Where to next? Inside Eastdil Secured’s global expansion

Roy March

UPDATED February 3, 2:48 p.m.  Over Kobe steaks at the Michelin-starred Beefbar in Hong Kong, Roy March and Goodwin Gaw were chatting in hushed tones. They traded notes on their Ferraris and detailed their recent travels, but as the meal drew to a close, the longtime friends, March the chief executive of Eastdil Secured and Gaw the managing principal of Gaw Capital Partners, got around to one of the key reasons for their dinner: Eastdil’s expansion plans in Asia. For one, which local brokers should the firm poach from rivals?

“He leverages partnerships across the world,” Gaw said of March in a recent telephone interview. Gaw is a trusted confidante of March and has involved Eastdil in “30 to 40 transactions” over the years, including his company’s $325 million purchase of the sprawling Hollywood & Highland Center entertainment complex last summer.

“The topic of conversation is the industry and what part of the world to expand,” Gaw said. “We talk shop, his hiking expeditions and climbing.”

Led by the swashbuckling March, Eastdil Secured has been at the top of the commercial real estate heap for a decade-plus now. Whether he’s pressing the flesh at Davos, talking with government leaders in Riyadh, Saudi Arabia, or introducing former U.S. President George W. Bush at an invitation-only real estate conference in Park City, Utah, the floppy-haired 63-year-old puts himself where the power brokers are.

By extension, his firm’s list of deals reads like a timeline of the market itself: Eastdil brokered Blackstone Group’s $39 billion deal for the Equity Office portfolio in 2007, Anbang Insurance Group’s $2 billion deal for New York’s Waldorf Astoria in 2015 and a good chunk of trophy office trades in New York City and Los Angeles over the past decade. 

And after pulling off a management-led buyout of Eastdil from majority owner Wells Fargo, March and firm president Michael Van Konynenburg are in the midst of expanding the firm’s reach on a global scale.

With the turmoil in the Middle East, Brexit, Hong Kong and tit-for-tat saber-rattling with Iran, Eastdil is stepping forward to help major investors find new areas of investment in commercial real estate through newly opened offices in Germany, France, Japan, Singapore and elsewhere.

The executives want Eastdil to become “the firm of choice” for global wealth funds looking to diversify into real estate. For instance, Saudi Arabia is going from an oil-based economy to a more diverse one. After Eastdil’s management-led buyout last fall, March attended “Davos in the Desert” in Riyadh to meet with government and business leaders to network.

Formally known as the Future Investment Initiative, the annual forum is seen as a window into the Public Investment Fund of Saudi Arabia, one of the world’s largest sovereign wealth funds, which is seeking to develop sectors like health care, infrastructure and tourism. The Eastdil team has attended the event for the last three years — Van Konynenburg participated in 2017 and March in 2019.

Qatar also is of interest for Eastdil as it has become one of New York City’s biggest commercial real estate investors in recent years.

Essentially, Eastdil wants to play dealmaker as global turmoil creates new opportunities for investments in commercial real estate, which is seen as a source of stable income.

“We are spending a lot of time with these major investors as we assist them in identifying places to place that capital in a very low-yielding world,” Van Konynenberg said.

The management-led buyout of the majority of Wells Fargo’s stake in Eastdil was a victory for March, who has worked for the firm for more than 40 years. Wells Fargo bought Eastdil in 1999, and March became CEO in 2006 when Eastdil merged with Secured Capital. Since October, Wells Fargo has cut its stake in Eastdil to less than 10 percent.

The company is now free from the regulatory constraints of being owned by Wells Fargo. By bringing in investment from Guggenheim Investments and Singapore investment company Temasek Holdings, Eastdil is positioning itself to compete with its much larger rivals, the “big three” – L.A.-based CBRE, Chicago-based Cushman & Wakefield and Chicago-based JLL.

Eastdil has already dominated larger commercial real estate markets in New York City and other major cities for years. It was the No. 1 ranked broker for U.S. deals over $100 million from 2015 to 2018, according to data supplied by Real Capital Analytics.

In 2019, Eastdil completed more than $253 billion in global capital market transactions, which included both debt and equity placements, according to figures provided by the company.

One of the biggest players in the market has a long-standing relationship with the firm. Colony Capital, a $49 billion dollar real estate investment firm headquartered downtown, is lead by Tom Barrack, a close personal friend of President Trump with strong ties to the Middle East — Qatar in particular. The firm has had “a very long-standing relationship with Eastdil,” according to Colony President Darren Tangen. He pointed to Eastdil’s recent advisory involvement in the $5.7 billion sale of 60 million square feet of last-mile industrial assets to Blackstone as evidence of the firm’s heft in the field.

“I’ve been here for 18 years, and they’ve been involved in every single year in some deal,” Tangen said, noting the efficiency and speed by which Eastdil conducted a three-month-long auction to sell the industrial assets to Blackstone.

“That’s one of Eastdil’s strong suits, their ability to put together a transaction of this size,” Tangen said. “There are very few others who have the track record, percentage of market share and breadth of relationships to do these large transactions this quickly.”

Growing global reach

Eastdil has always been an anomaly, seeing itself not as a brokerage but as a real estate investment bank. With about 350 brokers, analysts and executive managers in 16 locations, the firm is dwarfed in head count by players like the publicly traded big three. Unlike those firms, Eastdil can’t rely on leasing arms to win new work. Expansion is key.

In recent months, the big three have been buoyed by record stock trading highs and strong earnings as observers are seeing these industry consolidators as posing a competitive threat to Eastdil. This growing industry power concentrated in the hands of few was viewed as yet another catalyst for Eastdil to break free from Wells Fargo’s regulatory grip and look to grow outside of the U.S.

But Eastdil stands out from the pack in some respects. A selling point, from its own perspective, has been its compensation structure, which resembles more of what a Wall Street investment firm offers.

Its brokers take home a salary and bonuses, not commission, and they rarely leave the company. Managers act more like advisers in high-end deals, working closely with financing specialists who can tap into global resources.

“A traditional commission system incentivizes people to only focus on the specific team working with a client, limiting the willingness to use the full resources of a the platform,” Van Konynenburg said. “Furthermore, the recapitalization has benefitted our recruitment pipeline, as it allows us to offer a larger platform with greater geographic presence to generate more revenue and, consequently, greater compensation opportunity than a commission-based shop.”    

The company took its first step outside of the United States in London in the early 2000s and has since added Hong Kong, Tokyo and Dubai. Since the management-led buyout was completed this fall, Eastdil has opened an office in Frankfurt, Germany.

The firm is also turning eastward.

“We will grow our presence in Asia,” he said. “Especially given that Temasek is a shareholder and gives us a significant growth opportunity.”

He said other moves to open offices in the region include Seoul, South Korea, and Singapore, where Temasek is headquartered. It also has two  offices in Beijing and one each in Shanghai, Mumbai, India, Hanoi, Vietnam, and elsewhere.

The pace of expansion is speeding up, according to Van Konynenburg. He projected that over the next two to three years, the professional head count will hit 400 employees with another 125 administrative and operations employees, giving the firm a total workforce of 525. He doesn’t anticipate opening more offices in the U.S., where they currently have 10 locations.

Other real estate investment players are taking notice of Eastdil’s posturing outside of the U.S.

Paul Twardowski, who oversees the West Coast for real estate investment firm Hines, said his own Houston-based company is undergoing some restructuring within its ranks to reflect expansion in Asian and adjacent markets, including Australia.

“To some degree, with their new funding and their historically deep relations with investors across the world, Eastdil’s plans are in parallel with our own expansion in Asia,” Twardowski said. “I’d expect to overlap with them frequently in the future.”

Contrition for attrition?

As Eastdil moves forward, it is still recovering from setbacks of the recent past. The firm had ruled the New York investment sales market for three consecutive years until 2016 when top-producing New York brokers Doug Harmon and Adam Spies decamped for Cushman & Wakefield.

The impact is evident: The brokerage ranked third in The Real Deal’s most recent ranking of top investment-sales firms in New York, brokering about $5.9 billion worth of deals. But the firm had taken the top spot on the ranking seven years in a row from 2010 to 2016. And while Eastdil more than doubled its dollar volume from 2017 to 2018, the 2018 earnings are still a fraction of the $22.7 billion it closed in 2015.

March and Van Konynenburg bristle over any talk of the two brokers creating any lasting battle scars to the company after they left.

As of mid-December, Eastdil’s New York team had advised on over $10 billion of financing and sales of New York City assets and another $8 billion-plus in out-of-market transactions in 2019, Van Konynenburg said.

Over in L.A. County, the company reports that financings and sales were $14 billion in 2019. In all of Southern California, Eastdil saw a total of $18 billion in deals in 2019.

The company is currently strengthening its bench in New York — perhaps at the expense of L.A.

Van Konynenburg confirmed that one of Eastdil’s top brokers in Los Angeles is moving to the East Coast to boost the firm’s investment sales and debt placement teams in New York.

Jonathan Firestone, a managing director, has worked at Eastdil’s L.A. office for the past 18 years. The 43-year-old is a member of the management committee and started in the Manhattan office in January.

Van Konynenburg said that Eastdil tapped Firestone, who began his career in New York, “to further drive the firm’s growth as part of our new structure.”

The fallout from expansion

Some analysts say the move to go private by Eastdil may lead to a shakeup among its leadership and prominent departures to competitors.

“Going forward, you’ll definitely see some management changes and layoffs,” said Yousef Hafuda, an industry analyst with Morningstar. “We’ve not seen evidence of that yet.

“The push is for all players to be present in all geographies as much as possible,” he said of the big three. “I’d expect Eastdil to do the same, shifting to different geographies and different business lines.”

Van Konynenburg for one plans to stick to his knitting. He is betting it can prosper as an independent boutique operation even as its competitors are growing bigger and going public.

Meanwhile, he plans to focus on growing its technology and use capital to expand in the Sun Belt, Germany, France and Asia. “I do not see anything on the horizon for a material acquisition,” he said. 

Correction: A previous version of this story inaccurately stated Jonathan Firestone’s age.

Developers clear first hurdle in massive casino redevelopment, FPL fuels up with Homestead farmland for natural gas facility: Daily digest

Every day, The Real Deal rounds up South Florida’s biggest real estate news, from breaking news and scoops to announcements and deals. We update this page throughout the day. Please send any tips or deals to [email protected]

This page was last updated at 9 a.m.

Rendering of the project (Credit: Point Publications)

Rendering of the project

Cordish Companies and partner plan redevelopment of casino and horse racing track in Pompano Beach. Pompano Beach city commissioners granted the first approval to a land-use change that would more than triple the maximum number of residential units on the Isle Casino Racing Pompano Park. [TRD]

FPL buys 109 acres near Homestead for natural gas facility. Florida Power and Light bought 109 acres near Homestead for $9.8 million where its affiliate natural gas company plans to build a nitrogen gas plant. [TRD]

Turnberry Ocean Club condo tower scored a $460 million refinance. Jeffrey Soffer’s Fontainebleau Development secured a massive refinance of its Turnberry Ocean Club, a 54-story condo tower under construction in Sunny Isles Beach. JPMorgan Chase and Mack Real Estate Credit Strategies are the lenders. [TRD]

Forever 21 is planning to file for bankruptcy as soon as Sunday. The retail chain could close as many as 700 stores in such an event, bringing an end to months of hemorrhaging money while it struggled to secure a loan. [WSJ]

Benderson CEO Randy Benderson and 1635 Northwest 107 Avenue

Benderson CEO Randy Benderson and 1635 Northwest 107 Avenue

Benderson Development scoops up Toys “R” Us property in Doral. The University Park, Florida-based real estate investment company purchased the parcel to a Toys “R” Us and Babies “R” Us in Doral for $5.3 million from Pacific Equities Capital Management. [TRD]

Billionaire Ken Griffin’s massive Palm Beach holdings now total $350M. Hedge funder Ken Griffin’s recent $99 million purchase of a Palm Beach estate highlighted his insatiable appetite for ultra-luxury homes, but it also added to his growing collection of properties in one of South Florida’s glitziest towns. [TRD]

Amid growing demand for university housing, Adam America buys a multifamily complex near FIU. Developers are increasingly seeking to build new upscale student living next to Florida International University as demand for that kind of housing grows. [TRD]

Adam Neumann (technically) lost $10 billion. The WeWork founder’s 22 percent stake was reportedly pegged as high as $14 billion earlier this year. But after a rocky path to the company’s IPO, its valuation has plummeted, and Neumann’s stake is now worth closer to $3 billion. [Bloomberg]

Low rates are increasing loan enthusiasm. Mortgage applications jumped 2 percent last week, compared with the previous week, and remained 69 percent higher than the same week last year. Interest rates are also down slightly; the average contract interest rate for a 30-year fixed rate mortgage with conforming loan balances dropped to 3.82 percent from 3.87 percent over the week. [CNBC]

Anbang’s Andrew Miller with Fairmont Chicago and JW Marriott Essex House on Central Park South (Credit: Wikipedia)

A fraudulent deed complicated Anbang’s $6 billion hotel sale. Anbang has sold its U.S. hotel portfolio to the highest bidder at a price north of $5.8 billion, but a last-minute wrench was thrown into the deal when the Chinese insurance conglomerate discovered six of the properties’ deeds were fraudulently transferred to limited liability companies, the Wall Street Journal reported. [TRD]

The Wynwood property and David Edelstein

The Wynwood property and David Edelstein

The owner of W South Beach buys up more land for Wynwood residential project. TriStar Capital’s David Edelstein paid $6.5 million to add a chunk of land to his growing assemblage along a booming stretch of Wynwood. He plans to develop the site into a residential building with about 365,000 square feet of space and up to 370 units. [TRD]

SoftBank is looking to use its leverage to call off WeWork’s planned IPO. SoftBank is urging WeWork’s parent company to shelve its IPO plans as the Japanese conglomerate tries to raise $108 billion for a second Vision Fund. It could struggle to attract major investors if the firm’s initial $100 billion Vision Fund is hurt by a poor performing investment in WeWork. [TRD]

Palm Beach condos shut off power as Hurricane Dorian approached. Some Palm Beach condominium buildings turned off their power after an evacuation was issued from Hurricane Doraine, leaving residents to endure miserably hot conditions. [Palm Beach Daily News]

Compiled by Keith Larsen

Bizarre case of deed fraud complicated Anbang’s $5.8B hotel portfolio deal

Anbang’s Andrew Miller with Fairmont Chicago and JW Marriott Essex House on Central Park South (Credit: Wikipedia)

Anbang’s Andrew Miller with Fairmont Chicago and JW Marriott Essex House on Central Park South (Credit: Wikipedia)

It might have been one of the biggest heists of all time.

Anbang has sold its U.S. hotel portfolio to the highest bidder at a price north of $5.8 billion, but a last-minute wrench was thrown into the deal when the Chinese insurance conglomerate discovered six of the properties’ deeds were fraudulently transferred to limited liability companies, the Wall Street Journal reported.

The deal with the buyer, South Korea’s Mirae Asset Global Investments, was due to close last month but was delayed due to fake deeds that transferred the ownership of six of the properties to unidentified limited liability companies. (One was reportedly called Andy Bang LLC.)

The fraudulent transfers were discovered as part of a routine search and sources told the Journal that Anbang had no knowledge of the transactions. The six properties found with fake deeds were all located in California.

Anbang, which has been selling off its holdings in the U.S. since its former chairman was sent to prison last year, began accepting bids for its hotel portfolio earlier this spring. Other bidders included Brookfield Asset Management, Fortress Investment Group and Blackstone Group. The Waldorf Astoria in New York, which is also owned by the insurer and is partly being converted into condos, was not included in the sale. [WSJ] — Erin Hudson

Starwood mystified by Anbang withdrawal: report

From left: Starwood’s Thomas Mangas, the W Hotel and Anbang’s Wu Xiaohui
From the New York website: Wu Xiaohui could have at least taken Thomas Mangas out for dinner: Anbang Insurance Group reportedly withdrew its $14 billion bid for Starwood Hotels & Resorts by email and without explanation Thursday. 
The move caught Starwood by surprise because Anbang had already moved the money to buy the hotel company out of China and agreed to pay a large termination fee should Chinese regulators block the deal, according to an anonymous source cited by Bloomberg.
“It’s quite a surprise that they withdrew the offer,” Sigrid Zialcita, managing director of Asia-Pacific research at Cushman & Wakefield, told the news site. “They bit off more than they can chew.”
Anbang, known for its opaque ownership and aggressive expansion over the past two years, launched a bidding war for Starwood with an unsolicited $13.2 billion offer two weeks ago. Marriott had agreed to buy the rival hotel company last year, but the deal hasn’t closed yet.
Starwood accepted Anbang’s offer, but last week Marriott responded with a new bid worth $13.6 billion. On Monday, Anbang again raised its offer, this time to $14 billion, before withdrawing its bid Thursday.  [Bloomberg] — Konrad Putzier

Source: The Real Deal Miami

Out with a bang: Anbang reportedly ends bid for Starwood

The W South Beach is one of Starwood’s South Florida hotels
From the New York website: Anbang Insurance Group is reportedly giving up on its bid to take over Starwood Hotels & Resorts. The move likely ends a two-week bidding war with Marriott International that grabbed headlines around the world.
The Wall Street Journal broke the news late Thursday afternoon.
The decision to end the deal comes a week after Chinese news site Caixin reported that China’s insurance regulator could reject a takeover, citing rules that limit insurance companies to invest no more than 15 percent of their assets abroad. The New York Times also recently questioned the deal’s feasibility, arguing that Starwood would have few options to enforce it.
Starwood has yet to confirm that Anbang is withdrawing its bid. The Wall Street Journal report cited unnamed sources close to the talks.
Anbang, known for its opaque ownership and aggressive expansion over the past two years, launched a bidding war for Starwood with an unsolicited $13.2 billion offer two weeks ago. Marriott had agreed to buy the rival hotel company last year, but the deal hasn’t closed yet.
Starwood accepted Anbang’s offer, but last week Marriott responded with a new bid worth $13.6 billion. On Monday, Anbang again raised its offer, this time to $14 billion, before withdrawing its bid Thursday.
Despite its Starwood ambitions falling through, Anbang won’t end March empty-handed. Earlier this month, the firm agreed to buy 16 U.S. hotels, including the Essex House on Central Park South, from Blackstone Group for $6.5 billion. Anbang already owns the Waldorf Astoria hotel, which it bought from Blackstone for $1.95 billion last year. — Konrad Putzier

Source: The Real Deal Miami

Starwood would face problems closing a deal with Anbang

From left: Starwood’s Thomas Mangas, the W Hotel and Anbang’s Wu Xiaohui
From the New York website: If Anbang Insurance Group wins its bidding war for Starwood Hotels & Resorts, the hospitality firm would still have a lot of work to do to ensure the deal closes. 
When financing or other issues arise, parties generally enforce purchase agreements through the courts, but there are myriad difficulties in suing a firm such Anbang – with most of its assets based in China – for the colossal $14 billion sum that Anbang has offered, the New York Times reported.
The rule of law is notoriously weak in China, and it’s not clear that a Chinese court would enforce a judgement against Anbang. But Starwood still has options.
Many companies doing business internationally – especially in other weak-rule-of-law countries such as Russia – have included contract provisions mandating binding arbitration to settle disputes, instead of the courts.
About 24 national governments around the world, including China’s, have signed on to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, known as the New York Convention.
But still, it’s widely believed even this sort of decision doesn’t amount to a guarantee in the case of China, the Times reported. And even if Chinese courts went along, the process would likely take years, far longer than Starwood can afford.
Another avenue for Starwood is demanding that Anbang put up collateral. The problem is that Anbang’s combined assets outside of China – the largest of those being the Waldorf Astoria Hotel, which it bought for $1.95 billion in 2014, and the Strategic Hotels and Resorts portfolio it recently bought from Blackstone for $6.5 billion – don’t add up to the value of its $14 billion bid.
Starwood’s lawyers would likely seek a deposit or letter of credit as collateral, the Times reported. Anbang’s opaque ownership structure makes collecting deposits from shareholders unlikely, but the firms could follow the lead of Shuanghui International Holdings, who placed a $275 million termination fee in escrow when it bought Smithfield Foods in 2013, about 5 percent of the purchase price.
Starwood may seek a larger escrow deposit, largely composed of letters of credit and financing letters rather than cash.
There are also likely to be problems with regulatory permission and financing for the purchase, the Times reported.
All these factors suggest Marriott International’s $13.6 billion bid may be relatively more attractive than Anbang’s, despite being lower. [NYT] – Ariel Stulberg

Source: The Real Deal Miami