The new property millionaires: Real estate brokers of many talents

In their march to broaden clients services to grab a greater share of the commercial real estate market, Canada's big brokers have found what they believe is a lucrative, new niche: project management.

At stake are billions of dollars a year in projects, each of which can yield substantial cash flow in fees as brokers spend time and energy overseeing their development. Equally important, project management is one of those services that helps close the circle: Clients need not look elsewhere if they have a factory or office building to construct, renovate or refurbish.

"CoreNet, the global real estate professionals' trade group, says it is the fastest-growing area in real estate services," says Julius Gombos, Toronto-based global operations leader for Cushman & Wakefield LePage Inc.'s project management division.

In addition to Cushman, companies CB Richard Ellis Ltd., Colliers International and DTZ Barnicke Ltd. are going well beyond their traditional services of finding properties for corporate clients to buy or lease. They will stickhandle the entire package - from doing best use and environmental studies on land, recruiting architects and engineers to design a structure, hiring contractors, managing construction and even handling interior design.

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While the fees vary, the end result is a healthy stream of cash to offset any decline in traditional commission income from arranging sales and purchases or leases.

The importance of project management is shown in the aggressive expansion programs of the major brokerages. Last month, for example, Cushman announced it acquired Gordian Group Inc. of Toronto, bringing on board 11 project managers and boosting its in-house team to 15 people.

"In Canada, we just got into that business about 15 months ago," says Mr. Gombos, who was recruited from CB Richard Ellis's international project management group to lead Cushman's global expansion into that field.

Globally, Cushman saw that business grow 27.5 per cent last year to $5-billion (U.S.). worth of projects under management. The firm now has 600 people in project management around the world. Hot spots include India and China, Mr. Gombos says. "In Canada, we are doing very well considering we just started to roll out the service."

In this country, Cushman is overseeing about $155-million in projects and expects to top $200-million (Canadian) in the next few months, says Kevin Greene, the firm's managing director of project management client services.

The projects range from a 275,000-square-foot office building in Mississauga that it is managing for a pension fund, to a 50,000-square-foot office building in Hamilton, Bermuda, for an insurance company.

"The focus now is on Montreal and Toronto where we have staff but we are looking at expanding into the West later this year," Mr. Greene says.

Colliers International leapfrogged into being Canada's largest project management player in the real estate brokerage field in January, 2007, when it acquired MHPM Project Managers Inc. of Ottawa, says its president, Franklin Holtforster.

"At any one time, we have between $1.5-billion and $2-billion worth of projects on the go," he says. "Right now, we have about 400 projects under way across Canada."

Unlike the other brokerages, whose focus is mainly on work for corporate clients, MHPM also handles institutional business. Currently, it is overseeing the $178-million long-track speed-skating venue in Richmond, B.C., for the 2010 Winter Olympics, the $780-million renovation to the West Block of the Parliament buildings in Ottawa and Harry Rosen's flagship men's clothing store on Toronto's Bloor Street.

"When I started this company in 1989, few people knew what project managers did," Mr. Holtforster says. "But then the trend towards outsourcing [a variety of non-core operations] gave us a boost. Corporations realized real estate and construction were not their core businesses, so best to go with the professionals. Harry Rosen is not in the real estate business, so he came to us."

Interestingly, Mr. Holtforster says the biggest competition for this type of work does not come from other project management firms but from companies handling projects with their own in-house staff. "That is likely to change simply through demographics," he says. "As baby boomers leave the work force ... corporations will not have the people to take on these jobs internally. It spells a great future for us."

Antoinette Tummillo, executive managing director in Canada for global corporate services at CB Richard Ellis, shares Mr. Holtforster's optimism. "Growth among some brokerage firms has been almost phenomenal."

Her firm is overseeing $500-million in projects in Canada and has doubled its staff to 225 in the past 18 months with another 40 to 50 coming on board this year, she says.

"Globally, we have 1,800 people in project management and last year we did $9-billion [U.S.] in projects," she says.

"We do all of the Royal Bank of Canada's new branches - maybe 30 or 40 of them a year - plus all the remodelling RBC is undertaking. In Calgary, we are handling a new air freight and logistics centre, which has 500,000 square feet among five buildings."

DTZ Barnicke has the smallest Canadian project management operation of the big four brokerages - just five people in its Mississauga office - but is looking for ways to expand its operations, says Jim Murray, senior vice-president.

J.J. Barnicke was acquired last year by DTZ Holdings Ltd., one of the biggest international real estate brokerages, and is currently reorganizing its client services offerings, he says.

"We are working out details so the operation complements what DTZ is doing in other countries," he says. "We will add staff, perhaps through acquisitions, when and where the work demands."

Currently, DTZ Barnicke is managing about $100-million (Canadian) in projects. In the past, work has included part of Royal Bank's 900,000-square-foot regional headquarters in Mississauga and various projects for Research In Motion Ltd., including offices in Cambridge, Ont., and Mississauga.

"One of the reasons project management is taking off is the change in the nature of the real estate business," Mr. Murray says. "There is little speculative building any more. Owners are not taking the risks they have in past ...

"That means the design/build approach has taken over from speculative development and design/build usually demands project managers. I think that will continue to be the way of the future."

Special to The Globe and Mail