CB Richard Ellis stock sale gives exit plan for VC.

Watching as a yearlong run-up in real estate issues has outpaced gains in the wider market, Blum Capital Partners LP has set in motion its exit strategy from CB Richard Ellis Group Inc.

The San Francisco-based investment house controls 67.2 percent of the real estate services firm, the result of the $800 million leveraged buyout in July 2001 that took the company private, and CB's $415 million purchase of Insignia Financial Group Inc. last year.

CB filed a registration statement last month with the Securities and Exchange Commission to sell a $150 million stake in the company. The filing did not specify an offering date, the number of shares to be sold or the post-sale stake of Blum Strategic Partners LR the partnership with the controlling interest.

The only specific allocation of funds mentioned in the registration statement was for the redemption of $38.3 million worth of senior notes now carrying a 16 percent interest rate.

With more than $110 million from the offering not allocated, Blum Capital appears to be timing a stock market that has treated competing real estate services companies well in recent months to maximize its return.

"Most of the proceeds appear to be going to selling shareholders," said Craig Silvers, principal of L.A.-based REIT money manger Bricks & Mortar Capital. "If the (real estate services) group has positive momentum, you want to capitalize on it."

CB Richard Ellis officials declined comment, citing rules governing the pending offering.

The move would allow Blum to cash out on its gradually increasing investment in the real estate services firm, which, with 13,500 employees, bills itself as the largest in the world.

Shares of CB Richard Ellis' publicly held competitors have outperformed the market significantly in the last 16 months. Dallas-based Trammell Crow Co. and Chicago-based Jones Lang LaSalle Inc. are up 67 percent and 77 percent, respectively, in the period, while the Dow Jones Industrial Average has risen about 27 percent.

(Another competitor, Grubb & Ellis Co., has languished at about $1 a share due largely to its huge debt levels.)

Since its founding, CB Richard Ellis has gone from private to public to private--and back again on the same path.

Formed as Tucker Lynch & Coldwell in San Francisco in 1906, Coldwell Banker went public in 1969 and was purchased by Sears Roebuek & Co. in 1982. Seven years later Sears sold the commercial arm to an employee buyout group, which changed the firm's name to CB Commercial Real Estate Group.

CB Commercial went public at $19 a share in November 1996 and bought London-based RE] Ltd, parent company of Richard Ellis, two years later. As a result of the deal and market conditions, its share price rose above $40.

But in the ensuing years, shares of CB and its chief rivals Trammell Crow and Jones Lang LaSalle dropped precipitously. By April 2000, CB was trading at $9.13 a share. When the Blum Capital-led group made its bid to take the firm private, it was trading at about $16 a share.

The investment firm is headed by Richard Blum, husband of Sen. Dianne Feinstein, D-Calif. He founded the company in 1975 and has put funds into companies ranging from credit data firm Fair Isaac Corp. to Northwest Airlines Corp. and general contractor Perini Corp.

In filing the CB Richard Ellis IPO, Blum Capital is staying true to a three-decade pattern of big entrances and modest exits.

Blum sits on the board of Northwest, and at one point had a personal stake valued at $300 million, according to Bloomberg News. Between late 1997 and early 2002, he sold more than 2.2 million shares for an aggregate $60 million, according to Thomson Financial.

Blum and Blum Capital together hold a 13.8 percent stake in Kinetic Concepts Inc., a San Antonio, Texas-based hospital-bed and wound-care technology maker. That company went public last month, selling 18 million shares at $30 each, above the expected range of $27 to $29, and was trading last week at $44.

Blum Capital and Fremont Partners, another San Francisco private equity firm, put $225 million into Kinetic Concepts as part of a November 1997 leveraged recapitalization. later selling 42 percent of their shares for $335 million. As pan of the Feb. 24 IPO, Blum and Blum Capital sold 5.5 million shares.

The investment company is also the largest institutional investor in Fair Isaacs. controlling about 18 percent of the outstanding stock, valued last week at about $518 million.

Whether Blum will reap similar returns with CB remains to be seen.

Shareholder equity in CB was $382.4 million as of Dec. 31, according to a Feb. 18 SEC filing, valuing Blum Capital's 67.2 percent stake at about $257 million. That valuation will shift when the IPO is priced early this summer.

The company's value could exceed $1.2 billion after the offering if the market values the company at a comparable rate to Trammell Crow and Jones Lang LaSalle.

Both companies are trading at 7 to 8 times Ebitda (earnings before interest, taxes, depreciation and amortization), putting CB Richard Ellis in the $1.2 billion to $1.4 billion range, before subtracting its long-term debt of $840 million. That could put Blum Capital's equity interest at $375 million. This would be $118 million more than its pre-IPO value.

However, the expectation that CB would match those multiples may be misplaced, said Silvers, because it will not distribute dividends.

According to its Feb. 18 SEC filing, CB's debt-to-equity ratio was 4.8 as of Dec. 31, a far cry from Grubb & Ellis' 9.9 figure but higher than Trammell Crow and Jones Lang LaSalle's ratios of 0.84 and 1.2, respectively. Even if all of the public offering proceeds were applied to debt, it would make up just 8 percent of the more than $1.8 billion of the company's total liabilities.

"The company is highly leveraged and you're in an environment where people want dividends," said Silvers. "'Their balance sheet is going to weigh them down."

MAJOR HOLDINGS

Shareholder                                        Percent Held

Blum Strategic Partners LP *                       67.2%
FS Equity Partners III LP *                        15.6
Calif. Public Employees Retirement System          5.7
Credit Suisse First Boston                         3.3
Ray Wirta (chief executive)                        3.2
Frederic Malek (director)                          2.1

* Beneficial ownership.

Source. CB Richard Ellis Group Inc.