CSFB acquires Donaldson, Lufkin & Jenrette to form new realty group When Credit Suisse First Boston (CSFB) acquired Donaldson, Lufkin & Jenrette (DLJ) last fall, it became one of the few investment banks to provide both traditional finance and investment services, as well as corporate real estate services to third-party clients.
The multi-billion-dollar merger created a new company now fully integrated into the CSFB banking giant: CSFB Realty Corp., a diverse and expanded version of the former DLJ Realty Services brokerage firm, whose client base doubled and internal space portfolio tripled with the merger.
The primary mission of CSFB Realty is to provide its full spectrum of corporate real estate services to Credit Suisse First Boston and its subsidiaries and affiliates, as well as to its Fortune 1000 clients, and non-affiliated Fortune 1000 firms around the world. CSFB Realty is directly related to - but operates separately from - CSFB's real estate finance and capital partners groups, presenting new and lucrative cross-selling opportunities for CSFB Realty.
Indeed, the new real estate company is uniquely positioned to access the powerful financial facilities wielded by its parent, one of the world's largest securities firms in terms of financial resources. As of Dec. 31, 1999 (year-end results for 2000 are available after March 13), CSFB claimed approximately $7.8 billion in equity and $275 billion in assets, and year-end revenues of about $9.8 billion.
"Our formidable association with CSFB competitively situates CSFB Realty as the only full-service provider of corporate real estate services backed by a bulge bracket investment banking firm, with access to its substantial capital, aggressive financial products and other strategic global services - as well as its clients," states George P. Twill, president of CSFB Realty, and former president of DLJ Realty.
"No other real estate operation can offer the efficiency, convenience, comfort and control afforded to clients who can now obtain finance, investment and corporate services from a single entity. CSFB Realty is perfectly positioned to meet the strategic real estate needs of any global corporate client," he asserts.
As part of the recent merger process, the disposition of DLJ's 1.3 million sq. ft. of prime office space at 277 Park Avenue in New York City is expected to represent one of the largest real estate deals to take place in New York City in 2001. This high-profile lease transaction is being handled, of course, by CSFB Realty.
Company snapshot CSFB Realty is headquartered in New York City, with offices in six U.S. locations. Its management team, in addition to Twill, includes Raj Vakharia, managing director, Corporate Real Estate Services; and John L. Young, managing director, New Business Development and Client Services. Officers in charge of CSFB Realty's national regions are Managing Director Drew O'Malley, New York; Managing Director J.D. Cook, Los Angeles; Managing Director Mike Duncan, Chicago; Managing Director Jim Koch, San Francisco and Director Bill Weghorst, Atlanta.
The sixth location - a separate operation, not a regional office - is the company's New York-based corporate consulting group, which is headed by Vakharia and provides global real estate services for the investment bank.
CSFB Realty's services primarily include tenant and owner representation; investment sales; mortgage brokerage; build-to-suit; financial and market analysis; municipal incentives; building evaluation; portfolio management and brokerage; and strategic planning and consulting.
Its current third-party client base includes AXA Financial, The Davis Cos., Korn Ferry International, Info Post Inc., Telemundo Group Inc. and Preston Gates & Ellis LLP.
The company also has a long-standing affiliation with PM Realty Group, a national property and asset management firm now controlled by CSFB, with more than 1,000 employees. PM Realty's assets under management in 40 domestic markets comprise more than 120 million sq. ft.
Prior to this fall's merger, the global real estate needs of CSFB's approximately 76 offices in 37 countries and staff of 27,000 were outsourced to a variety of brokerage firms. Centralizing and internalizing these global commercial office space requirements - and keeping their revenue streams in-house - is "big business, and a very profitable unit within CSFB," says Vakharia, though no specific numbers were reported.
The breakdown of revenues for CSFB Realty's internal corporate services vs. its third-party transactions is about 50/50, with tenant representation reflecting about 60% of the third-party business, according to Twill.
Roots in DLJ Realty CSFB Realty's management team and four of its five officers came from the former DLJ Realty - except Koch, whose regional office was established post-merger.
Looking back, DLJ Realty, a subsidiary of the former DLJ investment bank, was incorporated about 25 years ago with mortgage brokerage as its core business. Over the years, with Twill at its helm since 1989, the company evolved into other core businesses, including investment sales, landlord leasing, tenant representation and strategic advisory planning. The company provided its leasing services globally to the investment bank and its affiliates and subsidiaries, and over time received unsolicited requests from investment banking, merchant banking and other business groups to provide similar services to its clients.
In the early 1990s, reports Twill, DLJ Realty engaged itself in third-party affiliated client activities, a venture which eventually grew to represent more than 50% of the subsidiary's revenue stream.
To manage and expand this third-party client business, Young was brought over from an Ernst & Young real estate group in 1997. The following year, Young's group consummated approximately $75 million in value of transactions for its clients.
In 1998, business at DLJ Realty became so vibrant that Twill initiated a coast-to-coast rollout of the firm. In 1999, regional offices were opened in Los Angeles, Chicago and New York, with another opening in Atlanta in 2000, followed by a satellite office in San Francisco later that year.
By this time, Vakharia - who joined the firm in 1978 to oversee the management and delivery of real estate services to DLJ and its affiliates - was commanding a lease portfolio in excess of 3.5 million sq. ft. (With the integration into CSFB, that portfolio swelled to 11 million sq. ft.)
"The merger with CSFB took place at a time when DLJ Realty was on a significant growth curve with respect to its physical locations, client base and revenue streams," notes Twill. "Essentially, my associates and I are still providing all the same services, but with a client base and revenue stream that has expanded in multiples, complemented by a bulge bracket investment bank as a parent company."
He adds that since CSFB had no real estate counterpart, the integration of DLJ Realty into CSFB was seamless and had no impact on service to existing clients.
Post merger, a huge San Francisco-based technology banking operation run by the behemoth investment bank greatly expanded CSFB Realty's prospecting client base on the West Coast, prompting the company to expand its satellite location in San Francisco into a full-service office serving primarily the Pacific Northwest with a focus on technology clients.
According to Young, CSFB Realty plans to open another regional office in the Southwest this year, probably in Dallas or Houston. "We believe this additional location will give us the nationwide client coverage we will need. We don't plan to expand any further.
"Getting any bigger will not necessarily be better for us," he asserts. "Six regional offices and roughly 50 high-producing professionals are more than adequate to cover our client base and cross-selling opportunities."
Multi-assignment, long-term relationships Elaborating on the cross-selling opportunities provided by a multi-billion-dollar investment banking parent, Twill proclaims, "When we are referred internally to CSFB's investment and merchant banking clients interested in corporate real estate services, we won't be making a cold call by any means.
"Conversely, if I'm meeting with the CFO of a Fortune 1000 company that needs private equity for growth, is pursuing a sale-leaseback, wants to sell a building, or is shopping for a second mortgage, I can make a referral or personally introduce the prospectus to key people in other areas of the bank. This can't be done by a real estate firm involved only with brokerage.
"In either cross-selling scenario, we're creating multi-assignment, long-term client relationships with a single known entity - CSFB," claims Twill.
The first order of business for CSFB Realty was to handle the rare block of prime office space formerly occupied by DLJ at 277 Park Avenue. According to the company, it is working with a prospective tenant on the disposition of this 1.3 million sq. ft. parcel and expects the transaction to be consummated soon.