Real Estate Arm At CSFB Closed In Cost-Cutting
By MICHAEL STREMFEL
Staff Reporter
Credit Suisse First Boston has shut down its commercial real estate services group, CSFB Realty Services Inc., including its well-regarded Los Angeles operation, as part of a massive restructuring by Chief Executive John Mack that ends Wall Street’s experiment with in-house real estate brokerage services.
The strategy was aimed at cross-selling commercial brokerage and investment banking services to the same major corporate clients. Goldman Sachs & Co. had tried the same strategy several years ago, but also ending up shutting down its real estate brokerage unit.
The Los Angeles office of CSFB Realty, headed by Gary Weiss and Jeffrey Strnad, was best known for representing billionaire Marvin Davis in a $250 million lease renewal for 20th Century Fox Film Corp. at Fox Plaza in Century City in 2000.
“We closed over 50 transactions over the past two years,” said Weiss, who is now completing deals in progress out of his home.
Weiss contended that CSFB Realty generated $48 million in commission income in 2001, translating to about $10 million in profit for CSFB’s bottom line. So he was surprised, but not shocked, by the sudden shutdown.
“We officially learned Wednesday (Jan. 9) when the guy came out from New York to terminate us,” Weiss said. “We had been told over Christmas that they were looking at our business unit as part of the head-count reduction, but we thought maybe they would just cut out the non-producers and run a little leaner.”
CSFB spokesman Pen Pendleton said the real estate group was being shut down because of a refocus on the core investment banking business.
CSFB Realty was a small unit from its inception in July 1999. It employed only about 30 senior brokers in six offices L.A., New York, Chicago, San Francisco, Atlanta and Dallas. The L.A. office only had about eight employees. Its boutique orientation was in keeping with its mission to focus on servicing prestigious corporate tenants, as well as CSFB’s sizable internal real estate needs.
But J.D. Cook, a senior broker at CSFB Realty who left last summer to join Staubach Co., said real estate transactions were never a major component to the mix. “Even when you’d do a major lease deal, generating, say, a $50,000 commission, that’s small potatoes for an international investment bank,” he said.
Several sources said investment bankers were understandably reluctant to make client introductions.
“If I’m an investment banker who has worked hard to create a relationship with a corporation generating tens of millions of dollars in banking fees, why would I want to introduce a real estate broker, risk that the real estate transaction would not be satisfactory, and endanger my relationship?” Cook pointed out.
The real estate unit’s demise is the latest ripple at CSFB’s operation in Los Angeles, which has seen numerous changes ever since CSFB announced in late 2000 that it had agreed to acquire Donaldson Lufkin & Jenrette for a reported $13.4 billion.
Upon learning of the merger, 25 or so investment bankers at CSFB’s L.A. office bolted to Lehman Brothers Inc. Then, shortly after the merger closed, DLJ’s star L.A. investment banker, Kenneth Moelis, jumped ship to join UBS Warburg. Joining him was almost his entire DLJ team, some 20 local professionals.
Ever since, CSFB has struggled to digest the massive DLJ merger, which sent the firm’s ranks soaring from 5,000 employees in 1996 to 28,000. CSFB also has been buffeted by government investigations. While it recently settled federal charges that it mishandled initial public offerings, it faces more than 1,000 class-action suits filed by disgruntled investors.
Wielding the ax
Since Mack took over as CEO last summer, he has been moving aggressively to cut costs and restore CSFB’s credibility. Within the past three months, CSFB has sold its online brokerage unit CSFBdirect to the Bank of Montreal for $520 million, its U.K. online brokerage DLJdirect Ltd. to TD Waterhouse Group Inc. for an undisclosed amount, and its brokerage subsidiary Autranet Inc. to Bank of New York for an undisclosed amount.
Since October, 2,500 jobs have been trimmed from the firm’s workforce, a 9 percent reduction, Pendleton confirmed. At a recent meeting at the Waldorf Astoria hotel in New York, Mack reportedly told 600 CSFB managing directors that another $1 billion in cuts were possibly to come.
Asked about those additional cuts, firm Pendleton said, “We have no plans to make any additional cuts at this time, but we will continue to evaluate market conditions and client needs.”
CSFB’s Los Angeles operation, which employed 120 professionals at the time of the DLJ merger in November 2000, now employs 84 professionals, Pendleton said.
