Wal-Mart. Amazon.com. Starbucks Coffee. Blockbuster. While most news covers the big guys these days, bigger and ultra-efficient are not always better; sometimes real estate lending and asset management takes more than the standard approach.

Emmes & Co., a New York-based, full-service real estate firm and turnaround specialist, has grown by seeking challenging projects that other firms eschew for a clearer, more neat-and-tidy return. Emmes has been able to grow its core investment and real estate service businesses - as well as become a national player in high-yield, short-term lending - by taking a specialized approach to lending.

"We don't 'systemetize' the transactions that we do here," explains Andrew Davidoff, president and CEO of Emmes & Co. "It takes hard work, creativity and a lot of inspiration."

>From the ground up Since its inception in 1993, Emmes & Co. has expanded from a two-person partnership investing in non-performing loans and foreclosed properties to a 90-person, full-service real estate investment management firm with interests in more than 16 million sq. ft. and $1 billion of commercial properties. The firm's opportunistic approach has produced a diverse investment portfolio for a company of its size, mixing office, retail, industrial and multifamily assets in and around areas such as New York, Philadelphia, Baltimore, and Miami.

As Emmes began laying groundwork for its real estate firm, the need arose for a team of professionals accomplished in real estate valuation and operation. "In the beginning, we were like the dog that finally caught the car," Davidoff remembers. "We had gained control of all this great real estate and we needed the right people to help realize its value."

The firm's continued success relies on maintaining its blend of real estate skills. Emmes has built a team that merges the world of high finance with property-operations savvy across all major property types.

"The human and financial elements are just as important to us with the type of deals we do, so one of our top priorities is attracting the best people," he says. "We put the professional who knows how to dissect an HVAC system in with a top real estate MBA who can analyze financial statements, and let them learn from each other. The product of that interaction is crucial to our hands-on approach - from asset management to our financing activities."

The successful repositioning of 685 Third Avenue in Midtown Manhattan speaks to the active approach the firm takes. When Emmes took over asset management responsibilities in late 1997 for New York-based owners Blackacre Capital Group and Argent Ventures, the 660,000 sq. ft. property was only 34% occupied.

After overseeing a $14 million renovation to upgrade the building's mechanical systems and change its look and feel, the team went to work on restoring the perception of 685 Third Avenue in the marketplace. This included the implementation of an integrated marketing program complete with a marketing center, advertising, monthly mailings and a snappy Website (www.685.com). By late 1998, occupancy had jumped to 96%.

Fund management takes off Emmes Capital LLC, a wholly owned subsidiary of Emmes & Co., provides equity and debt financing and functions as an umbrella entity for a growing family of opportunistic investment funds. According to Davidoff, Emmes specializes in short-term bridge financing in circumstances outside most institutions' or conduits' lending parameters.

Emmes is accustomed to making expeditious decisions, he says. "Historically, many of our assets on the investment side were acquired from motivated sellers; consequently, the firm had to be ready to commit quickly to the transaction."

The team's ability to think and act as principals and operators has helped carve out a tidy niche in the competitive field of real estate finance. Portfolio managers at Emmes Capital are able to step in and turn a troubled property around if the deal turns sour and is taken back from the borrower. This flexibility frees Emmes Capital from many of the capital markets and regulatory factors that influence institutional and Wall Street lenders.

Emmes seems to take a conservative approach despite the inherent risks in executing many of these deals. First, in return for quick, short-term financing, the loans regularly carry almost double the interest rate of traditional loans. Secondly, Emmes usually takes first-lien positions and personal guarantees on most of its deals.

S. Lawrence Davis, president of Emmes Capital, explains that the approach to risk aversion makes success an unmistakable target. "We only make deals where it is a 'heads we win, tails we win' situation," he says. "If all goes well, we profit from the high-yield, short-term loan, like a healthy single or double in baseball. If the deal heads south, we can use our real estate knowledge and skills to turn the situation around and gain in the other direction."

The aversion to risk is based on, at least in part, the company shareholders' significant equity stake in the capital under management. "The alignment of interests between inside and outside investors is important," says Davidoff. "We are writing checks, too; we don't make money unless our partners make money."

Emmes Capital has originated or participated in nearly $200 million of high-yield real estate financing, including the $30.8 million Clock Tower building loan - one of the company's largest deals to date. The turn-of-the-century building in the Fulton Landing District of Brooklyn had already been converted to office space during the 1980s, its cost basis was low, it had views of the Manhattan skyline and the borrower had a successful track record with developments in emerging urban neighborhoods. All the borrower needed was the acquisition and renovation financing; the loan went through only 30 days after application.

What were the terms for Emmes Capital's deal? A 17% annual interest rate, as well as a "healthy commitment fee" for 95% loan-to-cost financing for one year.

That may seem a bit on the expensive side with or without the 30-day closing. However, Larry Davis is quick to point out that, compared to a borrower sharing the upside with an equity partner, the cost is contained and, actually, more profitable. "For that transaction in particular, giving away half of the equity would have proven to be a whole lot more expensive to the borrower," he says.

The high net worth individuals and mid-size opportunity fund investors have continued to vote with their dollars in favor of Emmes' approach. Since 1997, funds under management have shot up from $7 million to $50 million. There also has been a vote of confidence offered by a corporate investor recently: NorthStar Capital Investment Corp., a New York-based private REIT with $2 billion in real estate investments, purchased a substantial interest in the firm from Davidoff's co-founding partner. NorthStar also has injected fresh capital into Emmes' lending business and calls on Emmes for specific asset management assignments.

David Hamamoto, former Goldman Sachs partner and current co-CEO of NorthStar, is looking forward to the combination. "We can provide Andy with capital for their deal flow, and they can provide significant asset management services for our New York property portfolio," he says. "They are savvy real estate investors, and they know how to create a lot of value in their properties."

Disciplined for the future With Emmes & Co. on a roll, the company is focused on new opportunities. At a recent conference of Emmes' fund investors, Davidoff pointed out that the firm continues to be risk averse with capital. "We may even leave some cash on the sidelines," he adds. "While our returns may be marginally lower, we will be earning returns and not losing capital. We are not willing to take undue risks with our own, or our investors', capital."

The search for the next opportunity has pointed Emmes overseas. Through its newly formed affiliate, Emmes Japan Co. Ltd., the company executed a 115,000 sq. ft. Tokyo office building deal in February. Since then, the company is cautiously optimistic for opportunities in that country. "Japan may be near the edge of the abyss that we in the United States were staring into around the early-1990s," he says. "While we are being cautious in our business there, we are fundamentally optimistic."

As the search for new opportunities continues, Davidoff seems vigilant in keeping the firm focused on what has made it successful. "We already control almost 16 million sq. ft. of diversified property assets, and there is still a lot of unrealized gain in those portfolios," he says. "And that's our first priority. We will stick to the business where we know we can make a difference. The tough, challenging deals. The deals the bigger guys don't want or can't manage well."