By year's end, there will be 140 fewer brokers. But that doesn't mean that the company isn't continuing to scout for top producers, McClain emphasizes. The across-the-board layoffs are aimed at culling lower-performing brokers from the ranks of the 558-member professional strata.
McClain says multiple factors are being taken into consideration in the weeding process. Production history is just one part of the formula. The Denver office lost an entire build-to-suit retail division, accounting for less than 5% of the total head count of the brokers' positions that will be axed. In some markets, offices will be consolidated. But, McClain emphasizes, Trammell Crow will not pull out of any existing market. Outsourcing divisions and the firm's international operations will not feel the fallout of a firm seeking to rein in cost.
"A broad geographic pain is being felt here," says McClain. "Brokerage is the last piece to the actions we've taken this year." And, he adds, the cuts will even hit the senior levels. The goal is to finish the task by year's end. "It's painful to do," says McClain. "But we need to be positioned as we enter 2002 with cost structuring that's appropriate in light of a market that's been hit hard."
The "lion's share" of the projected $30 million in savings will come from driving down the head count, which started earlier this year in all levels but brokerage. In 2002, the continued savings from the cost-reductions, also hitting general administration, will translate to $50 million. To date, Trammell Crow has spent $3.5 million on severance packages for those cut from the ranks of the 7,500-employee network.
"We clearly rapidly ramped up our cost structure in 2000 in anticipation of a larger market and the opposite occurred," McClain explains. "The market moved the other way and forced us to cut costs and aggressively act to get costs back in line with our revenue prospects."
The belt-tightening was under way long before Sept. 11. But the third-quarter earnings statement further reinforces the need to continue along the same path. Revenue was down $19.8 million in a year-to-year comparison of the third quarter. In 2000, Q3 revenue was $202.8 million and $183 million this year. Adjusted EBITDA in the first nine months of this year was $54.6 million and $76.6 million in 2000. Adjusted net income was $13 million, down $15 million from last year.
This year has brought a "dramatic shift in the revenue mix" as development and brokerage tallies dropped by slightly more than $50 million and facilities and property management rose $48 million. "At this point in the year, the greatest uncertainty impacting our full-year performance continues to be the brokerage revenue picture," says CEO Robert E. Sulentic in a prepared statement.
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