Not afraid of change

Insignia Financial Group founder, chairman and CEO Andrew Farkas has one remedy that will eventually beat the Wall Street blues that have tormented commercial real estate - especially on the services side - for the last year: continued performance. Simple as that, and it is a mantra the company intends to fulfill.

Insignia has taken advantage of stagnant stock prices in the real estate services sector by repurchasing shares worth $13 million over the past eight months, and the company plans to continue with the buyback of another $7 million. The company is biding its time, as it consistently meets or beats Wall Street earnings expectations, generally posting 20% to 30% increases in per-share indicators, says Farkas.

"As long as you continue to do that, at some point, the Street should take notice," he says. "The entire industry, with regards to publicly traded real estate services companies, has not traded well over the last year. In fact, if you look at virtually every single major real estate services company, you'll find that the multiples at which these companies trade have contracted, in some cases by more than 50%, over the course of the last year.

"While the performance of Insignia's stock price has been nothing to write home about, it has been about as good as it gets for this particular industry sector right now," Farkas continues.

Still, Farkas and Insignia will not allow Wall Street woes to limit the company's growth. Although he would not comment on specifics, Farkas says Insignia still has a number of M&A targets after acquiring more than 20 companies in the past four years. Through expansion across the United States and Europe, the company plans to further take advantage of interlinking commercial opportunities that also involve residential brokerage and mortgage capabilities brought on by the acquisition of Cleveland-based Realty One in 1997 and New York-based Douglas Elliman this year. The residential companies give Insignia the opportunity to help meet the housing needs of corporate clients.

On the technology side, Insignia is spending several million dollars to further develop its operating platform and develop Web-based business models that the company plans to roll out by the end of 1999 or beginning of 2000. And let's not forget Insignia's principal investment - the deployment of the company's capital through property acquisition and development - and expertise in real estate debt markets.

Chameleon-like company In only nine years of operation, Insignia has never been loathe to change. Now based in New York, the company started out in Greenville, S.C., in 1990 primarily as an owner/manager of multifamily properties and quickly emerged as one of the largest players in that sector. In 1998, Insignia sold its multifamily holdings outside the New York area - a portfolio of approximately 280,000 units - to Denver-based AIMCO for $910 million.

Meanwhile, Insignia acquired New York-based Edward S. Gordon Co. in 1996 to establish the basis for a national services company, Insig-nia/ESG. Later, the firm acquired real estate services companies across the United States to complete the platform. In 1998, Insignia Financial Group acquired Chicago-based Hotel Partners to focus on the asset management, sale and acquisition of hotel properties around the world.

"One of the most unique things about the Edward S. Gordon Co. and, as it turned out, the most compatible aspect of Insignia, is that both firms instinctively reinvent themselves almost on a regular basis, and have the philosophy that they always want to be the firm that can put them out of business," says Stephen B. Siegel, chairman and CEO of Insignia/ESG. "We are constantly designing strategies and initiatives to improve our service delivery and approach to clients and the retention and acquisition of new clients. Most important is the acquisition of intellectual capital that is the best in the business."

Insignia also looked across the Atlantic in 1998 with the acquisition of U.K.-based Richard Ellis Group Ltd., which this year merged with St. Quentin to form Richard Ellis St. Quentin. Richard Ellis St. Quentin gives Insignia a leading position in the United Kingdom and also a European foothold with offices in Germany and Italy and expansion plans aimed at France, Holland, Spain and Poland.

But with so much M&A activity, speculation abounds that Insignia may be moving too fast in too many different directions. Insignia/ESG president Ronald Uretta, previously Insignia's CFO and COO, dispels those notions, pointing to the company's extensive M&A experience and the fact that Insignia carefully chooses its acquisitions - generally going for one of the top three in a given market.

"Through our 50-some-odd acquisitions, we've learned where we need to keep our focus, and we do it phenomenally," says Uretta. "It's now just a matter of course. We go above and beyond in making sure that people are comfortable in making certain that we don't squash their ideas, making certain that we allow them to be creative and show us their best practices.

"So, if you're willing to listen as opposed to passing on mandates to people, you're more likely to work in a positive manner and successfully integrate people," he continues.

Adds Alan Froggatt, CEO of Richard Ellis St. Quentin, "We've got so much going on before that glue is tested. There's a great deal of experience and depth with people who have known each other and worked together for some time. We've always believed in good financial controls and having new investment areas justify themselves incrementally before we expand them."

Using intellectual capital In most every market the company has entered, Insignia has attracted top-shelf talent. Insignia has recruited customary brokers and attorneys, CPAs, MBAs and other professionals that may not immediately come to mind when considering real estate services but are essential in today's marketplace.

"That is a level of professionalism that you may not ordinarily think of as the traditional broker," says Uretta. "We actually have to go that route to effectively compete in today's market. The business has changed. You have to have top-notch, quality professionals, and we have been able to attract and retain the best and the brightest."

With those personnel pieces in place, Insignia/ESG has introduced its managed brokerage model that differs from the traditional "silo" approach. The company has rolled out its managed brokerage model in New York and will continue to do so across the United States and in Europe over the next year.

Insignia/ESG's managed brokerage business encourages the free flow of market information between brokers and managers working in different areas but for the same clients. Cross referrals are the norm, not the exception. The process helps match the right skillsets with the right clients, increasing brokers' productivity and better serving clients.

The managed brokerage business also includes Insignia/ESG's consulting group. Here, the attorneys, CPAs and MBAs - a litany of post-graduate alphabet soup - work on complex transactions and tax issues; local, state and federal incentive programs; and creative deal structuring.

"It's not only matching a tenant with a space," says Uretta. "It's creating and structuring a transaction that fits the tenant's or the company's overall real estate needs. You absolutely must be better."

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