Alex. Brown Kleinwort Benson Realty Advisors Corp. yesterday completed a merger with Chicago-based LaSalle Partners, creating one of the nation's largest real estate firms with $12.5 billion in assets under management.
As part of the merger, Alex. Brown Inc. sold its stake in ABKB to joint partner Kleinwort Benson Group PLC for $9.75 million, ending its 15-year involvement in the real estate advisory business.
"We were not interested in being in that business long-term, because it just didn't fit with our core," said A. B. "Buzzy" Krongard, Alex. Brown's chief executive. "We would have had to hold a minority interest in the new firm, and that's not consistent with our operations. And conceptually it made sense for ABKB, because in that business, bigger is better."
To complete the merger, Kleinwort Benson then purchased a 20 percent interest in LaSalle for $20.8 million. ABKB's business -- including ownership of 180 properties nationwide and assets under management of $3.1 billion -- was then transferred to LaSalle.
ABKB was formed in 1990, when Kleinwort Benson and Alex. Brown Realty Advisors combined to acquire a California pension consultant for $9.5 million.
The merger comes at a time when growing institutional interest in real estate ownership, combined with competition in the real estate advisory field, has heightened the need for consolidation and the offering of a broad range of services.
In addition to the ABKB/LaSalle teaming, United Asset Management recently announced plans to acquire Chicago-based JMB Institutional Realty's advisory business for roughly $100 million, on the heels of of its merger with L&B Real Estate Counsel of Dallas.
Among the services LaSalle hopes to enhance are increased research capabilities and involvement in the growing field of investment in publicly traded real estate securities, which analysts expect will exceed $23 billion this year.
An ABKB fund devoted to the trend has invested roughly $500 million in real estate investment trust stocks and other related securities, roughly 17 percent of its total assets under management.
"It's a business we've wanted to be in for the last couple of years," said Stuart L. Scott, LaSalle's chairman and chief executive. "But we knew building from scratch would be difficult. To have a mature business with a good reputation already in place is exciting."
Mr. Scott said LaSalle plans to double the size of its REIT and securities investments within the next 18 months.
The merger also provides LaSalle with an international partner in Kleinwort Benson, one of Britain's largest merchant banks with assets in excess of $100 billion, that will ease its planned expansion into markets such as continental Europe, the Middle East and Asia.
By the year 2010, LaSalle hopes to generate roughly 50 percent of its total revenues from international sources. Currently, non-U.S. activities represent just 10 percent of its operations.
Furthermore, ABKB adds a significant new client base to LaSalle's roster of 130 pension fund clients, including Bell Atlantic Corp. and United Airlines.
Only the $80 billion California Pension and Retirement System (Calpers) had worked with both prior to the merger.
ABKB's clients include the Maryland Pension and Retirement System, the public pension funds in Oregon, Virginia and Utah, and the Teachers Retirement System of Texas.
Combined, the ABKB/LaSalle real estate portfolio -- the third-largest among the nation's advisers -- includes more than 300 properties containing 175 million square feet. The company's combined employment is 850.
"Our clients today are demanding greater and greater sophistication, and that's expensive," Mr. Scott said. "With the merger of a fine partner, we can stay on the cutting edge."
The merger is expected to have little effect on ABKB's Baltimore headquarters operations, although some executives, including ABKB Chief Executive Lynn C. Thurber, will relocate to Chicago. Both Ms. Thurber, who joined ABKB from Morgan Stanley Inc. in July 1992, and William K. Morrill Jr., who runs ABKB's securities investment unit, were named managing directors of LaSalle.
Mr. Scott also said the merger will create little or no change in the way ABKB properties are managed on behalf of clients. ABKB currently retains local, third-party management firms, while LaSalle has traditionally managed its assets internally.