JLL Posts $9M Quarterly Loss As Transaction Activity Shrivels

JLL saw its earnings turn negative to start the year as the Chicago-based global commercial real estate brokerage felt the impact of the banking crisis, rising interest rates and lower demand for commercial space.

JLL reported a net loss of $9.2M in the first quarter when it reported its earnings Thursday, a massive drop from the year prior, when it posted a $145.6M profit, and down from $174.5M of net income in the fourth quarter of last year.

Its performance was most hampered by its capital markets group, which saw revenues decline from $600M to $357M year-over-year, leading to a net segment loss of $8.1M, according to its filing with the Securities and Exchange Commission. Fee revenue from JLL's Markets Advisory segment, which covers leasing, dropped by 15%.

JLL executives, speaking to analysts on the company's earnings call Thursday morning, said they expect activity to stay muted but start to pick up by the end of the year and that the impacts of the banking crisis — which claimed another victim in First Republic this week — are largely in the rearview mirror.

“Domestic banks, as well as the large major banks in the U.S., are back in the market and providing competitive bids on deals,” JLL CEO Christian Ulbrich said on the call. “I take that as a sign that the banks seem to believe that … the overall need to devalue commercial real estate assets is coming close to the point where it has to kind of get to. And that they also believe that the crisis of the small and midsized banks, regional banks in the U.S., is under control.”

JLL is far from alone among firms seeing revenues eaten into with the drop in deal-making. Last week, CBRE reported a more than 40% drop in capital markets activity that pushed down its net income from $396M last year to $125M.

But with investors sitting on $390B in capital looking to invest in real estate globally, Ulbrich said he expects transactions to pick back up by September as the gap between what buyers are looking for in asset prices and what sellers are willing to give up properties for narrows.

“We don't see a fundamental shift in the interest to invest into real estate as an asset class,” Ulbrich said. “The dry powder is still near record levels. We have amazing amounts of money waiting up the sidelines to get invested into real estate as an asset.”

JLL’s revenues, which reached $4.7B this quarter compared to $4.8B the year before, were buoyed by revenue increases in its Work Dynamics segment, covering workplace management and project management, which jumped 11% to $3.2B.

"We secured several new contracts from Fortune 100 companies, which will begin in the latter part of the year,” JLL Chief Financial Officer Karen Brennan said. "And our pipeline continues to build as the demand for professional management of corporate real estate increases."

JLL instituted a round of layoffs as part of a $125M cost-cutting campaign this year, of which Brennan said $50M had been achieved in the first quarter. The executives didn't say how many positions would be cut.