Here’s Why Third Avenue Invested in CBRE Group (CBRE)

Third Avenue Management, an investment management company, released its “Real Estate Value Fund” second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund returned a -15.39% (after tax) in the second quarter compared to -17.22% for its benchmark index, the FTSE EPRA NAREIT Developed Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.

Third Avenue Management discussed stocks like CBRE Group, Inc. (NYSE:CBRE) in the second quarter investor letter. Headquartered in Dallas, Texas, CBRE Group, Inc. (NYSE:CBRE) is a real estate and investment company that operates worldwide. On September 6, 2022, CBRE Group, Inc. (NYSE:CBRE) stock closed at $76.95 per share. One-month return of CBRE Group, Inc. (NYSE:CBRE) was -9.77% and its shares lost 21.54% of their value over the last 52 weeks. CBRE Group, Inc. (NYSE:CBRE) has a market capitalization of $24.714 billion.

Here is what Third Avenue Management specifically said about CBRE Group, Inc. (NYSE:CBRE):

“Always ones to favor a company’s prospects for long-term wealth creation over its near-term earnings outlook, Fund Management opted to add to the Fund’s position in the common stock of CBRE Group, Inc. (NYSE:CBRE) during the quarter. Held in the Fund since 2020, CBRE is the largest commercial real estate services firm globally with a market-leading position in leasing, property sales, facilities management, and valuation. CBRE is also a major player in investment management (with nearly $150 billion of assets under management) and loan servicing (approximately $340 billion of commercial and multi-family loans under administration). In combination, these segments essentially act as a tax on commercial real estate activity and accounted for more than $27 billion in revenues in the 2021 fiscal year.

Fund Management recognizes that the company’s transaction-oriented business lines (e.g., leasing and sales) are likely to retract from more recent levels. Notwithstanding, CBRE’s business model has evolved significantly in recent years with additions in facilities management, investment management, and servicing leading to substantial “recurring” revenue streams. Further, the company has amongst the most “variable” cost structures in the industry, and it is also incredibly wellcapitalized with a “net-cash” position. As a result, CBRE seems likely to not only remain profitable when viewed on a group-wide basis but also set to take market share through “lift-outs” from competitors and “bolt-on” acquisitions in ancillary activities.

One emerging area of the commercial real estate market that CBRE seems particularly well-suited to capitalize on is the shift to “flexible” office arrangements. More specifically, the company is serving as a key advisor to corporations as they seek to right-size their real estate footprints with an increased focus on “hybrid” working arrangements (CBRE counts 90% of Fortune 100 companies as clients). It is also a principal investor in Industrious—one of the leading flexible workplace solutions globally, with unmistakable advantages relative to a number of its peers. It is therefore Fund Management’s view that this specific opportunity will be a key driver as the company pursues its 2025 earnings target of $8 per share.”

CBRE Group, Inc. (NYSE:CBRE) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, CBRE Group, Inc. (NYSE:CBRE) was held by 42 hedge fund portfolios at the end of the second quarter, which was 55 in the previous quarter.

We discussed CBRE Group, Inc. (NYSE:CBRE) in another article and shared Vulcan Value Partners’ views on the company. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.