LOS ANGELES -- The big investment banks with the household names have led the transition of real estate from private property owners into the real estate investment trusts.
But it is a little firm that the average Joe wouldn't know from Adam that has carved a niche matching up public REITs with pension funds.
Chadwick, Saylor & Co. Inc., a boutique real estate investment bank, has assisted on 35 deals worth $4 billion since 1995. The firm did $2 billion worth of private-to-public and joint venture transactions involving pension funds and other tax-exempt investors during 1997.
It did about $1.6 billion in 1996.
And, its principals claim, its best times are still to come because their services are not best suited to the strong cycle REITs now are undergoing.
William Chadwick, managing director, expects the firm will oversee about $3 billion of real estate transactions in 1998.
"We closed $2 billion in transactions in 1997," said Mr. Chadwick. "For a boutique, that is a big number.
"I don't know who else has done $2 billion in private capital. The public markets is not a place we are going to be.
"My partner Paul Saylor said, 'It's very interesting that we are doing so well when the markets are against us'," said Mr. Chadwick.
"At some point they (markets) will slow down, and all the REITs will need to efficiently access private market capital, and we are clearly the service provider of choice," he said.
Chadwick, Saylor's involvement with transactions between pension funds and REITs is a who's who of sophisticated real estate investors.
The pension fund for Ameritech, Deseret Mutual Benefit Administration, the Harvard University endowment, the Utah State Retirement System, the Alaska Permanent Fund and the Howard Hughes Medical Institute have participated in its deals.
In 1997, Chadwick, Saylor oversaw the formation of:
* The Retail Value Fund, a $280 million joint venture between Prudential Real Estate Investors, a pension fund real estate money manager, and Developers Diversified, a public REIT, to reposition shopping centers.
* The Cornerstone Suburban Office LP, a $330 million limited partnership between Cornerstone Real Estate Advisors Inc. and Deseret Mutual, Howard Hughes Medical Institute and the Harvard University endowment.
* American Office Park Properties Inc., a $500 million private REIT that is poised to be merged with another public company. The company -- which specializes in flex-space, the office and light warehouse properties that predominates in office parks -- was created by combining Public Storage, Baldon Real Estate and properties owned by an unidentified public pension fund.
"Our clients want us to do one of two things: get capital from tax-exempt institutions, or they want to acquire properties from tax-exempt institutional owners," said Mr. Chadwick.
Chadwick, Saylor was put on the map in 1995 when it advised on the $500 million acquisition of the power center portion of the Homart Development Co. retail empire by overseeing a partnership between Developers Diversified, pension fund money manager DRA Advisors Inc. and the pension fund for E.I. du Pont de Nemours & Co. Inc.
The firm raised about $80 million of equity for Developers Diversified for that first transaction, said Scott Wolstein, chairman and chief executive officer of the REIT. Chadwick, Saylor since has raised $225 million more in equity for two additional joint ventures involving Developers Diversified and tax-exempt investors.
"Qualitatively, the relationship with Chadwick, Saylor has positioned us in a special place among institutional investors and pension funds," said Mr. Wolstein.
"They have been able to acquaint us with a lot of people in the industry that we would not have met through the traditional channels. They enabled us to be one of the few funds with a direct dialogue in that (tax-exempt investor) world on an ongoing basis."
Joint ventures between pension funds and REITs have increased significantly since 1992 when the pension funds for General Motors Corp. and IBM Co. contributed properties that resulted in the formation of Taubman Centers Inc., a shopping center REIT. But Mr. Chadwick isn't concerned about competition from larger investment banks trying to capitalize on opportunities in this sector of the market.
Chadwick, Saylor has an advantage because the firm's principals have relationships with pension funds that the larger firms lack, according to Mr. Chadwick.
Thomas Mizo and Daniel Cashdan Jr. also are managing directors.
"The four partners here have 100 years experience total," said Mr. Chadwick. "We have broad and deep relationships and a full appreciation and understanding of what the tax-exempt investor can and can't do.
"This is our only line of business. Also, unlike most investment banks, we have both extensive capital markets knowledge and extensive real estate knowledge, which is a great combination in this environment."
Mr. Chadwick, formerly was president of PSI Institutional Realty Inc., a company that invested in and managed self-storage properties for pension funds and was subsequently rolled up into a public REIT.
Mr. Saylor is a co-founder of Institutional Real Estate Consultants, a pension fund real estate consulting firm.
Mr. Mizo also was an official with PSI; Mr. Cashdan formerly worked with AEW Capital Management Inc., a Boston pension fund real estate manager.
"Transactions with tax-exempt investors primarily are relationship driven," said Mr. Chadwick. "I don't think any large investment bank has a real estate guy as knowledgeable about real estate as Paul.
"Put it together with my knowledge of capital markets, and we can come up with some neat stuff."