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Credit crunch hits realty brokers

NEW YORK — Tight capital markets that are restricting lending helped dramatically drive down earnings of two of the biggest real estate service companies, CB Richard Ellis Group, Inc. and Jones Lang LaSalle, Inc., the companies said on Tuesday.

Shares of CB Richard Ellis, the world’s largest commercial real estate brokerage, fell by 12% in after-hours trading.

Tighter lending standards have made borrowing for commercial real estate purchases either difficult and expensive or downright impossible. In the United States, commercial real estate sales have dropped by around 70%.

Most of the deals getting done are either seller-financed or already have assumable mortgage debt. More often, unless they are financially strapped, owners are refusing to sell at the prices that the higher financing costs demand.

The lower volume of sales has crimped property brokers’ fees and commissions.

After the market close, Jones Lang said its quarterly profits had tumbled by more than two-thirds to $24.5 million, or 73 cents a share, from $77.9 million, or $2.23 per share a year earlier.

At CB Richard Ellis Group, second-quarter net income plunged by 88% to $16.6 million, or 8 cents per share, from $141.1 million, or 59 cents per share.

Excluding one-time charges, Los Angeles-based CB Richard Ellis would have earned $33.2 million, or 16 cents per share, compared with $157.3 million, or 66 cents last year, still far from the 44 cents analysts on average had expected, according to Reuters Estimates.

Jones Lang LaSalle trailed estimates of 99 cents a share.

However, Jones Lang LaSalle saw more pluses than minuses during the quarter, and its shares were flat at $56.73 in after-hours activity. CB Richard Ellis shares dropped to $16.36 in after-hours trading from its earlier New York close of $18.65.

In addition to the stifled sales market, CB Richard Ellis traced the dismal second-quarter performance to less leasing activity, especially in the United States and Britain.

Its overall second-quarter revenue fell by 13% to $1.3 billion, below the $1.42 billion analysts had predicted, according to Reuters Estimates.

"As we had anticipated, the leasing business turned down from the strong first quarter, especially in the Americas and the UK, reflecting weak economic activity and decreasing business confidence," CB Richard Ellis Chief Executive Brett White said in a statement.

"Investment sales activity remained quite soft due to a broadening of the credit market turmoil and a continuing gap between buyer and seller expectations of property values," he said.

"Decreased investment volumes have now become evident in all parts of the world," he added.

But Chicago-based Jones Lang LaSalle said leasing had supported its results. It reported overall revenue that fell just by 2% to $660 million, beating Wall Street’s forecast of $646.7 million. Revenue from leasing activity rose by almost a quarter to $163 million.

Jones Lang LaSalle’s results were hurt more by operating expenses that rose by 8%, chiefly because of costs associated with 13 acquisitions it had completed in 2007.

"We are focused on driving our expenses to appropriately reflect current operating conditions, while maintaining leadership positions in capital markets and hotels to respond to the anticipated needs of the market place," Chief Executive Colin Dyer said in a statement.

CB Richard Ellis saw revenue fall in the Americas, Europe, the Middle East, Africa and Asia, while Jones Lang LaSalle saw the reverse: revenue in the Americas and Europe, the Middle East and Africa rose.

Revenue from Asia fell from a year earlier, when the company received a significant advisory fee for hotel sales there.

Jones Lang LaSalle’s LaSalle Investment Management, which advises and manages investments of institutional investors, generated 34% more fees in the second quarter, principally due to an 18% increase in assets under management to $54.1 billion.

But CB Richard Ellis’s Global Investment Management segment saw revenue fall by half, including a write-down of $11.9 million for two investments whose market value had declined.

Both companies said a bright spot was their management business, in which they manage the property needs for large global companies.


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