Eastdil Secured: A $15 billion enigma

Benjamin Lambert (left), founder and chairman of Eastdil Secured, and company CEO Roy March in the firm’s Midtown headquartersgGoogle’s record $1.8 billion purchase of 111 Eighth Avenue late last year momentarily put the name Eastdil Secured on the lips of everyone in New York’s real estate industry. But the low-profile real estate investment banking firm, which managed the sale, doesn’t have the street-level cachet that many of its rivals have.

While Manhattan’s building-sales brokers and financiers (those who focus on large institutional deals, often over $100 million) know the firm as a powerhouse, many others in real estate still have no idea who Eastdil is. And many are unaware that in addition to investment sales, the firm does highly sophisticated equity and debt placement.

Eastdil’s under-the-radar place in the city’s real estate universe is consistent with its quiet approach nationally.

“The people who know the business know who we are, and so we don’t really need to advertise what we accomplish,” Roy March, the company’s CEO, told The Real Deal in a rare interview last month, which also included company founder and chairman Benjamin Lambert.

Despite its institutional reticence, however, the firm is fully engaged in both the local and national property and finance world.

Indeed, March is on the board of the influential Washington-based lobbying association the Real Estate Roundtable, and Eastdil’s deals are regularly covered in the real estate press, along with nearly every one of its assignments, contracts and Manhattan sales. But those deals are not generally announced in press releases. The information is often provided from behind the scenes, with the fingerprints of Eastdil’s brokers only visible to the few who know the ins and outs of the business.

The out-of-sight tack is clearly working — at least in the United States.

The Midtown-headquartered firm has only about 250 employees, yet it’s consistently among the top investment sales firms both nationally and in Manhattan, competing with brokerages with more than 10,000 employees.

Indeed, the Google deal capped off a robust 2010 for Eastdil, which was ranked No. 1 nationally in commercial sales for the third time in five years, with $15.4 billion worth of transactions, according to the weekly commercial publication Real Estate Alert.

CBRE ranked second with $12.3 billion.

In the first half of this year, Real Estate Alert shows that Eastdil had $7.2 billion in sales nationally, just behind CBRE, which racked up $7.9 billion.

In Manhattan, through mid-September, Eastdil had $4.5 billion in sales and refinancings, to CBRE’s $3.6 billion, according to an analysis of data from the CoStar Group and Real Capital Analytics by The Real Deal.

Yet while Eastdil Secured and CBRE are in their own league nationally (with the nearest firms, such as Holliday Fenoglio Fowler and Cushman & Wakefield, closing only about half of their levels), the former took an atypical path to the top. And it’s that route that may be holding the firm back internationally, where it’s far weaker.

Wall Street roots

Eastdil’s approach to today’s investment sales market can be traced directly back to its Wall Street roots. Even now, much of its income is from real estate investment banking. About 34 percent of the business this year is from property sales, March said, compared with 12 percent in loan sales and 43 percent in financing and investment banking. Last year, the firm reported $66.7 billion in total transactions.

Lambert, whose father and grandfather were Manhattan jewelers, founded the firm in 1967. He was 27 at the time, and saw a need to provide real estate advisory services to large institutional funds. So he formed Eastdil Inc., a wholly owned division of Eastman Dillon, Union Securities, an investment banking firm where he had worked for a few years. At the time, it was at the forefront of a new trend to arrange financing through Wall Street firms.

Lambert said he saw an opportunity in “being able to bring real estate products and needs for capital for the real estate business to Wall Street through the investment banking world.”

The firm took advantage of a tectonic shift taking place in the real estate industry, as developers in different regions began to look outside their limited geography for capital, and increasingly turned to Wall Street.

“I think Eastdil grew with the markets and grew with the capital flow when firms like ours started raising large private investment funds for national and international investments,” said Douglas Shorenstein, chairman and CEO of Shorenstein Realty Services, a large private real estate investor.

Over the next decades, the firm handled some iconic land deals, mostly outside of New York City. In one of the largest, the firm arranged the financing in 1977 for a group, including West Coast developer Donald Bren and Detroit shopping-center magnate Alfred Taubman, to pay $377 million for the Irvine Ranch, which had been used to found the city of Irvine, California. To this day, a handwritten spreadsheet penciling out the expected performance of the property hangs on the wall of Lambert’s conference room.

The firm also became deeply involved with the sale of distressed properties from the Resolution Trust Company, the government-backed entity created in 1989 to sell off properties after the savings-and-loan collapse.

In addition, Lambert has been a canny investor in his own firm, which has been sold and repurchased multiple times through the decades.

The latest of those sales was in 1999, when lender Wells Fargo Bank bought the firm outright for an undisclosed amount. Eastdil remains an independent subsidiary of the bank today, as well as a partner of financial analysis firm Green Street Advisors, which it taps for additional research.

Under the Wells umbrella, in 2006 the firm merged with Secured Capital, a Los Angeles-based investment banking firm, shoring up its debt placement skills and West Coast reach.

Over the years, the company has at times expanded into different real estate areas and later cut those divisions loose. For example, in 1994, it sold off a property management business. With its sole focus on sales and real estate investment banking, “we have become today the company that we wanted to become when we began,” Lambert said.

In terms of the business model, though, its affiliations with financial institutions put the company squarely in the Wall Street camp, rather than in the property brokerage camp, with firms like Cushman & Wakefield and CBRE.

Even when it comes to pay, Eastdil has always used the salary-and-bonus structure common at Wall Street and financial firms, rather than the commission structure used by most major real estate brokerages.

The firm says its salary-and-bonus model is an advantage, allowing it to pay higher compensation than other leading companies that use a commission structure, such as CBRE. Given how closely guarded industry compensation data is, one rival said it’s impossible to verify who pays more, though the source said their claims are “probably braggadocio.”

Helmsley and Harmon

Although the company has been based in Manhattan since it was founded, it was not a strong player on the local investment sales scene until the 1990s, when it hired Douglas Harmon, now senior managing director.

After graduating from Brown University in the mid-1980s, Harmon got his feet wet in real estate with a stint in the real estate division of London’s gaming firm Ladbrokes PLC. Then, from 1985 to 1990, he went to Alvin Dworman’s Midtown-based real estate and investment banking firm ADCO Group. After that, he headed to business school at UCLA’s Anderson School of Management. And, in 1993 he was hired by Eastdil.

But it was landing the complicated, historic assignment with Lambert in 1997 to sell the $5 billion commercial and residential portfolio of Leona Helmsley (amassed by her husband, Harry) that really put Eastdil on the map in Manhattan. The 125 buildings — which included 230 Park Avenue, the Starrett-Lehigh Building at 601 West 26th Street, and the Graybar Building at 420 Lexington Avenue — took several years to unload, but Eastdil was doing that unloading just as investment sales were really starting to grow in importance and volume in Manhattan.

Today, at least in the New York City real estate press, Harmon’s name is rarely absent from an Eastdil Secured deal. CoStar figures show him to be the firm’s top producer by far, and along with his main rival, CBRE’s Darcy Stacom, he is often named as one of the leading sales brokers of all time.

Known for his frenetic personality, his canny negotiating skills, and his top-level access to anyone in the real estate business, Harmon is also considered quirky and gregarious. (He frequently sprinkles his e-mails with emoticons and has been spotted wearing sunglasses to meetings. Insiders say he also sends books or framed collages made of news articles, important letters or other mementos to participants in his deals.)

March and Lambert, it seems, are faced with balancing his value to the company with making sure that it doesn’t appear that any one person is responsible for a disproportionate share of the company’s business. But Harmon’s deals reveal his impact.

His December 2010 sale of 111 Eighth Avenue to Google for $1.77 billion is the largest user acquisition ever. And the 2007 sale of 450 Park Avenue at $1,585 per square foot is still considered a record price per foot for an office building.

Asked about the frequent press mentions of Harmon, Lambert said, “People who want to promote what is going on in the company sometimes go beyond the boundaries of the right way to handle it.” Harmon declined to comment for this article, citing company policy of not talking to the press.

Although among Eastdil brokers Harmon is cited most often in the press, he is not the only broker at the firm who is active in Manhattan.

March, who leads the firm nationally, has brokered some of the firm’s largest deals around the country and is active here as well. He and former Eastdil broker Wayne Maggin sold the General Motors Building to developer Harry Macklowe for a then-record $1.4 billion in 2003. More recently, March had roles in the sales of 1211 Sixth Avenue, 1301 Sixth Avenue and the Equity Office Portfolio.

As CEO, however, March said his main focus is “making sure we procure and execute the deals.”

In addition, Harmon’s partner on most deals, Adam Spies, is quietly building up his own impressive body of business. David Schechtman, a senior director at investment sales firm Eastern Consolidated, said he believes Spies to be one of the most active brokers in New York City, despite his low profile. He is rarely quoted in the press, although he is frequently mentioned as a broker along with Harmon.

“If anyone knew the true scope of what he is working on, they would recognize that he is far and above the most active broker [of notes and property] between $100 million and $500 million,” Schechtman said.

Courting the bridesmaids

While the winning bid on any given deal is the one that matters most in the moment, the so-called bridesmaids, or the losing bidders, are also hugely important to most investment sales brokers.

The reason is that once a bidder tries in earnest to win a deal, the seller’s broker knows exactly what they can pay and exactly what kind of asset they want.

This inside information feeds on itself, providing Eastdil and their main competitor, CBRE, a continuing advantage in the marketplace for the biggest deals.

“They have a tremendous list of bridesmaids,” one former employee said. Harmon, March, Spies, and others at the firm all have impressive Rolodexes, having represented a range of sellers, from institutional owners like Morgan Stanley and Clarion Partners to local players like Joseph Moinian.

There is no doubt that the high-end investment sales business they do is lucrative.

In March, Eastdil signed a deal with Lehman Brothers Holdings to provide advisory services as it disposed of assets in bankruptcy. The failed investment bank paid Eastdil $100,000 per month for the work, and allowed Eastdil to act as broker, bankruptcy records showed.

In addition, the firm was expected to be paid about $2 million for handling the auction sale of 1107 Broadway, the Yitzhak Tessler building bought for $190 million by Steven Witkoff, court papers revealed.

Part of a global giant

While Eastdil is a small company, it has a large partner around the world: the California-based lender Wells Fargo.

The bank had $12.3 billion in net income in 2010, and Eastdil did not earn even a mention by name in its latest annual report.

Yet some critics complain that Eastdil faces a conflict of interest placing debt with Wells Fargo.

March disputed that, saying Wells Fargo is actually the lender on Eastdil deals less often than would be expected given the percentage of the commercial lending market Wells Fargo holds nationally.

Other critics accuse Eastdil — as well as other major players — of preferring buyers that would give their future assignments to Eastdil.

Supporters of the firm see that as sour grapes.

Still, both fans and critics view the firm as a powerful and effective advocate for its clients, generally on the sell side.

“They know how to run a process extremely well,” said Glen Siegel, founder of Belvedere Capital, a Manhattan real estate investment firm. Belvedere was part of a joint venture that paid $32.8 million for a commercial condo at 15 East 26th Street, a deal brokered by Eastdil.

One company booster offered a hypothetical example of how Harmon might try to work a group of bidders circling at about $100 million, where the seller wants to be at $105 million.

Speaking as if he were Harmon talking to one of the bidders, this insider, who is not at Eastdil Secured, said Harmon makes the buyer feel special for paying more.

“I have a meeting [coming up] with my client [the seller]; I am trying to shore up the deal. You are at $100 [million]. This is from me, not direction from the client. I think I can get you the deal at $105 [million]. … I can pitch for you.”

Bruce Beal, executive vice president at the developer and landlord Related Companies, underscored that Harmon pushes to get the highest price: “From a buyer’s perspective, they don’t leave a lot of chips on the table.”

One source, a supporter of the company, said the firm might not shrink from punishing a buyer, namely one who fails to “perform.” That’s the industry term for completing an acquisition at the agreed-to price.

“You are [seeking a price change, which] you said you were not going to do. And people are going to know about it,” one ally of the firm said. But a source at a competing brokerage said that happens in any shop: Buyers who don’t perform are regularly blackballed.

Strong locally, weak overseas

So far this year, Eastdil has performed better in Manhattan than it did in 2010 for all property types, a review of CoStar and Real Capital statistics shows.

For all of 2010, Eastdil had $2.9 billion in investment sales in Manhattan and was crushed by CBRE, which racked up $5.2 billion. But in the first nine months of 2011, Eastdil pulled ahead, with a stunning $5.2 billion (buoyed by sales such as RXR Realty’s purchase of the Starrett-Lehigh Building for $920 million), compared with CBRE’s $3.1 billion. For this year, Howard Michael’s Carlton Group ranked No. 4 for all property types in Manhattan (see related story here).

However, not everything Eastdil has marketed has sold. For example, two East Side apartment buildings owned by Post Properties that were put on the market in 2008 for a combined $250 million failed to sell as the economy floundered.

Still, while Eastdil and CBRE dominate the market nationally, overseas Eastdil “has a small footprint,” said Peter Slatin, editorial director at Real Capital.

A July Real Capital report shows Eastdil with 15 percent of the market in the Americas, but not even 1 percent in Europe or in Asian markets.

CBRE, Jones Lang LaSalle and other lesser-known firms in New York City, like London-based Knight Frank and Savills, are far bigger internationally, the statistics show.

“Eastdil was one of the pioneers of the nationalization and the institutionalization of the brokerage structure,” Slatin said. “[Yet] Eastdil still has a limited global reach in term of doing deals outside the [United States].”

But, he added: “They have a great global reach in sourcing clients in doing deals here.”

March said the firm is focused on serving its U.S.-based clients such as Blackstone, Beacon Capital and Walton Street, and that most of their assets are in the United States.

“We are only sourcing capital in those [overseas] markets,” March said, although he added that his agents had done significant deals in London and Paris. He did not see the U.S. focus as a disadvantage.

Many of the firm’s competitors have scores of offices across the globe, while Eastdil only opened offices in London and Hong Kong over the past four years.

Yet some clients echoed March’s position that the firm did not need to have a large international presence, in part because its parent company, Wells Fargo, has a global reach. In addition, there just aren’t that many large institutional investors with more than $200 million to place around the world, said Paul Pariser, co-CEO of Taconic Investment Partners.

“People who are that serious about investing in the United States will show up,” he said. “Having an office in Paris is convenient, but it doesn’t necessarily mean they can do a better job.”