In July of last year, Salomon Smith Barney's (SSB) real estate investment banking group played an advisory role in the merger of Tower Realty Trust and a joint venture composed of Crescent Real Estate Equities Co. and Reckson Associates Realty Corp. The $800 million deal was one of the first mergers of its kind between two office REITs.

The acquisition of Tower's 5 million sq. ft. of office space located throughout the United States - including Orlando, Fla.; Phoenix; and New York City - represented the culmination of a longer-term strategy and gave SSB's client, Crescent, an entry point into the New York market during a period of active real estate consolidation.

The groundwork for the transaction was laid a year earlier when SSB managed a $200 million issue of convertible preferred stock for Crescent and achieved one of the highest premiums ever in the category.

Throughout 1999, the SSB group also participated in a number of transactions with international implications. In Italy, for example, SSB represented Telecom Italia in an effort to spin off a real estate subsidiary with assets in excess of $3 billion.

SSB also raised a $400 million Western European Fund for Orion Capital Management, which sought to expand its presence in Europe.

International presence The vast geographic range of these deals herald the emergence of Salomon Smith Barney's worldwide real estate investment banking capabilities.

About two years ago, Mark Patterson, global head of real estate investment banking for SSB, took on the assignment of creating a global real estate franchise "second to none." Since then, Patterson has established a group that can touch virtually any real estate transaction anywhere in the world.

More domestic and international deals are in the works, as Patterson continues to build his real estate group. Today, he can tap the investment interests of Travelers Group, the institutional investment wisdom of the old Salomon, the street smarts of the old Smith Barney and the Pacific Rim institutional and corporate contacts of Nikko Salomon Smith Barney Ltd., a recently formed joint venture with Nikko Securities Co. of Tokyo.

Should Patterson need additional firepower, he might also call upon the resources of CitiGroup, which is the parent company of both Travelers and SSB.

As the principal client contact for real estate banking activities, Patterson's group is the real estate focal point for SSB's partners and affiliates. "Our job is to make sure our clients see a single, unified CitiGroup face," he says.

To that end, Patterson has assembled a network of 150 real estate investment bankers - up from approximately 100 people just 18 months ago - in far-flung global offices from Australia to Europe through Asia and the Americas. In building his group, Patterson has added new functions. Early in 1997, the group created an asset sales division, anticipating the return of activity in that business segment.

Today, the SSB real estate investment banking group can provide clients with virtually any flavor of real estate product or service.

SSB underwrites REIT equities and fixed-income instruments, makes real estate loans, issues lines of credit, advises and facilitates merger and acquisition activities, creates and sells derivatives, manages asset sales and sale/leasebacks, raises investments for real estate funds, handles private placements, manages restructurings and workouts, and places mezzanine equity.

The only real estate category in which Patterson's group does not work is commercial mortgage-backed securities (CMBS). Another SSB group handles those responsibilities.

Other Wall Street firms offer some of these services in certain areas of the world. Merrill Lynch has been a leader in the U.S. REIT underwriting market, while Lehman has a strong real estate investment lending group.

Others are attempting to emulate SSB. Morgan Stanley Dean Witter and Goldman Sachs are both building global real estate networks. Although no rankings exist to prove SSB's global leadership in real estate, the company maybe the only firm that can reasonably claim to be all things to all clients anywhere and everywhere.

"Domestically, there are companies that track things like lead deals," says Patterson. "On a global level, no one captures that kind of data. I don't have a clue as to what other firms do in different regions of the world. You can safely say that in any of the products we offer, we probably rank in the top three to five."

Notable deals Whatever SSB's ranking might be, Patterson's group has had a hand in hundreds of major deals over the past couple of years.

SSB advised Boston Properties in its $1.2 billion acquisition of Embarcadero Center in San Francisco from Prudential Insurance Co. of America and businesses owned by David Rockefeller. In this complex deal, SSB worked out an unusual structure under which Prudential and Rockefeller received REIT shares as compensation.

The company advised Seattle-based SAFECO Corp. in a $570.2 billion strategic disposition of the insurance company's 700 million sq. ft. real estate portfolio. The completed transaction placed $500 million of SAFECO's assets in the hands of a joint venture between Macerich Co. and Ontario Teacher's Pension Fund.

In the largest sale/leaseback transaction of 1999, Patterson's team advised CitiGroup on the $575 million sale/leaseback of six commercial office buildings. Despite the capital constraints of the 1999 real estate environment, SSB participated in a number of large issues of public equity.

In London, Canary Wharf Group, PLC retained SSB to serve as senior co-lead manager for a $1 billion European initial public offering, which will facilitate public investment in the massive Canary Wharf real estate development on the outskirts of the city. The offering came to market successfully in March of last year.

In 1999, SSB also successfully managed two major issues for Apartment Investment and Management Co. (AIMCO). The first, a common stock offering of $125 million in convertible preferred stock, occurred in February. Three months later SSB followed up with a $125 million private placement, also convertible preferred shares.

In one of 1999's largest hospitality industry deals, SSB advised Memphis, Tenn.-based Promus in its merger with Beverly Hills, Calif.-based Hilton Hotels Corp.

According to an SSB document describing the transaction, "Promus was marketed to global lodging companies in an extremely abbreviated time frame (several weeks) for a transaction of this size (approximately $4 billion) during August. The bankers from Salomon Smith Barney facilitated the process with their strong relationships with key executives of potential acquirers and created a competitive landscape globally to maximize value for their client."

Since 1997, the company has handled 120 equity transactions worth slightly more than $20 billion. For the same period, Salomon Smith Barney arranged 69 debt transactions, which raised just over $15 billion. In addition, SSB has been involved in 62 preferred and convertible preferred transactions worth $6.2 billion. The merger and acquisition log recorded 20 SSB transactions valued at just over $17.5 billion. As an adviser, Patterson's group has participated in 44 transactions totaling $8.9 billion.

SSB has played a role in underwriting stock issues by REITs since 1992, when then Smith Barney co-managed an IPO for Kimco Realty, one of the first transactions in what later became the REIT decade. "We've probably led or co-managed more REIT transactions and raised more proceeds than any other firm on the Street," Patterson says.

During 1999, however, REIT capital formation slowed substantially. Two years ago, REIT underwritings totaled $21 billion. Last year, the REIT market sank to a scant $2 billion in new underwriting. Patterson calls 1999 a transitional year for REITs, following four or five active years.

"It was a difficult year, where private capital was the primary buyer in the marketplace as opposed to public capital," he says. "That was a pretty dramatic change in this segment of the real estate market."

Prospects for 2000 Patterson hopes for a resurgence in REIT underwriting during 2000, but does not sound particularly bullish about the prospect. "If the stock market continues to gyrate the way it did at the beginning of the year, investors may look to REIT stocks as safe havens," says Patterson. "If that happens, we may see more REIT underwriting business. It's not likely, but it could happen."

Patterson says Europe will offer important real estate opportunities this year in the sale/leaseback area. "A lot of European companies own brick and mortar," says Patterson. "As those companies look to build and protect profits, I think we'll see a lot of corporate real estate spin-offs, particularly in sale/leasebacks."

Patterson also anticipates new business from Down Under. "Australia has a lot of public companies similar in structure to our REITs," he adds. "These companies have a lot of capital and are looking for ways to export that capital."Patterson expects that more than half of his group's business during 200 0 will be advisory, with a significant component coming from international clients. If the company's track record is an indication of its direction, Patterson and his group might be taking on a new client: the world.