Analysis: NAI Purchase Reflective of Corporate America

June 23, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Banalities

Real estate investment company C-III Capital Partners L.L.C.’s announcement that it will acquire NAI Global—combining its commercial real estate loan servicing, loan origination, fund management and principal investment activities with the largest network of independent commercial real estate firms in the world—turned heads in the industry, but the deal says just as much about where the country is going as it does about the real estate market.

It will be quite a syndicate, C-III with its portfolio of $150 billion in assets and NAI bringing to the table its staff of 5,000 and presence in 55 countries. In the end, the merger will provide for an augmentation of service offerings on both sides, a new capacity for growth and the potential for significant savings. It’s an increasingly popular recipe for success.

“There’s growing consolidation in real estate just as there is in corporate America,” Stan Ross, chairman of the USC Lusk Center for Real Estate, told CPE. “Businesses are looking to reduce overhead and become more efficient and more effective, so the real estate industry is doing the same thing.”

Through M&A companies have been able to maintain or increase the bottom line, he said, adding, that “the overused term of ‘synergy’ finds its way into the conversation.” With synergies, there is an overlap in jobs, which leads to a reduction in headcount. That’s part of the efficiency side; then there’s the expansion issue. Globalization is becoming more of a necessity for real estate corporations and other business. “You’re going to find companies that haven’t created platforms to compete in that marketplace, so the quickest way to get it is through M&A”

Jones Lang LaSalle took the quick route in its globalization endeavors recently. In May, the commercial real estate services firm paved the way to substantially increase its footprint in Europe in one fell swoop by agreeing to merge its EMEA operations with King Sturge, a London-based international property consultancy firm, in a deal valued at approximately $319 million. “The global commercial real estate sector is going through a phase of consolidation,” Mark Stupples, U.K. managing partner with King Sturge, told CPE after the announcement of the deal. “Clients want advisers who have global reach, local expertise and a broad skill-set.”

As for the C-III and NAI transaction, the arrangement will mark a big step forward in C-III’s goal of creating, as Andrew L. Farkas, head of C-III, noted, “a fully diversified commercial real estate services company.” For its part, NAI will have the platform to increase its service offerings and develop new ones. NAI will continue to operate as a separate company following the transaction’s anticipated third quarter closing, thereby maintaining its brand identity while obtaining all the cost benefits of being acquired by C-III.

“With mergers, you wind up with a stronger balance sheet, so it gives you access to more opportunities, to larger opportunities,” Ross said. “That’s what’s taking place in this country, slow growth but bottom line earnings. The end result is, across the whole country, we’ll see consolidation—at the bank level, financial institutions, services companies, as well as development companies because many of them haven’t even survived.”