Eyes on Eastdil’s Management Buyout—What Will It Mean?

NEW YORK CITY—Eastdil Secured’s management buyout from Wells Fargo & Co. was a deal valuing the firm at more than $400 million in which employees will be able to eventually own more than 40% of the equity, as reported in the Wall Street Journal. Guggenheim Investments’ clients and Temasek Holdings, a Singaporean investment firm also took stakes in the company, with Wells Fargo still retaining a small interest. The transaction is expected to close in the fourth quarter.

The investment banking unit, securities underwriting, trading and distribution for the REITs will stay at Wells Fargo. Businesses that were historically part of Eastdil will be a part of the new entity, no longer subject to the banking regulations with the prior ownership.

Eastdil’s president Michael Van Konynenburg tells GlobeSt.com, “We’ve chosen a strategy that keeps a singular focus on capital markets delivering again the best in class capital markets ideas and executions. So not being distracted by other business lines that sometimes compete, we’re focused 100% on the client and following their lead and what their leaders told us.”

He says Eastdil decided this strategy of being a private, independent real estate investment bank was preferable to the “the traditional brokerage focus that is seeking to be more—all things to all people.” He contrasts Eastdil’s “connectivity” against “a large firm that has become siloed and commissioned-based.”

Van Konynenburg states his firm has transacted in the $225 billion to $250 billion a year range every single year for the last five years. He emphasizes their having deep transactional expertise operating with roughly 325 to 350 professionals.

The Eastdil president also comments the new ownership structure without the banking restrictions gives the company additional freedom to innovate in technology. Plus, they’ll have a greater global presence with significant partners both in the US and in Singapore.

But other real estate professionals question the strategy of “small and nimble.”

“All they do is capital markets. They don’t have leasing management, fund business or any kind of recurring income. They just have transactional income. That’s a tough business because if the market slows down, you won’t make any money. Being a two-trick pony (debt and equity) is a dangerous and lonely platform,” says an industry source. “It’s not going to benefit by not having the insight that comes from a full-service firm with a global practice which has resulted from consolidations.”

The industry has shown trends of mergers in recent years. In March, JLL announced its acquisition of HFF for $2 billion. Newmark acquired RKF last year for an undisclosed amount. In 2015, DTZ backed by TPG Capital and the Ontario Teachers’ Pension Plan bought Cushman & Wakefield for $2 billion. Cushman & Wakefield bought Massey Knakal for $100 million. In 2014, Savills acquired Studley for $260 million.

However, Van Konynenburg asserts Eastdil offers “a broad suite of services that meet the clients’ needs across multiple markets.” He notes this includes the full suite of investment banking services at joint ventures, M&A advice, private equity and sales financing. Eastdil states it holds the top market share for 2018 and year to date 2019 for real estate deals greater than $100 million across all property types in the US. In 2018, Eastdil Secured advised on 827 transactions for $243.5 billion.

In the past 10 years they have completed 470 deals greater than $500 million, totaling $612 billion in transactions. Several of the firm’s key deals include Blackstone’s $18.7 billion acquisition of GLP’s industrial assets in early June, in the largest private real estate equity transaction. In 2015, they were involved with the $25 billion GE capital portfolio property and loan sale. In 2017, they also brokered Blackstone’s $13.8 billion sale of the European warehouse firm Logicore.

However, Eastdil was hit hard in New York City, when in 2016 their top-producing brokers Doug Harmon and Adam Spies moved to Cushman & Wakefield. The Real Deal reported in their Top 40 New York City Investment Sales Firm chart, Eastdil’s 2017 total volume in New York City at $2.73 billion was down 88% year-over-year from 2016. Their sales firms’ rankings for 2018 based on dollar volumes, listed Cushman & Wakefield at the top spot with $16.49 billion, CBRE in second place with $6.37 billion and Eastdil in third place at $5.86 billion.

An industry source states New York is important as it is the dominant market for big deals. However, Van Konynenburg notes that Eastdil is not necessarily focused market by market.

A Real Estate Alert February 13, 2019 article points to trends, looking at the “Big 6” commercial brokers, based on transactions of $25 million or more nationally in all property types. For 2016, Eastdil had 24% of the market share, with CBRE in a tight second place. In 2017, Eastdil’s market share dropped to 18%. CBRE took the crown with 23.7% market share. Cushman & Wakefield, HFF, and Newmark were in the 11.8% to 12.7% market share range—far closer to Eastdil than prior years.

The source notes that Eastdil is still leading but competitors are gaining ground, closing the gap. In addition to the Harmon team, Eastdil has lost other brokers such as Mike McDonald in Atlanta and Jonathan Napper in Dallas who also joined Cushman & Wakefield. Four veteran hotels team brokers last year left Eastdil to join Newmark. The source states today’s trend now requires advisors to be able to provide more competitive information in areas such as leasing, complex sale-leasebacks and co-working, backed by a full-service firm.

Eastdil has also been hiring. Some of their recruits include Gary Phillips from Allianz Real Estate of America, Will Silverman from Hodges Ward Elliott, Max von Hurter from Lazard, and Brian Budnick and John McArtor from CBRE. Kaz Sakai from Barclays and Ken Sakuramoto from BAML joined Eastdil to open the Tokyo office.

Providing equity is one tool firms use to attract and retain employees. Plus, Eastdil has strong relationships with Blackstone and Ivanhoe Cambridge. But the story will be continuing to watch the trends—and Eastdil’s market share.