Farkas fascinates YM/WREA crowd.

Andrew Farkas made his first foray into the tight-knit city real estate world with a speech before the Young Men's/Woman's Real Estate Association (YM/WREA) earlier this month. The young chairman of the Insignia Group, which has devoured 42 commercial and residential firms from coast to coast since its founding in 1990, gave a fast paced talk that left the non-Insignia executives quaking over their coffee, wondering if this very focused alien invasion could be stopped, joined, or beaten at its own game.

While Insignia is already the largest real estate organization in the country - with 300 million square feet of property either owned or managed in 600 cities in 48 states - Farkas made no effort to hide the fact that he's out to match his Number One residential rating by focusing on the commercial side, where Insignia is now only Number Seven.

"It is a primary objective of Insignia to become as dominant in commercial services in the course of the next several years as we've been able to become in residential over the last five years," he insisted.

Insignia swallowed up the commercial tenant rep and management firm, Edward S. Gordon Company, in the spring for $84 million, and a year ago, on the residential side, purchased the Kriesel Company and Douglas Elliman's residential management business.

Farkas intends to build his commercial business by growing through the acquisition of companies "that are basically the ESGs in their region' and is trying "to fill in around the fringes of the organization, expertise that we need to create our fully integrated real estate services organization."

Farkas said the Edward S. Gordon Company "was the absolute best in its business" and has already surpassed their expectations. Because the companies had similar agendas and ESG wanted to grow its business nationally, Farkas felt they could "take ESG's expertise and provide ESG with a portfolio of assets that they could service, and to which they could apply their expertise on a national platform."

Expanding on what ESG President Steven Siegel revealed recently, Farkas said they will be buying commercial firms and combine the new firms with ESG's back office and infrastructure to bring "more muscle" to those areas.

"I am highly focused on developing that segment of the business," Farkas said.

Insignia currently has 110 million square feet of retail, commercial and industrial property and focuses on management of investment grade property for institutional owners, including John Hancock, JP Morgan, Aetna and the Irvine Company. And lest anyone think this business can be pried away, Farkas warned his competition that these relationships run deeper than one asset.

Insignia borrows money with these firms, invests with these firms, and these institutions may hold mortgages on other Insignia managed or owned properties.

Because Insignia believes that "the velocity of real estate is increasing exponentially in this country," many assets will be changing hands.

"Your challenge is to be able to follow the asset as it goes from institution to institution," said Farkas. Insignia is not just following the assets, but is becoming a part of the progression of the asset by being on every different side of the asset. This might include being the broker, the asset manager, providing the financing, and investing in the asset.

"I think that it's going to become more and more important to become the one stop shop for the provision of every aspect of real estate service as this velocity continues," he said.

The Insignia Financial Group provides real estate banking functions to service all its institutional partners and the corporate entities. Services include real estate banking mortgage banking, and equity securitization.

Insignia actually invented different types of debt securities for pooled real estate along with Lehman Brothers back in 1992, in a format that had never been used before, Farkas said. All of the mergers and acquisitions activity that Insignia undertakes pursuant to its financial services division is done in-house.

Earlier this month, Insignia completed a $200 million financing that consisted of $150 million of new capital in convertible preferred stock and $50 million. of "dry powder" to pursue its acquisition program of another "quarter of a billion" in real estate.

Responding to critics, Farkas said the single most controversial thing they do is make tender offers for publicly-traded limited partners in which Insignia also serves as the general partner.

But, he claims, it has allowed them to generate internal rates of return "north of 35 percent" based on short-term holding periods. "And we are able to accomplish that through resecuritization, which financial services pursues," he said.

Insignia touches the lives of 1.5 million people on a daily basis, Farkas said, with 600,000 people living, and 500,000 working in Insignia buildings, while another 400,000 people are involved in its limited partnerships.

These folks are providing Insignia with one more marketing springboard, since they are a "captive audience" and all use the telephone, watch cable television, take trips, stay in hotels, rent cars, and have film developed.

What Farkas is planning is for Insignia to "become the concierge" to all these people in a way that "is not dissimilar" to that developed by the New Jersey-based HFS - Henry Silverman's company - through its preferred vendor program.

That firm is already cross marketing products such as its home improvement network and even Avis rental cars through its brokers to Century 21 and ERA home-buyers.

"Rent will only be a component of the return derived from real property," Farkas predicted. To develop this business, Insignia has entered into "an exclusive relationship with HFS to develop this for the real estate industry as a whole," through Insignia's new Complete Resource Group.

Insignia also recognizes the importance of its own personnel, and Farkas said the attention to their agendas "is as important in the well being of the organization as the financial balance sheet that Wall Street examines every day."