Cashing Out: Investor Behind CB Offering

Orange County Business Journal, Mar 15-Mar 21, 2004 by King, Danny

Amid a yearlong runup in real estate stocks, Blum Capital Partners LP is looking to cash out of Los Angeles-based CB Richard Ellis Group Inc.

The San Francisco-based investment firm owns 67% of CB Richard Ellis, which is the largest commercial real estate brokerage and property manager operating in Orange County.

Blum's stake is the result of an $800 million leveraged buyout in 2001 that took CB private, as well as CB's $415 million buy of Insignia Financial Group Inc. last year.

CB filed a registration statement last month with the Securities and Exchange Commission to sell a $150 million stake in the company. The filing did not specify an offering date, the number of shares to be sold or the post-sale stake of Blum Strategic Partners LP, the partnership with the controlling interest.

The only specific mentioned in the registration statement was of the redemption of $38.3 million worth of senior debt now carrying a 16% interest rate.

With more than $110 million from the offering not allocated, Blum Capital appears to be timing a stock market that has treated competing real estate companies well in recent months.

"Most of the proceeds appear to be going to selling shareholders," said Craig Silvers, principal of Los Angeles-based real estate investment trust money manger Bricks & Mortar Capital. "If the (real estate services) group has positive momentum, you want to capitalize on it."

CB Richard Ellis officials declined comment in the runup to the offering.

The move would allow Blum to cash out on its gradually increasing investment in CB, which, with 13,500 workers, bills itself as the largest real estate service company.

In OC, CB brokers nearly $2 billion in real estate deals yearly from its dominant Newport Beach office and its sizable Anaheim office. After acquiring Insignia, CB manages about 25 million square feet of property here.

Some senior CB brokers in OC could cash out shares in the offering, according to sources. Some bought stakes in the company when it was taken private three years ago. Their shares are said to be valued at about $15 apiece, sources said.

Shares of CB's publicly held rivals have outperformed the market in the past 16 months. Dallas-based Trammell Crow Co. and Chicago-based Jones Lang LaSalle Inc. are up nearly 70% in the period. The Dow Jones Industrial Average has risen about 27%.

(Another competitor, Northbrook, Ill.-based Grubb & Ellis Co., has languished at about a buck a share largely due to its heavy debt.)

Formed as Tucker Lynch & Coldwell in San Francisco in 1906, CB's predecessor Coldwell Banker went public in 1969 and was bought by Sears Roebuck & Co. in 1982. Seven years later, Sears sold the real estate arm to employees, who changed the name to CB Commercial Real Estate Group.

CB Commercial went public at $19 a share in 1996 and bought London-based REI Ltd., parent company of Richard Ellis, two years later. As a result of the deal and market conditions, its shares soared to more than 40.

But in ensuing years, shares of CB, Trammell Crow and Jones Lang LaSalle dropped sharply. By 2000, CB was trading at less than 10. When the Blum Capital-led group made its bid to take the company private, CB was trading at about 16.

Richard Blum, husband of Democratic U.S. Sen. Dianne Feinstein, heads the investment firm. Blum founded the company in 1975 and has put money into companies ranging from credit data firm Fair Isaac Corp. to Northwest Airlines Corp. and general contractor Perini Corp.

In filing the CB offering, Blum Capital is staying true to a three-decade pattern of big entrances and modest exits.

Blum sits on the board of Northwest, and at one point had a personal stake valued at $300 million, according to Bloomberg News. Between late 1997 and early 2002, he sold more than 2.2 million shares for an aggregate $60 million, according to Thomson Financial.

Blum and Blum Capital together hold a 14% stake in Kinetic Concepts Inc., a San Antonio, Texas-based hospital-bed and wound-care technology maker. That company went public last month, selling 18 million shares at $30 each, above the expected range of $27 to $29. Last week, Kinetic was trading at 44.

Blum Capital and Fremont Partners, another San Francisco private equity firm, put $225 million into Kinetic Concepts as part of a 1997 leveraged recapitalization, later selling 42% of their shares for $335 million. As part of the Feb. 24 initial public offering, Blum and Blum Capital sold 5.5 million shares.

Whether Blum will reap similar returns with CB remains to be seen.

Shareholder equity in CB was $382.4 million as of Dec. 31, according to a Feb. 18 SEC filing, valuing Blum Capital's 67% stake at about $257 million. That valuation will shift when the offering is priced early this summer.

CB's value could exceed $1.2 billion after the offering if the market values the company at a comparable rate to Trammell Crow and Jones Lang LaSalle.

Both companies are trading at 7 to 8 times earnings before interest, taxes, depreciation and amortization, putting CB in the $1.2 billion to $1.4 billion range, before subtracting its long-term debt of $840 million. That could put Blum Capital's equity interest at $375 million. This would be $118 million more than its pre-offering value.