US prop­erty bro­kers fal­ter as real es­tate boom seen cool­ing

The Pak Banker - - 6BUSINESS -

NEW YORK: Com­mer­cial-prop­erty bro­ker­ages, the stars among U.S. real es­tate stocks this year, are los­ing luster as the boom­ing mar­ket for deals shows signs of cool­ing.

CBRE Group Inc. and Jones Lang LaSalle Inc., the global ti­tans of prop­erty ser­vices, slid the most since 2011 on Mon­day amid a rout in eq­ui­ties, bring­ing losses this month to 14 per­cent and 16 per­cent, re­spec­tively. HFF Inc. has tum­bled 20 per­cent in Au­gust and Mar­cus & Mil­lichap Inc. is down 17 per­cent.

The prospect of a slow­down in real es­tate trans­ac­tions af­ter a five-year re­cov­ery is stok­ing con­cern that profit growth will weaken at the big bro­ker­ages, which make their money on ser­vices from selling build­ings to han­dling leases. Ris­ing in­ter­est rates may limit gains in prop­erty prices, while banks and other lenders to the mar­ket are de­cel­er­at­ing their rate of new credit ex­pan­sion.

Much of the earn­ings growth at the com­pa­nies "is in the rearview mir­ror at this point," said Brad Burke, an an­a­lyst at Gold­man Sachs Group Inc., who cut his rat­ings on JLL, HFF and Mar­cus & Mil­lichap this month while keep­ing CBRE at a buy. "This is a nat­u­ral ma­tur­ing of the real es­tate cy­cle."

CBRE, the world's largest bro­ker­age, slid 7 per­cent Mon­day to $32.47, the big­gest de­cline in four years. JLL dropped 8.2 per­cent to $149.28, the most since Novem­ber 2011. Be­fore this month, CBRE had gained 11 per­cent for the year, while JLL jumped 19 per­cent. In con­trast, the Bloomberg in­dex of real es­tate in­vest­ment trusts had lost 2.6 per­cent.

While stocks world­wide are fall­ing, the bro­ker losses this month have been worse than other mar­ket mea­sures. The REIT gauge is down 5.7 per­cent for Au­gust, while the Stan­dard & Poor's 500 In­dex has fallen 10 per­cent.

Com­mer­cial real es­tate deals in the U.S. rose 23 per­cent from a year ear­lier in the sec­ond quar­ter, slow­ing from a 49 per­cent surge in the first, ac­cord­ing to Real Cap­i­tal An­a­lyt­ics Inc. First-half vol­ume of $255.1 bil­lion was "front-loaded" by sev­eral ma­jor sales clos­ing early in the year, in­clud­ing two big in­dus­trial ware­house port­fo­lios, Man­hat­tan's Wal­dorf As­to­ria ho­tel, and Wil­lis Tower in Chicago, the re­search firm said. "We have had a very rich trans­ac­tion mar­ket for some time, so the rate of growth in ac­tiv­ity has nec­es­sar­ily be­gun to ta­per off," said Sam Chan­dan, founder and chief economist of Chan­dan Eco­nom­ics, a provider of real es­tate data and anal­y­sis.

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