Out on a Limb

Out on a Limb

By David R. Corder

Associate Editor

Almost three years ago, Kyle Burd asked Alan Fuller to take a big risk as an investment fund manager at Birmingham's Harbert Management Corp. Harbert Management had plans to divest its holdings in Tampa's Watermark at Westshore office park, and Burd, a commercial broker in the Tampa office of CB Richard Ellis, had an idea.

This was not the best of times to sell such a large package of office space. Most institutional investors with the purchasing wherewithal had backed out of the commercial real estate investment market in the early months of the post 9-11 era. So Burd suggested an unusual marketing strategy.

It had been only a year or so earlier since CB Richard Ellis had put Burd in charge of a team of Tampa brokers who focus almost exclusively on high net-worth clients. Only these investors typically participate in investment pools focused on properties with values of less than $20 million. The team in Tampa was one of three targeting this market segment. The others were in Los Angeles, Las Vegas and Washington, D.C.

The market focus on high net-worth clients has become so successful that CB Richard Ellis has expanded the market strategy to nearly 65 offices. Burd's team in the Tampa Bay market has recorded 77 commercial closings valued at about $750 million in just about four years, roughly $10 million per deal.

It took some persistence to convince Harbert Management, a company with assets of about $5 billion, of the soundness of such a marketing strategy. Harbert has little time to deal with minutia. The idea of parceling out the company's holdings in pieces wasn't well received.

"That was actually the scariest part," Fuller recalls. "I remember thinking, 'What do I do if I have just one building left.' "

The proposal met so much resistance that Fuller's boss, Raymond Harbert, first voiced some unprintable comments about what he thought of Burd's proposal.

"He looked at me cross-eyed," Fuller says. "You can understand his consternation. This doesn't happen very often, and he wanted to know why we thought we could do this."

But Fuller was less doubtful. He knew that Burd's team had produced 10 buy bids from its database of high net-worth clients on Highwood Properties' 40,000-square-foot office building in Tampa. Says Fuller: "I asked Kyle, 'Do you think you can do this now?' So we sort of cut fingers. I told him, 'I'm going out on a limb, and you better perform.' "

When Harbert Management purchased the property, it paid about $72 a square foot for the 246,943 square feet of office space. Over a nine-month period in 2003-04, the Birmingham conglomerate sold all of it in several deals valued at about $108 a square foot.

"It played out beautifully," Fuller says. "We had multiple offers on all of the properties."

The success convinced Fuller he could do the same again. Although he won't disclose details, he is in contract negotiations to buy a large property in east Tampa. When finished, he expects to carve it up and market it to CB Richard Ellis' high net-worth investors.

"As a fund manager for a closed-end discretionary alternative investment firm, real estate is just one platform," Fuller says. "I'm always looking for these sort of projects where we can create value. This is broad thinking way outside the box."

Over the years, Burd says, it became apparent a large gap existed between the market that served institutional buyers - typically those in search of properties in excess of $30 million - and local investors who prefer investments ranging from $2 million to $20 million. That's when CB Richard Ellis management realized the potential by essentially bringing the two markets together.

"The institutional market loves it," Burd says. "How else does Wall Street know that a Mr. X in San Diego has funds available for investment into some cash-flow asset?"

This took a leap of faith on behalf of the firm's brokers, Burd says. It required sharing of local and highly confidential databases with contact information about local investors. Out of this came Hydra, the firm's proprietary database.

"That's sacred stuff," Burd notes. "So with that leap of faith we put together a shared database. Almost instantly the results were spectacular."

To make the concept work, the commercial brokerage decided on a team approach, pairing market specialists in each of the first four pilot markets. In Tampa, Ray Sandelli, CB Richard Ellis' senior managing director for Florida, paired Burd with Mark Shellabarger, two experienced commercial brokers.

Since 1985, Burd had compiled contacts in the office and industrial sectors. Shellabarger, a former real estate attorney, complemented Burd with his focus on the retail market.

Because of the market demand, the tandem has expanded the Tampa operations. They've recruited from within. Just recently, they hired Ginger Gelsheimer, a former administrative assistant, as a retail sales associate. They hired Carol Bryant, a CB Richard Ellis property management specialist from the West Coast, as the group's process manager. Then they promoted Lauren Crawford from the administrative support division to handle the group's online services.

When necessary, Burd says, the team draws on other CB Richard Ellis specialists in the office, industrial and retail sectors. That has enabled the Private Client Group to expand into the Sarasota-Manatee market. Through broker affiliates, they also have resources in the Naples-Fort Myers markets. "I have a Sarasota project under contract," Burd says. "It's a mid-sized industrial property just under $5 million."

So far it appears few commercial real estate brokerages have focused so much effort on this market of high net-worth investors.

"There are a lot who are watching to see what happens," says Los Angeles commercial real estate broker Glen Esnard, a former CB Richard Ellis senior managing director who initiated the national Private Client Group. "Few if any will be able to adopt that style of doing business. Truthfully, people think the magic is the database. But the magic is the people and the culture they've developed that allows them to shed the fears they had relative to sharing information."

The focus on high-net worth clients has earned positive reviews from competing brokers, such as Elliott Ross, president of Clearwater-based Ross Realty Group Inc. It fits his business because he caters to high-profile clients such as Tampa real estate investors Pradip Patel and Dr. Kiran Patel. In fact, Ross joined in a partnership headed by Pradip Patel to purchase one of the office buildings in Watermark at Westshore.

"I'm not familiar with anyone who has a private capital or private investment department with this type of focus," he says. "I have a very good relationship with the brokers at each of the large firms - CB Richard Ellis, Cushman & Wakefield and Advantis. Each has its own way of doing things. But Kyle and his marketing team have expanded and done a very good job of marketing.

"I'm more interested in the private investor inventories because they're a little bit off the radar screen," he says. "That's what they bring to the market."

If there is a secret to his team's success, Burd says, it's probably the ability to simplify complicated marketing proposals originally designed for large institutional investors.

"Basically, we give you the information in Cliff Notes," he says. "We dispense with all the fluff. The investors just want to know the numbers work."