By Sasha M Pardy, Costar Advisor
JLL Retail President/CEO Greg Maloney and Staubach Retail President Clay Smith Tell CoStar Advisor Their Views on the Subject
[From L to R:] Clay Smith, Pres., Staubach Retail; Greg Maloney, Pres. & CEO, JLL Retail
Staubach Retail, the separate retail brokerage arm of The Staubach Company, was conspicuously absent from any mention in Jones Lang LaSalle’s $613 million pending acquisition of The Staubach Company announced earlier this week. JLL CEO Colin Dyer and Staubach founder and executive chairman Roger Staubach talked about the merger decision in a webcast video and spoke of leveraging the strengths and market presence of the two organizations to create a company with “dramatically increased client service capabilities” and how they expected that tenant representation, capital markets, industrial real estate and project development services will grow as a result of the merger. But retail was not addressed.
It certainly would appear to some that JLL Retail and Staubach Retail have complementary strengths. On one side, JLL Retail is known for leasing and management of regional malls and open-air centers; on the other side, Staubach Retail is recognized as a leader in retail tenant representation — add to that its industry-leading specialty unit, Staubach Auto Group (real estate brokerage services to the auto industry), and JLL could have become quite the retail brokerage powerhouse.
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What gives? CoStar Advisor asked that very question to both Greg Maloney, president and CEO of JLL Retail, and Clay Smith, president of Staubach Retail.
Maloney said that the decision not to include Staubach Retail in the deal was largely a structural issue. “Right now, there is a bunch of separate companies inside Staubach Retail and It would be very difficult for us to negotiate with all of those; so, it was determined that if they could roll up those units, obviously we would take a look at it, but they were unable to do that — that’s how the structure really precluded Staubach Retail from being part of the transaction.”
Maloney added that JLL believes Staubach Retail’s strengths would complement its existing retail services, “One weakness we have in retail right now is on the ground — people on the agency side of the business representing landlords, as well as tenants in our markets. As we continue to grow our core retail business, we’re now also looking for the retail tenant rep side of the business. So, obviously, if we could have acquired Staubach Retail and it made sense we would have looked at it – because that is really our strategic direction, to grow our retail tenant rep – where Staubach is one of the leaders.”
“We have different partners across the country that are responsible for different regions and we are in the process of consolidating all of our ownership into one specific entity instead of separate regional entities,” confirmed Staubach Retail’s Smith. “We are working on our structure, but that’s not the reason we didn’t go forward.”
Asked if Staubach Retail’s long term licensing agreement (through 2019) with Roger Staubach has anything to do with delaying a potential merger, Smith said, “Roger is on our board and he is involved in our business. That agreement had nothing to do with why the merger didn’t happen.”
As to why Staubach Retail was not included in the acquisition, Smith said the issue was one of both business philosophy and timing. “It simply wasn’t the right time for either one of us for a merger. At Staubach Retail, one of our strengths has been our independence and ability to adapt and respond to retailers needs. At this particular time, we didn’t feel merging with another operation would give us the flexibility we needed. We are really a growth company, we’ve just come off the biggest year we’ve ever had. And we expect to have an even bigger year this year. We want to double the size of our company in the next three years. We decided very early on that this was just not the right time for us to be involved in these kind of discussions.”
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So is it in the cards in the near future for Staubach Retail to merge with JLL Retail?
JLL’s position on this matter is very clear, according to Maloney: “Growing our retail platform is very much a strategic priority for us at Jones Lang LaSalle and we will continue to look for opportunities to grow, especially in this sector. If and when the circumstances are such that Staubach Retail wants to be part of another company, and its structure allows it to be acquired, we will obviously look at that opportunity,” said Maloney.
But for now, according to Smith, Staubach Retail thinks it is stronger being on its own. “We are a retail company run by retail people and we only respond to the retail industry,” said Smith. “We are not concerned with what the corporate real estate business is doing, only what the retail business is doing and so as an independent company we can do the things we need to do to assure that retailers and owners of retail real estate have their needs met and that we don’t have a different agenda. We are solely focused on the retail industry and with that sole focus, we’re stronger.”
“We’re not discussing future roll up plans, merger, or acquisition with anybody. We are completely focused on what we have to do to be successful today. I really can’t address what might happen in the future because we are not having any of those conversations. JLL is a great company and there is nothing that would stop us from having a conversation with them. But that is not happening, nor is it planned to happen,” said Smith.
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Where do these two retail brokerage houses stand now? How strong are they on their own?
JLL Retail is the largest third-party shopping center manager in the U.S., with a 50 million-square-foot portfolio of 112 regional malls, strip centers, power centers, lifestyle centers, ground-up development projects, mixed-use centers and transportation terminals across 28 states. The unit is made up of 900 employees. In fiscal 2007, JLL Retail completed 1.5 million square feet of leasing transactions valued at $320 million and brokered the sale of 94 retail properties for $826 million.
Staubach Retail is comprised of 310 employees in 21 offices located in Dallas, Houston, Austin, Chicago, Denver, Minneapolis, Salt Lake City, Mobile, AL, Orlando, Ft Lauderdale, Atlanta, The Carolina’s, Philadelphia, New York, Boston, Portland, San Francisco, Newport Beach, Walnut Creek, CA, San Jose, and Phoenix. About Staubach Retail’s production, Smith said, “We’ve just come off the biggest year we’ve ever had. All of our pipelines and forecasts tell us we’re going to exceed that this year. We estimate total commission revenue for this fiscal year, which ends June 30th, will be in the range of $70 to $80 million.”
JLL Retail grew its landlord services past its core strength of enclosed regional malls even more when it formed the “Open-Air Division” in spring 2007. The unit is dedicated to serving landlords of open-air centers and JLL Retail now has more than 65 neighborhood, community, power and lifestyle centers totaling 8 million square feet as part of the division. Some of its major landlord accounts, across both divisions, include Morgan Stanley, TIAA CREF, Gregory Greenfield & Associates, Carlton Cabot, Walton Street Capital, LaSalle Investment Management, Passco and Ashenazy Acquisition Corp.
Smith had this to say about Staubach Retail’s landlord representation business, “We don’t have a national account. All of our landlord leasing is on a very local basis, because landlord leasing is a local business. And we have some very strong relationships with landlords, but we don’t do landlord representation in every one of our offices.”
As landlord representation is spotty across its offices and its retail investment sales groups are under The Staubach Company’s Capital Markets division (merging into JLL), Staubach Retail’s strong suit remains tenant representation. Its major national retail client accounts include Justice For Girls, Carter’s, and Zounds (a new concept being rolled out). But the company’s true bread and butter comes from each local tenant it represents and its regional accounts; some of those names include Target, Wachovia, JC Penney, Verizon and Barnes & Noble. Overall, Staubach Retail represents more than 600 retailers.
JLL Retail recently strengthened its retail capabilities by acquiring The Standard Group in December of last year. At the time of the acquisition, the unit, which JLL dubs “Retail Outsourcing Services – R.O.S.”, started “with about 13 people — now it’s up to about 40,” said Maloney. The R.O.S. Group acts as retailers’ director of real estate and they hire the best retail brokers in each market. It’s major national retail accounts include T Mobile, Nike, Bally, Jamba Juice, National City Bank and Bright Now! Dental.
Aside from tenant representation, another strong point for Staubach Retail is its specialty Staubach Auto Group unit. “Auto has always been a very strong part of our business, linking back to Auto Nation as one of the largest clients in the history of the entire Staubach Company. The same strength that we bring to the retail tenant they bring to the Auto industry and that’s all they do. They understand all the issues around expanding Auto dealerships, auto malls, disposing of sites, etc. That’s their business and that’s what they’re solely focused on and they know it better than anyone.”
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So if they’re not joining together, how do JLL Retail and Staubach Retail plan to grow from here?
“We are looking at both organic growth as well as mergers and acquisitions,” said Maloney in keeping with JLL’s recent run, which has acquired a number of smaller brokerage firms across all lines of business over the past couple years. “On the retail tenant rep side, we have yet to make any strategic hires other than the R.O.S. Group,” added Maloney.
Smith said, “Every year for the past seven to eight years we’ve grown at a rate in excess of 20% – a pretty phenomenal rate. The bigger you get, you can’t maintain that same percentage growth. Our strategic goal is to double the size of our company, in terms of deal volume, over the next three years.” To accomplish this, Smith said Staubach Retail plans to grow organically, through strategic hiring, as well as acquisition of strategic teams across the country — unlikely is the acquisition of firms, he said. “We are in numerous conversations with top performing teams right now. We intend to continue adding to our team.”
Another important focus for Staubach Retail is converting to an employee-ownership format. “Right now our focus is on putting in a stock ownership plan that broadly distributes ownership to our team of people,” said Smith. “We want our top people to be partners with us in the business and be invested in the growth of the company because we’re going to grow through the efforts of a lot of people, not just a few. We want to have broader ownership of our company,” said Smith. He added the company hasn’t determined yet if the ownership plan will be open to all employees or executives/management only.