Managing Your Money 

What price property advice?

Could a new chief executive turn around years of losses for listed property adviser Colliers International? The £21m company, which is listed on London's Alternative Investment Market (Aim) saw its shares barely quiver from a 12-month low of 13p upon news of the appointment of industry big-hitter Tony Horrell last Tuesday.

Having spent 27 years at Jones Lang LaSalle, Mr Horrell's last job was head of European capital markets, overseeing billions of pounds worth of international property investment transactions. As a result, critics have likened his move to Colliers to one of Chelsea's star strikers becoming the manager of Blackburn Rovers.

Colliers' share price has as good as halved in the past 12 months; despite a 12 per cent improvement in revenues, it reported pre-tax losses of £5.1m at September's interim results. At the time, chairman Sir John Ritblat reasoned that a better performance in the second half of the year could improve matters. But there is mixed evidence of this elsewhere in the real estate advisory world.

Colliers larger main-market listed rival DTZ shocked the market with a profit warning last month, citing "challenging trading conditions in the UK and Europe", which would push the hoped-for second-half recovery in transaction revenues through to the new financial year. It now expects to post "a small loss" for the year, having returned to operational profitability at July's half-year results.

The news comes at a time when UK property advisory companies are facing their toughest time in years. Large numbers of firms competing for reduced amounts of work means fees are at their "lowest levels ever" according to a report published this week in industry magazine Property Week. The magazine reveals that fee discounting is being routinely used to win instructions and reports that professional services (such as valuation and property management) have come off the worst, with fee cuts of up to 65 per cent. The fees charged by property advisers for selling property investments have dropped by as much as 40 per cent, and even letting fees for commercial property agents are off by as much as 25 per cent - which does not bode well for future revenues.

But the struggle is not so arduous for all property advisers. Many of the giants - such as Mr Horrell's old firm Jones Lang, plus CBRE and Cushmans - have profitable US parent companies to back them up, so can afford to selectively cut fees as a "loss leader" for winning more profitable work.

Prime property

The exact area of the property market that companies work in is crucial to profitability. UK-listed Savills has just upgraded its yearly profits forecast to £40m for the year to December, due to its exposure to Asia and London's booming prime residential property markets. There is a similar story at residential-heavy private partnership Knight Frank, which reported a 168 per cent increase in pre-tax profits to £58.4m in September, for the year ending March 2010.

Colliers UK doesn't have the luxurious cushion of prime residential to fall back on, has been loss-making for two-and-a-half years, and ceased paying dividends long ago. So what does football -mad Mr Horrell think of the Blackburn Rovers jibes?

"Rubbish," he says. "I've come here because of an avowed belief from the Canadians that they really want to grow the business."

By the Canadians, he refers to FirstService, the Nasdaq-listed property services company that bought a 29.9 per cent majority stake in Colliers UK last year. Headquartered in Toronto, FirstService's biggest brand is the Colliers International network, operating from 480 offices in 61 countries.

Last year, FirstService generated profits of $1.7bn and earnings of $133m - so it certainly has cash to invest. However, the profile of the business is not entirely commercial - FirstService is also big in residential property management, ("they do everything including pool cleaning", notes one rival property chief executive snootily, disputing a straight comparison to stateside property advisory giants CBRE and Jones Lang).

FirstService owns an average stake of 70 per cent in the Colliers branded businesses. By this reckoning, its near-30 per cent stake in the UK business is quite low - who knows whether it could be tempted to increase it with shares bumping along the bottom at 13.5p, or even pursue a takeover?

Mr Horrell is confident that FirstService will invest in the UK business, although he refuses to be drawn on the form this could take, or sums it could involve. "They want to put wherewithal behind the UK business, and I'm convinced of that. I wouldn't be here otherwise," Mr Horrell says. He believes the Colliers UK business has many strengths, although "they don't shout about them." Well, not yet, anyway. "You know me," he smiles. "I am not renowned for being quiet."

90-day plan

Nevertheless, he will spend his first 90 days as chief executive scrutinising the group's 13 UK and Irish offices. "I will ask questions, poke, prod, look and listen, which will enable me to come up with a simple, motivational business plan setting out what we're going to focus on going forwards," he says. "I'll communicate it to them [FirstService] and see if they like the idea."

Colliers has completed 10 mergers and acquisitions of smaller firms over the past decade, which means there are a lot of specialist teams to piece together. However, its investment has been eroded by the departure of some stars who have been lured to rival firms. "Property is a people business, and our key assets go up and down in the office lifts every day," Mr Horrell says. "We've got to make sure we can compete against other agents, and acquire a few teams if necessary. We need to invest for the future, although the payback may be more than 12 months away."

Those in the market rate Colliers' key strengths as retail and leisure property advisory (the latter including hotels, licensed premises and niche areas such as car showrooms). However, ranked against other UK agents, Colliers is perhaps seventh or eighth in this field as its client base tends to be smaller-sized companies.

"We need to change the mix of our client base, and ensure we have institutions and international names to add to the property companies and private individuals we already advise," Mr Horrell says. "For the size of the organisation, I don't think we're punching at our full weight in the investment market."

Although Colliers has a strong regional office network, it could be stronger in London (the market that's bound to generate more fees and profits than any other in the future). And FirstService has indicated to Mr Horrell that it views London's strategic international importance in a positive light. "It's an important market for clients on an international stage," he adds.

The quest to win business in a deflationary fee environment will be tough, but another card up Mr Horrell's sleeve is non-executive chairman Sir John Ritblat. Still an active player in London's property market, the honorary president of British Land owns 1 per cent of Colliers' shares, and had to rubberstamp Mr Horrell's appointment. "He has been very positive, very complimentary and has offered lots of help," reports Mr Horrell. When those 90 days are up, investors will be in a better position to decide whether Colliers is about to move up the UK agents' league table.

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