Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Overview

We are the world’s largest commercial real estate services and investment firm, based on 2017 revenue, with leading global market positions in our leasing, property sales, occupier outsourcing and valuation businesses. As of December 31, 2017, we operated in more than 450 offices worldwide with over 80,000 employees, excluding independent affiliates. Our business is focused on providing services to both the occupiers of real estate and investors in real estate. For occupiers, we provide facilities management, project management, transaction (both property sales and tenant leasing) and consulting services, among others. For investors, we provide capital markets (property sales, commercial mortgage brokerage, loan origination and servicing), leasing, investment management, property management, valuation and development services, among others. We provide commercial real estate services under the “CBRE” brand name, investment management services under the “CBRE Global Investors” brand name and development services under the “Trammell Crow Company” brand name. We generate revenue from both management fees (large multi-year portfolio and per-project contracts) and commissions on transactions. In 2017, we generated revenue from a well-balanced, highly diversified base of clients, including more than 90 of the Fortune 100 companies. We have been an S&P 500 company since 2006 and in 2017 we were ranked #214 on the Fortune 500. We have been voted the most recognized commercial real estate brand in a Lipsey Company survey for 17 years in a row (including 2018). We have also been rated a World’s Most Ethical Company by the Ethisphere Institute for five consecutive years.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, which require us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. We believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements.

Revenue Recognition

In order for us to recognize revenue, four basic criteria must be met:

•existence of persuasive evidence that an arrangement exists;
•delivery has occurred or services have been rendered;
•the seller’s price to the buyer is fixed and determinable; and
•collectability is reasonably assured.

Our revenue recognition policies are consistent with these criteria. The judgments involved in revenue recognition include understanding the complex terms of agreements and determining the appropriate time and method to recognize revenue for each transaction based on such terms. Each transaction is evaluated to determine: (i) at what point in time or over what period of time revenue is earned; (ii) whether contingencies exist that impact the timing of recognition of revenue; and (iii) how and when such contingencies will be resolved. The timing of revenue recognition could vary if different judgments were made. Our revenues subject to the most judgment are brokerage commission revenue and incentive-based management and development fees. For a detailed discussion of our revenue recognition policies, see the Revenue Recognition section within Note 2 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report on Form 10-K, or this Annual Report.

Goodwill and Other Intangible Assets

Our acquisitions require the application of purchase accounting, which results in tangible and identifiable intangible assets and liabilities of the acquired entity being recorded at fair value. The difference between the purchase price and the fair value of net assets acquired is recorded as goodwill. In determining the fair values of assets and liabilities acquired in a business combination, we use a variety of valuation methods including present

value, depreciated replacement cost, market values (where available) and selling prices less costs to dispose. We are responsible for determining the valuation of assets and liabilities and for the allocation of purchase price to assets acquired and liabilities assumed.

Assumptions must often be made in determining fair values, particularly where observable market values do not exist. Assumptions may include discount rates, growth rates, cost of capital, royalty rates, tax rates and remaining useful lives. These assumptions can have a significant impact on the value of identifiable assets and accordingly can impact the value of goodwill recorded. Different assumptions could result in different values being attributed to assets and liabilities. Since these values impact the amount of annual depreciation and amortization expense, different assumptions could also impact our statement of operations and could impact the results of future asset impairment reviews.

We are required to test goodwill and other intangible assets deemed to have indefinite useful lives for impairment at least annually or more often if circumstances or events indicate a change in the impairment status. The goodwill impairment analysis is a two-step process. The first step used to identify potential impairment involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. We use a discounted cash flow approach to estimate the fair value of our reporting units. Management judgment is required in developing the assumptions for the discounted cash flow model. These assumptions include revenue growth rates, profit margin percentages, discount rates, etc. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered to not be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment. The second step of the process involves the calculation of an implied fair value of goodwill for each reporting unit for which step one indicated impairment. The implied fair value of goodwill is determined by measuring the excess of the estimated fair value of the reporting unit as calculated in step one, over the estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. Due to the many variables inherent in the estimation of a business’s fair value and the relative size of our goodwill, if different assumptions and estimates were used, it could have an adverse effect on our impairment analysis.

For additional information on goodwill and intangible asset impairment testing, see Notes 2 and 9 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with the “Accounting for Income Taxes,” Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, (Topic 740). Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. We also assess our ability to utilize tax attributes, including those in the form of carryforwards, for which the benefits have already been reflected in the financial statements. We do not record valuation allowances for deferred tax assets that we believe will be realized in future periods. While we believe the resulting tax balances as of December 31, 2017 and 2016 are appropriately accounted for in accordance with Topic 740, as applicable, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material.

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was signed into law making significant changes to the Internal Revenue Code, including, but not limited to:

•a U.S. corporate tax rate decrease from 35% to 21%, effective for tax years beginning after December 31, 2017;
•the transition of U.S. international taxation from a worldwide tax system to a territorial system; and
•a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

In December 2017, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 118 (SAB 118), “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Our provision for income taxes for 2017 included a net charge of $143.4 million attributable to the Tax Act based upon our best estimate of the impact of the Tax Act in accordance with our understanding of the Tax Act and the related guidance available. The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from changes to current-year earnings estimates and foreign exchange rates of foreign subsidiaries. Our accounting for the effects of the Tax Act is expected to be completed within the measurement period provided by SAB 118.

Our foreign subsidiaries have accumulated $2.5 billion of undistributed earnings for which we have not recorded a deferred tax liability. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax, in connection with the enactment of the Tax Act, or any additional outside basis difference inherent in these entities, as these amounts continue to be indefinitely reinvested in foreign operations. Although tax liabilities might result from dividends being paid out of these earnings, or as a result of a sale or liquidation of non-U.S. subsidiaries, these earnings are permanently reinvested outside of the United States and we do not have any plans to repatriate them or to sell or liquidate any of our non-U.S. subsidiaries. To the extent that we are able to repatriate earnings in a tax efficient manner, we would be required to accrue and pay U.S. taxes to repatriate these funds, net of foreign tax credits. Determining our tax liability upon repatriation is not practicable.

See Note 14 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report for further information regarding income taxes.

New Accounting Pronouncements

See New Accounting Pronouncements section within Note 2 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Seasonality

A significant portion of our revenue is seasonal, which an investor should keep in mind when comparing our financial condition and results of operations on a quarter-by-quarter basis. Historically, our revenue, operating income, net income and cash flow from operating activities tend to be lowest in the first quarter, and highest in the fourth quarter of each year. Revenue, earnings and cash flow have generally been concentrated in the fourth calendar quarter due to the focus on completing sales, financing and leasing transactions prior to year-end.

Inflation

Our commissions and other variable costs related to revenue are primarily affected by commercial real estate market supply and demand, which may be affected by inflation. However, to date, we do not believe that general inflation has had a material impact upon our operations.

Items Affecting Comparability

When you read our financial statements and the information included in this Annual Report on Form 10-K, you should consider that we have experienced, and continue to experience, several material trends and uncertainties that have affected our financial condition and results of operations that make it challenging to predict our future performance based on our historical results. We believe that the following material trends and uncertainties are crucial to an understanding of the variability in our historical earnings and cash flows and the potential for continued variability in the future.

Macroeconomic Conditions

Economic trends and government policies affect global and regional commercial real estate markets as well as our operations directly. These include: overall economic activity and employment growth; interest rate levels and changes in interest rates; the cost and availability of credit; and the impact of tax and regulatory policies. Periods of economic weakness or recession, significantly rising interest rates, fiscal uncertainty, declining employment levels, decreasing demand for commercial real estate, falling real estate values, disruption to the global capital or credit markets, or the public perception that any of these events may occur, will negatively affect the performance of our business.

Compensation is our largest expense and our sales and leasing professionals generally are paid on a commission and/or bonus basis that correlates with their revenue production. As a result, the negative effect of difficult market conditions on our operating margins is partially mitigated by the inherent variability of our compensation cost structure. In addition, when negative economic conditions have been particularly severe, we have moved decisively to lower operating expenses to improve financial performance, and then have restored certain expenses as economic conditions improved. Nevertheless, adverse global and regional economic trends could pose significant risks to the performance of our operations and our financial condition.

Commercial real estate markets in the United States have generally been marked by increased demand for space, falling vacancies and higher rents since 2010. During this time, healthy U.S. property sales activity has been sustained by gradually improving market fundamentals, including higher occupancy rates and rents, broad, low-cost credit availability and increased acceptance of commercial real estate as an institutional asset class. Following years of strong growth, U.S. property sales volumes slowed in 2016 and 2017, but the market has remained active with significant capital continuing to target commercial real estate. Commercial mortgage markets also have remained highly active, driven by relatively low interest rates, a favorable lending environment and improved market fundamentals. The U.S. Government Sponsored Enterprises continue to be a significant source of debt capital for multi-family properties.

European economies began to emerge from recession in 2013, with economic growth accelerating in 2017. Sales and leasing activity has improved steadily across most of continental Europe for more than three years and this trend gained momentum in 2017. Since the United Kingdom’s June 2016 referendum to leave the European Union (EU), sentiment in that country has improved, leading to higher property leasing and sales volumes. However, there continues to be uncertainty about both the withdrawal process and the United Kingdom’s future relationship with the EU.

In Asia Pacific, real estate leasing and investment markets have strengthened broadly since late 2016. In 2017, investment activity, in particular, was very strong, and Asia Pacific investors continue to be a significant source of real estate investment both in the region and across other parts of the world.

Real estate investment management and property development markets have been generally favorable with abundant debt and equity capital flows into commercial real estate. Actively managed real estate equity strategies have been pressured by a shift in investor preferences from active to passive portfolio strategies and concerns about potentially higher interest rates.

The performance of our global real estate services and real estate investment businesses depends on sustained economic growth and job creation; stable, healthy global credit markets; and continued positive business and investor sentiment.

Effects of Acquisitions

We historically have made significant use of strategic acquisitions to add and enhance service competencies around the world. For example, on September 1, 2015, CBRE, Inc., our wholly-owned subsidiary, pursuant to a Stock and Asset Purchase Agreement with Johnson Controls, Inc. (JCI), acquired JCI’s Global Workplace Solutions (JCI-GWS) business (which we refer to as the GWS Acquisition). The acquired JCI-GWS business was a market-leading provider of integrated facilities management solutions for major occupiers of commercial real estate and had significant operations around the world. The purchase price was $1.475 billion, paid in cash, plus adjustments totaling $46.5 million for working capital and other items. We completed the GWS Acquisition in order to advance our strategy of delivering globally integrated services to major occupiers in our Americas, EMEA and Asia Pacific segments. We merged the acquired JCI-GWS business with our existing occupier outsourcing business line, which adopted the “Global Workplace Solutions” name.

Strategic in-fill acquisitions have also played a key role in strengthening our service offerings. The companies we acquired have generally been regional or specialty firms that complement our existing platform, or independent affiliates in which, in some cases, we held a small equity interest. During 2017, we completed 11 in-fill acquisitions, including two leading Software as a Service (SaaS) platforms – one that produces scalable interactive visualization technologies for commercial real estate and one that provides technology solutions for facilities management operations, a healthcare-focused project manager in Australia, a full-service brokerage and management boutique in South Florida, a technology-enabled national boutique commercial real estate finance and consulting firm in the United States, a retail consultancy in France, a majority interest in a Toronto-based investment management business specializing in private infrastructure and private equity investments, a San Francisco-based technology-focused boutique real estate brokerage firm, a project management and design engineering firm operating across the United States, a Washington, D.C.-based retail brokerage operation and a leading technical engineering services provider in Italy. During 2016, we acquired our independent affiliate in Norway, a London-based retail property advisor specializing in the luxury goods retail sector and a leading provider of retail project management, shopping center development and tenant coordination services in the United States. We also made an equity investment in a property services firm in Malaysia, acquiring a 49% interest.

We believe that strategic acquisitions can significantly decrease the cost, time and commitment of management resources necessary to attain a meaningful competitive position within targeted markets or to expand our presence within our current markets. In general, however, most acquisitions will initially have an adverse impact on our operating and net income as a result of transaction-related expenditures. These include severance, lease termination, transaction and deferred financing costs, among others, and the charges and costs of integrating the acquired business and its financial and accounting systems into our own.

Our acquisition structures often include deferred and/or contingent purchase price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of December 31, 2017, we have accrued deferred consideration totaling $83.6 million, which is included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report.

International Operations

We are monitoring the economic and political developments related to the United Kingdom’s referendum to leave the European Union and the potential impact on our businesses in the United Kingdom and the rest of Europe, including, in particular, sales and leasing activity in the United Kingdom, as well as any associated currency volatility impact on our results of operations.

As we continue to increase our international operations through either acquisitions or organic growth, fluctuations in the value of the U.S. dollar relative to the other currencies in which we may generate earnings could adversely affect our business, financial condition and operating results. Our Global Investment Management business has a significant amount of euro-denominated assets under management, or AUM, as well as associated revenue and earnings in Europe. In addition, our Global Workplace Solutions business also has a significant amount of its revenue and earnings denominated in foreign currencies, such as the euro and the British pound sterling. Fluctuations in foreign currency exchange rates have resulted and may continue to result in corresponding fluctuations in our AUM, revenue and earnings.

During the year ended December 31, 2017, approximately 48% of our business was transacted in non-U.S. dollar currencies, the majority of which included the Australian dollar, Brazilian real, British pound sterling, Canadian dollar, Chinese yuan, Czech koruna, Danish krone, euro, Hong Kong dollar, Indian rupee, Japanese yen, Korean won, Mexican peso, Polish zloty, Singapore dollar, Swedish krona, Swiss franc and Thai baht. The following table sets forth our revenue derived from our most significant currencies (U.S. dollars in thousands):

Year Ended December 31,
201720162015
United States dollar$7,424,24952.2%$6,917,22152.9%$5,991,82655.2%
British pound sterling2,104,51714.8%2,008,77615.4%1,861,19917.1%
euro1,677,58011.8%1,541,46111.8%1,071,6669.9%
Australian dollar407,8042.9%367,5782.8%360,2843.3%
Canadian dollar367,1942.6%310,0622.4%291,2732.7%
Indian rupee322,3782.3%244,0871.9%171,6781.6%
Chinese yuan232,4551.6%207,7731.6%152,7711.4%
Singapore dollar229,8691.6%173,9671.3%105,3361.0%
Japanese yen229,4861.6%212,8541.6%155,8421.4%
Swiss franc147,1001.0%145,0001.2%70,4150.7%
Hong Kong dollar121,7740.9%106,8690.8%85,0520.8%
Mexican peso107,9610.8%84,6880.6%68,4290.6%
Brazilian real102,4910.7%83,7380.6%65,8440.6%
Danish krone78,9610.6%68,6390.5%25,6730.2%
Polish zloty67,6750.5%69,9490.5%49,9980.5%
Swedish krona61,2890.4%59,6030.5%32,4140.3%
Thai baht53,6850.4%46,8440.4%35,4560.3%
Korean won46,7910.3%42,6690.3%36,0550.3%
Czech koruna41,2440.3%33,5040.3%27,1650.3%
Other currencies385,1052.7%346,3072.6%197,4341.8%
Total revenue$14,209,608100.0%$13,071,589100.0%$10,855,810100.0%

Although we operate globally, we report our results in U.S. dollars. As a result, the strengthening or weakening of the U.S. dollar may positively or negatively impact our reported results. For example, we estimate that had the British pound sterling-to-U.S. dollar exchange rates been 10% higher during the year ended December 31, 2017, the net impact would have been an increase in pre-tax income of $10.9 million. Had the euro-to-U.S. dollar exchange rates been 10% higher during the year ended December 31, 2017, the net impact would have been an increase in pre-tax income of $12.0 million. These hypothetical calculations estimate the impact of translating results into U.S. dollars and do not include an estimate of the impact that a 10% change in the U.S. dollar against other currencies would have had on our foreign operations.

From time to time, we have entered into derivative financial instruments to attempt to protect the value or fix the amount of certain obligations in terms of our reporting currency, the U.S. dollar. In March 2014, we began a foreign currency exchange forward hedging program by entering into foreign currency exchange forward contracts, including agreements to buy U.S. dollars and sell Australian dollars, British pound sterling, Canadian dollars, euros and Japanese yen. The purpose of these forward contracts was to attempt to mitigate the risk of fluctuations in foreign currency exchange rates that would adversely impact some of our foreign currency denominated EBITDA. Hedge accounting was not elected for any of these contracts. As such, changes in the fair values of these contracts were recorded directly in earnings. As of December 31, 2017 and 2016, we had no foreign currency exchange forward contracts outstanding as we made the decision to let our program expire at the end of 2016. Included in the consolidated statement of operations set forth in Item 8 of this Annual Report were net gains of $7.7 million and $24.2 million from foreign currency exchange forward contracts for the years ended December 31, 2016 and 2015, respectively. We do not intend to hedge our foreign currency denominated EBITDA in 2018.

Due to the constantly changing currency exposures to which we are subject and the volatility of currency exchange rates, we cannot predict the effect of exchange rate fluctuations upon future operating results. In addition, fluctuations in currencies relative to the U.S. dollar may make it more difficult to perform period-to-period comparisons of our reported results of operations. Our international operations also are subject to, among other things, political instability and changing regulatory environments, which affects the currency markets and which as a result may adversely affect our future financial condition and results of operations. We routinely monitor these risks and related costs and evaluate the appropriate amount of oversight to allocate towards business activities in foreign countries where such risks and costs are particularly significant.

Results of Operations

The following table sets forth items derived from our consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):

Year Ended December 31,
20172016 (1)2015 (1)
Revenue:
Fee revenue (1):
Occupier outsourcing$2,523,26417.8%$2,273,22817.4%$1,443,58213.3%
Property management549,9533.9%504,4913.9%491,3144.5%
Valuation527,6383.7%504,3703.9%503,8394.6%
Loan servicing157,4491.1%122,5170.9%100,4290.9%
Investment management377,6442.7%369,8002.8%460,7004.2%
Leasing2,861,26520.1%2,660,98420.4%2,524,15423.3%
Capital Markets:
Sales1,799,16212.7%1,699,38713.0%1,695,56015.6%
Commercial mortgage origination450,5113.2%448,1663.4%379,8723.5%
Other:
Development services58,0540.4%56,6510.4%53,3580.5%
Other84,4720.5%86,2350.7%77,5290.8%
Total fee revenue9,389,41266.1%8,725,82966.8%7,730,33771.2%
Pass through costs also recognized as revenue4,820,19633.9%4,345,76033.2%3,125,47328.8%
Total revenue14,209,608100.0%13,071,589100.0%10,855,810100.0%
Costs and expenses:
Cost of services9,893,22669.6%9,123,72769.8%7,082,93265.2%
Operating, administrative and other2,858,65420.1%2,781,31021.3%2,633,60924.3%
Depreciation and amortization406,1142.9%366,9272.8%314,0962.9%
Total costs and expenses13,157,99492.6%12,271,96493.9%10,030,63792.4%
Gain on disposition of real estate19,8280.1%15,8620.1%10,7710.1%
Operating income1,071,4427.5%815,4876.2%835,9447.7%
Equity income from unconsolidated subsidiaries210,2071.5%197,3511.5%162,8491.5%
Other income (loss)9,4050.1%4,6880.0%(3,809)0.0%
Interest income9,8530.1%8,0510.1%6,3110.0%
Interest expense136,8141.0%144,8511.1%118,8801.1%
Write-off of financing costs on extinguished debt—0.0%—0.0%2,6850.0%
Income before provision for income taxes1,164,0938.2%880,7266.7%879,7308.1%
Provision for income taxes466,1473.3%296,6622.2%320,8533.0%
Net income697,9464.9%584,0644.5%558,8775.1%
Less: Net income attributable to non-controlling interests6,4670.0%12,0910.1%11,7450.1%
Net income attributable to CBRE Group, Inc.$691,4794.9%$571,9734.4%$547,1325.0%
EBITDA$1,690,70111.9%$1,372,36210.5%$1,297,33512.0%
Adjusted EBITDA$1,709,53412.0%$1,561,00311.9%$1,412,72413.0%
(1)Certain adjustments have been made to 2016 and 2015 fee revenue to conform with current-year presentation.

Fee revenue, EBITDA and adjusted EBITDA are not recognized measurements under GAAP. When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use

these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. Because not all companies use identical calculations, our presentation of fee revenue, EBITDA and adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Fee revenue is gross revenue less both client reimbursed costs largely associated with employees that are dedicated to client facilities and subcontracted vendor work performed for clients. We believe that investors may find this measure useful to analyze the company’s overall financial performance because it excludes costs reimbursable by clients, and as such provides greater visibility into the underlying performance of our business.

EBITDA represents earnings before net interest expense, write-off of financing costs on extinguished debt, income taxes, depreciation and amortization. Amounts shown for adjusted EBITDA further remove (from EBITDA) the impact of certain cash and non-cash charges related to acquisitions, cost-elimination expenses and certain carried interest incentive compensation (reversal) expense to align with the timing of associated revenue. We believe that investors may find these measures useful in evaluating our operating performance compared to that of other companies in our industry because their calculations generally eliminate the effects of acquisitions, which would include impairment charges of goodwill and intangibles created from acquisitions, the effects of financings and income taxes and the accounting effects of capital spending.

EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments. We also use adjusted EBITDA as a significant component when measuring our operating performance under our employee incentive compensation programs.

EBITDA and adjusted EBITDA are calculated as follows (dollars in thousands):

Year Ended December 31,
201720162015
Net income attributable to CBRE Group, Inc.$691,479$571,973$547,132
Add:
Depreciation and amortization406,114366,927314,096
Interest expense136,814144,851118,880
Write-off of financing costs on extinguished debt——2,685
Provision for income taxes466,147296,662320,853
Less:
Interest income9,8538,0516,311
EBITDA1,690,7011,372,3621,297,335
Adjustments:
Integration and other costs related to acquisitions27,351125,74348,865
Carried interest incentive compensation (reversal) expense to align with the timing of associated revenue(8,518)(15,558)26,085
Cost-elimination expenses (2)—78,45640,439
Adjusted EBITDA$1,709,534$1,561,003$1,412,724
(2)Represents cost-elimination expenses relating to a program initiated in the fourth quarter of 2015 and completed in the third quarter of 2016 (our cost-elimination project) to reduce the company’s global cost structure after several years of significant revenue and related cost growth. Cost-elimination expenses incurred during the years ended December 31, 2016 and 2015 consisted of $73.6 million and $32.6 million,
respectively, of severance costs related to headcount reductions in connection with the program and $4.9 million and $7.8 million, respectively, of third-party contract termination costs. The total amount for each period does have a cash impact.

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

We reported consolidated net income of $691.5 million for the year ended December 31, 2017 on revenue of $14.2 billion as compared to consolidated net income of $572.0 million on revenue of $13.1 billion for the year ended December 31, 2016.

Our revenue on a consolidated basis for the year ended December 31, 2017 increased by $1.1 billion, or 8.7%, as compared to the year ended December 31, 2016. The revenue increase reflects strong organic growth fueled by higher occupier outsourcing revenue (up 12.0%) and property management revenue (up 9.0%), increased sales (up 5.4%) and leasing activity (up 7.1%), and higher loan servicing revenue (up 28.9%). These increases were partially offset by foreign currency translation, which had a $34.5 million negative impact on total revenue during the year ended December 31, 2017, primarily driven by weakness in the British pound sterling and Venezuelan bolivar, partially offset by strength in the euro.

Our cost of services on a consolidated basis increased by $769.5 million, or 8.4%, during the year ended December 31, 2017 as compared to same period in 2016. This increase was primarily due to higher costs associated with our occupier outsourcing business as well as higher professional bonuses (particularly in the United States and United Kingdom). In addition, our sales professionals generally are paid on a commission basis, which substantially correlates with our transaction revenue performance. Accordingly, the increase in sales and lease transaction revenue led to a corresponding increase in commission expense. These increases were partially offset by foreign currency translation, which had a $37.8 million positive impact on cost of services during the year ended December 31, 2017. In addition, we incurred $37.1 million of costs in the prior year in connection with our cost-elimination project that did not recur in the current year. Cost of services as a percentage of revenue was relatively consistent at 69.6% for the year ended December 31, 2017 versus 69.8% for the year ended December 31, 2016.

Our operating, administrative and other expenses on a consolidated basis increased by $77.4 million, or 2.8%, during the year ended December 31, 2017 as compared to same period in 2016. The increase was mostly driven by higher payroll-related costs (including increases in bonus and stock compensation expense driven by improved operating performance). This increase was partially offset by a decrease of $96.7 million in integration and other costs related to the GWS Acquisition incurred during the year ended December 31, 2017 as well as the impact of $41.4 million of costs incurred during the year ended December 31, 2016 as part of our cost-elimination project, which did not recur during the year ended December 31, 2017. Foreign currency also had a $1.7 million positive impact on total operating expenses during the year ended December 31, 2017, including a $0.1 million positive impact from foreign currency translation and $1.6 million of favorable foreign currency transaction activity over the year ended December 31, 2016 (part of which related to net hedging activity during 2016, which did not recur in the current year given that we discontinued our hedging program at the end of 2016). Operating expenses as a percentage of revenue decreased from 21.3% for the year ended December 31, 2016 to 20.1% for the year ended December 31, 2017, primarily driven by the aforementioned decline in integration and other costs related to the GWS Acquisition as well as the costs associated with our cost-elimination project in 2016.

Our depreciation and amortization expense on a consolidated basis increased by $39.2 million, or 10.7%, during the year ended December 31, 2017 as compared to the same period in 2016. This increase was primarily attributable to higher amortization expense associated with mortgage servicing rights. A rise in depreciation expense of $14.5 million during the year ended December 31, 2017 driven by technology-related capital expenditures also contributed to the increase.

Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $12.9 million, or 6.5%, during the year ended December 31, 2017 as compared to the same period in 2016, primarily driven by higher equity earnings associated with gains on property sales reported in our Development Services segment.

Our consolidated interest expense decreased by $8.0 million, or 5.5%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016. This decrease was primarily driven by lower interest expense due to lower net borrowings under our credit agreement and a decrease in notes payable on real estate during 2017.

Our provision for income taxes on a consolidated basis was $466.1 million for the year ended December 31, 2017 as compared to $296.7 million for the same period in 2016. Our provision for income taxes for 2017 included a provisional net charge of $143.4 million attributable to the Tax Act. This net charge was primarily comprised of a transition tax on accumulated foreign earnings, net of a tax benefit from the re-measurement of certain deferred tax assets and liabilities using the lower U.S. corporate income tax rate and the release of valuation allowances on foreign tax credits that will decrease the liability related to the transition tax. Excluding this net charge, our effective tax rate for 2017, after adjusting pre-tax income to remove the portion attributable to non-controlling interests, would have been 27.9% compared to 34.1% for the year ended December 31, 2016. We benefited from a more favorable geographic mix of income, the re-measurement of income tax exposures relating to prior periods and release of valuation allowances. The release of valuation allowances during the year ended December 31, 2017 primarily related to valuation allowances on foreign income tax credits that are expected to be utilized as well as on net operating losses that have been utilized through current year operations. The re-measurement of income tax exposures, primarily due to the resolution of certain tax audits during the year ended December 31, 2017, contributed to the lower effective tax rate for 2017 as compared to 2016. In addition, the contribution of income from lower taxed jurisdictions to our total consolidated income for the year ended December 31, 2017, provided a more favorable geographic mix of income, resulting in a decrease to the overall effective tax rate. For the year ended December 31, 2017, the U.S. corporate tax rate was 35%. For 2018, the U.S. corporate tax rate will decrease to 21%.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

We reported consolidated net income of $572.0 million for the year ended December 31, 2016 on revenue of $13.1 billion as compared to consolidated net income of $547.1 million on revenue of $10.9 billion for the year ended December 31, 2015.

Our revenue on a consolidated basis for the year ended December 31, 2016 increased by $2.2 billion, or 20.4%, as compared to the year ended December 31, 2015. This increase was largely due to contributions from the GWS Acquisition, which added $1.8 billion of revenue, with a full year of activity reflected in 2016 versus only four months of activity in 2015. Additionally, the revenue increase reflects strong organic growth, fueled by higher occupier outsourcing revenue (excluding the impact of the GWS Acquisition, up 14.0%), as well as increased leasing (up 6.7%), commercial mortgage origination (up 18.0%), loan servicing (up 23.3%) and sales (up 1.4%) activity. These increases were partially offset by lower carried interest revenue in 2016 as well as foreign currency translation, which had a $277.8 million negative impact on total revenue during the year ended December 31, 2016 versus the same period in 2015, primarily driven by weakness in the British pound sterling.

Our cost of services on a consolidated basis increased by $2.0 billion, or 28.8%, during the year ended December 31, 2016 as compared to same period in 2015. This increase was primarily due to higher costs associated with our occupier outsourcing business, particularly due to the GWS Acquisition. In addition, as previously mentioned, our sales professionals generally are paid on a commission basis, which substantially correlates with our transaction revenue performance. Accordingly, the increase in sales and lease transaction revenue led to a corresponding increase in commission expense. We also incurred $18.9 million of additional costs in 2016 versus 2015 in connection with our cost-elimination project that began in the fourth quarter of 2015 and ended in the third quarter of 2016 to enhance margins and reduce our global cost structure going forward (the expenses of which primarily consisted of severance costs related to headcount reductions and third-party contract termination costs). These increases were partially offset by foreign currency translation, which had a $205.5 million positive impact on cost of services during the year ended December 31, 2016. Cost of services as a percentage of revenue increased from 65.2% for the year ended December 31, 2015 to 69.8% for the year ended December 31, 2016, largely due to the GWS Acquisition. Excluding activity associated with the acquired JCI-GWS business, cost of services as a percentage of revenue was 62.5% for the year ended December 31, 2015, compared to 64.0% for the year ended December 31, 2016. This increase was partly driven by the aforementioned increase in costs incurred in connection with our cost-elimination project in 2016 and lower non-commissionable revenue in 2016. In addition, outsourcing revenue (excluding the impact of the GWS Acquisition), which has a lower margin than sales and lease transaction revenue, was a lower percentage of revenue in 2015 than in 2016.

Our operating, administrative and other expenses on a consolidated basis increased by $147.7 million, or 5.6%, during the year ended December 31, 2016 as compared to the year ended December 31, 2015. The increase was mostly driven by costs associated with the GWS Acquisition. Also contributing to the variance were higher worldwide payroll-related costs (particularly bonuses largely attributable to improved results, most notably in our Development Services segment). Lastly, we incurred an additional $19.1 million of costs in 2016 versus 2015 in connection with our cost-elimination project. These items were partly offset by lower carried interest expense as well as foreign currency, which had a net $46.2 million positive impact on total operating expenses during the year ended December 31, 2016, including $10.9 million of unfavorable foreign currency transaction activity over the same period last year, much of which related to hedging activities, that was more than offset by a $57.1 million positive impact from foreign currency translation. Operating expenses as a percentage of revenue decreased from 24.3% for the year ended December 31, 2015 to 21.3% for the year ended December 31, 2016, primarily due to the GWS Acquisition. Excluding activity associated with the acquired JCI-GWS business, operating expenses as a percentage of revenue was 25.7% for the year ended December 31, 2015 as compared to 24.7% for the same period in 2016, partly driven by the lower carried interest expense during the year ended December 31, 2016.

Our depreciation and amortization expense on a consolidated basis increased by $52.8 million, or 16.8%, during the year ended December 31, 2016 as compared to the same period in 2015. This increase was primarily attributable to higher amortization expense related to intangibles acquired in the GWS Acquisition, with a full year of amortization reflected during the year ended December 31, 2016 versus only four months of amortization during the year ended December 31, 2015. A rise in depreciation expense of $14.1 million during the year ended December 31, 2016 driven by technology-related capital expenditures also contributed to the increase.

Our equity income from unconsolidated subsidiaries on a consolidated basis increased by $34.5 million, or 21.2%, for the year ended December 31, 2016 as compared to the same period in 2015, primarily driven by higher equity earnings associated with gains on property sales reported in our Development Services segment.

Our consolidated interest expense increased by $26.0 million, or 21.8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was primarily driven by a full year of interest expense during the year ended December 31, 2016 associated with our $600.0 million of 4.875% senior notes issued in August 2015 as well as higher interest expense associated with borrowings under our amended and restated credit agreement dated January 9, 2015 (2015 Credit Agreement) due to an increase in interest rates.

Our write-off of financing costs on extinguished debt on a consolidated basis was $2.7 million for the year ended December 31, 2015. These costs included the write-off of $1.7 million of unamortized deferred financing costs associated with our prior credit agreement dated March 28, 2013, as amended (2013 Credit Agreement), and $1.0 million of fees incurred in connection with our 2015 Credit Agreement.

Our provision for income taxes on a consolidated basis was $296.7 million for the year ended December 31, 2016 as compared to $320.9 million for the same period in 2015. Our effective tax rate, after adjusting pre-tax income to remove the portion attributable to non-controlling interests, decreased to 34.1% for the year ended December 31, 2016 compared to 37.0% for the year ended December 31, 2015. We experienced a favorable change in earnings mix in the current year, with 60% of our earnings, after removing the portion attributable to non-controlling interests, from the United States for 2016 versus 68% for 2015. In addition, we realized certain discrete tax benefits during the year ended December 31, 2016 that were not applicable in 2015. These items were offset, in part, by higher losses sustained during the year ended December 31, 2016 in jurisdictions where no tax benefit could be provided.

Segment Operations

We report our operations through the following segments: (1) Americas, (2) EMEA, (3) Asia Pacific, (4) Global Investment Management, and (5) Development Services. The Americas consists of operations located in the United States, Canada and key markets in Latin America. EMEA mainly consists of operations in Europe, while Asia Pacific includes operations in Asia, Australia and New Zealand. The Global Investment Management business consists of investment management operations in North America, Europe and Asia Pacific. The Development Services business consists of real estate development and investment activities primarily in the United States.

The following table summarizes our results of operations by our Americas, EMEA, Asia Pacific, Global Investment Management and Development Services operating segments for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):

Year Ended December 31,
20172016 (1)2015
Americas
Revenue:
Fee revenue:
Occupier outsourcing$1,113,72214.2%$948,34113.1%$587,6789.5%
Property management284,9133.6%272,0753.8%265,5774.3%
Valuation245,1793.1%245,3893.4%239,0483.9%
Loan servicing146,4601.9%111,3731.5%87,2961.4%
Leasing2,052,86326.1%1,934,07726.7%1,814,74629.3%
Capital Markets:
Sales1,104,65714.1%1,102,33615.2%1,094,57317.6%
Commercial mortgage origination442,9555.6%443,1496.1%373,7806.0%
Other48,2430.6%50,2310.7%42,3510.6%
Total fee revenue5,438,99269.2%5,106,97170.5%4,505,04972.6%
Pass through costs also recognized as revenue2,421,24730.8%2,139,48829.5%1,696,62727.4%
Total revenue7,860,239100.0%7,246,459100.0%6,201,676100.0%
Costs and expenses:
Cost of services5,476,92969.7%5,049,77469.7%4,126,86566.5%
Operating, administrative and other1,405,41117.9%1,357,78118.7%1,277,40720.6%
Depreciation and amortization289,3383.6%254,1183.5%198,9863.3%
Operating income688,5618.8%584,7868.1%598,4189.6%
Equity income from unconsolidated subsidiaries18,7890.3%17,8920.2%18,4130.3%
Other income (loss)370.0%(90)0.0%1,6130.0%
Less: Net income attributable to non-controlling interests—0.0%—0.0%20.0%
Add-back: Depreciation and amortization289,3383.6%254,1183.5%198,9863.3%
EBITDA$996,72512.7%$856,70611.8%$817,42813.2%
Adjusted EBITDA$1,013,86412.9%$950,35513.1%$858,17413.8%
(1)In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 and 2015 fee revenue to conform with current-year presentation.
Year Ended December 31,
20172016 (1)2015 (1)
EMEA
Revenue:
Fee revenue:
Occupier outsourcing$1,162,67927.9%$1,111,26028.6%$740,85324.8%
Property management165,0224.0%148,3253.8%147,5764.9%
Valuation165,0824.0%148,8563.8%156,1195.2%
Loan servicing10,9890.3%11,1440.3%13,1330.4%
Leasing445,64910.7%410,75610.6%425,37314.3%
Capital Markets:
Sales397,1309.5%334,3988.6%351,88811.8%
Commercial mortgage origination5,4470.1%2,8810.1%5,0870.2%
Other26,5840.6%23,6120.6%27,3241.0%
Total fee revenue2,378,58257.1%2,191,23256.4%1,867,35362.6%
Pass through costs also recognized as revenue1,786,20742.9%1,693,36443.6%1,116,95937.4%
Total revenue4,164,789100.0%3,884,596100.0%2,984,312100.0%
Costs and expenses:
Cost of services3,180,83076.4%3,001,72477.3%2,188,26873.3%
Operating, administrative and other689,43216.6%686,07917.7%614,55020.6%
Depreciation and amortization72,3221.7%66,6191.6%68,2632.3%
Operating income$222,2055.3%$130,1743.4%$113,2313.8%
Equity income from unconsolidated subsidiaries1,5530.1%1,8170.1%1,9340.1%
Other (loss) income(67)0.0%220.0%(43)0.0%
Less: Net income (loss) attributable to non-controlling interests640.0%4760.0%(420)0.0%
Add-back: Depreciation and amortization72,3221.7%66,6191.6%68,2632.3%
EBITDA$295,9497.1%$198,1565.1%$183,8056.2%
Adjusted EBITDA$305,7437.3%$271,6487.0%$212,6877.1%
(1)In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 and 2015 fee revenue to conform with current-year presentation.
Year Ended December 31,
20172016 (1)2015 (1)
Asia Pacific
Revenue:
Fee revenue:
Occupier outsourcing$246,86314.3%$213,62714.2%$115,05110.1%
Property management86,1045.0%74,5895.0%69,8396.1%
Valuation117,3776.8%110,1257.3%108,6729.5%
Leasing358,07120.7%312,22320.8%280,81224.6%
Capital Markets:
Sales296,39817.1%261,32017.4%248,35921.7%
Commercial mortgage origination2,1190.1%2,1360.1%1,0050.1%
Other9,6350.6%12,3921.0%7,8540.6%
Total fee revenue1,116,56764.6%986,41265.8%831,59272.7%
Pass through costs also recognized as revenue612,74235.4%512,90834.2%311,88727.3%
Total revenue1,729,309100.0%1,499,320100.0%1,143,479100.0%
Costs and expenses:
Cost of services1,235,46771.4%1,072,22971.5%767,79967.1%
Operating, administrative and other318,75718.4%301,09720.1%276,09824.1%
Depreciation and amortization18,2581.1%17,8101.2%15,6091.3%
Operating income$156,8279.1%$108,1847.2%$83,9737.5%
Equity income from unconsolidated subsidiaries3970.0%2230.0%830.0%
Other loss—0.0%—0.0%(72)0.0%
Less: Net income attributable to non-controlling interests—0.0%850.0%1910.0%
Add-back: Depreciation and amortization18,2581.1%17,8101.2%15,6091.3%
EBITDA$175,48210.2%$126,1328.4%$99,4028.8%
Adjusted EBITDA$175,90010.2%$141,9129.5%$117,55710.3%
(1)In 2017, we changed the presentation of the operating results of one of our emerging businesses among our regional services reporting segments. Prior year amounts have been reclassified to conform with the current-year presentation. This change had no impact on our consolidated results. Additionally, certain adjustments have been made to 2016 and 2015 fee revenue to conform with current-year presentation.
Year Ended December 31,
201720162015
Global Investment Management
Revenue$377,644100.0%$369,800100.0%$460,700100.0%
Costs and expenses:
Operating, administrative and other285,83175.7%297,19480.4%347,97475.5%
Depreciation and amortization24,1236.4%25,9117.0%29,0206.3%
Operating income$67,69017.9%$46,69512.6%$83,70618.2%
Equity income from unconsolidated subsidiaries7,9232.1%7,2431.9%5,9721.3%
Other income (loss)9,4352.5%4,7561.3%(5,307)(1.2%)
Less: Net income attributable to non-controlling interests6,2801.7%7,1741.9%6,7571.5%
Add-back: Depreciation and amortization24,1236.4%25,9117.0%29,0206.3%
EBITDA$102,89127.2%$77,43120.9%$106,63423.1%
Adjusted EBITDA$94,37325.0%$83,15122.5%$134,24029.1%
Year Ended December 31,
201720162015
Development Services
Revenue:
Property management$13,91417.9%$9,50213.3%$8,32212.7%
Leasing4,6826.0%3,9285.5%3,2234.9%
Capital Markets:
Sales9771.3%1,3331.9%7401.1%
Other:
Development services58,05474.8%56,65179.3%53,35881.3%
Total revenue77,627100.0%71,414100.0%65,643100.0%
Costs and expenses:
Operating, administrative and other159,223205.1%139,159194.9%117,580179.1%
Depreciation and amortization2,0732.7%2,4693.4%2,2183.4%
Gain on disposition of real estate19,82825.6%15,86222.2%10,77116.4%
Operating loss$(63,841)(82.2%)$(54,352)(76.1%)$(43,384)(66.1%)
Equity income from unconsolidated subsidiaries181,545233.8%170,176238.3%136,447207.8%
Less: Net income attributable to non-controlling interests1230.2%4,3566.1%5,2157.9%
Add-back: Depreciation and amortization2,0732.7%2,4693.4%2,2183.4%
EBITDA and Adjusted EBITDA$119,654154.1%$113,937159.5%$90,066137.2%

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

Americas

Revenue increased by $613.8 million, or 8.5%, for the year ended December 31, 2017 compared to the year ended December 31, 2016. The revenue increase reflects strong organic growth fueled by higher occupier outsourcing and property management revenue, improved leasing activity and higher loan servicing revenue. Foreign currency translation had an $8.8 million negative impact on revenue during the year ended December 31, 2017, primarily driven by weakness in the Venezuelan bolivar, partially offset by strength in the Brazilian real and the Canadian dollar.

Cost of services increased by $427.2 million, or 8.5%, for the year ended December 31, 2017 as compared to the same period in 2016, primarily due to higher costs associated with our occupier outsourcing business and higher professional bonuses in the United States. Also contributing to the variance was higher commission expense resulting from improved lease transaction revenue. Foreign currency translation had an $8.8 million positive impact on cost of services during the year ended December 31, 2017. These items were partially offset by the impact of $11.9 million of costs incurred during the year ended December 31, 2016 in connection with our cost-elimination project that did not recur during the year ended December 31, 2017. Cost of services as a percentage of revenue was consistent at 69.7% for both years ended December 31, 2017 and 2016.

Operating, administrative and other expenses increased by $47.6 million, or 3.5%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase was partly driven by higher payroll-related costs (including increases in bonus and stock compensation expense due to improved operating performance). Foreign currency also had a $9.0 million negative impact on total operating expenses during the year ended December 31, 2017, which included a negative impact from foreign currency translation of $2.4 million and $6.6 million of unfavorable foreign currency transaction activity over the year ended December 31, 2016 (part of which related to net hedging activity in 2016, which did not recur in the current year). These increases were partially offset by a decrease of $52.6 million in integration and other costs related to the GWS Acquisition incurred during the year ended December 31, 2017 as well as the impact of $10.4 million of costs incurred during the year ended December 31, 2016 as part of our cost-elimination project, which did not recur during the year ended December 31, 2017.

In connection with the origination and sale of mortgage loans for which the company retains servicing rights, we record servicing assets or liabilities based on the fair value of the retained mortgage servicing rights (MSRs) on the date the loans are sold. Upon origination of a mortgage loan held for sale, the fair value of the mortgage servicing rights to be retained is included in the forecasted proceeds from the anticipated loan sale and results in a net gain (which is reflected in revenue). Subsequent to the initial recording, MSRs are amortized (within amortization expense) and carried at the lower of amortized cost or fair value in other intangible assets in the accompanying consolidated balance sheets. They are amortized in proportion to and over the estimated period that the servicing income is expected to be received. For the year ended December 31, 2017, MSRs contributed to operating income $145.1 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $98.6 million of amortization of related intangible assets. For the year ended December 31, 2016, MSRs contributed to operating income $154.0 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $73.3 million of amortization of related intangible assets.

EMEA

Revenue increased by $280.2 million, or 7.2%, for the year ended December 31, 2017 as compared to the same period in 2016. We achieved strong organic growth fueled by higher occupier outsourcing and property management revenue, as well as higher sales and leasing activity. Such growth was partially offset by foreign currency translation, which had a $35.0 million negative impact on total revenue during the year ended December 31, 2017, primarily driven by weakness in the British pound sterling, partially offset by strength in the euro.

Cost of services increased by $179.1 million, or 6.0%, for the year ended December 31, 2017 as compared to the same period in 2016, primarily due to higher costs associated with our occupier outsourcing business and higher professional bonuses, particularly in the United Kingdom resulting from improved operating performance. These items were partly offset by foreign currency translation, which had a $36.9 million positive impact on cost of services. In addition, we incurred $18.8 million of costs during the year ended December 31, 2016 in connection with our cost-elimination project that did not recur during the year ended December 31, 2017. The absence of such costs contributed to cost of services as a percentage of revenue decreasing from 77.3% for the year ended December 31, 2016 to 76.4% for the year ended December 31, 2017.

Operating, administrative and other expenses increased by $3.4 million, or 0.5%, for the year ended December 31, 2017 as compared to the same period in 2016. This increase was primarily driven by higher payroll-related costs, including increased bonus and stock compensation expense due to improved operating performance during the year ended December 31, 2017. These items were largely offset by a decrease of $38.1 million in integration and other costs related to the GWS Acquisition incurred during the year ended December 31, 2017 as well as the impact of $6.8 million of costs incurred during the year ended December 31, 2016 as part of our cost-elimination project, which did not recur during the year ended December 31, 2017. Foreign currency also had a $1.3 million net positive impact on total operating expenses during the year ended December 31, 2017, including a $3.6 million positive impact from foreign currency translation, partially offset by $2.3 million of unfavorable foreign currency transaction activity over the year ended December 31, 2016 (part of which related to net hedging activity in 2016, which did not recur in the current year).

Asia Pacific

Revenue increased by $230.0 million, or 15.3%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The revenue increase reflects strong organic growth, fueled by higher occupier outsourcing and property management revenue as well as improved sales and leasing activity. In addition, foreign currency translation had a $10.9 million positive impact on total revenue during the year ended December 31, 2017, primarily driven by strength in the Australian dollar and Indian rupee, partially offset by weakness in the Chinese yuan and Japanese yen.

Cost of services increased by $163.2 million, or 15.2%, for the year ended December 31, 2017 as compared to the same period in 2016, driven by higher costs associated with our occupier outsourcing business. Also contributing to the variance was higher commission expense resulting from improved sales and lease transaction revenue. In addition, foreign currency translation had a $7.9 million negative impact on cost of services during the year ended December 31, 2017. These items were partially offset by the impact of $6.4 million of costs incurred during the year ended December 31, 2016 in connection with our cost-elimination project that did not recur during the year ended December 31, 2017. Cost of services as a percentage of revenue was relatively consistent at 71.4% for the year ended December 31, 2017 versus 71.5% for the year ended December 31, 2016.

Operating, administrative and other expenses increased by $17.7 million, or 5.9%, for the year ended December 31, 2017 as compared to the same period in 2016. We incurred higher payroll-related costs (including increased stock compensation and bonus expense due to improved operating performance) during the year ended December 31, 2017. This was partially offset by a decrease of $6.0 million in integration and other costs related to the GWS Acquisition incurred during the year ended December 31, 2017 as well as the impact of $2.9 million of costs incurred during the year ended December 31, 2016 as part of our cost-elimination project, which did not recur during the year ended December 31, 2017. Foreign currency activity also had an overall net positive impact of $9.3 million for the year ended December 31, 2017, due to $11.1 million of favorable foreign currency transaction activity over the year ended December 31, 2016 (part of which related to net hedging activity in 2016, which did not recur in the current year), partially offset by a $1.8 million negative impact from foreign currency translation.

Global Investment Management

Revenue increased by $7.8 million, or 2.1%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily driven by higher carried interest revenue. Foreign currency translation had a $1.6 million negative impact on total revenue during the year ended December 31, 2017, primarily driven by weakness in the British pound sterling, partially offset by strength in the euro.

Operating, administrative and other expenses decreased by $11.4 million, or 3.8%, for the year ended December 31, 2017 as compared to the same period in 2016, primarily driven by the impact of $21.3 million of costs incurred during the year ended December 31, 2016 in connection with our cost-elimination project that did not recur during the year ended December 31, 2017. This was partly offset by higher carried interest expense in the current year. Foreign currency had a $0.1 million net positive impact on total operating expenses during the year ended December 31, 2017, which included a $0.7 million positive impact from foreign currency translation, most offset by $0.6 million of unfavorable foreign currency transaction activity over the year ended December 31, 2016 (part of which related to net hedging activity in 2016, which did not recur in the current year).

A roll forward of our AUM by product type for the year ended December 31, 2017 is as follows (dollars in billions):

Separate
FundsAccountsSecuritiesTotal
Balance at January 1, 2017$31.6$37.5$17.5$86.6
Inflows5.817.51.925.2
Outflows(5.9)(4.9)(6.0)(16.8)
Market appreciation0.26.61.48.2
Balance at December 31, 2017$31.7$56.7$14.8$103.2

AUM generally refers to the properties and other assets with respect to which we provide (or participate in) oversight, investment management services and other advice, and which generally consist of real estate properties or loans, securities portfolios and investments in operating companies and joint ventures. Our AUM is intended principally to reflect the extent of our presence in the real estate market, not the basis for determining our management fees. Our assets under management consist of:

•the total fair market value of the real estate properties and other assets either wholly-owned or held by joint ventures and other entities in which our sponsored funds or investment vehicles and client accounts have invested or to which they have provided financing. Committed (but unfunded) capital from investors in our sponsored funds is not included in this component of our AUM. The value of development properties is included at estimated completion cost. In the case of real estate operating companies, the total value of real properties controlled by the companies, generally through joint ventures, is included in AUM; and
•the net asset value of our managed securities portfolios, including investments (which may be comprised of committed but uncalled capital) in private real estate funds under our fund of funds investments.

Our calculation of AUM may differ from the calculations of other asset managers, and as a result, this measure may not be comparable to similar measures presented by other asset managers.

Development Services

Revenue increased by $6.2 million, or 8.7%, for the year ended December 31, 2017 as compared to the year ended December 31, 2016, primarily driven by higher management and development fees during the year ended December 31, 2017.

Operating, administrative and other expenses increased by $20.1 million, or 14.4%, for the year ended December 31, 2017 as compared to the same period in 2016. This increase was primarily driven by higher payroll-related costs, including increased bonus expense during the year ended December 31, 2017 due to improved operating performance (property sales reflected in equity income from unconsolidated subsidiaries and gain on disposition of real estate were significantly higher during the year ended December 31, 2017).

As of December 31, 2017, development projects in process totaled $6.8 billion, up $0.2 billion from year-end 2016. The new projects pipeline totaled $3.8 billion at December 31, 2017, down $0.4 billion from year-end 2016.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Americas

Revenue increased by $1.0 billion, or 16.8%, for the year ended December 31, 2016 compared to the year ended December 31, 2015. This increase was in part due to contributions from the GWS Acquisition, which added $641.6 million of revenue, with a full year of activity reflected during the year ended December 31, 2016 versus only four months of activity in 2015. Additionally, the revenue increase reflects strong organic growth, fueled by higher occupier outsourcing revenue (excluding the impact of the GWS Acquisition, up 10.4%), as well as improved leasing and commercial mortgage origination and loan servicing activity. Foreign currency translation had a $30.6 million negative impact on revenue during the year ended December 31, 2016 versus the same period in 2015, primarily driven by weakness in the Canadian dollar and Mexican peso.

Cost of services increased by $922.9 million, or 22.4%, for the year ended December 31, 2016 as compared to the same period in 2015, primarily due to higher costs associated with our occupier outsourcing business, particularly due to the GWS Acquisition. Also contributing to the variance was higher commission expense resulting from improved lease transaction revenue. We also incurred $10.3 million of additional costs in 2016 versus 2015 in connection with our cost-elimination project. Foreign currency translation had a $21.8 million positive impact on cost of services during the year ended December 31, 2016. Cost of services as a percentage of revenue increased to 69.7% for the year ended December 31, 2016 compared to 66.5% for the same period in 2015, largely due to the GWS Acquisition. Excluding activity associated with the acquired JCI-GWS business, cost of services as a percentage of revenue was 66.2% for the year ended December 31, 2016, compared to 65.2% for the year ended December 31, 2015, partly driven by the aforementioned costs associated with our cost-elimination project.

Operating, administrative and other expenses increased by $80.4 million, or 6.3%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. The increase was partly driven by costs associated with the GWS Acquisition as well as higher payroll-related costs, including an increase in 401(k) contributions in the United States. Higher software license and maintenance contract costs also contributed to the increase. Foreign currency had a net $4.5 million positive impact on total operating expenses during the year ended December 31, 2016, which included a positive impact from foreign currency translation of $6.2 million, partially offset by unfavorable foreign currency transaction activity, mostly hedging related, of $1.7 million.

For the year ended December 31, 2016, MSRs contributed to operating income $154.0 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $73.3 million of amortization of related intangible assets. For the year ended December 31, 2015, MSRs contributed to operating income $110.4 million of gains recognized in conjunction with the origination and sale of mortgage loans, offset by $59.3 million of amortization of related intangible assets.

EMEA

Revenue increased by $900.3 million, or 30.2%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was largely due to contributions from the GWS Acquisition, which added $924.9 million of revenue, with a full year of activity reflected during the year ended December 31, 2016 versus only four months of activity in 2015. In addition, the revenue increase also reflects strong organic growth, fueled by higher occupier outsourcing revenue (excluding the impact of the GWS Acquisition, up 15.8%). Leasing activity was up slightly and sales activity was flat during the year ended December 31, 2016 versus the year ended December 31, 2015. Foreign currency translation had a $232.5 million negative impact on total revenue during the year ended December 31, 2016 versus the same period in 2015, primarily driven by weakness in the British pound sterling.

Cost of services increased by $813.5 million, or 37.2%, for the year ended December 31, 2016 as compared to the same period in 2015. This increase was primarily due to higher costs associated with our occupier outsourcing business, particularly due to the GWS Acquisition. We also incurred $9.3 million of additional costs in 2016 versus 2015 in connection with our cost-elimination project. These increases were partially reduced by foreign currency translation, which had a $177.8 million positive impact on cost of services during the year ended December 31, 2016. Cost of services as a percentage of revenue increased to 77.3% for the year ended December 31, 2016 from 73.3% for the year ended December 31, 2015, largely due to the GWS Acquisition. Excluding activity associated with the acquired JCI-GWS business, cost of services as a percentage of revenue was 69.0% for both the year ended December 31, 2016 and 2015.

Operating, administrative and other expenses increased by $71.5 million, or 11.6%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily driven by higher costs associated with the GWS Acquisition. Higher payroll-related costs (including bonuses) during the year ended December 31, 2016 also contributed to the variance. These increases were partially mitigated by foreign currency, which had a $44.2 million positive impact on total operating expenses during the year ended December 31, 2016, including $1.0 million in favorable foreign currency transaction activity over the same period in 2015, much of which related to hedging activities, and a $43.2 million positive impact from foreign currency translation.

Asia Pacific

Revenue increased by $355.8 million, or 31.1%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This increase was largely due to contributions from the GWS Acquisition, which added $229.4 million of revenue, with a full year of activity reflected during the year ended December 31, 2016 versus only four months of activity in 2015. The revenue increase also reflects strong organic growth, fueled by higher occupier outsourcing revenue (excluding the impact of the GWS Acquisition, up 33.4%) as well as improved sales and leasing activity. This increase was partially offset by foreign currency translation, which had a $2.9 million negative impact on total revenue during the year ended December 31, 2016 versus the same period in 2015, primarily driven by weakness in the Chinese yuan and Indian rupee, largely mitigated by strength in the Japanese yen.

Cost of services increased by $304.4 million, or 39.7%, for the year ended December 31, 2016 as compared to the same period in 2015, driven by higher costs associated with our occupier outsourcing businesses, including the acquired GWS business. This was partially offset by foreign currency translation, which had a $5.9 million positive impact on cost of services during the year ended December 31, 2016. Cost of services as a percentage of revenue increased to 71.5% for the year ended December 31, 2016 as compared to 67.1% for the same period in 2015, primarily due to the GWS Acquisition. Excluding activity associated with the acquired JCI-GWS business, cost of services as a percentage of revenue was 65.6% for the year ended December 31, 2016, compared to 64.1% for the same period in 2015, primarily driven by our revenue mix, with outsourcing revenue, which has a lower margin than sales and lease revenue, being a higher percentage of revenue than in the prior year.

Operating, administrative and other expenses increased by $25.0 million, or 9.1%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, mainly driven by costs associated with the GWS Acquisition. Additionally, foreign currency activity had an overall negative impact of $7.5 million for the year ended December 31, 2016, due to unfavorable foreign currency transaction activity, mostly related to hedging.

Global Investment Management

Revenue decreased by $90.9 million, or 19.7%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015. This decrease was primarily driven by lower carried interest revenue as well as lower acquisition, asset management and incentive fees during the year ended December 31, 2016. Foreign currency translation had an $11.8 million negative impact on total revenue during the year ended December 31, 2016 versus the same period in 2015, primarily driven by weakness in the British pound sterling.

Operating, administrative and other expenses decreased by $50.8 million, or 14.6%, for the year ended December 31, 2016 as compared to the same period in 2015, primarily driven by lower carried interest expense incurred during the year ended December 31, 2016. Additionally, foreign currency had a net $5.0 million positive impact on total operating expenses during the year ended December 31, 2016, which included $2.7 million of unfavorable foreign currency transaction activity over the same period in 2015, much of which related to hedging activities, that was more than offset by a $7.7 million positive impact from foreign currency translation. These decreases were partially offset by $19.8 million of additional costs in 2016 versus 2015 in connection with our cost-elimination project.

A roll forward of our AUM by product type for the year ended December 31, 2016 is as follows (dollars in billions):

Separate
FundsAccountsSecuritiesTotal
Balance at January 1, 2016$28.3$39.9$20.8$89.0
Inflows5.45.72.713.8
Outflows(4.7)(6.1)(6.3)(17.1)
Market appreciation (depreciation)2.6(2.0)0.30.9
Balance at December 31, 2016$31.6$37.5$17.5$86.6

Development Services

Revenue increased by $5.8 million, or 8.8%, for the year ended December 31, 2016 as compared to the year ended December 31, 2015, primarily driven by higher development fees during the year ended December 31, 2016.

Operating, administrative and other expenses increased by $21.6 million, or 18.3%, for the year ended December 31, 2016 as compared to the same period in 2015. This increase was primarily driven by higher bonuses during the year ended December 31, 2016 as a result of significantly improved operating performance due to property sales (reflected in equity income from unconsolidated subsidiaries and gain on disposition of real estate).

As of December 31, 2016, development projects in process totaled $6.6 billion, down $0.1 billion from year-end 2015. The new projects pipeline totaled $4.2 billion at December 31, 2016, up $0.6 billion from year-end 2015.

Liquidity and Capital Resources

We believe that we can satisfy our working capital and funding requirements with internally generated cash flow and, as necessary, borrowings under our revolving credit facility. Our expected capital requirements for 2018 include up to approximately $180 million of anticipated capital expenditures, net of tenant concessions. As of December 31, 2017, we had aggregate commitments of $38.6 million to fund future co-investments in our Global Investment Management business, $31.9 million of which is expected to be funded in 2018. Additionally, as of December 31, 2017, we are committed to fund $20.8 million of additional capital to unconsolidated subsidiaries within our Development Services business, which we may be required to fund at any time. As of December 31, 2017, we had $2.8 billion of borrowings available under our $2.8 billion revolving credit facility.

We have historically relied on our internally generated cash flow and our revolving credit facility to fund our working capital, capital expenditure and general investment requirements (including strategic in-fill acquisitions) and have not sought other external sources of financing to help fund these requirements. In the absence of extraordinary events or a large strategic acquisition, we anticipate that our cash flow from operations and our revolving credit facility would be sufficient to meet our anticipated cash requirements for the foreseeable future, and at a minimum for the next 12 months. We may seek to take advantage of market opportunities to refinance existing debt instruments, as we have done in the past, with new debt instruments at interest rates, maturities and terms we deem attractive. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise.

In February 2018, we gave the notice required under the indenture governing our 5.00% senior notes of our intent to redeem such notes in full on March 15, 2018. We intend to fund this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under our credit agreement as well as with cash on hand.

As noted above, we believe that any future significant acquisitions that we may make could require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for material transactions on terms that we believed to be reasonable. However, it is possible that we may not be able to obtain acquisition financing on favorable terms, or at all, in the future if we decide to make any further significant acquisitions.

Our long-term liquidity needs, other than those related to ordinary course obligations and commitments such as operating leases, are generally comprised of two elements. The first is the repayment of the outstanding and anticipated principal amounts of our long-term indebtedness. We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due. If our cash flow is insufficient, then we expect that we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such refinancing or amendments would be available on attractive terms, if at all.

The second long-term liquidity need is the payment of obligations related to acquisitions. Our acquisition structures often include deferred and/or contingent purchase price payments in future periods that are subject to the passage of time or achievement of certain performance metrics and other conditions. As of December 31, 2017 and 2016, we had accrued $83.6 million ($23.2 million of which was a current liability) and $91.0 million ($29.3 million of which was a current liability), respectively, of deferred purchase consideration, which was included in accounts payable and accrued expenses and in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report.

In addition, on October 27, 2016, we announced that our board of directors had authorized the company to repurchase up to an aggregate of $250 million of our Class A common stock over three years. The timing of the repurchase and the actual amount repurchased will depend on a variety of factors, including the market price of our common stock, general market and economic conditions and other factors. We intend to fund the repurchases, if any, with cash on hand or borrowings under our revolving credit facility. As of December 31, 2017, the authorization remained unused.

Historical Cash Flows

Operating Activities

Net cash provided by operating activities totaled $710.5 million for the year ended December 31, 2017, an increase of $260.2 million as compared to the year ended December 31, 2016. The increase in net cash provided by operating activities was primarily due to improved operating performance and lower net payments to vendors. These items were partially offset by higher net receivables recorded during the year ended December 31, 2017.

Net cash provided by operating activities totaled $450.3 million for the year ended December 31, 2016, a decrease of $201.6 million as compared to the year ended December 31, 2015. The decrease in net cash provided by operating activities was primarily due to higher net payments to vendors and income taxes paid during the year ended December 31, 2016. These items were partially offset by higher commissions paid during the year ended December 31, 2015.

Investing Activities

Net cash used in investing activities totaled $141.4 million for the year ended December 31, 2017, an increase of $134.0 million as compared to the year ended December 31, 2016. The increase in net cash used in investing activities was primarily driven by a greater amount invested in in-fill acquisitions during the current year.

Net cash used in investing activities totaled $7.4 million for the year ended December 31, 2016, a decrease of $1.6 billion as compared to the year ended December 31, 2015. This variance was primarily driven by a greater amount invested in acquisitions during the year ended December 31, 2015, particularly the GWS Acquisition.

Financing Activities

Net cash used in financing activities totaled $603.7 million for the year ended December 31, 2017, an increase of $404.1 million as compared to the year ended December 31, 2016. The increase was primarily due to higher net repayments of senior term loans during the year ended December 31, 2017.

Net cash used in financing activities totaled $199.6 million for the year ended December 31, 2016, as compared to net cash provided by financing activities of $789.5 million for the year ended December 31, 2015. This variance was primarily due to proceeds received from the issuance of $600.0 million of 4.875% senior notes in August 2015 as well as $378.8 million of higher net borrowings of term loans under our 2015 Credit Agreement during the year ended December 31, 2015. These collective borrowings during the year ended December 31, 2015, as well as cash on hand, were used to fund the GWS Acquisition, which closed on September 1, 2015.

Summary of Contractual Obligations and Other Commitments

The following is a summary of our various contractual obligations and other commitments as of December 31, 2017 (dollars in thousands):

Payments Due by Period
Contractual ObligationsTotalLess than 1 year1 - 3 years3 - 5 yearsMore than 5 years
Total gross long-term debt (1) (2)$2,025,008$8$—$200,000$1,825,000
Short-term borrowings (3)910,782910,782———
Operating leases (4)1,363,535230,083392,001303,330438,121
Defined benefit pension liability (5)122,055———122,055
Total gross notes payable on real estate
(non-recourse) (6)18,0373,9477,0864,6672,337
Deferred purchase consideration (7)83,61123,16941,04513,2196,178
Total Contractual Obligations$4,523,028$1,167,989$440,132$521,216$2,393,691
Amount of Other Commitments Expiration
Other CommitmentsTotalLess than 1 year1 - 3 years3 - 5 yearsMore than 5 years
Letters of credit (4)$69,412$69,412$—$—$—
Guarantees (4) (8)56,06356,063———
Co-investments (4) (9)59,36152,6805,0022501,429
Tax liabilities (10)135,41717,47320,51239,74257,690
Other (11)93,68793,687———
Total Other Commitments$413,940$289,315$25,514$39,992$59,119
(1)Reflects gross outstanding long-term debt balances as of December 31, 2017, assumed to be paid at maturity, excluding unamortized discount, premium and deferred financing costs. See Note 11 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report. Figures do not include scheduled interest payments. Assuming each debt obligation is held until maturity, we estimate that we will make the following interest payments (dollars in thousands): 2018 – $96,584; 2019 to 2020 – $193,168; 2021 to 2022 – $192,329 and thereafter – $149,818.
(2)In February 2018, we gave the notice required under the indenture governing our 5.00% senior notes of our intent to redeem such notes in full on March 15, 2018. We intend to fund this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under our credit agreement as well as with cash on hand. Overall, these transactions will reduce the estimated future interest payments detailed in footnote (1).
(3)Primarily represents our warehouse lines of credit, which are recourse only to our wholly-owned subsidiary CBRE Capital Markets, Inc. (CBRE Capital Markets) and are secured by our related warehouse receivables. See Notes 4 and 11 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.
(4)See Note 12 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report.
(5)See Note 13 of our Notes to the Consolidated Financial Statements set forth in Item 8 of this Annual Report. These obligations are related, either wholly or partially, to the future retirement of our employees and such retirement dates are not predictable. An undeterminable portion of this amount will be paid in years one through five.
(6)Figures do not include scheduled interest payments. The notes have either fixed or variable interest rates, ranging from 3.88% to 6.04% at December 31, 2017.
(7)Represents deferred obligations related to previous acquisitions, which are included in accounts payable and accrued expenses and other long-term liabilities in the consolidated balance sheets at December 31, 2017 set forth in Item 8 of this Annual Report.
(8)Due to the nature of guarantees, payments could be due at any time upon the occurrence of certain triggering events, including default. Accordingly, all guarantees are reflected as expiring in less than one year.
(9)Includes $38.6 million related to our Global Investment Management segment, $31.9 million of which is expected to be funded in 2018, and $20.8 million related to our Development Services segment (callable at any time).
(10)As of December 31, 2017, our current and non-current tax liabilities, including interest and penalties, totaled $23.8 million. Of this amount, we can reasonably estimate that $0.8 million will require cash settlement in less than one year. We are unable to reasonably estimate the timing of the effective settlement of tax positions for the remaining $23.0 million. In addition, we recognized an estimated tax liability of $134.6 million related to the transition tax on mandatory deemed repatriation due to the Tax Act, net of $55.4 million of foreign income tax credit carryforwards used to reduce the liability. The estimated state tax liability and a portion of the estimated federal tax liability totaling $16.7 million is payable in less than one year. The remainder of the federal tax liability of $117.9 million is payable over the following seven years with no interest charged.
(11)Represents outstanding reserves for claims under certain insurance programs, which are included in other current and other long-term liabilities in the consolidated balance sheets at December 31, 2017 set forth in Item 8 of this Annual Report. Due to the nature of this item, payments could be due at any time upon the occurrence of certain events. Accordingly, the entire balance has been reflected as expiring in less than one year.

Indebtedness

Our level of indebtedness increases the possibility that we may be unable to pay the principal amount of our indebtedness and other obligations when due. In addition, we may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes, subject to the restrictions contained in the documents governing our indebtedness. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase.

Long-Term Debt

We maintain credit facilities with third-party lenders, which we use for a variety of purposes. On March 28, 2013, CBRE Services, Inc. (CBRE Services), our wholly-owned subsidiary, entered into the 2013 Credit Agreement with a syndicate of banks led by Credit Suisse AG, or CS, as administrative and collateral agent, to completely refinance a previous credit agreement. On January 9, 2015, CBRE Services entered into the 2015 Credit Agreement with a syndicate of banks jointly led by Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and CS. In January 2015, we used the proceeds from the tranche A term loan facility under the 2015 Credit Agreement and from the December 2014 issuance of $125.0 million of 5.25% senior notes due 2025, along with cash on hand, to pay off the prior tranche A and tranche B term loans and the balance on our revolving credit facility under the 2013 Credit Agreement. On September 3, 2015, CBRE Services entered into an incremental assumption agreement with a syndicate of banks jointly led by Wells Fargo Securities, LLC and CS to establish new tranche B-1 and tranche B-2 term loan facilities under the 2015 Credit Agreement in an aggregate principal amount of $400.0 million. On March 21, 2016, CBRE Services executed an amendment to the 2015 Credit Agreement that, among other things, extended the maturity on the revolving credit facility to March 2021 and increased the borrowing capacity under the revolving credit facility by $200.0 million. On October 31, 2017, we entered into a new Credit Agreement (the 2017 Credit Agreement), which refinanced and replaced the 2015 Credit Agreement. We used $200.0 million of borrowings from the tranche A term loan facility and $83.0 million of revolving credit facility borrowings under the 2017 Credit Agreement, in addition to cash on hand, to repay all amounts outstanding under the 2015 Credit Agreement.

The 2017 Credit Agreement is a senior unsecured credit facility that is jointly and severally guaranteed by us and certain of our subsidiaries. The 2017 Credit Agreement currently provides for the following: (1) a $2.8 billion revolving credit facility, which includes the capacity to obtain letters of credit and swingline loans and matures on October 31, 2022 and (2) a $750.0 million delayed draw tranche A term loan facility, requiring quarterly principal payments, which begin on March 5, 2018 and continue through maturity on October 31, 2022, provided that in the event that our leverage ratio (as defined in the 2017 Credit Agreement) is less than or equal to 2.50 to 1.00 on the last day of the fiscal quarter immediately preceding any such payment date, no such quarterly principal payment shall be required on such date.

On August 13, 2015, CBRE Services issued $600.0 million in aggregate principal amount of 4.875% senior notes due March 1, 2026 at a price equal to 99.24% of their face value. The 4.875% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 4.875% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 4.875% per year and is payable semi-annually in arrears on March 1 and September 1.

On September 26, 2014, CBRE Services issued $300.0 million in aggregate principal amount of 5.25% senior notes due March 15, 2025. On December 12, 2014, CBRE Services issued an additional $125.0 million in aggregate principal amount of 5.25% senior notes due March 15, 2025 at a price equal to 101.5% of their face value, plus interest deemed to have accrued from September 26, 2014. The 5.25% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.25% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 5.25% per year and is payable semi-annually in arrears on March 15 and September 15.

On March 14, 2013, CBRE Services issued $800.0 million in aggregate principal amount of 5.00% senior notes due March 15, 2023. The 5.00% senior notes are unsecured obligations of CBRE Services, senior to all of its current and future subordinated indebtedness, but effectively subordinated to all of its current and future secured indebtedness. The 5.00% senior notes are jointly and severally guaranteed on a senior basis by us and each domestic subsidiary of CBRE Services that guarantees our 2017 Credit Agreement. Interest accrues at a rate of 5.00% per year and is payable semi-annually in arrears on March 15 and September 15. In February 2018, we gave the notice required under the indenture governing our 5.00% senior notes of our intent to redeem such notes in full on March 15, 2018. In connection with this early redemption, we will incur charges of $28.0 million, including a premium of $20.0 million and the write-off of $8.0 million of unamortized deferred financing costs. We intend to fund this redemption with $550.0 million of borrowings from our tranche A term loan facility and borrowings from our revolving credit facility under the 2017 Credit Agreement as well as with cash on hand.

The indentures governing our 5.00% senior notes, 4.875% senior notes and 5.25% senior notes contain restrictive covenants that, among other things, limit our ability to create or permit liens on assets securing indebtedness, enter into sale/leaseback transactions and enter into consolidations or mergers.

For additional information on all of our long-term debt, see Note 11 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Short-Term Borrowings

Our wholly-owned subsidiary, CBRE Capital Markets, has the following warehouse lines of credit: i) credit agreements with JP Morgan Chase Bank, N.A., Bank of America, TD Bank, N.A. and Capital One, N.A. for the purpose of funding mortgage loans that will be resold; and ii) a funding arrangement with Federal National Mortgage Association, or Fannie Mae, for the purpose of selling a percentage of certain closed multifamily loans to Fannie Mae. For more information on these warehouse lines, see Notes 4 and 11 of the Notes to Consolidated Financial Statements set forth in Item 8 of this Annual Report.

Interest Rate Swap Agreements

In March 2011, we entered into five interest rate swap agreements with a total notional amount of $400.0 million, all with effective dates in October 2011, and immediately designated them as cash flow hedges in accordance with the “Derivatives and Hedging” Topic of the FASB ASC (Topic 815). The purpose of these interest rate swap agreements is to attempt to hedge potential changes to our cash flows due to the variable interest nature of our senior term loan facilities. A notional amount of $200.0 million of these interest rate swap agreements expired on October 2, 2017. The remaining total notional amount of these interest rate swap agreements at December 31, 2017 was $200.0 million, which expire in September 2019. As of December 31, 2017 and 2016, the fair values of such interest rate swap agreements were reflected as a $4.8 million liability and a $13.2 million liability, respectively, and were included in other long-term liabilities in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report.

In July 2015, we entered into three interest rate swap agreements with an aggregate notional amount of $300.0 million, all with effective dates in August 2015, and designated them as cash flow hedges in accordance with FASB ASC Topic 815. In August 2015, we elected to terminate these agreements and paid a $6.2 million cash settlement, which has been recorded to accumulated other comprehensive loss in the accompanying consolidated balance sheets set forth in Item 8 of this Annual Report. This settlement fee is being amortized to interest expense throughout the remaining term of the terminated hedge transaction until August 2025.

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