AMSTERDAM/NEW YORK: CB Richard Ellis Group (CBRE) struck a deal to buy most of the real estate investment management business of Dutch financial company ING Group NV for US$940 million (RM2.87 billion), making it the world's biggest real estate investment manager.
The deal, which nearly triples CBRE's assets under management, ends an auction process that lasted over a year and attracted more than 40 others, including CBRE's chief rival Jones Lang LaSalle Inc.
The ING real estate investment business last year generated US$305 million in revenue and includes US$59.8 billion in assets under management.
By giving CBRE a bigger investments management base, the deal also gives the company a better chance to sell its real estate services — property management, sales and leasing, corporate services — to the newly acquired business.
"It completes the construction of a preeminent global investment management platform," CBRE chief executive office Brett White told Reuters. "We now have opportunities for investors to invest in virtually the entire risk spectrum and the entire global geography. No one's ever done that before."
CBRE also will benefit from the timing of the deal, which is at the point where commercial real estate is recovering from a severe downturn.
"We're buying a business that has already gone through the massive downturn in the industry, whatever impact that business had on profit, on asset write-down, on stress on their team, that's all behind them now," White said. "We're buying the business at that trough valuation."
For ING, the deal will help it pay down part of the balance left from its US$10 billion government bailout in 2008.
The CBRE unit taking over the ING business, CBRE Investors, is a wholly-owned but independently-operated arm that oversees funds and individual accounts that invest in real estate.
Its clients are mostly US-based institutional investors, such as pension funds and endowments. The deal will give it access ING's predominately European clients.
CBRE shares closed up 2.9% at US$25.34 on the New York Stock Exchange, after ING shares closed down 0.28% in Amsterdam.
"It speaks to CBG's global platform and puts the company in line with growing institutional demand to own real estate," Barclays Capital analyst Ross Smotrich said in a note.
CBRE Investors, which has about US$37.6 billion of assets under management, has primarily focused on properties that need upgrading before they are sold.
ING's real estate and investment business, ING REIM, has primarily focused on funds that invest in properties with a steady cash flow as well as listed real estate securities.
In Asia, ING REIM manages funds that invest in riskier deals such as new developments as well as properties that need upgrading.
CBRE also will acquire Clarion Real Estate Securities (CRES), ING's US-based global real estate listed securities business.
ING Group's insurance business agreed to keep its investment in the funds for 10 years and gave CBRE an exclusive contract for its European real estate investments, As a customer, the insurance business contributed about 12% of the equity flowing to the investment management businesses.
The deal, which is expected to close in the second half, does not include ING's US-based direct real estate investment management company. ING agreed to sell that business, Clarion Partners, to Clarion Partners' management in partnership with US private equity firm Lightyear Capital LLC for US$100 million.
CBRE also will acquire about US$55 million of CRES co-investments from ING and potentially interests in other funds managed by ING REIM Europe and ING REIM Asia.
It expects to incur US$150 million of additional costs related to the acquisition, closing costs and pay to retain about 700 ING employees. That brings the total cost of the deals to US$1.15 billion. It plans to pay with cash on hand and credit facilities.
At the end of 2010, CBRE had more than US$500 million of cash, about US$650 million undrawn on its revolving credit facility, and US$800 million on another credit line,
The board has approved a plan that would allow CBRE to sell shares to raise US$250 million, but the company has not yet decided whether to do that, White said.
ING said the sales would result in an after-tax gain of about €500 million (RM1.54 billion).
ING needs to pay back €5 billion in state aid plus costs following its US$10 billion bailout in 2008. In January 2010, ING sold its Asian private banking operations for US$1.5 billion to Singapore's Oversea-Chinese Banking Corp.
The Dutch firm, which was forced to split its insurance and bank operations to obtain European Commission approval for the state aid, had writedowns of several billion euros during the credit crisis, partly because of its property investments.
ING is also continuing to wind down its Australian property management operations. — Reuters
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