ASIA NEWS: Battle lines drawn

When it comes to the battle for global domination, few fights are fiercer than that between global property services heavyweights CBRE and Jones Lang LaSalle (JLL). These titans have been slugging it out for years over high-profile business lines like property sales and leasing to less glamorous arenas like facilities management. 

With comprehensive corporate finance divisions for North America and Europe, the Middle East and Africa already in place, it was only a matter of time before the two firms would start scrapping to be the capital advisor of choice for institutional investors in the Asia-Pacific region as well. Sure enough, last month, CBRE raided JLL’s Asia-Pacific corporate finance team, led by Nick Crockett, to create its first dedicated outfit called CBRE Capital Advisors. Consider the battle lines drawn.

Following the move by Crockett and his team – senior directors Chris Chiang and John Willis and directors Canon Yau and Toby Daniel – CBRE now has a six-strong capital advisory function headquartered in Singapore, with personnel also operating from Hong Kong and Sydney. The sixth member is Sharon Law, who joined as a director from Barclays Capital. 

Slashed to five professionals, JLL has responded by hiring aggressively, picking up two new additions already. Chris Key joined from Macquarie Capital as head of corporate finance in Australia and director Kivanch Mehmet joined from National Australia Bank. Another five professionals are understood to have been offered contracts as well.

So, why are the world’s two top-earning property services firms ramping up their Asia-Pacific capital advisory offerings? “Capital markets have changed since the global financial crisis, and investors are now looking for more sophisticated global services from their advisors,” explained Rob Blain, CBRE’s chief executive officer and chairman for Asia-Pacific. “In addition, emerging capital increasingly is flowing into Asia-Pacific from international sources, as well as within the region. Given these changes, adapting our capital markets offering was critical to continuing to provide value-added services to our clients.”

JLL has a strikingly similar take. “Things have changed,” said Stuart Crow, the firm’s head of capital markets for Asia-Pacific. “Based on continued strong interest from global investors to access Asia-Pacific, we see the ability to structure partnerships and joint ventures as a crucial part of our capital markets offering. Hence, we are growing these skills within our corporate finance team.”

Central to both firms’ strategies is for their respective platforms to work even closer with institutional investors, “perhaps more closely than with the fund managers,” Crow suggested. This need to shift emphasis is supported by findings from the Asian Association for Investors in Non-listed Real Estate (ANREV), which suggests that indirect fund offerings increasingly will be shunned. 

Last month, ANREV reported an expected net increase of 54 percent in investment into JVs or clubs by investors in private real estate over the next two years versus 22 percent for traditional commingled funds. With investor appetite weighted toward investing via varied types of real estate transactions, including through equity, debt or even at the entity level, the need for CBRE and JLL to sophisticate their offerings beyond vanilla investment or even straight capital placement has never been more important.

By entering the realm of “creative deal structuring,” CBRE and JLL are not only fighting each other, they also are banging on the doors of investment banks – a fact not lost on either firm. Macquarie Capital, the capital advisory arm of Sydney-based Macquarie Bank, has become something of leader in placing large institutional investors into real estate transactions and ventures, and both CBRE and JLL are looking to adopt a similar model. 

The two property services firms have extensive real estate market intelligence emanating from their vast transactional activity and deep research divisions, but they recognise they have hiring to do if they are to compete with the banks that have enjoyed almost unrivalled access to the world’s largest institutional investors. Therefore, expect hires like CBRE’s addition from Barclays and JLL’s from Macquarie to continue. 

“Essentially, we want a skill base that has experience in creative deal structuring,” Crow said. “If we can achieve that, then perhaps we can compete more effectively with the investment banks and move up the value chain.”

Of course, the ambitions of CBRE and JLL to battle the banks do have limits. For instance, underwriting large real estate IPOs is not likely, nor will either firm invest from their own balance sheets in transactions they broker. Macquarie Capital, meanwhile, can invest from Macquarie’s coffers – a detail that might see the two firms lose out on business. Mindful of the potential for conflicts of interests, however, both firms maintain that co-investing in transactions must be left to their real estate investment management platforms, CBRE Global Investors and LaSalle Investment Management.

Regardless, both CBRE and JLL see plenty of advisory business in Asia for which to compete. Just as they have fought for years in other regions and across other business lines, the two firms are arming themselves for yet another scrap. The battle for Asia-Pacific has just begun.