Jones Lang LaSalle
The game of their lives
Real-estate kings and Monopoly: You've never played like this
Sunday, February 05, 2006
BY MATTHEW FUTTERMANStar-Ledger Staff
The action starts with a wager.
"So what do you say we go $1,000 a man and the winner gets to choose the charity?" says Billy Procida, as he bounds down the stairs of a Newark restaurant.
For the next two hours, Procida, who runs a real estate equity fund; Eric Kaiser, a rising developer; Todd Rechler, manager of his family's real estate investment trust; and Jeff Heller, a top commercial broker, will put themselves to the test -- a high-stakes game of Monopoly against the very guys they compete with every day.
They are among New Jersey's most successful real estate players, representing hundreds of millions of dollars' worth of property and more than 60 years of experience.
The Star-Ledger set up the game to open a window into how the minds of real estate wheelers and dealers really work -- how they use cash and property like pieces on a game board and pursue different strategies at once, knowing only one is likely to work. At a time when more people than ever are rolling the dice on real estate and making fortunes on their homes and properties, this is a chance to see how the big boys play.
Before time runs out, there will be joint ventures, rent-abatement incentives and more offers for three- and four-way deals than anyone can possibly keep track of. This is Henry Kissinger and Colin Powell facing off at Risk, or the Red Sox' Theo Epstein and the Yankees' Brian Cashman settling in for a few hours of Strat-O-Matic baseball.
Kaiser, a style-setter, shows up wearing a custom-tailored suit and a tie. Everyone else has an open collar, because in real estate, ties are for asking the banks for money. Deal-making happens around a table like this one at the Spanish Tavern, with a pitcher of rum-spiked sangria, a decanter of Hacienda Monasterio and plenty of sirloin and chorizo.
ACT I: THE GROUND RULES Procida wants to make one rule clear -- if a player lands on a property and doesn't buy it, everyone else can bid.
Rechler sets the time limit at two hours. The player with the most cash and assets wins.
Heller insists the liquidation value is the purchase price, not the mortgage value.
They agree to put $500 in the center of the board as a reward for landing on Free Parking. That isn't part of the formal Monopoly rules, but these guys like to make their own rules.
All fines and penalties will go in the pot, too, getting more money in the game. More money means more deals, and making deals it what it's all about.
The gong of an antique clock on the wall above signifies high noon.
"Fire it up," Kaiser says, and they are off.
Procida lands on the light blue Connecticut Avenue and hasn't even stopped moving his piece -- the cannon -- before announcing he will buy it.
Everyone follows suit, and by 12:15, Heller is nearly out of money. Unable to control himself, he has purchased the green Pacific Avenue, the red Kentucky Avenue, the dark purple Baltic Avenue and the light purple States Avenue, not to mention the Reading Railroad.
"Just like every broker, he wants to be an owner and a developer," Procida jokes.
Meanwhile, Rechler, who oversees investments of Reckson Associates, one of the top owners of office space, has problems. Three consecutive doubles and he is headed to jail. On the way he offers to throw $50 into the pot to get out and convinces the others it should still be his turn since he rolled doubles on his previous turn. Then he tosses a seven, lands on Park Place, and suddenly everyone realizes they've been had.
But there is no taking it back, not on the board and not in this business. For $350, Park Place belongs to Rechler.
A few turns later, Procida picks up the Electric Company. He now has four different colors of cards and a utility.
"Billy, you keep this up, you're going to be in all of our pockets," Rechler says.
"That's the idea, my friend," Procida says, chomping on a cigar.
ACT II: HE'S GOT IT. I WANT IT. The real action starts when Rechler nails the first monopoly, buying up the orange New York Avenue, St. James Place and Tennessee Avenue.
"I can build now," he says. "This is huge." Then he turns to Heller to make sure he knows who has the upper hand.
"You, on the other hand, Jeff, have essentially acquired the Belle Meade portfolio," Rechler tells him, referring to an industry rival. "Well-located, but basically crappy assets."
Rechler's monopoly sets off a deal-making frenzy, because if one guy has something in real estate, everybody wants it.
Procida pitches Heller for St. Charles Place. Then he tries a three-way deal that will land him Oriental Avenue, get Kaiser the yellow Atlantic Avenue and get Rechler the red Kentucky Avenue. When that falls through, Procida and Rechler offer Heller cash. They insist he needs the liquidity.
"I need an asset," Heller says, picking up the dice. "I want something tangible. I like hard assets."
What Heller really wants is the low-rent, dark purple Mediterranean Avenue, because he owns its sister property, Baltic. When an auction ensues, he drives the price of the $60 property to $100 and gets his deed. But at what cost?
"He's getting his first chance to be a developer," Procida says. "Let's see what he makes of it."
Heller mortgages several properties to raise the cash to build eight houses. His bank account drops to $42, His competitors shake their heads with scorn.
"He's got no liquidity," Kaiser says. "He's not going to get any more development deals done with that."
ACT III: 'I HAVE A DEAL FOR YOU' It's a refrain heard every time someone lands on someone else's property. No one wants to pay rent. Rather, a debt becomes an opportunity for a conversation.
"I have a deal for you," they say.
Heller soon lands on the green Pennsylvania Avenue, which he can't afford at $320. Procida offers to buy it for him but charge him $32 each time he passes it.
Rechler owns another green card. He recently landed on the Free Parking jackpot, a fitting occurrence, the players decide, given his luck of being born into an established real estate family. He offers Heller $500 for the Pennsylvania deed.
Kaiser wants in on any deal for Pennsylvania. He sees Heller's confusion and offers him a calm solution.
"Come to me last, Jeff," Kaiser tells him.
Again, Heller wants to go at it alone. He mortgages the rest of his properties to buy Pennsylvania, leaving him with about $20 in cash. He acknowledges he is "a bit leveraged," but he doesn't care. He's got his houses on Mediterranean and Baltic. It's a cheap neighborhood, but he sees plenty of upside if he can just bring buyers to the property.
He can't. On three successive turns, his opponents land on Community Chest, right between his properties, leaving him with no return on his $400 investment.
"Three times, I miss by one digit," a frustrated Heller says, as the sharks begin to circle.
"That's what you get when you put all your eggs in a two-building complex in a bad neighborhood," says Procida, who in private life has made millions buying up other people's bad investments on the cheap. "I want you to remember, though, I'm a friend. You're new to this business and I want to help."
ACT IV: THE PANIC Time is running out and cash is running short.
Kaiser buys Reading Railroad from Heller, in exchange for cash and free passes if Heller lands there. Kaiser also gets the yellow Ventnor from Procida for $1,000, then sends the red Indiana and $150 to Rechler for Atlantic Avenue, completing his yellow monopoly.
Rechler, meanwhile, convinces Heller to sign for a joint venture. Rechler contributes his single green deed to Heller's two, and he pays for the construction of two houses on each property.
They agree to split the proceeds 50-50 and name the development TRA-LO Ventures for their young sons.
Rechler then builds houses on his orange properties. Kaiser builds houses on his yellows. Procida counts his cash, shakes his head at his few properties, and hopes for a final Free Parking jackpot to make him even more liquid.
With 2 p.m. closing in, the dealing is over. Now it's time to live with the portfolios that have been created and hope another player lands on your property.
But just when it looks like the market has shut down, Kaiser rolls a seven and nails Free Parking for a take of more than $800. Then Rechler rolls a nine and hits Free Parking, too, for $500.
Procida misses by one. There is a cruel lesson here -- in real estate, fortunes are often built as much by luck as skill.
"I just want everyone to know I got where I did without ever landing on free parking," Procida proclaims, realizing that the free money for his opponents is going to push them ahead of him. "No inheritance or anything for me."
ACT V: THE CLOSE OF BUSINESS As time expires, Rechler pulls out his BlackBerry to tally up the final results.
Heller has $18 in cash, four worthless, mortgaged properties, his stake in TRA-LO Ventures, and the Mediterranean-Baltic development -- which is akin to having a dilapidated condo development next to a nuclear power plant. His final tally is $1,338.
Procida, the financier, is the king of cash. He's got $2,896, but he is asset poor, with no monopolies, no houses and just four properties. Final score -- a very liquid $3,546.
Kaiser, the rising developer, has $1,394, a yellow monopoly with nine houses, and all four railroads. He finishes with $4,344 and would be well-positioned for growth.
Then there is Rechler, who has ended up with a diversified portfolio of valuable land, finished construction and cash. He's got TRA-LO Ventures with Heller, Park Place, the red Indiana and Kentucky, the water company and the orange monopoly, with two houses on each property. Add to that $2,115 in cash and his net worth is $4,995. Not bad for two hours of work.
"Hey, look how things ended up," Kaiser points out once the numbers are official. "The banker ended up with the most money. The broker who wants to be a developer ends up totally over-leveraged and out of money. And the two builders and property owners end up with good property, good assets and a healthy amount of money."
Matthew Futterman may be reached at mfutterman@starledger.com or (973) 392-1732.
REAL ESTATE TERMS
Deed: The title to a property, signifying ownership.
Liquidity: The amount of cash one has. More cash means more "liquidity."
Leveraged: A measure of how much debt one is carrying.
Liquidation value: The amount of cash an asset produces upon sale.
Mortgage: A loan for a piece of property. A bank will give a certain amount of cash against the collateral of real estate.
Real estate equity fund: A private fund that invests in real estate projects.
Real estate investment trust: A publicly owned company whose assets are real estate and whose main income is the rent that real estate produces. Commonly known as a REIT.
Return on investment: How much money an asset produces.
The game of their lives
Real-estate kings and Monopoly: You've never played like this
Sunday, February 05, 2006
BY MATTHEW FUTTERMANStar-Ledger Staff
The action starts with a wager.
"So what do you say we go $1,000 a man and the winner gets to choose the charity?" says Billy Procida, as he bounds down the stairs of a Newark restaurant.
For the next two hours, Procida, who runs a real estate equity fund; Eric Kaiser, a rising developer; Todd Rechler, manager of his family's real estate investment trust; and Jeff Heller, a top commercial broker, will put themselves to the test -- a high-stakes game of Monopoly against the very guys they compete with every day.
They are among New Jersey's most successful real estate players, representing hundreds of millions of dollars' worth of property and more than 60 years of experience.
The Star-Ledger set up the game to open a window into how the minds of real estate wheelers and dealers really work -- how they use cash and property like pieces on a game board and pursue different strategies at once, knowing only one is likely to work. At a time when more people than ever are rolling the dice on real estate and making fortunes on their homes and properties, this is a chance to see how the big boys play.
Before time runs out, there will be joint ventures, rent-abatement incentives and more offers for three- and four-way deals than anyone can possibly keep track of. This is Henry Kissinger and Colin Powell facing off at Risk, or the Red Sox' Theo Epstein and the Yankees' Brian Cashman settling in for a few hours of Strat-O-Matic baseball.
Kaiser, a style-setter, shows up wearing a custom-tailored suit and a tie. Everyone else has an open collar, because in real estate, ties are for asking the banks for money. Deal-making happens around a table like this one at the Spanish Tavern, with a pitcher of rum-spiked sangria, a decanter of Hacienda Monasterio and plenty of sirloin and chorizo.
ACT I: THE GROUND RULES Procida wants to make one rule clear -- if a player lands on a property and doesn't buy it, everyone else can bid.
Rechler sets the time limit at two hours. The player with the most cash and assets wins.
Heller insists the liquidation value is the purchase price, not the mortgage value.
They agree to put $500 in the center of the board as a reward for landing on Free Parking. That isn't part of the formal Monopoly rules, but these guys like to make their own rules.
All fines and penalties will go in the pot, too, getting more money in the game. More money means more deals, and making deals it what it's all about.
The gong of an antique clock on the wall above signifies high noon.
"Fire it up," Kaiser says, and they are off.
Procida lands on the light blue Connecticut Avenue and hasn't even stopped moving his piece -- the cannon -- before announcing he will buy it.
Everyone follows suit, and by 12:15, Heller is nearly out of money. Unable to control himself, he has purchased the green Pacific Avenue, the red Kentucky Avenue, the dark purple Baltic Avenue and the light purple States Avenue, not to mention the Reading Railroad.
"Just like every broker, he wants to be an owner and a developer," Procida jokes.
Meanwhile, Rechler, who oversees investments of Reckson Associates, one of the top owners of office space, has problems. Three consecutive doubles and he is headed to jail. On the way he offers to throw $50 into the pot to get out and convinces the others it should still be his turn since he rolled doubles on his previous turn. Then he tosses a seven, lands on Park Place, and suddenly everyone realizes they've been had.
But there is no taking it back, not on the board and not in this business. For $350, Park Place belongs to Rechler.
A few turns later, Procida picks up the Electric Company. He now has four different colors of cards and a utility.
"Billy, you keep this up, you're going to be in all of our pockets," Rechler says.
"That's the idea, my friend," Procida says, chomping on a cigar.
ACT II: HE'S GOT IT. I WANT IT. The real action starts when Rechler nails the first monopoly, buying up the orange New York Avenue, St. James Place and Tennessee Avenue.
"I can build now," he says. "This is huge." Then he turns to Heller to make sure he knows who has the upper hand.
"You, on the other hand, Jeff, have essentially acquired the Belle Meade portfolio," Rechler tells him, referring to an industry rival. "Well-located, but basically crappy assets."
Rechler's monopoly sets off a deal-making frenzy, because if one guy has something in real estate, everybody wants it.
Procida pitches Heller for St. Charles Place. Then he tries a three-way deal that will land him Oriental Avenue, get Kaiser the yellow Atlantic Avenue and get Rechler the red Kentucky Avenue. When that falls through, Procida and Rechler offer Heller cash. They insist he needs the liquidity.
"I need an asset," Heller says, picking up the dice. "I want something tangible. I like hard assets."
What Heller really wants is the low-rent, dark purple Mediterranean Avenue, because he owns its sister property, Baltic. When an auction ensues, he drives the price of the $60 property to $100 and gets his deed. But at what cost?
"He's getting his first chance to be a developer," Procida says. "Let's see what he makes of it."
Heller mortgages several properties to raise the cash to build eight houses. His bank account drops to $42, His competitors shake their heads with scorn.
"He's got no liquidity," Kaiser says. "He's not going to get any more development deals done with that."
ACT III: 'I HAVE A DEAL FOR YOU' It's a refrain heard every time someone lands on someone else's property. No one wants to pay rent. Rather, a debt becomes an opportunity for a conversation.
"I have a deal for you," they say.
Heller soon lands on the green Pennsylvania Avenue, which he can't afford at $320. Procida offers to buy it for him but charge him $32 each time he passes it.
Rechler owns another green card. He recently landed on the Free Parking jackpot, a fitting occurrence, the players decide, given his luck of being born into an established real estate family. He offers Heller $500 for the Pennsylvania deed.
Kaiser wants in on any deal for Pennsylvania. He sees Heller's confusion and offers him a calm solution.
"Come to me last, Jeff," Kaiser tells him.
Again, Heller wants to go at it alone. He mortgages the rest of his properties to buy Pennsylvania, leaving him with about $20 in cash. He acknowledges he is "a bit leveraged," but he doesn't care. He's got his houses on Mediterranean and Baltic. It's a cheap neighborhood, but he sees plenty of upside if he can just bring buyers to the property.
He can't. On three successive turns, his opponents land on Community Chest, right between his properties, leaving him with no return on his $400 investment.
"Three times, I miss by one digit," a frustrated Heller says, as the sharks begin to circle.
"That's what you get when you put all your eggs in a two-building complex in a bad neighborhood," says Procida, who in private life has made millions buying up other people's bad investments on the cheap. "I want you to remember, though, I'm a friend. You're new to this business and I want to help."
ACT IV: THE PANIC Time is running out and cash is running short.
Kaiser buys Reading Railroad from Heller, in exchange for cash and free passes if Heller lands there. Kaiser also gets the yellow Ventnor from Procida for $1,000, then sends the red Indiana and $150 to Rechler for Atlantic Avenue, completing his yellow monopoly.
Rechler, meanwhile, convinces Heller to sign for a joint venture. Rechler contributes his single green deed to Heller's two, and he pays for the construction of two houses on each property.
They agree to split the proceeds 50-50 and name the development TRA-LO Ventures for their young sons.
Rechler then builds houses on his orange properties. Kaiser builds houses on his yellows. Procida counts his cash, shakes his head at his few properties, and hopes for a final Free Parking jackpot to make him even more liquid.
With 2 p.m. closing in, the dealing is over. Now it's time to live with the portfolios that have been created and hope another player lands on your property.
But just when it looks like the market has shut down, Kaiser rolls a seven and nails Free Parking for a take of more than $800. Then Rechler rolls a nine and hits Free Parking, too, for $500.
Procida misses by one. There is a cruel lesson here -- in real estate, fortunes are often built as much by luck as skill.
"I just want everyone to know I got where I did without ever landing on free parking," Procida proclaims, realizing that the free money for his opponents is going to push them ahead of him. "No inheritance or anything for me."
ACT V: THE CLOSE OF BUSINESS As time expires, Rechler pulls out his BlackBerry to tally up the final results.
Heller has $18 in cash, four worthless, mortgaged properties, his stake in TRA-LO Ventures, and the Mediterranean-Baltic development -- which is akin to having a dilapidated condo development next to a nuclear power plant. His final tally is $1,338.
Procida, the financier, is the king of cash. He's got $2,896, but he is asset poor, with no monopolies, no houses and just four properties. Final score -- a very liquid $3,546.
Kaiser, the rising developer, has $1,394, a yellow monopoly with nine houses, and all four railroads. He finishes with $4,344 and would be well-positioned for growth.
Then there is Rechler, who has ended up with a diversified portfolio of valuable land, finished construction and cash. He's got TRA-LO Ventures with Heller, Park Place, the red Indiana and Kentucky, the water company and the orange monopoly, with two houses on each property. Add to that $2,115 in cash and his net worth is $4,995. Not bad for two hours of work.
"Hey, look how things ended up," Kaiser points out once the numbers are official. "The banker ended up with the most money. The broker who wants to be a developer ends up totally over-leveraged and out of money. And the two builders and property owners end up with good property, good assets and a healthy amount of money."
Matthew Futterman may be reached at mfutterman@starledger.com or (973) 392-1732.
REAL ESTATE TERMS
Deed: The title to a property, signifying ownership.
Liquidity: The amount of cash one has. More cash means more "liquidity."
Leveraged: A measure of how much debt one is carrying.
Liquidation value: The amount of cash an asset produces upon sale.
Mortgage: A loan for a piece of property. A bank will give a certain amount of cash against the collateral of real estate.
Real estate equity fund: A private fund that invests in real estate projects.
Real estate investment trust: A publicly owned company whose assets are real estate and whose main income is the rent that real estate produces. Commonly known as a REIT.
Return on investment: How much money an asset produces.
posted by Jones Lang LaSalle NJ News Blog at 10:26 AM
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