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A piece of the Rock

In less than 10 sometimes tumultuous years, New York-based Rockwood Realty Associates Inc., has grown from a small advisory services firm into a large real estate investment banking firm. The firm executed more than $2.5 billion in commercial real estate transactions in 1998 and projects to complete $3.5 billion in deals this year for a largely institutional client base.

When John W. Magee formed Rockwood in 1991, there was a dearth of transactions coming to market due to corporate downsizing and the thrift crisis. In its early days, Rockwood functioned mainly as a consulting firm, taking on workout assignments and restructuring loans. At the end of 1992, the firm started building a transaction-oriented business to complement its advisory services.

Magee says longstanding relationships with clients and access to capital markets and senior investor decision makers have allowed Rockwood to grow and successfully wear both consultancy and brokerage hats. Rockwood also believes in the power of extensive property and market research/analysis as tools to achieve or exceed clients' pricing objectives for each property sales assignment.

"It is relatively rare for a firm of our size to put such an emphasis on research," says Magee. "The objective is to provide a very finite level of meaningful information, because we know that investors discount for what they don't know."

Daniel J. McNulty, president and partner of Rockwood, says the firm strives to set the standard for research in the industry and in doing so creates an "educated competitive market" that attracts the widest number of investors for a transaction and pushes pricing. "We have achieved pricing above replacement cost for an asset because we have shown them the performance and have articulated long-term value," says McNulty. "What we've done, largely through research and strategic alliances, is bring players to the market who may not have already been there."

Strategic alliances, new offices Forming strategic alliances with key players in the industry has allowed Rockwood to expand its activities into investment banking services to the healthcare industry and into raising debt and equity capital for public and private companies.

In the past 18 months, Rockwood has raised significant capital and completed a number of financings for the healthcare sector, says McNulty. To increase its activities in that market, Rockwood recently formed a partnership with West Port Realty Advisors, a fund manager focusing on continuing care retirement communities, and made an equity investment in Greystone Communities Inc., of Irving, Texas.

"There was a void in this area from a real estate investment banking point of view, because capital markets remain narrow for those types of properties," says McNulty. "Wall Street has focused more on the assisted living sector."

The desire to provide capital led Rockwood last year to form an alliance with The Penobscot Group Inc., Boston, to raise capital for recapitalizing existing assets or through blind pools for acquisitions. By year-end, the joint venture will have raised approximately $250 million for two public companies, says McNulty.

As part of its plan to expand, the firm intends to open a number of additional offices, including one in Los Angeles by the end of the year. Earlier this year, Rockwood also opened a branch office in Palm Beach Gardens, Fla., precipitated in part by the firm's handling of a $250 million sale of 14,800 acres of prime undeveloped land in Palm Beach County for the John D. and Catherine T. MacArthur Foundation, Chicago. The land parcels were sold to Watermark Communities Inc., a Bonita Springs, Fla.-based residential land developer and home builder. The sale represented the largest land transaction ever recorded in Palm Beach County, according to Rockwood.

"This was a complex assignment offering a potential investor a wide variety of development uses including single-family, multifamily, retail, hotel, office and industrial," says Joseph Morningstar, managing director and partner of Rockwood, who spearheaded the marketing campaign.

Two transactions set records Besides raw land, Rockwood's strengths also involve sales in office, retail and apartment sectors, says Magee. Two office building sales the firm conducted in 1998 set records.

In another 1998 deal, Rockwood arranged the all-cash $108 million sale of Fairfax Square, a three-building, 543,383 sq. ft. mixed-use complex in Tysons Corner, Va., for its pension fund client, Teachers Insurance and Annuity Association, New York, to an unnamed Middle-eastern buyer.

Rockwood also was involved in the largest single asset sale in New Jersey in 1998. Representing Newark, N.J.-based Prudential Real Estate Investors, Rockwood sold Exchange Place Centre, a Class-A, 30-story office building along the Hudson River in Jersey City for $175 million to a German real estate fund.

Rockwood's transaction business often comes from clients that are familiar with the firm's advisory work and where trust and credibility have already been established, says Magee.

Rockwood had previously served as a bankruptcy advisor to Travelers. In 1996, the insurance company retained Rockwood to perform a market study of the non-profit business sector in New York to determine whether a 1 million sq. ft office building at 633 Third Avenue in Midtown Manhattan could be converted into a commercial condominium. According to Morningstar, Rockwood identified broad potential interest in the concept from non-profit space users who could take advantage of tax benefits from a condominium purchase.

The melding of advisory and transactional services seems to provide a winning combination for the firm. While the deals and assignments may be complex and diverse, a keystone to Rockwood's success is knowing what clients want and having clients know that there is a high level of integrity in the work process, says Magee.

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