Wells Fargo & Co. announced an agreement Thursday to acquire Eastdil Realty LLC, a prominent New York real estate investment bank.
The deal continues a string of recent acquisition moves by San Francisco-based Wells in banking and in broader business lines. On Wednesday it announced it would buy the Seattle brokerage firm Ragen MacKenzie Inc. for $242 million, and on Thursday it said it would add a Southern California banking company for $112 million (see page 3).
Already a major force in commercial real estate lending, Wells since the mid-1990s has had a real estate merchant banking business that buys distressed debt from other lenders. It also did riskier types of financing such as mezzanine lending.
Eastdil is purely an adviser. It represents high-end clients -- ranging from public corporations to private, family-owned businesses -- on property sales and purchases, and it arranges financing. It is a giant in that end of the real estate business, with deal volume last year of $13 billion.
Nationally chartered banks are prohibited from owning property brokerages. Wells can get around this by having a California-chartered subsidiary, Wells Fargo Bank Ltd., buy Eastdil. The price was not disclosed. The sale, which requires regulatory clearance, is expected to close in mid-November.
The acquisition would create synergies by combining Wells' capital, Eastdil's advisory acumen, and both companies' customer bases, said David A. Hoyt, executive vice president of the bank's wholesale banking group.
For example, if a developer went to Wells for a loan, the bank could offer Eastdil's advisory services as well. Conversely, Wells would have more lending opportunities in the flow of property sales that Eastdil handles.
Eastdil would continue to operate independently and be run by its current management. When Eastdil clients need financing, it would not be a given that Wells would make the loan.
"We do believe there are instances where they could provide better service to their clients by accessing our capital," Mr. Hoyt said. "Clearly we will have more exposure to that kind of opportunity through this relationship than we did previously."
Though there would still be a "Chinese wall" between the adviser and its new parent., Eastdil would benefit from having a backer with "a checkbook," said Benjamin V. Lambert, co-founder, chairman, and chief executive officer of Eastdil.
"We benefit from being able to say to a client, 'We can do this, this, and this, and that may be sufficient to get the deal done,' as opposed to having the client go to us for equity and then fend for himself for the financing or the mezzanine piece," he said.
Wells and Eastdil have had ties for many years. In the early 1970s Mr. Lambert was a director of a real estate investment trust that Wells managed. In the mid-1990s the banking company and the boutique had a joint venture that invested in distressed real estate debt.
Wells is not the first major commercial bank to add fee-based advisory services to its real estate menu. Bank of America Corp., for example, has focused heavily on putting together mergers and acquisitions and equity underwriting for real estate companies since its predecessor institution, NationsBank, bought Montgomery Securities in 1997, said William A. Hodges, managing director and head of real estate at the Charlotte, N.C., banking company.
Michael P. Higgins, managing director of real estate finance at CIBC Oppenheimer, said Wells stands to gain financing opportunities, though he added: "I don't know how important it is to be able to offer financing with the sale of a building. Financing is a competitive business."
