Insignia purchases ESG.

The Edward S. Gordon Company is being purchased by Insignia Financial Group (IFS), the largest owner and property management company in the United States, for around $74 million. The deal was announced last week.

Founder Edward S. Gordon, President Stephen B. Siegel and Vice Chairman Martin Turchin, will divide 80 percent of the purchase price, with the remainder being apportioned among about 20 others in the firm. The purchase price will be paid off in a payment of $50 million at closing, with the remainder by the assumption of stock options.

The trio and two other top executives, Anthony M. Saytanides and Stacy Wallach, have also signed contracts to remain with the company for three to five years.

It is expected that ESG will add revenues of about $90 million per year to IFS, as ESG generated an average annual EBITDA of $15 million over the past two years.

Insignia, based in Greenville, South Carolina and headed by Andrew Farkas the great grandson of the founder of the Alexander's Department Stores - last year purchased New York area residential management company Kreisel & Co. from Neil Kreisel and its 43,000 unit portfolio, as well as the management arm of Douglas Elliman from the Milsteins.

Kreisel is currently president of Insignia Management Services - New York (IMS-NY) and will become a member of the executive committee of ESG along with Farkas and Henry Horowitz, president of Insignia Commercial Group (ICG).

Insignia also absorbed National Property Investors of Jericho, last year, and its 37,000 units as well.

It is expected that ESG will operate as a wholly owned, independent subsidiary of IFS.

IFS recently announced the acquisition of Paragon Commercial Group, a commercial property management firm, and after closing the transaction later this month, will be integrating that company into ICG.

IFS manages 300,000 apartment units across the country, and in the commercial market about 85 million square feet. Currently, its only New York City retail and commercial space is associated with the residential properties, but according to Siegel, they amount to a couple of hundred significant locations that ESG will now have some involvement with on a day-to-day basis.

ESG manages 27 million square feet of commercial space in the metro New York area, and has no residential properties. It does, however, boast strong transactional capabilities, tenant rep and corporate consulting services.

Insignia stock was trading on the New York Stock Exchange for 28 1/4 at week's end.

The recent acquisitions will boost IFS's national commercial property service operations to over 105 million square feet of commercial, retail and industrial space.

By contrast, the Cushman & Wakefield portfolio was boosted to 130 million square feet after last week's purchase of MS Management Services, which added 14 million square feet to its roster.

ESG is also expected to utilize its consulting group to develop a national apartment report for Insignia's residential property management divisions, similar to its well-respected commercial Midtown and Downtown Office Reports. "We're going to give them technical skills to develop reports," explained Siegel.

Edward S. Gordon has known Farkas since 1981. Seven years ago, Farkas asked Gordon to become one of his founding venture capital shareholders, but he declined. "I only make mistakes like that once," quipped Gordon.

Siegel said the ESG owners had decided on a strategic direction for the company, "but there isn't a wide range of compatible partners for a marriage of this type."

Because of the Gordon/Farkas relationship, there was a lunch meeting a couple of months ago where the statement was made that ESG would like to look for a strategic relationship.

"[Farkas] said, 'We're interested and let's talk.' It kind of happened," explained Siegel. "The timing was right. They wanted to get into commercial in a big way and our timing was right as we wanted to secure our future."

As for the benefits to the companies, Siegel said they will evolve over time. But he agreed there will be certain economies of scale, such as in the purchase of everything from lightbulbs to insurance and other costs that can carry through for discounts for their clients.

Siegel said the ESG relationship within the Oncor nationwide referral network of commercial brokers, which the company helped to found, will not change. "Oncor is business as usual," he said. "We have no intention of changing."