JLL finds Real Value in Emerging Markets

Jones Lang LaSalle (NYSE: JLL) aims to help clients find real value in the real estate market. The company is a financial services and consulting firm headquartered in Chicago that specializes in real estate Investments. It has operations at over 1,000 locations around the world and focuses on helping its clients make correct decisions regarding owning, investing and occupying real estate. The company has been in business for more than 200 years.

Jones Lang LaSalle--fomerly known as Winstanley firm--was founded in 1783 in London. In 1939, after a series of mergers and partnerships, the company got famous as Jones Lang Wootton (JLW) and Sons. The company has focused its concentration on growing and emerging markets since its inception.

After World War II, JLW and Sons expanded its operations in the West, Continental Europe and the Asia-Pacific region. By 1957, it had opened offices in Australia, New Zealand , Singapore and Hong Kong, Scotland, Ireland and in 1968 it finally managed to establish itself in U.S.A. with its first office opening in El Paso, Texas. Finally, in 1999, in the largest real estate industry merger of their times, JLW and Sons and LaSalle Partners joined hands and the company was renamed to Jones Lang LaSalle.

The company started growing exponentially in 2006 with the real estate market booming in the Americas and Europe. Within two years it had become the largest real estate advisory firm in Germany. During the same time, the company spread its reach to India and China.

JLL has a market capital of $2.7 billion and it posted a total revenue of $903 million in the third quarter of 2011; just a 6.8 percent increase over its previous quarter's revenue of $845 million dollars. It could not keep up with the investors' expectations of high growt, like the 23 percent increase in revenue it experienced in the second quarter. The discontent of investors was evident in the fall of stock price from over $100 dollars a share in May 2011 to under $60 dollars a share recently.

Currently, JLL has operations in 13 countries that belong to the Asia-Pacific region and about 30 countries in the Middle East and Africa region along with Brazil and Russia. This shows that JLL has a high concentration of its business in the emerging markets around the world. The property prices in a number of Asian countries are undergoing correction and this is reflected in the low growth numbers.

In April of this year, property prices in Singapore, Hong Kong, China and India had surpassed its 2007 peaks. These prices, however, are expected to correct themselves by 20 to 30 percent gradually over the next two years. Also, the rise in interest rates in countries like China, India, Korea and Taiwan may be pushing prices down.

On the other hand, interest rates in the African nations of Egypt and South Africa have decreased, but the demand remains the same. Construction companies are increasing their production capacities. If the demand remains constant, the number of office and residential spaces will add together, giving rise to more supply and less demand which might push the prices down here too.

In Brazil, the interest rates have gone down, while demand has increased. Construction companies in Brazil are finding it difficult to catch up. Hence, the prices are expected to rise in the near term.

Recently, the Reserve Bank of India announced that it is not going to increase the interest rates any more. This might be a positive sign, as, in the long term, the interest rates might decrease, increasing the demand for homes and offices. This is what is expected to happen in a number of other Asian countries. This may improve the long term scenario of the real estate market in Asia.

Also, the company has reduced its investment expenditure over the last quarter. This reduction of future liabilities may prove good for the company in the future.

Working in the emerging markets is always more challenging since these markets are less efficient. There is a lot of asymmetrical information and the amount of political risk is also high. However, risk can be reduced by diversification--international diversification may be a great solution for some investors.

JLL has exposure to properties all around the world and though the markets in Asia are not doing well, its operations in the Middle East, South America and Africa may help the firm deliver a profitable future.