Poised & Ready

The following is an HTML version of a feature that ran in the February/March 2013 issue of Real Estate Forum. Click here to view this story in its original format. 

Cushman & Wakefield describes itself as “driven,” apt for a firm whose majority stakeholder is EXOR, the Agnelli family-controlled Italian investment company that also holds interests in automobile manufacturers Fiat, Ferrari and Maserati. Founded in 1917 as a New York City-based property manager, C&W now intends to benefit from changes it has introduced in recent years—especially following the impact of the recession on brokerage firms—to remake itself as a global provider responsive to the needs of today's marketplace.

Reflecting the firm's global aspirations, conference rooms in C&W's Midtown New York global headquarters are named after major global cities and continents, such as Paris, Mumbai, London and Australia.

Glenn Rufrano, C&W's president and CEO, notes, “The old C&W was known as a powerhouse brokerage firm. We constantly refer to the new C&W as a global real estate advisory and transaction services firm.”

One area that the privately held C&W seeks to grow in is providing services on an outsourced basis. As businesses worldwide continue to do more with less, C&W expects that they will be more interested in outsourcing their real estate services to agencies such as C&W. The firm undertakes this task through its Corporate Occupier and Investor Services Group, managing more than 900 million square feet of real estate globally.

Rufrano expects to see more of such outsourced activity in 2013, after a good 2012. “Markets are telling companies to focus on what they do best—their core business. We think there will be other opportunities for us to expand C&W as companies look to push off some of those noncore activities to us,” Rufrano says.

With this end in mind, C&W made its acquisition of Atlanta-based Cousins Properties' third-party property management and leasing business last year. Project management activities, including construction, and lease management are other outsourced activities where the firm sees growth.

In the capital markets area, Rufrano foresees more transaction activity worldwide and expects C&W will get its share of that. The firm is anticipating global investment sales activity to exceed $860 billion in 2013, up from $775 billion in 2012. And as capital markets pick up, C&W's valuation business, providing appraisals of transactions and financing, is also likely to pick up.

C&W also engages in some consulting activity that offers scope for growth. The firm has handled a rapid headquarters relocation and expansion by Ericsson in Mexico City, as well as conducted market studies for the retail and healthcare industries in 14 North American, European and Middle Eastern countries on behalf of Gazit-Globe Ltd. 

Leasing activity is also anticipated to pick up in 2013. “Corporate users of space will wade in,” Jim Underhill, C&W's CEO of the Americas, expects. “They wanted to see how the economy would firm up before they invested capital to move or spend or make investments.” C&W is already seeing good leasing activity this year, on the heels of a good fourth quarter, according to Underhill.

Although C&W is optimistic about the impact of broadening its activities, the process hasn't always been easy and there have been changes along the way. For one, Rufrano, who was previously CEO of Australia-based Centro Properties Group and took the helm of the company in 2010 from Bruce Mosler, introduced a matrix management system that makes for greater accountability. Under this system, the company's regional business lines, such as capital markets, report to the head of that region. This means that, for instance, when decisions need to be made about capital markets activities in the Americas, Underhill, as head of the region, is involved and works with the global head of capital markets, Greg Vorwaller.

Previously, C&W's different business functions, such as corporate strategy, and regions, such as the Americas, reported directly to the CEO, and its business lines were not integrated into this reporting structure. Rufrano believes that the company's marketing efforts for high-profile properties worldwide are much more efficient with the new system and can be done on a coordinated global basis. Initiatives such as an international desk to facilitate leasing transactions across borders, and an international retailer group to help the flow of international retail activity, have also enabled better global coordination.

Rufrano has initiated a cultural shift within the company to make the business more team-oriented and responsive to customers. “It's no longer about one broker on his own doing deals for his clients,” he says. “It's about embracing a team environment. If someone wants to practice old-school brokerage, do things on their own, that's wonderful, but they'll probably be practicing it somewhere else,” Rufrano says.

One C&W client happy about the firm's broader focus is Brookfield Office Properties, which has hired C&W as leasing agent for the high-profile Manhattan West project. Construction on the five-million-square-foot office, retail and residential property, located on the Far West Side of Midtown, started this year.

Mitch Rudin, Brookfield's president and CEO of US commercial operations, sees C&W's expanded focus as a positive for Brookfield. “It adds value to the extent that they have established relationships with corporate users who could be potential tenants for us,” he says.

And Brookfield can also gain from C&W's capital markets expertise in deal structuring. “The more success they enjoy, the more they can invest in the company,” says Rudin. “And as a client you can enjoy the benefits of that.” Looking to tap an international tenant base for the building, Brookfield also saw C&W's global reach as a positive.

With 253 offices and more than 14,000 employees in 60 countries worldwide at the end of 2012, C&W is one of the largest commercial real estate players in the global arena. The firm recently added offices in Taiwan and the Philippines. Its investment management business also, in late 2012, acquired an interest in Starwood Capital Group's European commercial real estate debt platform, to diversify further.

Rufrano says, “Global is an easy word, but it's a very hard concept to institutionalize in any organization. There are language differences, time differences, legal differences. So we continually work on making sure that our clients get priority in a way that is as efficient as possible.”

Considering that a firm with global ambitions faces a lot of competition and has to maintain its standards, one way C&W aims to differentiate itself is by providing consistency in client service globally. According to Rufrano, the firm achieves this, “in some cases, by taking people out who shouldn't be there and putting in new people, increasing the size of offices, putting in new business lines.”

The differences between US and global transactions have been narrowing as well, he notes. In marketing high-profile properties such as Ducat Place in Moscow or Singapore's Capital Square, for instance, C&W found that many of the interested investors—including leading pension funds from Singapore and Denmark and US public companies—are the same players. “There's more of a similarity in marketing today than there was 50 years ago,” Rufrano notes. “Today, you market those properties to similar investors who are interested in having class A properties in preferred locations around the globe.”

C&W's global reach is one factor that attracted Northmarq's real estate services group to forming a Minneapolis-based joint venture with C&W called Cushman & Wakefield/Nothmarq Real Estate Services. The venture helps C&W expand its presence in the Twin Cities area and offers Northmarq global capabilities. Jeff Eaton, president of the joint venture, says, “For some of the larger global investors, it's crucial to be standing on a national or global capital-markets platform in order to pursue business effectively.”

Eaton points to the sale of the 1.7-million-square-foot Normandale Lake Office Park, calling it the largest office property sale in Minnesota in 2012. The venture completed the sale for TIAA-CREF. “That's a good example of an assignment we wouldn't have been awarded had we not been allied with C&W's capital markets team,” he says. “We pursued that and collaborated with their team in London and Singapore, because this is a property that got global investor attention.” C&W's expansion into other service lines, as well as its ability to be nimble and provide customized solutions to clients, are also appealing to Eaton.

Technology is driving further changes at both the company and in the greater commercial real estate industry. Even as the retail sector is disrupted by e-tailing or online shopping, and the office sector contends with the advent of flexible work arrangements, such as telecommuting, C&W is looking to make technology work for the company.

Rufrano doesn't see the prospect of being disintermediated by the Internet as a threat for C&W. He observes, “If you're a firm that is solely in the business of identifying space for clients, you will probably get disintermediated at some point. And that's why we come back to the high-value advisory work that we do. It all begins with understanding the client, not just the facts of space, but the culture of the organization and its long-term objectives. I don't think that ever gets disintermediated.”

C&W has also invested in a leading client relationship- management program that helps it better communicate with clients, according to Underhill. Seeing an opportunity in change, the firm has also launched a mobile application that helps brokers show properties to clients. Brokers can identify properties of interest to clients and use the application to show them what the property looks like inside, while walking around the city. C&W sees this sort of technology, which provides interpretation rather than listing a space in commodity fashion, as an avenue to add value and efficiency.

The greening of commercial real estate is another area becoming more important in both the US and internationally, presenting further opportunity for the firm. In Australia, for example, where Rufrano ran Centro, he points out that corporations' public filings indicate what they are doing to become greener. In the United States, C&W's corporate clients have also started seeing the economics of green, such as the payback period for an investment, become clearer. Rufrano expects that ultimately this will be a concern for all his clients.

In its own operations too, C&W strives to be green, committing to the Environmental Protection Agency in 2008 to cut down on carbon emissions from energy and water use and better manage waste disposal, in the spaces that C&W occupies, as well as in the portfolio it manages for others. As part of this commitment, the firm has challenged its managed portfolio to make a 10% reduction in its energy use, water use and waste disposal in 2012, from a 2008 baseline.

Looking ahead, Rufrano also expects that real estate will increasingly be seen as another income-producing entity and less of a commodity. Much like car loans or bonds from IBM are part of the capital markets, so is a REIT that owns buildings. “So understanding capital flows and how to minimize the cost of money for a client will be more important,” he says.

While this development is already in evidence, he expects it will be more of a factor in coming years, making the real estate market less imperfect. In today's market, “the imperfection of real estate, as compared to the perfection of trading bonds” gives people an opportunity to make money, as Rufrano sees it. He expects “a much more sophisticated capital market will evolve in real estate over the coming years.”

As for the near term, C&W expects that 2013 will be a year of less uncertainty. Rufrano expects all of C&W's business lines, and all regions, to do better in 2013, even though there are still concerns about how the US is managing its fiscal situation and deficit-reduction efforts. In fact, the firm expects investment sales activity to go up in all regions of the world, with the Europe, Middle East and Africa region up 8%, the Americas growing 15% and Asia Pacific gaining 10%.

The factors contributing to the optimism, Rufrano notes, are that, “In Italy and Spain, bond yields are down. There's less uncertainty in Europe and a feeling that they're going to hold together, which is very important. It's really going to help Asia that China has stabilized its new leadership. And in the United States, the election is over, whether you like it or not.” All this means that “pipelines will grow.” And C&W intends to get its share of this business, benefiting from change initiatives it implemented to better position itself.