Insignia acquires Douglas Elliman.

The Andrew Farkas-led Insignia Financial Group has agreed to purchase New York City's leading residential brokerage firm, Douglas Elliman. The deal could be worth up to $75 million over the next five years to the Milstein family, which intends to concentrate on other developments and the acquisition of sports franchises.

Between Douglas Elliman and the Insignia-owned Realty One, Insignia will become the sixth largest single-family home seller in the country with a $5 billion aggregate, based on last year's numbers.

In a conference call with analysts who questioned the all-cash transaction, which will be paid out with $65 million now and the potential for up to another $10 million over five years, Farkas, Insignia's CEO, said he didn't want to part with the stock, which he said was "low," and that his borrowing costs would be less.

The stock, listed on the NYSE, was quoted at $12.25 per share around noon on Friday after the call, with the day's high at $12 3/8. Farkas said he expected the acquisition to effect Net EBITDA per share by 33 cents on an annual basis.

"There are a number of significant synergies that exist," he said, noting the "touch points" to consumers. Those that live in Insignia Residential Group managed co-ops and condominiums often work in Insignia/ESG managed and leased buildings, for instance.

'We have a cradle to grave philosophy," said Alan Rogers, CEO, who was the former managing director of Douglas Elliman and will now oversee the residential brokerage operations in New York. "We like to get them as soon as they come into New York, find them their first apartment, and in the first 10 years do up to five transactions, eventually selling them their multi-million dollar home on Park Avenue."

There are marketing opportunities between the commercial brokerage, Insignia/ESG, which Farkas said is the leader in New York City, and the residential brokerage of Douglas Elliman which has a 40 percent share of the New York City marketplace in both sales and rentals. Sopher is the Douglas Elliman rental division.

The commercial office brokers of Insignia/ESG are often asked for residential referrals when working with relocating corporations, said Stephen B. Siegal, chairman and CEO of Insignia/ESG. "We can now refer in-house and retain the fees," Siegal said.

A Douglas Elliman broker will now be assigned to each Insignia managed residential -building to mine those opportunities, too. Insignia manages 60,000 units in the area and is the market leader in that as well.

"We're eager to provide those services to the various buildings," agreed Rogers. "We're dealing with the same people."

Insignia is bringing updated technology and an integrated web site to Douglas Elliman, and intends to provide telecommunications services to the Insignia managed residential buildings, too.

Farkas expects that functions such as accounting and human resources will have overlaps, which means some downsizing of staff. Douglas Elliman is bringing 780 brokers on board and 100 other employees in its 15 offices in the New York area.

In addition to 11 Manhattan branches, Douglas Elliman currently has offices in Greenwich, CT, in New Jersey, and on the Gold Coast of Long Island's North Shore. Rogers said he has no plans for possible expansion to the Hamptons or Westchester, but those kinds of matters will be discussed in the future as the integration moves forward.

"I'm looking forward to growing the business, providing the best tools for our brokers, and making certain market leadership position is enhanced," Rogers said.

The firm as currently constituted did $1.8 billion in sales through 4,100 transactions last year.

In addition, Farkas said the Douglas Elliman component will help expand the "carriage trade" brokerage opportunities around the world by rolling out its name in other markets.

They will also move into the lower price point areas of the New York metro area with the marketing of Insignia managed buildings through another brand, Realty One. In Ohio, Insignia built that brand through its Realty One Marketing System into higher price points, which he said is much harder.

Further synergies will be used to keep the mortgage business in-house. Realty One owns First Ohio Mortgage, which provided more than $411 million in financing last year. Farkas said it took six years to retain 25 percent of the financing in-house.

"The public desires a one-stop shopping experience," said Farkas, "with 78 percent looking to the Realtor" for information on financing and other services.

He intends to bundle and provide other services, including title insurance, renovation and home improvement products, and relocation services.

"This is where Insignia will expand and capture revenues," Farkas predicted.

Combined with Insignia Residential Group's dominance in residential management and Insignia/ESG's dominance in New York's commercial transactions, Farkas said the Insignia name is now dominant in residential brokerage "in the Number One market in the world."