBG Partners.

But the hangover from a recent consolidation binge dampened profitability. SBG estimates that the net income of commercial brokers has slipped, from $37.5 million in the first six months of 1998 to a loss of $78.8 million this year.

"The industry leaders have doubled in size in the last 30 months," said Al Beaudette, managing partner of Irvine-based SBG. "But this expansion has not come without a price."

Stock prices are depressed for all of the publicly traded brokerages. And real estate investment trusts, hammered by last year's uncertainty over the Asian flu and Russian devaluation, continue to slide.

Two of the largest retail brokerages, Grubb & Ellis and CB Richard Ellis, have had to take action recently against recessed stock values.

Northbrook, Ill.-based Grubb & Ellis will repurchase up to $3 million in common stock. At current prices, that would amount to about 500,000 shares, or about 2.5 percent of outstanding shares.

L.A.-based CB Richard Ellis has begun repurchasing up to $5 million worth of stock about 400,000 shares or 2 percent of outstanding shares at the current price level. CB also plans to pay off almost $50 million of its $425 million in debt, a legacy of an aggressive acquisition strategy.

"The market remains strong," said Jeff Misakian, vice president of investor relations. "We think right now buying back our stock is an attractive opportunity. We don't think the long-term value of our company is reflected in today's stock prices."

Fund managers overseeing many REITs are making the same claims.

"Though prices are depressed, when you take into account the dividends that they pay, REIT returns are up 0.15 percent through August," said Craig Leupold, senior analyst at Newport Beach-based Green Street Advisors.

Including dividends, he added, the average REIT is paying a total return of 7.9 percent to investors. But that isn't enough to soothe many concerned stockholders.

"We would expect that REITs should generate returns somewhat comparable to general market averages," Leupold said. "I wouldn't predict any strong rally by the end of the year. But at some point they should return to a more average market performance, in the 10 percent to 11 percent range in price appreciation plus dividends."

The question is, how soon. Bill Milligan, senior vice president for dispositions with Koll Bren Realty Advisors, pointed out that private equity investors have stepped up their activities as many REITs wait for stock values to appreciate.

The Newport Beach-based pension fund advisor has been active in the national market and has several local holdings. Koll Bren continues to look for hundreds of millions of dollars worth of new investments, expecting to improve its real estate portfolio substantially in coming months, according to Milligan.

"It's not our strategy to put pressure on REITs that's a byproduct of the market," he said. "When there are fewer buyers, prices are naturally somewhat lower."

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