Alex. Brown affiliate may merge

September 02, 1994|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

An affiliate of Alex. Brown Inc. is discussing a merger with a Chicago firm that would create one of the nation's largest pension fund advisers, according to growing industry speculation and sources.

The proposed merger between Alex. Brown Kleinwort Benson Realty Advisors Corp. and LaSalle Partners comes amid growing competitive pressure in the pension advisory industry, which has resulted in lower fees for advisers.

LaSalle Partners representatives in Chicago did not return telephone calls for comment, while ABKB executives referred inquiries to Chairman Walter F. Terry III.

"That's a subject I wouldn't have any comment on," Mr. Terry said last night.

ABKB, the nation's 15th-largest pension adviser, controls a portfolio of 180 properties valued at about $3 billion.

The two sides have been contemplating a merger since April, and recently issued internal memorandums detailing the potential link, according to an executive with LaSalle who asked not to be identified.

Another source familiar with the talks indicated the merger "has an 85 percent chance of happening at this point."

A merger of the two would create a firm with $8 billion in assets under management, invested in hundreds of commercial real estate properties nationwide on behalf of state and other pension funds.

By comparison, the nation's largest real estate investor is the Prudential Realty Group, with more than $42 billion in assets.

"Certainly there have been changes in the industry in terms of consolidations and acquisitions," said Robert A. Staley, executive vice president of the Pension Real Estate Association, a Connecticut-based trade group.

"There have been a number of combinations where two companies possessed different strengths, and the sum becomes better than the parts," he said.

In the past year, mammoth pension fund advisers such as United Asset Management have acquired L&B Real Estate Counsel of Dallas, and San Francisco-based MacFarlane Real Estate Counselors teamed up with The Boston Cos.' advisory arm, in an effort to increase market share and expertise.

LaSalle's interest in ABKB also stems from the Baltimore company's exploration of the burgeoning field of real estate securities, as real estate investment trusts (REIT) and other forms of public ownership of real estate have become more popular.

Last year, more than $18 billion worth of real estate-related securities were issued and purchased, and the figure is slated to top $25 billion this year.

ABKB manages more than a dozen securities for institutional clients involving in excess of $150 million in assets, Alex. Brown's 1992 annual report noted.

"ABKB has experience in the REIT business, while LaSalle has been mostly a private real estate adviser," Mr. Staley said.

"With increasing interest from funds in REITs, certainly that will become a more important factor in the future," Mr. Staley added.

LaSalle, which manages more than 76 million square feet of commercial space nationwide -- roughly five times the amount of office space in all of downtown Baltimore -- would require about $25 million to purchase ABKB outright, industry sources say they believe.

Locally, LaSalle developed and owns the $70 million Towson Commons, a 330,000-square-foot retail and office complex, while ABKB controls 1.1 million square feet of industrial space in the Baltimore/Washington corridor. Most recently, ABKB in December acquired the 412,840-square-foot Festival at Bel Air shopping center on behalf of the Maryland pension system, for $43.5 million.

If completed, the merger would mark the second time LaSalle has looked to Baltimore to strengthen its business. In September 1991, LaSalle absorbed T. Rowe Price Realty Advisors' $300 million portfolio, which contained 3.5 million square feet.

For ABKB, a merger with LaSalle -- first reported earlier this week in Crain's Chicago Business -- would provide the firm with national exposure and additional access to clients. ABKB advises funds such as the Maryland Pension and Retirement System, the state of Oregon's public pension fund, and has invested on behalf of the $80 billion California Pension and Retirement System (Calpers), the nation's largest fund.

ABKB was formed in February 1990, when Alex. Brown and British merchant bank Kleinwort Benson Group PLC acquired F.I.A. Associates of California for roughly $10 million. Prior to the Kleinwort Benson involvement, the former Alex. Brown Realty Advisors was valued at $6 million.

"There are definitely going to be more mergers in the advisory business," said Jane L. Harris, an executive of AMB Institutional Realty Advisors Inc., a San Francisco-based adviser that controls about $2 billion in property and also represents Calpers.

"Companies have retrenched, the margins have gone down, and industries tend to consolidate when that occurs."

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