Propmodo Daily

By Franco Faraudo · Feb. 9, 2024

Greetings!

CBRE is making a bold move during these tough economic times by acquiring J&J Worldwide Services, a leader in maintaining government and medical facilities. Under the the strategic vision of CEO Bob Sulentic, this move expands CBRE's range of services and strengthens its Global Workplace Solutions division—a standout performer in a challenging market. The acquisition increases CBRE's presence in the stable government infrastructure sector, where they plan to aggressively expand their market share.

Also, don't miss this week's Propmodo Technology series, presented by ROOM, on the latest hybrid workspace trends, including modular designs, office space planning, and desk utilization.

Now, let's dig in!

CBRE Bets Big on Government Infrastructure Services

CBRE, like every other brokerage, has felt the squeeze of high-interest rates. Revenue for their advisory services was down 17 percent as of their last earnings report in October. Their investment management and development business are also down from the previous year. But CBRE’s total revenue is up 4 percent thanks to the growth of what is now their largest division by revenue, Global Workplace Solutions.

The property and facility management arm of CBRE has been carrying the company, and now they are looking to expand it. They have just announced a deal to acquire a majority interest in J&J Worldwide Services, a facilities management company that services hospital and government buildings, for over $1 billion. This follows the diversification strategy that CEO Bob Sulentic explained in 2022 when CBRE invested $1.3 billion dollar for control of the British property and project management company Turner & Townsend. “This is a very exciting step that advances CBRE’s diversification strategy across four dimensions – asset types, lines of business, clients, and geographies,” he said at the time.

As interest rates have risen, CBRE has been conservative. They have focused on cost-cutting and stock buybacks. They had put the acquisitions on hold to wait for prices to adjust to the economic situation. “We are just simply not going to pay prices that we think are unreasonable just to get businesses that we like,” Sulentic said. “We think pricing is going to come into line.”

But now CBRE seems to feel good about the path ahead, especially when it comes to management. The J&J purchase is a big one for them, but the contracts that the company has are very valuable since government buildings don’t tend to have much need to find new management. J&J also has a few lines of business that would be completely new for CBRE, including medical device maintenance, environmental services, and military base support solutions.

Governmental spending seems to be at the top of CBRE’s list of opportunities. In the last earnings call, Sulentic said, “We have a nice size infrastructure investment management business. It’s small relative to our overall investment management business, but it’s in the upper-single digits in terms of billions of dollars of AUM, and we are looking for opportunities to grow that because we think it’s got a great long-term secular profile.”

Even with the slow economy, CBRE is actively seeking growth opportunities. They plan to expand into new regions and sectors by making strategic acquisitions. By enhancing their profitable management division and reducing expenses in their advisory and brokerage services, they aim to strengthen their financial standing. Once the market recovers, this could position them well to resume acquiring underperforming brokerages.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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