Orange County’s two largest commercial real estate brokerages that solely represent tenants in lease negotiations are combining forces.
The Newport Beach office of tenant representation firm Travers Realty Corp. said last week it was merging with Cresa Orange County, the local office of Boston-based Cresa LLC.
The deal will result in a combined Orange County office—which will operate out of Newport Beach under the Cresa name—with about 30 brokers.
On a combined basis, the two OC brokerages worked on nearly $1 billion worth of lease and sales transactions last year, according to Business Journal data.
Each of the firms represent a number of the Orange County’s larger professional services, technology and medical companies in lease transactions and related corporate services.
Notable area companies that have worked with the two firms include law firms Rutan & Tucker LLP and Stradling Yocca Carlson & Rauth P.C., technology companies such as Microsemi Corp., Verizon Wireless and Mophie Inc., and apparel company Fox Head Inc.
‘Two of the Best’
The merger will become effective around the start of 2015, according to Randall Parker, president of Travers. Parker and colleague Steven Card will become principals at Cresa’s OC office, which is locally owned and operated.
“We’re getting two of the best (tenant rep) practitioners to join our firm,” said Jeff Manley, Cresa principal, speaking of the two new partners. “It will make … us a formidable presence.”
“The deal made a lot of sense for us,” Parker said. “We share the same DNA.”
Financial terms of the deal were not disclosed. A similar merger is taking place simultaneously in Los Angeles, where Travers Realty and Cresa also have offices.
A total of 32 brokers spread over Travers Realty’s OC and Los Angeles offices are joining up with Cresa, resulting in combined offices with about 150 employees. James Travers, the namesake and founder of Travers Realty, is becoming a managing principal and member of Cresa Los Angeles’ board of directors.
James Travers called the deal “a merger of similar corporate values, commitment and focus.”
The two companies are among the largest on the West Coast that focus solely on tenant representation in lease negotiations, which they view as a better business model compared to having brokers from the same company represent both landlords and tenants in the same real estate transaction.
California recently enacted a law requiring brokers to disclose whether they have relationships with both the tenant and landlord—legislation that’s seen as an effort to weed out potential conflicts of interests.
The real estate broker agency disclosure bill, SB 1171, was championed by San Diego-based tenant rep firm Hughes Marino and goes into effect in January.
The new law “is a game-changer,” said Jason Hughes, Hughes Marino chief executive. “Everybody wants an unbiased fiduciary.”
Growth Planned
Cresa’s OC office ranked as the area’s 14th-largest commercial brokerage last year on deal volume, and was the largest tenant rep firm in OC. Travers was No. 16 among area commercial brokerage in terms of the value of the leases they worked on last year, according to Business Journal data.
Other larger tenant rep firms in the area include Studley Inc. which ranked No. 18 on the latest Business Journal list and earlier this year announced a merger of its own, with London-based Savills PLC.
The newly combined company is based in New York and has an office in Irvine. It is now known as Savills Studley.
Hughes Marino, the largest tenant rep firm in its hometown, has been expanding its OC presence over the past year and half, and now has an Irvine office with more than 10 brokers.
The OC office of Cresa has its eyes on its own expansion. The brokerage plans to add other experienced brokers going forward. The merger, and expected growth that will come from the deal, “was more expedient” than trying to grow Travers organically, according to Card.
“This deal really seemed to make more sense for us,” he said.
Cresa’s local office has tended to derive a good amount of business from larger national clients with space needs outside OC, while Travers has been more focused on local deals, with an emphasis on legal tenants, said Pat Murphy, managing principal for Cresa.
“This will offer (Travers) a national platform,” in addition to a few new related services like lease administration and project management, Murphy said. The merger of the two local offices should “fit like a glove” he said.
The Cresa-Travers merger comes amid a changing landscape in the local office market.
After a nearly six-year run where tenants largely had the upper hand in lease negotiations, due to a large glut of empty space resulting from the recession and a flurry of new office construction just prior to the economic downturn, vacancy rates are beginning to turn in the favor of landlords, particularly for higher-end buildings.
Office vacancies now run about 13% or so, according to brokerage data, down from nearly 20% at the peak of the last downturn.
Average monthly rent for office space now runs a little more than $2 per square foot, up more than 5% from a year ago, but rents can run 25% higher, if not much more, for better-quality space in in-demand buildings.
“Now more than ever, tenants need us,” Parker said. “They need to have folks that are aligned with their business plans.”
