Mark Tercek's real estate department harnesses the resources and reputation of an investment banking legend.

Mark Tercek has the best of both worlds: He heads a group of experienced real estate professionals who are backed by the resources of a leading investment bank. This combination has built a client list that is a who's who of real estate powerhouses: Starwood, TrizecHahn, Boston Properties, Spieker, Vornado, Security Capital and CarrAmerica, to name a few.

Tercek, himself, really symbolizes what makes Goldman Sachs' real estate group so successful. Since joining the firm in 1984, Tercek has held a variety of leadership positions in corporate finance. When Mike Fascitelli left the real estate group to join Vornado in 1996, the decision was made to bring in "an outsider" to lead the group.

"As we thought about the industry and the trends toward securitization and consolidation, in our view we would be best able to serve our clients by better integrating our real estate department activities into the mainstream of our investment bank," says Tercek, who is managing director and department head. "To the extent we could mobilize all the firm's resources outside our department, but thinking of our best people in equity capital markets, in debt capital markets, in M&A, etc., we would really be able to better serve our clients, because we've always been a pretty good investment bank in those areas. That's really where we've built our firm's reputation. My job really is to harness all those resources in the real estate sector."

"Our clients' banking needs are becoming a lot more complex," he continues. "There's a greater need for more sophisticated investment banking services. And we're pretty confident, harnessing the full resources of the firm, that we can do a good job. The people who work here today are the lucky inheritors of a great legacy," he says.

That legacy began in 1869, when the firm was founded by Marcus Goldman, a European immigrant who was involved in what would become the commercial paper business. Today, the real estate group of Goldman, Sachs & Co. has 60 bankers active in several business lines.

Richard Lieb and Mark Ettenger are in charge of corporate finance services for real estate companies. This is the line of business where Goldman Sachs does REIT equity offerings, REIT debt offerings, M&A work and asset sales.

Under this unit, Goldman Sachs has managed over $5.5 billion of equity and debt financings year-to-date in 1997 for REITs and real estate companies, including the $902 million IPO for Boston Properties, approximately $1 billion in capital for Spieker Properties and over Cdn$550 million of debt and $172 million of equity for TrizecHahn Corp.

High-net-worth investors play a big part in Goldman Sachs' REIT strategy. "We believe we have by far the deepest and biggest high-net-worth client base on our equity sale side," says Tercek. "These are well-to-do, individual investors, and they have shown a great appetite for REIT stocks, because the yield is appealing and they have a lot of confidence in our analysts. That really is a client base that other firms don't have, at least in our size and breadth."

As far as asset sales, mergers and strategic advisory assignments go, so far in 1997, the firm has been lead banker in 16 transactions totaling over $20 billion in asset sales and mergers within the industry. Major deals include: advising Vornado Realty on its $654 merger with The Mendick Co.; the $560 million sale of the Woodlands Corp. for Mitchell Energy and Development Co.; and the $376 million merger between HEI Hotels and PRISA II Hotel Assets with Starwood Lodging Trust and Starwood Lodging Corp. In addition, Goldman Sachs is in the market with a portfolio of IBM malls and will be in the market on behalf of MEPC in connection with its U.S. assets.

The hospitality and gaming business, headed by John Barakat and Joe Nydick, is much like the real estate corporate finance business, except it provides investment banking services to hospitality companies and casinos. This group has been involved in over $15 billion of hospitality and gaming transactions in the last 12 months, with activities including representing Bally's in its $3 billion sale to Hilton and the $1.8 billion merger/sale of Westin Hotels to Starwood Lodging.

In addition, Sheridan Schechner is the managing director in charge of the commercial mortgage business. Under this group, in the past 12 months, the firm has originated over $5 billion in mortgages for acquisition financing, single borrower or pooled transactions, conduits, construction loans and sale-leaseback financings, such as the $600 million loan to Vornado Realty and Crescent for the acquisition of Americold/URS and the $230 million loan for the acquisition of Century Plaza Towers.

The Grande LoanTMSM program also falls under this business line.

Grande loans are big mortgages that the firm puts on its own books and then securitizes. These loans have a long life and range from $35 million to a couple hundred million dollars. The firm completed its first $1 billion Grande offering earlier this year and now has about $1.6 billion in line for Grande II, which will be launched in the early part of '98. According to Tercek, Goldman Sachs plans approximately two of those a year.

In spite of all these high-profile transactions, when Tercek is asked what he's proudest of concerning his group, the first thing that comes to mind is the fact that four members of his group recently were named managing director. "It's a sign of the confidence the firm has in our real estate business and the emphasis we put in the real estate area," he says.

"We have extraordinary resources at Goldman Sachs," Tercek says. "I think we've always been, by everybody's measure, one of the very few leading banks in the most important categories: equity fundraising, M&A, etc."

"In the real estate sector, there really are few bankers with that kind of background, because it's a brand new opportunity," he continues. "Securitization is really just a couple of years old. And only now are we seeing regularly large-size equity deals. Consolidation among the REITs, for example, is a brand new phenomenon. And a banker who exclusively worked in the real estate sector won't have the breadth of experience that a firm like ours does."

"We have a very talented and experienced group of real estate bankers who know the real estate industry extremely well. We're trying to couple that with the firm's experience in equity raising, M&A and debt financing as well as our international effort to really bolster our business even more," he says.

"We're aided by the fact that the two partners running the firm - Jon Corzine, CEO, and Hank Paulson, president - are keenly interested in the real estate effort. Their involvement is observed by others and gets everyone involved."

The real estate group should not be confused with Goldman Sachs' Whitehall Fund, which is managed and staffed separately. Tercek says that Whitehall is sometimes mistakenly viewed as a competitor to Goldman Sachs' clients, but, "what Whitehall provides for our clients is the opportunity to partner." One example of this partnering is Strategic Hotel Capital, a joint venture between Whitehall and Security Capital Group.

Although Goldman Sachs has been a major facilitator of the consolidation craze, Tercek doesn't expect the firm to jump on that bandwagon itself. "We're very confident that our current position leaves us absolutely second to none in terms of being able to serve our clients."

The firm does have "ambitious" international aspirations, which Tercek expects will carry over to the real estate side. "With the passage of time," he says, "you'll see us with more bankers and more effort placed internationally."

All in all, Tercek sees a secure future for Goldman Sachs' real estate group.

"Our goal is to do for the real estate industry precisely what Goldman Sachs has always had a reputation for doing on the corporate side," Tercek says. "And that is being the industry's, certainly our clients', senior closest, trusted adviser -- the firm to whom our clients turn when they have really critical issues or extraordinarily complex important deals or important fundraising."

"We want to pick our potential clients carefully. We want to cover them very aggressively, be close to their key people, really know their strategies well, be in a position to add value as advisers. As long as we're doing that, we think the business will take care of itself."