Golden recession

Real estate down, but not necessarily CEO pay

New York /
Nov.November 01, 2010 07:00 AM

Home prices are down and commercial vacancies are up, but that doesn’t mean that executive pay is taking a hit.

While most executives connected to New York real estate took some kind of pay cut from 2008 to 2009, they are still enjoying hefty salaries, government filings and reports indicate.

Though the 2010 compensation figures are not yet available, the 2009 numbers released this year are perhaps more striking for being so high in the face of the Great Recession. During a 12-month period when property values were plummeting, corporate executives at the best-known city firms were pulling in at least $1 million in annual pay, meaning base salary plus stock options and bonuses, with the best-compensated leaders taking home many times that amount, records indicate.

“Considering how bad real estate has gotten beaten up in the crisis, those executives are doing much better than expected,” said Alan Johnson, the managing director of Johnson Associates. The Manhattan-based firm advises on pay packages for managers, including for some landlords and developers, though Johnson declined to mention names.

By some measures, the Westfield Group, an Australian commercial real estate company, stands at the top of the heap for executive pay. It has a small but key New York presence.

Westfield chairman Frank Lowy earned about $12 million last year, while managing director Peter Lowy took home about $8 million, according to Green Street Advisors, a research company that focuses on real estate investment trusts, or REITs, like Westfield. The Lowys earned two of the top 10 spots on Green Street’s 2009 list of the 40 highest-paid REIT executives.

Westfield, one of the world’s largest retail landlords, struck a deal two years ago with Silverstein Properties to build and operate the stores at the World Trade Center site, including One World Trade, Towers Three and Four, and underground, too. (A similar deal was forged in 2001, before the original towers there fell.)

Starwood Hotels, a REIT that operates four properties in Manhattan, also pays its executives generously, Green Street shows. Frits van Paasschen, its chief executive, had a total compensation package of about $8 million in 2009.

Similarly, REIT Boston Properties rewarded chairman Mort Zuckerman with around the same amount, though that company’s August purchase of debt-ridden 510 Madison Avenue could drag on the bottom line, analysts point out.

Of the four executives from SL Green who took top honors from Green Street, meanwhile, the highest paid was chief executive Marc Holliday, who earned about $8 million, while president Andrew Mathias earned almost $6 million.

A large part of executive pay clearly has to do with stock options, and by some measures, the team at SL Green, which closely ties pay to stock performance, seems well positioned.

Shares issued last year had an exercise price of $46, according to company filings, and though the 2010 strike price remains unknown, it can be assumed to be somewhere slightly above that level, according to Michael Faulkender, an assistant professor of finance at the University of Maryland who studies compensation.

Then again, prosperity may be relative, because SL Green shares issued at the peak of the market, in 2007, aren’t worth much anymore. Indeed, they had an exercise price of $114, which seems unlikely to be met anytime soon, making those shares effectively worthless, Faulkender said. “A lot of them have gone to zero.”

Vornado Realty Trust, on the other hand, is more open-ended about how to determine pay, factoring in earnings and cash flow, too. President Michael Fascitelli took home $5.25 million in 2009, while chairman Steven Roth enjoyed about the same, data shows. And with the Moynihan Station project now moving forward, Roth and others could be meeting additional, unstated benchmarks, analysts explain.

Another familiar name is Forest City Enterprises, which is the Cleveland-based parent company of Forest City Ratner, the builder of the New York Times building and the new Frank Gehry tower at 8 Spruce Street, among many others. President Charles Ratner, who is Bruce Ratner’s cousin, was paid about $1 million in 2009, which was down from $1.6 million in 2008, and $3.3 million in 2007, according to SEC filings.

But others saw raises last year. Richard Clark, chief executive of Brookfield Properties, the landlord of the World Financial Center, took home $2.7 million last year, compared to $1.6 million in 2008. Among the reasons for his raise was that he improved the company’s liquidity, from $579 million to $2 billion, its proxy filing shows.

Yet pay packages can seem awkwardly high, perhaps, when companies are struggling. General Growth Properties, an REIT whose chief executive, Adam Metz, took home $4.7 million in 2009, according to Green Street, is now watching as his company goes through what may be the most complicated commercial real estate bankruptcy ever. In New York, General Growth owns the South Street Seaport.

Likewise, home builders, especially those with significant suburban portfolios, have had a tough go of it these last few years. But one might not know that from their payrolls. AvalonBay, an REIT that owns rentals in the East Village and near Columbia University, paid CEO Bryce Blair about $4 million in 2009, records show.

Brokerages, meanwhile, are mostly privately held, so it’s hard to know how they are rewarding their executives, though exceptions exist.

CB Richard Ellis, based in Los Angeles, saw CEO Brett White earn $7.22 million last year, according to its SEC filing. And this year could be even better. White’s base salary was set to go from $781,000 to $850,000 in 2010, according to the same filing, though the bulk of his income comes from bonuses.

And Jones Lang LaSalle paid its head, Colin Dyer, about $2 million last year, according to its proxy statement. Less-useful information is available about Grubb & Ellis, which merged with NNN Realty Advisors in 2008, and in the process changed its reporting methods. Its last full-time chief executive, Scott Peters, took home $1.7 million in 2008, though he left that year, too, and earnings for new CEO Thomas D’Arcy have not yet been reported.

And no specific salary numbers were available for Colliers, which is a subsidiary of FirstService, a Canadian corporation. The parent company paid chief executive Jay Hennick about $1.1 million in 2009, which was down from 2008, when he made $4.5 million, the company’s filings state.

With the troubles plaguing the commercial markets not expected to end soon, it would be reasonable to assume that 2010 pay will decline. But Johnson said many shareholders don’t want to punish CEOs too much because they realize that “pay doesn’t turn around a business.” He added: “What they get paid is not going to move the individual deal that much.”

Tough times, big pay


1. Westfield Group
Frank Lowy, chairman: $11.95M
Peter Lowy, managing director: $7.74M

2. Starwood Hotels
Frits van Paasschen, CEO: $8.29M
Vasant Prabhu, CFO: $3.95M

3. Boston Properties
Mort Zuckerman, chairman: $8.07M
Raymond Ritchey, executive VP: $3.93M

4. SL Green
Marc Holliday, CEO: $7.76M
Andrew Mathias, president: $5.95M

5. Vornado Realty Trust
Michael Fascitelli, president: $5.25M
Steven Roth, chairman: $5.23M

6. General Growth Properties
Adam Metz, CEO: $4.72M
Thomas Nolan Jr., president: $3.9M

7. AvalonBay
Bryce Blair, CEO: $4.04M

8. Brookfield Properties
Richard Clark, CEO: $2.7M
Steven Douglas, president: $1.44M

9. Forest City Enterprises
Charles Ratner, president: $1.09M
Robert O’Brien, CFO: $1.45M


1. CB Richard Ellis
Brett White, CEO: $7.22M

2. Jones Lang LaSalle
Colin Dyer, CEO: $1.98M
Lauralee Martin, COO: $1.9M

3. Grubb & Ellis*
Scott Peters, former CEO: $1.7M (2008)
Gary Hunt, interim CEO: $359,000 (2008)

*reporting methodology changed after it merged with NNN Realty

4. Colliers
Jay Hennick, CEO, FirstService
(parent company): $1.08M
D. Scott Patterson, COO, FirstService
(parent company): $730,000

(Note: Figures for 2009 come from Green Street Advisors or the companies themselves through their 2010 proxy statements on file with the SEC.)

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