G&E president and CEO Barry M. Barovick and CFO Ian Y. Bress held a teleconference to discuss financial results for the three-month period that ended Sept. 30, the firm's first fiscal quarter. According to Barovick, an already sluggish economy further eroded by the World Trade Center bombings caused a 29% drop in first quarter total revenue compared to last year, from $108.1 million to $76.8 million. Fiscal 2002 first quarter earnings before interest, income taxes, depreciation and amortization (EBITDA) was a loss of $573,000, compared with earnings of $7.7 million a year ago
"Transaction volume was light during July and August following an economic slowdown, which only increased following the events of Sept. 11," Barovick said. He added, however, "we did begin to see [business] pick up in October, so there may be some pent up demand."
Transaction services fees were $62.9 million for the quarter, roughly 32% lower than the $92.7 million generated in the same quarter a year ago. Property management services fees decreased roughly 10% to $13.8 million compared with $15.4 million a year earlier. The company reported a first quarter operating loss of $3.4 million compared with operating income of $4.8 million a year ago.
Barovick said G&E's ongoing reorganization of its consulting, transaction and management businesses will be a key factor in increasing the firm's profitability. Beginning Jan. 1, Barovick said, internal reports will be collected "by region rather than by individual business line. The regional managing directors will be directly responsible for the performance of transaction, management and consulting business in his or her region," rather than having three individuals responsible for each region's respective businesses.
"This represents a big departure from how Grubb & Ellis has done business in the past," Barovick said. "[The reorganization] serves as the cornerstone of an account-centered model that will fuel our transaction and management business."
Central to the firm's reorganization is its strategic partnership with London-based commercial real estate firm Knight Frank. Regional managing director Raymond O'Keefe was tapped as the primary US contact for that relationship in August. His London counterpart is John Snow. While firming up the 19-month-old Knight Frank partnership was primarily an initiative by Barovick to coordinate the firm's international operations--Knight Frank has offices in Europe, Africa, Asia Pacific and Australia--its organizational structure mirrors that which soon will kick in across the entire company.
According to Bress, the firm has scaled back on travel, curtailed discretionary spending, reevaluated event participation and implemented a hiring freeze at the corporate level as belt-tightening measures. Bress said the economy's "general softness coupled with Sept. 11" will cause the "sluggishness to continue short term," but that "real estate markets will improve by mid-2002 and gain momentum" through next year.
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