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What Businessweek's Top Companies Ranking Implies to the RE Industry

The publication’s top companies ranking includes only one RE firm this year.

The latest 50 Top Companies tally by Businessweek (BW) includes only one real estate-related firm – CB Richard Ellis Group (CBRE). The Fortune 500 commercial property management firm managed to place at number 25. BW states, “The world’s largest real estate company lost $1.02 billion in 2008, compared with record earnings of $390 million the prior year. As the giant grapples with the worst downturn since the Great Depression, CEO Brett White is trying to diversify the business. The real estate giant is moving abroad, expanding its presence in emerging markets, such as Eastern Europe… (It) will consult on all things real estate for the telecom company, including sales of existing properties, leasing deals, and potential acquisitions.”

Last year was a better period for the housing sector in the annual list despite the start of the property bust. CBRE managed to reach 11th place even with a $1.02 billion loss. Home improvement retail firm The Sherwin Williams Company also made the list at 40th position after residential painting surged demand in connection with the housing boom. The same year also saw the addition of Goldman Sachs and Lehman Brothers and a host of other financial firms that seemed not to have been nervous of how things will eventually turn out.

Along with real estate, education, aerospace and agriculture sectors have only one firm each in the 2009 list.

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What does this tell the real estate industry then?

First, it will be more difficult for real estate firms to prove its resurgence and make it to the list next year since the process of selecting the companies according to BW includes determining “earnings before interest and taxes (that) excludes distortions from special and nonoperating items as defined by Standard & Poor’s Compustat.” Commercial real estate tumbled by 15 percent last year and is expected for more declines this year.

Second, housing-related companies are easily dropped from BW’s initial list of Fortune 500 companies. One reason behind this is the lack of sufficient data that they can provide. Real estate companies are usually adamant about releasing their sales figures to the public to prevent competitors from expanding their independent market researches.

Third, to eliminate bias against companies that gain immense profits from commodity value increases or exchange rate appreciation, BW also allows the comparison of companies “relative to their peers” in the same sector. To begin with, the entire industry is searching for the bottom so there’d be no significant results after all.

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