Doing $5 billion in deals, quietly

In one of last year’s most complex real estate deals, a group led by investor David Werner bought the leasehold at the 1,331-room Milford Plaza hotel for $325 million.

The brokerage Eastdil Secured arranged the acquisition, and garnered the headlines. But flying under the radar was financial brokerage Ackman-Ziff, which arranged a crucial $255 million refinancing of the hotel through NorthStar Realty Finance Corp.

“Many people have taken credit for different things on the deal,” said Simon Ziff, president of the brokerage firm, during a recent interview in the company’s Midtown office. “[But] we were responsible for the leasehold financing.”

The deal is one of the many complex financial arrangements that the firm quietly executed since Ziff took the helm almost 20 years ago. His 35-member company — which arranges debt and equity financing, such as construction loans, mezzanine debt, and joint-venture equity — ended 2013 with about $5 billion in closed transactions. Ziff, 49, said the firm arranges 100 to 150 deals per year, with most in the $40 million to $60 million range.

In fact, the company has grown into the eighth largest financial intermediary in the country, with more than $4.5 billion in annual financing for 2012, according to a survey released in June by the publication National Real Estate Investor. That’s up from 15th, with $1.8 billion in transactions, the year before.

That’s no small feat for a firm that has existed in the shadows of its much larger New York rivals Wells Fargo and its subsidiary Eastdil Secured, which ranked second with $24.9 billion, and Meridian Capital, which ranked third with $20 billion in volume. (Another New York competitor, the Singer & Bassuk Organization, did not release market share data. HFF, which is nationally focused, ranked first on the list overall.)

“Everybody has more or less the same access to lenders, but they can dissect a transaction from a financial engineering perspective better than most,” said Ziel Feldman, managing principal of HFZ Capital Group, a Manhattan-based developer who has worked with the firm.

Ziff told The Real Deal that he’s received acquisition bids by rivals Cushman & Wakefield and CBRE Group dating back to 2006, but turned them down.

And now, like many commercial finance firms, the company is working to broaden its base of business after fighting through the economic downturn. But, Ziff said, the company has largely reached its growth potential in New York and is focusing its expansion efforts in other markets. “In New York, all we have to continue to do is block and tackle,” he said. “The real question is, how do we grow our business nationally?”

Avoiding conflict

The Manhattan-based firm has carved out a niche by representing borrowers but not lenders — a fact it touts as key to avoiding conflicts of interest.

In contrast, Meridian is partially owned by Sovereign Bancorp, and Eastdil is owned by Wells Fargo. Neither of those firms responded to requests for comment.

Rob Little, chief investment officer at Cornerstone Real Estate Advisers, which manages $39 billion in real estate assets for MassMutual, said Ackman-Ziff’s focus on borrowers provides lenders with confidence. “We’re looking for transparency, full and complete information [about the borrower] and no surprises,” Little said.

While the firm works on behalf of borrowers, it has a deep Rolodex of lenders ranging from Starwood Capital to MassMutual that have financed projects for its clients. It’s also grown by negotiating deals in various pieces of the capital stack, from traditional senior mortgage debt and mezzanine loans to newer, less-tested avenues like crowdfunding.

One veteran industry player said the firm raises money from a large group of investors, directly or through private feeder funds. Then, the source said, it sets up special companies for each deal and draws down money deal by deal to lend or invest.

William Friedland, a principal at Friedland Properties who worked as a college intern under Ziff in the 1990s, said Ziff “knows how to resolve conflicts that maybe we could resolve if we spent seven days a week on the phone with a bank.”

Friedland’s family has worked with the firm for more than 15 years. Most recently, in August, Ackman-Ziff helped arrange financing for his $141.5 million purchase of the Bank of New York Mellon building at 706 Madison Avenue.

Ed Scheetz, founder of King and Grove, a New York–based boutique hotel firm, has worked with Ackman-Ziff on a number of large deals, including a recent refinance for a luxury conversion project in Lower Manhattan. He declined to name the project, but King and Grove recently bought out its partner, the Chetrit Group, at the 127,000-square-foot office building 708 Broadway.

“If you are active in the real estate industry, you really can’t go far without bumping into Simon or someone from his team,” said Scheetz, the former CEO of Morgans Hotel Group.

Ziff is, in fact, a regular on the industry party circuit as well as on the philanthropy scene. And his thick curly locks are hard to miss.

“I finished the ’70s, 16 years old, with a Jewfro,” he joked. “It was really long in December, but I was taking too much abuse [so I cut it.] I prefer it longer. Everyone else is going bald.”

He also said he wants credit for the “suit-no-tie” look.

“I hate wearing ties,” he said. “I think everyone should donate their tie expense to charity and stop buttoning their top button. It’s liberating.”

What wasn’t as liberating for the firm, however, was struggling through the post-2008 downturn.

In 2009, when the capital markets dried up, his firm tried to expand into the rough-and-tumble business of loan sales through a joint venture with Westchester-based Garnet Capital Advisors, one of the nation’s largest sellers of distressed debt.

But the venture with Garnet did not end well, and Ziff retreated after his core business began to rebound and the two partners found themselves at odds over a closing.

“It was the straw that broke the camel’s back,” recalled Ziff. “So we walked away.”

Dominant boutique player

Ziff, who grew up in Philipsburg, Pa., was something of a fish out of water as a kid.

“I’m not a Quaker,” he quipped. “I am the last Jew that will ever be Bar Mitzvahed in my home town.”

His parents ran a clothing store in nearby State College, home to Penn State University, Ziff’s alma mater. Still the rabid Penn State fan, he said he tells people, “I come from the white trash Ziff family from Pennsylvania, not the publishing industry Ziff family [known as Ziff-Davis] from New York.”

A year out of college, after a stint at MassMutual, he moved to Greenwich Village and enrolled in NYU to start his master’s in real estate and to apply for jobs.

Once in New York, he quickly landed at Ackman Brothers & Singer Inc., which was becoming one of the most active financial brokers on the New York real estate scene and was led by Larry Ackman and his partner and cousin, Andrew Singer.

The company disbanded in 1995, a few years after Ackman’s son Bill had also left, first to go to Harvard Business School and then to launch hedge fund Pershing Square Capital, where he made his fortune. Bill’s departure cleared the way for Ziff to join Larry Ackman at the helm of the company, which was renamed.

Ziff, who is married with three kids and lives in Armonk, said he and Ackman moved quickly to beef up the firm by bringing in new talent and launching a new business model to raise joint-venture equity for clients. One of those recruits, Russell Schildkraut, is now a principal and key figure at the firm, and has closed more than $10 billion in transactions, including facilitating a $275 million refinancing at the 690-unit Herald Towers on 34th Street last year.

“Our goals were to replicate what Sonnenblick Goldman had done in the ’80s, to be a dominant boutique firm specializing in the entire capital stack,” said Ziff. The firm has won six awards from the Real Estate Board of New York for “Deal of the Year.”

Today Ackman-Ziff operates mainly in New York and Boston, and in recent years expanded into Miami. It’s also growing its business in California and Washington D.C., where new offices are planned for later this year.

In October, the firm announced one of its biggest financing deals, the arrangement of $685 million in debt and preferred equity on a 2,000-unit multi-family portfolio in California.

Staying put

The company’s deals have not gone unnoticed.

In September, CBRE poached Sean Rosenthal, one of Ziff’s top executives, who made his mark with the $680 million deal in 2008 to finance the acquisition of 650 Madison Avenue by Ashkenazy Acquisition and the Carlyle Group.

And Ziff said that extensive buyout negotiations twice fell apart, in part because he wanted to maintain his way of running the business.

In 2006, Ziff said, Cushman & Wakefield was in talks to acquire his firm. However, the talks fell apart, and the next year Cushman bought a majority stake in Sonnenblick Goldman. Then in 2011, Ziff said he entered acquisition negotiations with CBRE, but those talks met the same fate. Cushman didn’t respond to requests for comment; CBRE declined comment.

Ziff said he wanted to grow the business before setting a value on it, and he also resisted what he called the “code of the West” style of managing accounts. He said in that environment, account executives at the firm would be competing for the same client, which he feared would create chaos and dissension within the ranks.

Ziff, however, said that he wouldn’t rule out an alliance with a strategic partner in the future.

“I’m a huge karma guy,” Ziff said. “I hug my competitors at every event.”