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Cushman & Wakefield Could Be Courting Buyers, And Rumors Are Swirling Around JLL

The commercial real estate industry could be in for a major shake-up, with one of the largest brokerage firms reportedly engaging in acquisition talks. 

Cushman & Wakefield recently approached Newmark Group to discuss a potential takeover but was rejected, Bloomberg reported Tuesday, citing anonymous sources. Commercial real estate insiders in multiple markets tell Bisnow they have also heard talk about Cushman & Wakefield and JLL engaging in potential merger discussions.

225 West Wacker Drive in Chicago, the global headquarters of Cushman & Wakefield

Cushman & Wakefield has a higher debt load than its peers, including Newmark Knight Frank, JLL and CBRE, and it posted a $100M loss in its most recent quarterly earnings, compared to JLL and CBRE, which stayed profitable. Experts say Cushman & Wakefield’s financial situation, as well as the coronavirus pandemic’s impact on the economy, make it a logical candidate for a merger or acquisition.

Sources in Dallas-Fort Worth, Houston, Atlanta, Chicago, San Francisco and Washington, D.C., tell Bisnow they have heard persistent chatter about the two firms combining, but Bisnow wasn’t able to confirm that a deal is in the works. The sources, including real estate professionals within the two firms and elsewhere, largely described the talk as rumors and expressed heavy skepticism.

But one source told Bisnow he has heard about Cushman & Wakefield and JLL being in merger talks from multiple well-placed people, and his level of confidence in the rumor’s veracity is a seven out of 10, with 10 being absolute certainty.

“I’m a senior executive with decades in the industry and have played on a national and international scale, and my colleagues are all key decision-makers at the biggest companies. If I’m hearing it through that peer group, there’s something to it,” the source said, requesting anonymity to discuss sensitive corporate matters. 

Spokespeople for Cushman & Wakefield and JLL both said they don’t comment on market rumors. 

"Cushman & Wakefield has certainly benefited from ongoing consolidation as a leader in our industry, but we won’t comment on this, or any, market rumor,” a Cushman & Wakefield spokesperson said. 

While the current status of Cushman & Wakefield’s potential merger discussions remains unclear, experts say it could make sense for the firm to combine with another major brokerage to achieve greater synergies, given the financial challenges facing Cushman & Wakefield and the industry at large. 

Both Cushman and JLL have shown an appetite for consolidation, with JLL buying HFF for $2B in 2019, and DTZ acquiring Cushman & Wakefield for roughly $2B back in 2015, with the merged entity keeping the latter’s name. 

There are potential synergies between JLL and C&W that could make a merger beneficial, University of San Diego School of Business professor of real estate finance Norm Miller said. 

"I am sure that there are various regions that are covered better by Cushman and JLL, and vice versa,” Miller said. “There also are some functional areas where they complement each other. JLL may be more asset management-[focused] and maybe more institutional investment-[focused] than Cushman, so Cushman would benefit by this association. JLL is certainly more global, so it does make some sense when you are looking at, say, a global competitor like CBRE in how you compete."

The recent financial performance of Cushman & Wakefield compared with its peers could potentially make a takeover more likely. Cushman & Wakefield reported a $100M loss in the second quarter, while JLL recorded a positive net income of $14.3M and CBRE posted an $82M profit. 

Cushman & Wakefield also has significantly more debt than the other major brokerages. It reported a net debt of $2.4B as of June 30 in its quarterly filing to the Securities and Exchange Commission, while JLL reported $1.1B in net debt, CBRE reported $1.09B and Newmark Group, NKF's parent company, reported $647M.

JPMorgan Executive Director Anthony Paolone, an analyst who covers each of the major brokerage firms, said Cushman & Wakefield’s elevated debt level is a result of the firms’ 2018 IPO. He said it had been planning to gradually reduce its leverage over time after the IPO as it produced more cash flow, but this year’s economic crisis has made that more difficult. 

Now, Cushman & Wakefield’s higher leverage puts it at a greater risk if the economic situation worsens, Paolone said.  

“If we get another big drawdown economically and capital markets or leasing really just takes even another leg down or any recovery is protracted out, then naturally it’s going to be fairly impactful for Cushman because it is more levered,” Paolone said. 

Cushman & Wakefield CEO Brett White on a Walker Webcast in June 2020.

Seeing a mega-merger in the commercial real estate market now would not be surprising in the wake of the coronavirus pandemic, and in a market where leasing volumes and overall activity is lagging, said James Gaines, chief economist with the Real Estate Center at Texas A&M University.

“These are the kinds of economic times where these types of actions and activities might not be as much of a surprise when compared to a couple of years ago, when the market was hot and everyone was making money,” Gaines said. 

Gaines hasn’t heard any rumors about JLL or Cushman & Wakefield, and while he said pricing major CRE mergers is difficult, he finds the M&A among larger players more likely in this type of volatile market. 

Back in 2008, JLL made headlines when it acquired The Staubach Co. Three years later, CBRE paid roughly $900M for ING Group N.V.’s real estate investment management operations in Europe. Both of those transactions involved major real estate firms during a period of economic volatility after the market crash in 2008 and the subsequent recession. 

The decision about whether to merge would likely be tied to the production volumes that companies expect to see as the economy recovers from the pandemic, Miller said. 

"To see mergers that would require a big drop-off in volume that you expect to last a long time, otherwise why do it?” Miller said. “But if you think it's a more permanent change or a structural change, and other things are being changed and accelerated by COVID-19, then it does make sense to have more mergers."

DLA Piper partner Christopher Giordano, an attorney focusing on mergers and acquisitions, said he couldn’t comment on specific companies or rumors in the market, but he has seen M&A discussions generally begin to increase. He said he saw companies hit the pause button in the spring and summer as they waited for more certainty on valuations, but that has begun to change. 

“Now what I’m seeing are people moving back into the market. There seems to be an increased level of activity across various sectors,” Giordano said. 

He said he expects to see commercial real estate M&A deals beginning to close in Q4 of this year and Q1 of next, and he thinks the overall level of activity over the next 12 months will be greater than in the past year. He added that he thinks it is the right time for companies to be looking at M&A deals. 

“What the market has experienced over the last seven months creates a lot of opportunity given the dislocation we’ve seen in various real estate sectors,” Giordano said. “It very well may be an opportunity for consolidation among services firms.”

Giordano said the most likely deals in the commercial real estate services sector would be larger firms acquiring smaller firms in areas where they have not historically operated, giving them an opportunity to increase revenue. 

Paolone said it would be more difficult for two of the largest firms to merge because of the overlap in their markets and service lines. But it would not be unprecedented.

“When you have brokerages combining, the needle that has to be thread is paying a price that makes sense after you account for some level of attrition because typically there is a decent amount of overlap in the producers of the two systems that are combining,” Paolone said. 

“That’s the key with these things,” he added. “I think they’re possible, they’ve happened in the past, but being able to navigate that integration when you have overlap and tying that with an appropriate price for any given deal, that’s really the key.”

Jarred Schenke and Dean Boerner contributed reporting to this story.