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WELLS FARGO

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Wells Fargo : A Wells Fargo Subsidiary Strikes Out on Its Own

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06/12/2019 | 02:48am EDT

Eastdil CEO hopes more nimble firm can better challenge tech and startup rivals

By Konrad Putzier and Craig Karmin 

Real-estate firm Eastdil Secured LLC is buying back control of the company from Wells Fargo & Co., betting it can prosper as an independent boutique operation even as its competitors are growing bigger and going public.

Led by Chief Executive Roy March, Eastdil struck a deal for a management buyout, the firm said. Guggenheim Investments' clients and the Singapore investment company Temasek Holdings Pte. Ltd. are also taking ownership stakes in the firm. Wells Fargo, which has owned Eastdil for 20 years, will retain a minority position.

The deal values the firm at more than $400 million, and over time Eastdil employees will be able to own more than 40% of the equity, according to people familiar with the transaction.

Mr. March said as a wholly-owned subsidiary of Wells Fargo, Eastdil felt hamstrung by banking regulations. Now, he is looking to expand at home and abroad and develop more technology.

The deal, which is expected to close by the fourth quarter, comes during a period of upheaval in the commercial real-estate industry.

Co-working upstarts like WeWork Cos. are changing the way companies rent office space by acting as middlemen between landlords and tenants. Big property firms like CBRE Group, JLL, Cushman & Wakefield and Newmark Group Inc. have been getting bigger, acquiring competitors, adding new business lines or launching public share offerings.

Mr. March believes that smaller, more nimble firms that focus on big-ticket sales are better positioned to weather the new challenges from tech firms and startups.

Co-working firms are increasingly offering leasing, property management and other corporate services and are aiming to compete with the big brokerage firms. Big tech companies like Alphabet Inc.'s Google and Microsoft Corp. may be moving into these businesses in the future, Mr. March suggested.

"We think that's going to disrupt the entire corporate-services world," Mr. March said. Because Eastdil focuses instead on sales and real-estate banking services, he says it is less vulnerable to the new competition.

His bigger rivals say sovereign-wealth funds, family offices and other big property investors want one firm to handle all related business. But some investors warn against underestimating the Eastdil chief.

"Betting against Eastdil or against Roy March is not a great idea," said Jonathan Gray, president and chief operating officer of Blackstone Group LP. "It's a very successful firm that is quite effective at what it does."

What Eastdil does is large, complex deals. Mr. Gray ticked off a list of some of Blackstone's biggest over the past dozen years: acquiring G.E. Capital Real Estate assets with Wells Fargo for $23 billion, the buyout of Sam Zell's Equity Office Properties for $39 billion in debt and equity, and last week Blackstone's $18.7 billion deal for U.S. industrial warehouses held by Singapore's GLP.

"He's been in the middle of every major real-estate deal in the world," Mr. Gray said. "The model of being lean and nimble and below the radar screen has worked for" Eastdil.

Daniel Fournier, CEO of real-estate investment company Ivanhoé Cambridge, said Eastdil's approach to clients is "extremely personalized" and that Mr. March is deeply involved. "There will always be room for that kind of service," he said.

Eastdil says it will remain a specialized real-estate banking and brokerage firm. It has about 335 real-estate professionals. JLL and CBRE each have about 90,000 employees.

Mr. March, who is 62 years old, joined Eastdil in 1978 and became president in 1994. In 1999, Wells Fargo bought the firm for about $150 million, according to people familiar with the matter. After Eastdil merged with Secured Capital, Mr. March became CEO.

Eastdil's business soared as the real-estate market recovered from the global financial crisis. But stricter regulatory oversight of big banks curtailed the firm's overseas expansion at a time when real-estate investors increasingly operate around the globe and expect their brokers and advisers to do the same.

By 2017, Mr. March concluded the firm needed an ownership change. "We approached Wells Fargo and said 'it's time to reassess the relationship, '" he said.

Mr. March hopes the sale will allow Eastdil to develop its own technology. The regulatory environment around a bank can inhibit the development of new technology at a subsidiary. He also hopes Temasek's backing will enable the company to do more business in Asia, where the fund has deep connections.

In the U.S., Eastdil held the top market share for 2018 and year-to-date through May in 2019 for real-estate deals greater than $100 million across all property types in the U.S., according to Real Capital Analytics.

But its dominance in New York City sales has declined in recent years, and Eastdil fell to third place in 2017 and to second place in 2018 for these large transactions, Real Capital said. Some attribute that fall to a pair of high-profile office brokers moving to a rival firm in 2016.

"It hurt," said Mike Kirby, co-founder and chairman of research firm Green Street Advisors. "They really were dominant in their market share in Manhattan."

Eastdil says its sales business globally has remained consistent. The firm has also hired some prominent industry figures recently. That includes broker Will Silverman from Hodges Ward Elliott, who starts later this month, people familiar with the matter said.

Eastdil President D. Michael Van Konynenburg said the buyout enables top employees to acquire a stake in the company and will keep them on board.

"In our business, a lot of people take checks to go," he said. "They don't usually write checks."

Write to Konrad Putzier at Konrad.Putzier@wsj.com and Craig Karmin at craig.karmin@wsj.com

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Financials ($)
Sales 2019 83 812 M
EBIT 2019 30 100 M
Net income 2019 20 558 M
Debt 2019 -
Yield 2019 4,05%
P/E ratio 2019 8,94
P/E ratio 2020 8,85
Capi. / Sales 2019 2,45x
Capi. / Sales 2020 2,45x
Capitalization 205 B
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Mean consensus HOLD
Number of Analysts 32
Average target price 51,8 $
Spread / Average Target 14%
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Managers
NameTitle
Timothy J. Sloan President, Chief Executive Officer & Director
Elizabeth A. Duke Independent Chairman
John R. Shrewsberry Chief Financial Officer & Senior Executive VP
Scott Dillon Chief Technology Officer
John Daniel Baker Independent Director
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