Fund Moves Into CB Richard Ellis

Tables: Buyers | Sellers

THE SLUMPING REAL-ESTATE MARKET has hurt CB Richard Ellis Group, but one hedge fund has moved in on the beaten-down shares, buying more than 13 million since the beginning of the year.

On Thursday Lone Pine Capital disclosed a 6.6% stake, or 13,244,686 shares of the commercial real-estate company. Lone Pine did not show any ownership in CB Richard Ellis as of Dec. 31, 2007, but it now stands as the company's fourth-largest holder.

Lone Pine reported the purchases to the Securities and Exchange Commission as a passive investor. The firm indicated that it reached the ownership threshold that triggered the filing on March 10.

Lone Pine was founded in 1997 by Steve Mandel, the former managing director and consumer analyst at Tiger Management. Today Lone Pine has $9 billion under its management.

Greenwich, Conn.-based Lone Pine could not be reached for comment.

A spokesman for CB Richard Ellis declined to comment on the purchases.

"This is yet another sign that longer term savvy insiders are starting to bet in this beaten-down sector," says Jonathan Moreland, adviser to Ladenburg Thalmann Asset Management on insider strategies.

"There has been impressive strength of the financial sector as of late, including real-estate investment trusts (REITs), real estate and banks, and insider buying for a number of quarters now, so it's just been a case of waiting for the technicals to firm up, and there have been impressive technical moves in the past week," he says.

Fears about the slowing commercial real-estate market have taken their toll on Los Angeles-based CB Richard Ellis. Its stock is down more than 38% in the past year, and its 52-week intraday low of $15.23, reached on Jan. 22, is less than half the high of $42.74 it traded at in July 2007.

On Tuesday shares lost 23 cents to $21.81.

However, Moreland believes that there is more cause for optimism in the current environment.

"With Mandel you have yet another successful institutional investor who thinks the bottom is in and riding on his coattails doesn't seem like a bad idea, if you have the same longer-term time frame that he does," he says. "CB Richard Ellis has recovered nicely from its lows [in January]. And the financials have taken off so quickly this week: This is the price action I've been looking for to help confirm a bottom may be in. Things can't go straight up from here, but…it could be a good time to phase [into] a position."

Analysts surveyed by Thomson Financial are also bullish about CB Richard Ellis' prospects. On average they rated the company a Buy or the equivalent, with a 12-month target price of $23.

The purchases by Lone Pine came as William Blair analyst Brandon Dobell was traveling with CB Richard Ellis management, and he came to a similar conclusion.

"For those investors with a long-term investment horizon (18 months or more) and a willingness to endure near-term volatility, the current valuation provides a solid entry point, with downside in our view probably to the $13-$15 range at most," he wrote in a research note on March 10.

Dobell has a Market Perform rating on CB Richard Ellis.

Still, other institutional investors aren't as confident as Lone Pine. According to Joshua Hong, director of research at OwnershipAnalyzer.com, CB Richard Ellis saw a "huge turnover" of nearly 60% as institutions decreased their positions.

However, CB Richard Ellis's top holder FMR Corp. -- the parent company of financial-services giant Fidelity -- substantially raised its position, from 14.8 million shares at the end of the third quarter of 2007 to more than 32 million shares.

"It could be a good investment for the long term," Hong wrote in an e-mail. But he notes that "CB Richard Ellis would be mostly dependent on the sector turnaround, which is very hard to predict."