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Well, there’s no time like the expansive present to grow your business. And that’s precisely what New York City-based investment bank Houlihan Lokey Howard & Zukin is doing. As GlobeSt.com reported last month, the firm is rounding out its traditional M&A advisory business with a sales advisory team to assist clients in the re-strategizing of their real estate assets and has hired a team from Trammell Crow to drive the initiative. Managing director Jonathan Geanakos will co-head the group with Houlihan Lokey veteran John Schoenfeld. Senior vice president Stephen Pearlman, vice president Frank Muhlon and associate Nicholas Harris, also TCC alumni, round out the team. (The recruitment was the handiwork of Equinox Partners.) The new initiative is technically a part of Houlihan’s real estate, lodging and leisure group, but don’t let the name fool you; the focus is straight across the board. How the new initiative will interact with Houlihan’s more traditional services and how the team intends to set itself apart from the competition were the main topics of discussion when Geanakos sat down with GlobeSt.com for an exclusive interview on the initiative. Here’s the upshot of that conversation:

GlobeSt.com: I have to start with the obvious question. To what extent was the move from Trammell prompted by the CB Richard Ellis merger?

Geanakos: I had, and still have, a very positive relationship with CBRE. I had been looking for alternatives because of where I saw the conventional real estate-intermediary space going. There is a dominance among the primary brokerage firms in sales and finance, but there’s a dearth of skilled intermediaries in the non-conventional real estate space.

GlobeSt.com: Define non-conventional.

Geanakos: I’ll do it by exclusion. Firms like Cushman, CBRE and Eastdil Secured–and on the debt side firms like Holliday Fenoglio–are all in pretty standard product niches–office, industrial, retail or multifamily. But there are so many companies that are not conventional buyers and sellers of assets. They are your corporations that hold real estate for operational reasons and not for strategic investment reasons, and in many cases they have absolutely no reason to hold that real estate as an owner. In addition, because there has been so much private-equity and M&A activity, real estate in many cases has been handed down to successor firms and private equity companies and no one has stopped to ask why they continue to own these assets. When we were competing at Trammell Crow we were always fighting in an over-serviced business. We saw tremendous opportunity advising corporations on how to disengage real estate from their balance sheet and apply it to where it was vastly more accretive to their operations.

GlobeSt.com: Such as?

Geanakos: We completed a very large transaction where we worked with a large financial institution on a portfolio of properties across the United States that they had held on balance sheet for many years. It was a portfolio of over five million sf and there was no reason for them to hold onto the assets. Number One, it was a drag on their balance sheet and, almost more important, the way they accounted for vacant space in the income statement was actually a detriment to earnings. By selling the assets, even though they did take back fairly long-term lease obligations, they were still able to free up significant capital and enhance earnings, which had a direct, positive effect on share price.

Applying that example to Houlihan Lokey, every one of our clients has real estate as a part of their plan on some basis. We also cover a broad platform of private-equity firms that represent portfolio companies with those exact same characteristics.

GlobeSt.com: So how do you characterize your typical client?

Geanakos: Our target client is typically a middle-market firm, or one of our private-equity clients, who have assets held on balance sheet that are not strategically consistent with their business plan. By providing asset-level sales and financing guidance, we can effectively create greater enterprise value.

GlobeSt.com: So why doesn’t the strategy simply boil down to just helping a client shed non-core assets?

Geanakos: If it’s a long-term critical facility, it’s easy. Hire a broker or a banker and do a really long-term sale-leaseback and get the highest price possible. If it’s non-strategic, it’s easy. Hire a broker and get rid of it at the highest price. But the interesting nuance is in the middle. Maybe the company isn’t looking to maximize proceeds alone but is looking strategically at the lease obligations that will enhance operating ratios and provide the greatest earnings impact for their dollar. And what about the company that isn’t sure of its operational needs or the building’s population trends over the next five to 10 years? How do they structure leases so they enhance the operating efficiency? That’s not a binary solution. While Houlihan has had success on the operating strategy and fairness opinion side, we have had less activity delivering asset-level sale and financing guidance–until now.

GlobeSt.com: The initiative is part of the real estate, lodging and leisure group. But really your focus will be broader, no?

Geanakos: Over the past 15 years, the lodging and leisure group has been very active helping companies with operating-level opportunities in mergers and acquisitions, plus they’ve done a great amount of fairness-opinion work with entities such as CNL and Kimco, but they’ve not been very active at the asset level. But there are so many times when an entity-level strategy includes disposing of or financing assets in the private space. Houlihan never had an opportunity to participate in that space, to say, “Now that we’ve told you what to do with your properties, we want to be the people to do it.”

I see it being across all of the conventional food groups plus special-skill areas such as the healthcare space, specialized mixed-use development and infrastructure projects. We’ll be in every area where asset and cash-flow characteristics need to be understood and analyzed.

GlobeSt.com: I assume you’ll pursue business separate from the M&A part of Houlihan.

Geanakos: Absolutely. We have the ability to touch companies that work with real estate as an asset as well as companies that are owners and investors at all levels of the enterprise, and that’s something I could never do in brokerage.

GlobeSt.com: Why now?

Geanakos: That’s an interesting question. Much like people say the problem is too much capital, there are too many intermediaries, and I mean that in the most complimentary way.

GlobeSt.com: Doesn’t sound very complimentary.

Geanakos: Let me explain. There are great firms in the brokerage space. An investor has so many choices to sell a property, and that’s a very procedural act. I believe the flows of capital will weaken. I wish I knew when but it will happen. Our legacy has been as a problem solver in difficult situations, so we can enjoy the benefits of the platform while the markets are robust and liquid and only improve our market share when simply running a process won’t be good enough.

GlobeSt.com: How do you see the global push rolling out?

Geanakos: We’re currently in most of the major cities in the US, and we have offices already in London, Paris and Hong Kong and over the next three to four years we want to have built a powerful global footprint.

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