Apr 27, 2011
Executives
Nick Kormeluk – SVP, IR Brett White – CEO Gil Borok – CFO
Analysts
Anthony Paolone - JP Morgan Sloan Bohlen - Goldman Sachs Brandon Dobell - William Blair David Ridley-Lane - Merrill Lynch
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the CB Richard Ellis First Quarter Earnings Call. Today's conference call is being recorded.
I would now like to turn the conference over to Mr. Nick Kormeluk.
Please go ahead.
Nick Kormeluk
Thank you, and welcome to CB Richard Ellis' First Quarter 2011 Earnings Conference Call. Last night, we issued a press release announcing our financial results.
This release is available on the home page of our website at www.cbre.com. This conference call is being webcast live and is available on the Investor Relations section of our website.
Also available is a presentation slide deck, which you can use to follow along with our prepared remarks. An archived audio of the webcast, a transcript, and a PDF version of the slide presentation will be posted to the website later today.
Please turn to the slide labeled forward-looking statements. This presentation contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our future growth momentum, operations, financial performance, business outlook and ability to complete and integrate our announced acquisition of ING REIM.
These statements should be considered as estimates only and actual results may ultimately differ from these estimates. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that you may hear today.
Please refer to our First Quarter Earnings report filed on Form 8-K and our current Annual Report on Form 10-K, in particular any discussion of risk factors or forward-looking statements which are filed with the SEC and available at the SEC’s website www.sec.gov for a full discussion of the risks and other factors that may impact any estimates that you may hear today. We may make certain statements during the course of this presentation, which include references to non-GAAP financial measures as defined by SEC regulations.
As required by these regulations, we have provided reconciliations of these measures to what we believe are the most directly comparable GAAP measures, which are attached hereto within the appendix. Please turn to slide #3.
Our management team members participating with me today are Brett White, our Chief Executive Officer; and Gil Borok, our Chief Financial Officer. I’ll now hand the call off to Brett.
Brett White
Thank you, Nick. Good morning everyone.
Please turn to slide 4. This past quarter we purchased very strong revenue and earnings growth across our business, with revenue gains of 16% for the company and much better growth in normalized EBITDA.
Our revenue growth was aided by the continued recovery in the commercial real estate market and continued strong fundamental in our outsourcing business. Normalized EBITDA grew 38% in the first quarter of 2011 versus the first quarter of 2010 and diluted adjusted earnings per share for the first quarter of 2011 was $0.13 as compared to $0.01 for the first quarter of 2010.
As you might recall from our fourth quarter 2010 earnings call, in the second half of 2010, we restored a significant portion of our US based compensation related expenses that were cut during the downturn due a stronger than expected first year recovery. In addition, in EMEA, in the fourth quarter of 2010 and continuing in the first quarter of 2011, we have aggressively hired producers and related support in anticipation of improving transaction based revenues.
We believe that these personnel addition will serve as well in future quarters as our revenue pipelines are generally strong and operating leverage in this region should improve as the year progresses. Our principal businesses performed very well during the quarter, with strong revenue increases accompanied by lower expenses in Investment Management and gains of $12.9 million of the sale of three properties in the Development business.
The recovery and expansion in the global commercial real estate market continued at the rate consistent with early stage recovery in prior cycles. We like what we see in the market and are very excited about our opportunity to leverage our unique and industry-leading platform to produce outside gain for our investors and terrific outcomes for our clients.
Some of the more note worthy transactions we completed during or immediately following the quarter are listed in slide#5. As usual I will not go through them individually, but have included down to show some business wins.
I will now turn the call over Gil to go with the financial results in detail.
Gil Borok
Thank you, Brett. Please advance to slide 6.
Revenue was $1.2 billion for the quarter of 2011, up 16% from last years first quarter. This increase resulted from improvement in nearly all business lines.
Normalized EBITDA was up 38% to $120.6 million in the quarter from $87.5 million in the first quarter of 2010 delivering a normalized EBITDA margin of 10.2%, a 170 basis point increase versus the first quarter of 2010. Our cost of services as a percentage of revenue remained almost even at 60.2% in the first quarter of 2011 versus 60% in the first quarter of 2010 primarily due to compensation re-instatements in the US and a notable hiring in EMEA in anticipation of improving transaction base revenues that Brett alluded to earlier.
In the first quarter of 2011, operating expenses as a percent of total revenue dropped by a 120 basis points to 31.8% versus 32% in the first quarter of 2010 despite 2010 restatements affecting this line item, which is indicative of effective cost control in the indirect and support areas of our business. Over the past two years we have spoken with you about our expectation of adding back a projected $120 million to $150 million to our run rate cost structure against our 2007 base as revenue increases during the recovery.
Cumulatively since the first quarter of 2010, we have added back approximately $135 million of such cost and it is likely that we will exceed the upper end of our projected range in 2011 as revenues which these cost support have already increase significantly more than what we anticipated when we originally made the projection. However, the incremental costs should have minimal bottom line impact as they were mitigated by the revenue growth they support.
Interest expense decrease by $16.1 million in the first quarter of 2011 versus the first quarter of 2010 due to a net reduction in outstanding debt in the second half of 2010. Our first quarter 2011 tax rate was approximately 41% and we expect it to be slightly below to this full year 2011.
First quarter 2011 GAAP diluted earnings per share was $0.11 versus a loss of $0.02 last year. Adjusted diluted earnings per share was $0.13 versus $0.01 cent in the first quarter of 2010.
Please turn to slide 7. Property and Facility Management was our largest service line in the first quarter of 2011 representing 40% of total revenue in the quarter inline with the prior first quarter.
Leasing was our second largest service line in the first quarter of 2011 posting an 8% increase versus the first quarter of 2010. It represented 30% percent of total company revenue in the first quarter of 2011.
Sales revenue continued its strong recovery with a growth of 34% in the first quarter of 2011, a significant increase following an increase of 51% in the first quarter of 2010 versus the first quarter of 2009. This resulted from the continued strength of Class A property sales along with noticeable improvement in the sales of other property classes and more favorable financing conditions.
Appraisal & Valuation revenue was up 8% in the first quarter of 2011 as compared to the first quarter of 2010. This was driven by continued strength in capital market activities in the quarter.
Global Investment Management revenue increased 26% year-over-year driven by increases in asset management and acquisition fees. Commercial Mortgage Brokerage posted an increase of 79% driven loan originations for US government sponsored enterprises as well as significant improvement on the part of traditional and conduit lenders.
Development services fee revenue was down 2%. Revenue from property and service management, fees for assets under management, loan servicing fees and leasing commissions from existing clients are all largely recurring This revenue represented approximately 60% of total revenue for the first quarter of 2011.
Please turn to slide 8. The outsourcing business growth rate accelerated this quarter posting an increase of 14% versus the first quarter of 2010, the strongest year-over-year quarterly increase since the third quarter of 2008.
This was driven by the strong new account growth and client expansion we experienced throughout 2010. In the first quarter a record of 44 total long term contract was signed.
This far exceeds the previous quarterly record which was 34. We signed 13 new accounts, 22 renewals, and 9 expansions.
Our performance this quarter was strong across all geographies of all regions posting double digits percentage revenue gain. Fundamentals in this business continue to be favorable with increasing corporate spending and a start of job growth evidence.
The resulting revenue pipeline is healthy with a focus on global portfolios and penetration in to new segments such as healthcare and government. Overall our global portfolio of commercial property and corporate facilities under management totaled 2.7 billion square feet at the end of the first quarter, an increase of 17% from the first quarter of 2010.
Slide 9 demonstrates the stabilizing or improving vacancy rates and absorption through first quarter of 2011 and our forecasted improvements for full year 2011 and 2012. Average national CAP rates improved meaningfully in the first quarter of 2011 versus the first quarter of 2010 driven by Class A property sale.
These top tier assets continue to trade actively at CAP rate between 4.75% and 6%, while financing has also continued to improve. Please turn to slide 10.
The recovery of America sales market continued in the first quarter of 2011 as our revenue for the first quarter increased 38% on a year–over-year basis after 51% increase in the first quarter of 2010 versus the first quarter of 2009. Our market share totaled 15.3% of all activity for the first quarter of 2011 ranking at no.
1 according to Real Capital Analytics. Our Americas leasing revenue posted an 8% increase in the first quarter of 2011 as compared to the first quarter of 2010.
This comes on the heels of 20% increase in the first quarter of 2010 versus the first quarter for 2009. The US office vacancy rate decreased by 10 basis point to 16.4% from the fourth quarter of 2010.
Net absorption in US office product was possible again and this had a slightly positive impact on vacancy rate. Please turn to slide 11.
Our investment sales revenue in EMEA increased by 12% in the first quarter of 2011 as compared to the first quarter of 2010. Activity was led by France and Germany.
In the United Kingdom, sales revenue was slightly down from the first quarter of 2010 in part due to the timing of several deals shifting to the second quarter. CBRE’s revenue from leasing and EMEA grew modest 1% in the first quarter of 2011 versus the first quarter of 2010.
This was respectable considering the fiscal strain that continues within the euro zone and given the 25% increase in leasing revenue in the first quarter of 2010 versus the first quarter of 2009. Please turn to slide 12.
CBRE sales revenue in Asia Pacific increased by 57% in the first quarter of 2011 versus the first quarter of 2010. The increase was especially notable given it was generated on top of a 123% increase in the fist quarter of 2010 versus the first quarter of 2009.
Our leasing revenue in Asia Pacific grew 15% in the first quarter versus the first quarter of 2010. The strongest growth came from Australia and New Zealand, China, India as well as Japan.
The region suffered its share of natural disasters this quarter with floods in Australia and the Japanese earthquakes. It proved surprisingly resilient from a financial performance standpoint, and while we remain cautious with regard to our near term expectations for the locations directly affected we do not believe that a future material may have impact on company performance is likely.
Please turn to slide 13. Revenue for the Development Services segment was $19.2 million in the first quarter of 2011 versus $18.3 million in the first quarter of 2010.
Operating is also the first quarter of 2011 for this segment included normalized EBITDA of $13.5 million, a substantial improvement over the first quarter of 2010 normalized EBITDA of $5.6 million. The improvement in normalized EBITDA was driven by gains from several property sales.
At March 31, 2011 in process development totaled $4.9 billion unchanged from December 31, 2010 and up $200 million from the $4.7 billion at the end of the first quarter of 2010. The pipeline at March 31, 2011 increased to $1.5 billion, up $300 million from year end 2010 and $600 million from the end of the first quarter of 2010, which is an early sign of an improving environment.
At the end of the first quarter our equity co-investments in the development services business totaled $71.2 million. Please turn to slide 14.
The Global Investment Management segment's revenue was up 30% to $51.4 million in the first quarter of 2011 from $39.4 million in the first quarter of 2010 including revenue from discontinued operations of $1 million in the first quarter of 2011. Increased fees for assets under management, acquisition fees and rental income all contributed to the revenue increase.
Assets under management totaled $37.9 billion at the end of the first quarter of 2011, which was slightly higher than the $37.6 billion under management at the year-end 2010. During the first quarter, we competed approximately $900 million of acquisitions and approximately $300 million of dispositions globally.
Currency fluctuations increased the portfolio by approximately $500 million. Year-to-date 2011, we have raised new capital of approximately $200 million and had approximately $1.7 billion of capital to deploy at the end of the quarter.
Our current investments in this business at the end of the quarter total $98.5 million. As it relates the ING REIM, we have made very good progress reluctant to closing requirements for the transaction, the process of obtaining partner and lender consensus well underway.
All anti-trust (inaudible). The proposed senior leadership structure has been established and we continue to expect the transaction with close in the second half of the year.
Our Global Investment Management EBITDA reconciliation detail is shown on slide 15. In the first quarter of 2011, we incurred $7.5 million of expenses related to the ING REIM acquisition, predominantly for legal and other professional services.
In the first quarter of 2011, we reported $1 million of carried interest compensation expense which relates to the gains expected in future period. As of March 31, 2011, the company maintains a cumulative accrual of carried interest compensation expense of approximately $21 million which (inaudible) the anticipated future carried interest revenue.
EBITDA was positively impacted by higher fees for assets under management, acquisition fees and lower expenses. Prior EBITDA included $4.5 million of net non-cash right down of property investments.
This business operated at a normalized EBITDA margin of 28% for the first quarter of 2011. Please turn to slide 16.
Slide 16 shows an amortization and debt maturity reschedule for all outstanding debt. During the first quarter of 2011, we entered into various six month forward stock interest rate swap agreements with a total notional amount of $400 million.
This action is intended to hedge against the variable interest rates of our term loan facilities. These swap agreements will terminate in 2018 and 2019 and have a weighted average effective interest rate of approximately 6.4%.
Debt financing for ING REIM was completed in the first quarter with two delayed draw tranches of debt each totaling $400 million with terms of LIBOR 3.25 and 3.50 respectively, and no LIBOR floor. The new tranche C is due in 2018, and the new tranche D is due in 2019.
They both amortize at 1% per annum. We are still evaluating whether or not we will utilize the ATM equity raise authorized by our board of directors for the ING REIM acquisition.
As you can see, we have and we will continue to have post the ING financing a very balanced maturity schedule that has not become meaningful until 2015. Please turn to slide 17.
Excluding our non-recourse real estate loans and mortgage brokerage warehouse facility, our total net debt at the end of the first quarter of 2011 was $1.1 billion. This represents an increase from year end 2010 primarily due to seasonal needs driven by incentive compensation payments.
At March 31, 2011 our weighted average interest rate was approximately 6.4%, slightly lower than the 6.5% at the end of 2010. Our leverage ratio on a covenant basis now stands at 1.07 times at the end of the first quarter of 2011 on a trailing twelve months basis.
Our total company net debt to EBITDA stood at 1.49 times which remains below our current target of 2 times. I will now turn the call back over to Brett.
Brett White
Thank you, Gil. Please turn to slide 18.
We continue to believe that we are in the early stages of our protracted recovery in the commercial real estate cycle and that traditional industry growth rates are sustainable. Recent outsourcing revenue growth and our contract win rate leaves us optimistic on its prospects for 2011.
Investments sales continue to show good gains and do not show signs of slowing in the near term. Leasing continues to post solid growth on top of a stellar recovery in 2010, during which we believe we increased our share of market.
We are now more optimistic regarding our expectations for the global investment management and development services businesses. We continue to target peak of cycle EBITDA margin of 20% for the company and will actually manage the business to get there.
We continue to expect earnings to be in the range of $0.95 to $1.05 per share for the full year 2011. Operator, we will now take questions.
Operator
(Operator Instructions). Our first question comes from Anthony Paolone of JP Morgan.
Please go ahead.
Anthony Paolone - JP Morgan
A question on the incremental cost that you think seem to be coming back. Can you give a census to exactly what those items are, like what costs are going up and where is that money being spent.
Gil Borok
Hi, it's Gil. Those costs are somewhat narrow in scope but it has to do with hiring of direct producers in our fixed cost countries, so in EMEA in particular and in support of those producers.
It’s more on the direct side than on the indirect side of the business, and then some cost associated with support of growing revenues. So, a little bit of travel with this promotion, that sort of thing in support of revenue growth.
Anthony Paolone - JP Morgan
So is it fair to characterize these incremental items as being purely revenue driven or some of this coming by way of the environment becoming more competitive?
Gil Borok
No, I think it is all revenue driven and we’ve always said and then we have always managed and continue to manage our costs relative to the revenue line. We are very focused on that side.
So, I would say it is 100% revenue driven.
Anthony Paolone - JP Morgan
In terms of just the competitive landscape more broadly, can you comment on how you see share playing out in the next year, given how much share you picked up over the downturn, particularly as it relates to recently you had mentioned that the comps are tougher and you have had some gains, but you picked up a lot of share and that’s something you are going to have to comp against going forward?
Brett White
Sure, Anthony, this is Brett. You know and I’m sure you have looked at the public data that is in the market place regarding leasing in 2010.
You saw that we expanded our share in leasing business, both nationally and we believe that are hard to calculate globally. We expect that in 2011 that those share gains will flow through to revenues and we are beginning to see some of that now.
We are very optimistic about 2011’s prospects on leasing, even more optimistic for 2012 and 2013. You saw in the statistics that Gill spoke to a few moments ago, that vacancy continue to drop, absorption continues to pick up and more importantly in the forecast like that Gil referenced, you can see that we expect those trends to accelerate in the coming 24 months.
So, as the growth leader in commercial leasing business, we expect our lead to not only maintain the gain and we are confident we will do exactly that.
Anthony Paolone - JP Morgan
Do you think the 8% year-over-year leasing comp in the first quarter, you can do better over the course of this year? Is that fair to say because the first quarter was simply pretty tough comp?
Brett White
First of all, first quarter is a very small quarter, so a small number of significant deals can swing first quarter numbers fairly significantly. For instance, if you go back just one quarter to the fourth quarter and you put the fourth and first quarters together, you see a very different story.
You see very-very strong leasing growth for the firm for those two quarters. If topping this business, Anthony, and it’s a little dangerous to draw too many conclusions from a single quarter and I would just again say that look very, very happy with where we sit in leasing share, leasing revenues and, most importantly, leasing profits.
Anthony Paolone - JP Morgan
Then I just have a question on the facility side, two part questions on facilities. Your focus on government and healthcare seems to have worked.
How far into that do you think you are? Do you think there is a lot left to go there?
Brett White
Quite a bit left to go there. We are in those markets and we have dedicated and highly specialized teams exploiting those markets, but our expectation of those markets is early days.
I think there is enormous amount of clear space there to attack. I think this is something you will see in our business and in others businesses in the years to come.
These are big spaces that are fairly new to the big services firms. We have all had niche teams in those phases, as you know (inaudible) Development Company has long-long history in particularly the healthcare space.
We all see healthcare as a rapidly growing, even more so now rapidly growing industry and therefore much more light for services businesses, also government whether you like it or not government is going in a great big way, and we also want to take advantage of that, as we have and as you saw that, Anthony, really terrific results that came out of the Northern Virginia and Washington DC last year continued on to this year. Those are probably the tightest and mostly active leasing markets in the country all government driven.
Anthony Paolone - JP Morgan
Can you give us a sense of the 13 outsourcing contracts that you picked up in the quarter, can you give us a sense as to what the average revenue add if for one of these contracts magnitude-wise?
Gil Borok
No, I can't. We don’t quote it that way.
If I have to really give you an average I'll give you an absolute number which I am not going to do. There is no average deal.
They're all very different. I would only say that as we get close to now 3 billion square feet commercial property being managed either in our Institutional Asset Management Group or Corporate Outsourcing Group, this business has become a mammoth business for CBRE.
It's been part of our strategy, if you know, Anthony, for many years. To be the market leader in that space, which we clearly are, and to build a dominant franchise in space which we've clearly done.
We believe that outsourcing space is a great place for this firm to take advantage of the platform that we've built both the outsourcing platform but also transactional evaluation, mortgage platform and I think you should expect to see good growth in that business for some time to come. We are very pleased with those results.
Operator
Our next question comes from Sloan Bohlen from Goldman Sachs.
Sloan Bohlen - Goldman Sachs
First a question for Brett or Gil on the operating leverage. You talked about the incremental cost coming back in the $135 million relative to the $600 million cut out.
should we think of some upper limit on that so when the operating leverage kicks back in, or should it be one for one as revenues grows we could see more of those costs come back?
Gil Borok
Sloan Bohlen - Goldman Sachs
Bigger picture question for Brett, just the growth in the mortgage brokerage business relative to sales and obviously a smaller portion but do you feel like there's maybe greater opportunity in one versus the other based on how pending commercial real estate debt maturities are being dealt with, meaning are more things being expended versus assets trading in?
Brett White
I think that’s certainly part of it, Sloan. There's no question that the financing market is going to be active regardless whether properties change hands or not because you've learned, as you well said, you learn for the maturing.
In the short run and the long run, we see these two businesses as part of the same space, its investment capital market space and we have skilled professionals doing both those things for the same client. We pitch these things together.
We many times win those opportunities together and so we look at it -- we break it out for you this way, we look at it really as one large capital markets activity which has enormous potential over the next few years as the sale market begins to return. So, I don’t want to say that one goes up one goes down because I think they both go up but certainly in this environment you put your finger on a very valid point, which is there's a lot of refinancing going on in a market with out a lot of sales and as sales pick while the refinancings go away those sales of current mortgages as well.
So, I think the mortgage business, very bright future, short term, long term, the sales business you know, up hugely in the first quarter and we believe for full year again in 2011 but of small numbers. That sale business has got a lot of room for some pretty aggressive roads in the coming two to three years.
Sloan Bohlen - Goldman Sachs
Then may be just one more if I could, the question on market share just where you are seeing the highest level of competition in terms of either pay for brokers or where your competitors are trying to add scale?
Brett White
Sure. Well, there's a lot ways to grow a share.
You can buy it and that’s great and you are not popping your revenues but I think our investors are much more focused on profitability. So, where we're refocused on growing share is leverage our platform is on-boarding clients profitably and building expense behind, as Gil said, don’t expense behind our producers profitably.
We don’t subscribe to a strategy of buying share to punish margins and you just know that. Where we were seeing competition in the market place is where we focused and where we focused is capturing new clients.
We don’t spend a lot of time chasing down big ticket, very expensive themes from competitors. We are not sure that, I am not sure that really fits our model too well, but there is definitely lot of competition out there.
There is a lot of competition probably the client that hits the market both from the multinational global competitor that we have but even more so from the many, many terrific smaller competitors that exist in every market. Going to Anthony’s question earlier again I wouldn’t read too much in to out first quarter number.
I pay a lot more attention to longer term trends. Longer term trends are that we are very, very pleased with the size, with the ability, and most importantly the profitability of our leasing business both here in the States and globally.
Operator
We have a question from (inaudible) from JMP Securities. Please go ahead.
Unidentified Analyst
Question on the reiterated guidance of $0.95 to a $1.05, just wanted to understand the impact of the ING acquisition?
Brett White
I will let Gil take that.
Gil Borok
Yes. Depending on where it closes and we have said in the second half, if we will have an impact of what ING will have on the business for 2011 and what we have said previously is that we will have a moderate impact in 2011, and we haven’t really commented on the 2012, it is too early to say and we wouldn’t do that at this point anyway.
So, I think just based on timing it is not going to be hugely impactable to the P&L in 2011.
Unidentified Analyst
Just related to cost coming back, I just wanted to better understanding of how, what we kind of consider to be a successful containment of cost so far on exploring revenue growth how you manage to do that? If you can identify some key factors anything that provided high level of success.
Brett White
Sure. Let me take the first part of that now turn over to the door of cost expert, Mr.
Borok to give you that data but I think the place to start for that discussion is just corporate philosophy. As you know, as our analyst and investors know, we have had a mandate for over a decade of driving the highest margins in our industry in both good markets and poor markets, and we do that by having a very rigid discipline around management cost.
We manage cost in comp, we manage cost and T&E, we manage cost in technology. We are very careful around making those investments that are necessary to produce revenues and not making investments that we think are not profitable for the firm.
When I get to ask about cost pretend like if every body is it is just part of culture here. We are very, very focused on having a highly profitable business quarter in quarter out, year in year out and all of our managers and even our beginners out in the field understand that embrace that know that on that.
At end of the day the score board that matters over everything else is margin and profitability. Nothing else is even close to as important as those two metrics.
Why those two metrics are important is that’s what investors care about as they should. So driving that profitability, driving that margin is the big game for us and we obviously like the position we have there.
Gil?
Gil Borok
I don’t know if there’s a lot more for me to add. I mean I think that I could say it a little differently but the same message which is the cost is measured vis-à-vis revenue growth and vis-à-vis support of revenue growth and what matters is the result of those two which is the bottom line EBITDA and margin.
If you had some specifics on the numbers, can you just say that again, and I’ll see if I can address it.
Unidentified Analyst
No, I think I just wanted to know if that was, you know, if you could, if there’s also a implementation, aside from the culture and a mandate from senior management, if there is something else related to technology, consolidation of certain segments that you can necessarily point to, so to get a better understanding of that.
Brett White
Yes, the only thing that I would add is just to your point there is, we talked that was for years, that this is a very scalable platform. So, we have an ability to onboard revenues in our own market but couldn’t add without a direct onboarding of cost in some cases.
So, we can bring on more assignments in the business many times at a very high incremental margin and we talked about, we talk about an aspiration of an EBITDA margin of 20% which has never been done in this industry for many firm of any size. We are confident that we can get there, and that’s as much about scale as it is about anything else.
It has cost us one for certain results of scale, and if this business continues to grow you should expect us continue to accrete margin and improve profitability.
Operator
We have a question from Brandon Dobell with William Blair. Please go ahead.
Brandon Dobell - William Blair
A couple of big picture questions and a couple of small picture questions. Big picture-wise, how does the client mix look these days with investment sales?
Have we seen a big shift towards REITs, away from REITs, towards corporate or away from corporates? If there is a little shift does not make a more or less comparable for the pace of your business?
Brett White
The mix of the business continues to move towards large institutional players in the capital market, and that shift is highly advantageous to our firm. We’re a big company firm.
We do exceptionally well working with large institutions, we have great relationships there; and that shift continues in the investment property sales business and accelerated I believe in the last twelve months as there has been an almost complete lack of financing available. That has really knocked out of the business the mid-tier players, the high net worth individuals who require financing and at the same time has highly advantaged the large institutions that can either create greater financing, bridge financing or don’t need financing.
So that’s what the long term trend that’s been the standard for business for many years, that’s also been accelerated the last couple of years. As the market stabilizes as financing becomes available then you should see a larger entry back in investment property space of high net worth individuals, partnerships and so forth.
Just to be clear, REITs and corporations are a very small component of the overall investment property market. It’s really all about institutional investors and owners.
Brandon Dobell - William Blair
In terms of the leasing business, I guess, trying to get a sense of the breadth right now, we’re still concentrated in the downtown markets or how much broadening have you seen buy as the property type or by geography the last couple of quarters?
Brett White
The improvement in the leasing business is really what or where the improving is occurring is really what I think you’re referring to. Again, the broadening of the business, our platform is ubiquitous.
We are everywhere the high quality leasing business occurs and we’re usually the dominant firm in every one of those markets, but the improvement in the leasing business has been very typical for early stage recovery which is it tends to improve first in the very, very largest financial services major urban market places. This last current cycle or the current cycle that we were in for the US, as I mentioned earlier, DC, Northern Virginia was exceptionally strong given the growth of government, but there is no question that we saw leasing recover first in the big markets New York City, Washington DC, Northern Virginia and some of the West Coast markets Chicago and so forth.
That improvement is here I can tell you for certain is between January 1, 2011 and January 1, 2013, that improvement will move from a small number of large markets to virtually every market. Where we are in that growth of the improvement I can only tell you at the moment that we don’t have a date in front of me I think it is fare to say that all markets now are beginning to move towards recovery just on more quickly than others.
Brandon Dobell - William Blair
The question I am not sure for you or better for Gil, but how do you think about the contribution the balance of the year from acquisition base and investor management this quarter a good proxy or should we think acceleration of those pieces profit line?
Brett White
Gil, do you want to take that?
Gil Borok
As you know Brandon, it is hard to say because it is dependent to some degree on a transaction activity, but I would not put a number and I would not say, 'Gee, it is going to you know equal the first quarter or something like that,' but I would say is my sentence there will be improvement in each quarter verses the prior. I say that with a little bit of caution because it is like predicting when the sales transaction will close or leasing transaction will close because it is dependent on property level activity acquisitions primarily, but we are in that phase where there are funds that are acquiring and that generates those type of fees.
Operator
(Operator Instructions). Ridley-Lane with Merrill Lynch, please go ahead.
David Ridley-Lane - Merrill Lynch
Just maybe a comment on your broker headcount trends and then maybe where you are thinking of people’s productivity levels are relative to a sort of hypothetical normalize level?
Brett White
Sure, our broker headcount numbers don't move much. In fact I made this comment before.
If you look at a long-term study of our broker headcount what you would find is that our broker headcount in United States for example is actually down from where it was many years ago on a normalized basis for acquisitions. The reason for that is as the business has matured over many years the quality of brokers has increased and firms like ours and other have been able to migrate towards higher quality, higher more productive brokers every year and to weed out those are less productive because the more productive ones can take on all their business and more.
The productivity of the brokers right now and may be another way to say your question is the capacity of those brokers to do additional work. I do not want to put a percent capacity that are right now, but I think it is fare to say that there has an enormous amount of capacity in the system right now to onboard additional revenues.
If you think about this way the think about a high-ticket broker in New York City who last year billed $10 million in fees that if they are a sale broker that might have been 10 or 12 transactions, they are leasing broker that may be was 15 or 20. The amount of work that would be required to add four deals on the investment property side or four deals on the leasing side, incrementally is not that significant and those brokers do not require much of any additional support to do those transactions.
So, all that to say, that we have never in our history have way we thought with maximum capacity of our sales force. I do not know what that number would be we have never seen it.
They always have an ability to do more and I would just say that we are on a long ways away from that point at the movement.
David Ridley-Lane - Merrill Lynch
May be just some color on lending standards and credit availability with the respect to the investment sales business?
Brett White
Sure. Credit is loosening slowly.
It’s a very incremental process there’s been no great change and the fourth quarter other than its a little bit better and the fourth quarter was a little bit better than third quarter and so on and so forth. The return of credit to the commercial real estate asset class is going to be a slow process and yet it’s a process that I don’t believe can be diverted.
In other words credible continue to loosen and lending will continue to improve in the commercial real estate asset class as the health of the asset class improves. Frankly, it's quite impressive to see the amount of business occurring in the sales side of that outside class given how difficult the credit is to obtain, the underwriting is incredibly stringent.
It really eliminates the majority of borrower from being able to tap the credit market. So, as I mentioned earlier, you see a investment property market right now dominated by firms who are not dependent on easy credit.
Those firms that are really not active at the moment. This is the trend that will continue to improve over time, but I think an improvement take an other two or three years to get back to what we will consider a normal set of play.
Also begun contact 2007 and 2006 was not normal, normal state of play is something tighter in terms of lending standards that we saw then, but something much, much more benevolent or support that we don’t see right now.
Operator
At this time there are no further questions in queue. Please proceed.
Brett White
Great. Well, a good start to the year.
I appreciate your support, your time on the call, we will talk to you next quarter. Thanks.
Operator
Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference.
You may now disconnect.