REIT Pullback, New Completions Add to Market; CB Richard Ellis Again No. 1
Thanks to less activity by real estate investment trusts and continued new development, Orange County’s top property management firms saw their OC portfolios grow in the past year.
OC’s top 25 property management firms,led once more by CB Richard Ellis,now manage 124.17 million square feet of space in the county, a 17% jump from the 107.07 million square feet these same firms managed last year. Additionally, the aggregate portfolios of the top 25 firms on this year’s Business Journal list represent a 15% increase from the top 25 firms on last year’s list.
“I think that there are new buyers in the market now,” said James Estrada, a vice president with Transwestern Commercial Services, which was ranked No. 4 on this year’s list with a 10.45-million-square-foot management portfolio in Orange County. “The REITs are not the strongest buyers in the market (anymore) because their cost of capital is fairly difficult and so pension fund advisors are back in the market like they were prior to the REITs. So, as it relates to management services, pension fund advisors typically outsource their management services, so there are more opportunities than in the past.”
In the past, during the buying binge orchestrated by REITs in 1998 and part of 1999, a lot of commercial space purchased by REITs was managed by in-house entities, reducing the available inventory and source of business for third-party management companies.
The increase in business for the firms with the biggest presence in Orange County was borne out by the number of properties the top 25 property managers in the county oversaw, which was up 15% to 1,746.
To handle the increased square footage, the top 25 property management firms added 10% to their workforce, which totaled 1,486. However, as compared to the top 25 firms on last year’s Business Journal list, which totaled 1,490 jobs, employment remained flat.
Led by Transwestern Commercial Services’ 481% jump, 17 firms on this year’s list posted increased space under management in Orange County, while four reported no change and four saw their portfolios shrink.
Transwestern Commercial’s sharp increase was due to a merger with the western arm of Voit Management Services, as well as a general increase in business thanks to new developments and owners deciding to change property managers, Estrada said. In Orange County, the merger with Voit Management led to an additional 7 million square feet of space for Transwestern Commercial’s local operation, Estrada said.
Other firms posting significant gains include Legacy Partners, No. 14 on the list thanks to a 32% jump increase; Sares-Regis Group, No. 15 on the list with a 34% increase; Cushman & Wakefield Inc., No. 17 on the list thanks to a 33% growth spurt; Grubb & Ellis Management Services, No. 21 on the list with a 113% increase in OC space under management; and The Brookhollow Group, No. 23 on the list with a 70% increase.
CB Richard Ellis again led the list with 18.35 million square feet of space under management in Orange County. In fact with No. 2 Insignia/ESG (16.30 million square feet) and No. 3 Trammell Crow Co. (11.90 million square feet), the top three spots on this year’s list remained unchanged.
Dropping off the list was McKenna & Co., which was ranked No. 21 on last year’s list but saw its portfolio shrink 1% to just under one million square feet.
Among those losing ground are No. 10 PM Realty Group, which saw its portfolio shrink 14% to 4.7 million square feet; No. 12 Jones Lang LaSalle Americas I, which experienced a 24% dip to 3.4 million square feet; No. 18 John Burnham & Co., whose portfolio shrank 6% to 2.14 million square feet; and No. 16 Charles Dunn Real Estate Services Inc., which experienced a 13% dip to 2.8 million square feet.
Christopher Louis, president of No. 19 Pacific West Asset Management Corp, which saw its portfolio grow 21% in Orange County to 2.13 million square feet, said the steady increase in his company’s business is directly tied to a decision the firm made to shy away from institutional work.
“Five years ago we elected not to manage the properties of institutional owners, which really gave us time to concentrate on our business growth with individuals, partnerships and trusts that look for us to manage their properties,” Louis said.
This niched focus on “smaller players, but medium-sized properties” has allowed the firm to grow despite the merger-mania that swept the industry several years back, with the bigger players hoping to offer economy-of-scale savings to potential clients.
Indeed, through relationships established with such firms, Pacific West has been able to take advantage of the development boom, Louis said.
“A lot of our growth has been either existing clients developing properties in Southern California or acquiring exiting properties,” he said.
As for his company’s dip in employees , down 11% , Louis said the decline has come from support staff such as secretaries and accounting, not necessarily from the property managers who comprise the bulk of the company’s staff.
Looking forward, Louis said he is concerned about the potential impact of rising interest rates, a sentiment that many real estate professionals echoed.
“I think that the significant factor that could affect development, leasing and property managers is interest rates,” he said. “I don’t know that they will affect my client base as much as a lot of other ones, but I don’t think there will be as much movement of properties if interest rates continue to go up.” n
