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Date: March 8, 1995

Location: East Rutherford

Title: Here”s Where the Biggest Bucks Are

Author: Mukul Pandya

Subject: As capital returns to real estate, firms that provide financial services are thriving

The most successful brokers are those who sign the biggest leases, right? Wrong. The most lucrative area in commercial real estate these days is not leasing space, but a little-known, arcane field called financial services. Few brokers in the state are involved in this field in a major way. Those who are, however, are making a killing.

East Rutherford”s Cushman & Wakefield and Saddle Brook”s Edward S. Gordon Co. are among the leaders in the field. Of the two, however, Cushman & Wakefield has a much bigger share of the market in New Jersey. The firm”s three-person financial services group, headed by Andrew J. Merin, in 1992 did three deals worth $77.2 million. By the first quarter of this year, however, that figure shot well past $500 million.

These transactions, handled by Merin and his colleague David W. Bernhaut, included more than $200 million in shopping center sales all over the Northeast. Says Merin: “Most people are overwhelmed that two brokers could move so much capital.” Adds Donald Eisen, who heads Cushman & Wakefield”s New Jersey operation and now also oversees some business in New York and Connecticut: “This is our fastest-growing area of business in New Jersey.”

Edward S. Gordon Co. is also doing well. Colleen Sheridan, who directs the company”s financial services group in Manhattan, says her team did deals worth $500 million in 1994 in the Northeast, of which some $100 million were in New Jersey. “We sold a building in Basking Ridge for Unilever,” she says.

But don”t many brokers sell properties? How is financial services any different than regular brokerage? Merin describes his group”s services as a combination of investment banking and traditional brokerage. While many brokers do basic lease analyses, Merin claims his group does number-crunching that goes much deeper.

Consider a transaction that Merin and his team completed this year in Whippany. Pine Plaza Shopping Center, a 117,000-sq.-ft. facility, was a troubled property last year with 30% vacancy. Fleet Management & Recovery, the company that managed the shopping center, approached Merin last summer to sell the complex, which was part of a portfolio owned by Lehman Brothers.

To market Pine Plaza, Merin and his group compiled a confidential offering memorandum. The 106-page book laid bare the shopping center”s finances in virtually as much detail as a prospectus that is issued when a company goes public. Included were such details as an investment summary, detailed market analysis, and zoning and trade area demographics. Says Merin: “We put in everything that anyone would need to know about the shopping center to underwrite it or raise financing to buy it.”

Merin and his associates then sifted through their database of investors and came up with a list of some 300 people and companies that would be interested in such a property. Potential buyers included pension fund managers, wealthy individuals and real estate investment trust managers, among others. Merin called a smaller group of investors personally–to “whet their appetites,” as he calls it. The only thing missing from the book was an asking price. Merin”s group invited bids and set a date by which these had to be sent in.

Soon investors began calling for more details. Merin”s group provided answers to such questions. Finally, by the deadline date, Merin received 14 bids. Then began the process of finding the right buyer. Merin, together with executives from Fleet Management, invited the four highest bidders for personal interviews. After asking each of them questions about how they would finance the purchase, Merin”s group chose Professional Consortium Ltd., an investment group, to be the buyer. The purchase price: $7.5 million. Says Merin: “This is a very different process than signing a lease.”

Merin became involved in financial services in 1991. Before that he was an office broker. A former entrepreneur, he ran Baker Merin Associates in partnership with Norman Baker–who now works for Edward S. Gordon Co.–before selling the company in 1983 to Cushman & Wakefield. When the recession began, however, Merin found that office brokerage was drying up. “Deep Throat”s advise during Watergate was to follow the money,” Merin says. “I did that and found that all the money in real estate were going into buying retail properties and apartments.”

Merin knew little about the retail market, but he began to study the transactions taking place. Bernhaut, who has an MBA in finance from Columbia University, soon joined him. Entering the field, however, was not easy. Says Eisen: “When we first started trying to sell these products, we had no market. It also took us years to build these skills.” Cushman & Wakefield has just hired one more broker, Gary Gabriel of Edward S. Gordon Co. That firm, however, is also planning to expand. “We are hiring a financial services broker who will focus exclusively on New Jersey,” says Edward S. Gordon”s Sheridan.

The main factor that has helped brokerage firms expand in the financial services field has been the return of capital to real estate. The hottest demand now comes from pension funds. “Pension fund money is the biggest money out there,” Merin says.

The type of properties buyers are looking for is also changing rapidly. “This is a fickle business,” Merin says. “For years, the herd was feasting on retail properties and apartment buildings. Now everyone wants office buildings. You have to be flexible and fast on your feet to succeed.”

For now, though Cushman & Wakefield and Edward S. Gordon Co. are the frontrunners in the field, competition is nipping at their heels. Large Wall Street firms like Goldman Sachs and Salomon Brothers have always wanted a piece of the action in New Jersey, and other companies like Sonneblic Goldman, a New York City mortgage brokerage, are also working hard to make a dent in the New Jersey market.

Among other firms, CB Commercial, which has offices in Hackensack and Piscataway, is also eyeing financial services with interest. But until these competitors muscle their way in, Cushman & Wakefield and Edward S. Gordon Co. have a good chance of staying ahead. Says Eisen: “No matter what happens, we are positioned to remain in this business.” u