Jones Lang Lasalle (NYSE:JLL)
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5 Years : From May 2012 to May 2017
Jones Lang LaSalle Inc. (JLL), a global commercial real estate services company, said Tuesday it had hired away a team of real estate investment bankers from industry leader CB Richard Ellis Group Inc. (CBG) as it ramps up its U.S. capital-markets division.
While the outlook for commercial real estate is murky, Jones Lang LaSalle, which ranked 10th in terms of brokering loans, believes the market is near its bottom. When the market turns, Jones Lang LaSalle hopes to close the gap with CBRE by tapping the people credited with creating one of the most powerful financing units in the industry.
That team includes Thomas Fish, Michael Melody and Thomas Melody, whom Jones Lang LaSalle has installed as executive managing directors of its Americas Real Estate Investment Banking business.
The Melodys built L.J. Melody & Co., a real estate investment bank in Houston, which was a pioneer in tapping investors and debt markets to finance real-estate deals. CBRE acquired L.J. Melody & Co. in 1996 and later integrated it into CBRE Capital Markets.
Jones Lang LaSalle hired the bankers now to try to tap what it believes to be pent-up demand among investors eager to find opportunities in commercial real estate.
"There's a lot of capital on the sidelines just waiting to deploy," Tom Melody said. "The challenge is to present them with good opportunity."
Jones Lang LaSalle, which had $2.5 billion in global revenue in 2009, has turned its attention to financing after having built its U.S. business by acquiring two mid-size brokerage houses: Spaulding & Slye in 2005 and Staubach & Co. in 2008.
"It's a great chance to build when, in a sense, we can start at the bottom of the market," said Jay Koster, Americas Capital Markets President at Jones Lang LaSalle.
For now, commercial real estate is still in crisis. Delinquency rates on loans are up, property values are nearly 40% off from their peak, and occupancy rates and rents are down. Further, as loans mature, many property owners find it difficult to obtain fresh capital, since lenders want property owners to bring fresh equity into deals.
Jones Lang LaSalle's interest in building its financing division is a sign that capital is coming back to the market. Anecdotally, market participants speak of cash buyers lining up for the few properties being sold. This demand has helped to stabilize prices, bring up loan-to-value ratios on new loans to 70% from 60% last year, and normalize capitalization rates to the 7% range from 10%.
Capital-markets divisions in commercial real estate companies came of age in the last decade with leasing and property management, as securitization became the major source of financing in the field. These days, the divisions encompass debt and equity financing, property sales, restructuring and refinancing of existing loans.
Jones Lang LaSalle has a lot of catching up to do if the company is to reach its goal of becoming one of the Top 2 players.
The firm, which said it did $1.9 billion in business in 2008, will face market leaders including Holliday Fenoglio Fowler L.P., which did $13.1 billion business in 2008, according to the Mortgage Bankers Association, and CBRE, did $7 billion that year.
Tom Melody said the chance to grow and build a business, essentially from scratch--as they did at CBRE almost 14 years ago--is what attracted him to this venture.
-By Prabha Natarajan, Dow Jones Newswires; 212-416-2468; email@example.com