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These articles by Peter J. Mladineo were published in U.S. 1 Newspaper on September 16, 1998. All rights reserved.
Life in the Fast Lane
No industry cares more about its signs than real estate. Before the ink is dry on a listing agreement a good broker has a for sale sign planted in the front yard. Even after a house is sold the sign often remains, promulgating the name of the selling agent. How then to explain the lawn sign propped up next to the main entrance at the headquarters of John T. Henderson Real Estate at 33 Witherspoon Street in downtown Princeton? The sign advertised the name of Gloria Nilson Realtors, a relative upstart in the Princeton market, compared to the Hendersons, who have been in business in town more than 40 years.
A closer look told the story: The big print on the sign said Gloria Nilson; the small print said Henderson Division. In a surprising development on the residential real estate scene, the Shrewsbury-based Gloria Nilson Realtors -- with more than a dozen offices and 430 agents -- purchased the Henderson firm. The acquisition, announced to the surprised Henderson agents last week in a meeting at the Bedens Brook Country Club, gives Nilson a strengthened presence in the Mercer County area and access to a network of agents who have made Henderson particularly strong in the listings of high priced properties.
The Henderson offices in Princeton, Pennington, Belle Mead, and Lambertville will operate as Gloria Nilson Realtors, Henderson Division. The Henderson Princeton office at 33 Witherspoon will now become the Gloria Nilson Princeton office, while Nilson's 230 Nassau Street office will close. Catherine McCool, the manager of that office, will head the 33 Witherspoon Street location.
Nilson, the woman who wears the trademark hats in her photos and in person, was ranked the top agent in New Jersey for four consecutive years prior to starting her own firm in 1977. She remains the chief executive officer and was on hand at the Bedens Brook meeting to describe the breadth of her agency, with its interests in resale homes, property management, commercial and land, and new homes.
The transaction was also a sign of the times: The Henderson acquisition marks one more consolidation in the shrinking world of real estate agencies. Princeton owned and operated real estate agencies now include Peyton, Stockton, Princeton Crossroads, and Callaway.
Though the Hendersons -- John and Peggy and their daughter, Jane Henderson Kenyon -- did not respond to inquiries for this story, it seems likely that the Nilson offer was viewed as an attractive way to exit from an increasingly complicated business. But the question remains whether Gloria Nilson Realtors -- with its regional presence and strong organization -- can provide the same special service in a relatively small town like Princeton, where the Henderson name instantly conveyed a certain kind of buyer and seller particularly in the high end of the market.
"Gloria has the experience of the high end already. She does all of the high end in Monmouth County," says McCool. "She does Rumson, Holmdel, Shrewsbury, and Middletown. What we're doing is taking the Henderson people and their experience and combining it with our experience."
But Gloria Nilson only sells a handful of the Princeton area's roster of $1 million-plus homes. Henderson and Callaway dominate this segment. But this too may be changing. McCool reports that Nilson agents had nabbed three $1 million-plus sales while it was setting up the new office in Princeton. "It was just coincidental," she says. "We already know how to do all of the high end."
But McCool adds that all of Princeton's Henderson agents will be staying in place, and that Nilson is savoring Henderson's expertise in selling expensive properties. "There's a lot of experience in that office in the high end," says McCool. "Obviously we'll be nurturing that and continuing that."
Here's a Year 2000 question: How many new speculative buildings will go up in Princeton by the Millennium, and are they more or less likely to crash than computers?
Currently, there are three such buildings -- on Roszel Road, at the Carnegie Center, and at Forrestal Center -- planned to be delivered before the end of next year, and their developers can't help being worried about overbuilding, the sin of the late '80s that contributed to the recession and skeletal commercial real estate markets of the early '90s. "These first three are probably okay," says one developer. "If you've got 10 guys building then you've got a problem. I think the market in Princeton can absorb 500,000 square feet. If you were going to be building 1.5 million you'd have a bloodbath."
For the time being this bloodbath is at a comfortable distance but the first three players have already moved dirt. SJP Properties is putting two buildings totaling 300,000 square feet on Roszel Road, next to Carnegie Center, in a complex it is calling West Windsor Commons. This will be delivered in July or August, 1999, says Charlie Hatfield, a vice president.
Boston Properties, meanwhile, the new owner of Carnegie Center, broke ground on an additional 115,000-square-foot speculative building that will be ready for fit-outs next June.
And the Aegis Group Properties Ltd. and Berwind Property Group, based in Philadelphia, quietly started construction on a 168,000-square-foot building that should be open next September. It's official groundbreaking is Tuesday, September 29.
The 650 College Road building is differentiated from the other two because it is already partially leased. Buchanan Ingersoll, the law firm based at 500 College Road, will be moving into 60,000 square feet in the four-story Aegis building in September, 1999.
"We were not going to build this without our lead tenant," says James Kinzig, a partner with the Philadelphia-based developer. "We found the lead tenant recently and started construction. We feel pretty good about our position, but real estate is a cyclical market and timing is everything."
Mickey Landis, a Boston Properties vice president and former COO of the Landis Group, shares the view that the office space shortage will be able to absorb the three properties coming on board. "If there could be one building on the market every nine months or so that would be ideal," he says. "The problem has been that there was no development for a long period of time and there was some pent-up demand. Everybody recognizes that and started to build."
As was noted by one Wharton School economist in the Survival Guide (see page 6), any real estate downturns will be protected from endemic proportions similar to the late '80s and early '90s recession because of the lack of overbuilding in recent years. "I don't think it would be as bad as the late '80s," says Landis. "The people who are building are credible established developers, and you do not see banks chasing developers to put their money into spec buildings. They are more cautious today than they were 10 years ago. They don't want to lend indiscriminately."
But the lack of development is one of the causes of this sudden surge of properties. "I don't think it helped anyone that there was overdevelopment followed by underdevelopment -- neither of which is healthy," he says. "I don't think anyone of us wants to see a glut of space on the market. It's understandable why we are where are today. Everyone sees the same over-demand for space but again the different forces in the market can't always, won't always, communicate with each other."
-- Peter J. Mladineo
Sovereign Bancorp continues its buying spree of area banks. On the heels of acquiring Carnegie Bank for $107 million comes another deal -- to buy Peoples Bancorp, the parent company of Trenton Savings Bank, for $363 million in stock. Sovereign, based in Wyomissing, Pennsylvania, will now have 280 branches and assets of $21.9 billion. Analysts believe the Peoples acquisition will be complementary to Sovereign's purchase of 93 former CoreStates branches from First Union.
For Trenton Savings Bank, the move came as a surprise -- a good surprise -- of sorts. After the news, Peoples shares rose 11.7 percent to 9 9/32. Lee J. Bellarmino, Peoples Bancorp's COO told reporters that "it wasn't a planned act. We got an offer from Sovereign Bank and the board responded appropriately."
Sovereign will be getting a bank with 14 branches in Mercer, Burlington, and Ocean counties, $875 million in assets. Peoples went public in August, 1995 and by December, 1997, its stock had increased from $10 a share to $45.50. During that period, it acquired Burlington County Bank, a commercial bank, bought Manchester Trust Bank, and started an independent asset-based lending corporation, TSBusiness Finance. Most recently, it issued stock that added $238 million to its coffers and made it into a 100-percent publicly held savings bank (U.S. 1, April 15).
On the surface at least, Sovereign's buying spree may seem a little out of step with the times. After the agreement was signed, Sovereign's stock fell 4.8 percent, and Sovereign will most likely incur a pre-tax merger charge of $13 million. Bloomberg reported that slumping bank stocks were an indication that the market was not excited by bank acquisitions and that prices being paid were too high.
Investors are also weary of the Year 2000 issues inherent in any bank acquisition right now. "Because of the issues Year 2000 brings with computers, bank acquisition activity is expected to drop off meaningfully over the next 12 months," says Gerard Cassidy, a bank analyst with Tucker Anthony. "We think there's a window of activity that will remain open for another 30 to 45 days, but after that we expect it to shut."
However, Sovereign's ability to integrate its purchases effectively into its system may make it an exception to this rule. "Sovereign Bank has had a history of acquisitions and its track record has been very good in its ability to integrate the companies it buys," says Cassidy. "So, looking at the transaction narrowly it may appear that Sovereign paid a high price for Peoples, however when you view it in all the context of Sovereign's history of acquisitions and the success it has had in the integration of those acquisitions, the Peoples transaction should fit with that history and track record and therefore over time Sovereign's shareholders should benefit."
Wendell Breithaupt, the president and CEO of Peoples, will remain at Sovereign in a key position involved with mergers and acquisitions. As Cassidy explains, Breithaupt's niche appears to be helping small banks get bought by big ones. "Breithaupt has been very successful at selling banks to big acquirers," he says. "It should come as no surprise to investors based upon his track record maximizing shareholder value."
So after the Y2K bug is purged come 2000, mergermania should start all over again. The question then will be either, where will Breithaupt go, or who will buy Sovereign?
-- Peter J. Mladineo
Even after the good news, Sibson & Company might be a little embarrassed by the media coverage. After its sale to Nextera, the Boston-based subsidiary of Knowledge Universe, an article appeared in the Wall Street Journal crediting the sale to Knowledge Universe's co-founders Michael Milken, his brother Lowell, and Larry Ellison. Any mention of Ellison, the chairman of Oracle Corp., would be favorable of course. But Milken is another story. Milken, as you remember, served prison time for his '80s junk bond indiscretions with the Drexel-Burnham brokerage. Nextera, it turns out, is a wholly owned-subsidiary of Knowledge Universe.
But despite the purported ties to Milken the sale itself may be most welcome at Sibson. "The impetus for the acquisition was, really, to have capacity to fuel our growth both domestically and internationally," says Anne Saunier, the managing principal of Sibson's Princeton and Manhattan offices. "It also has other advantages: One is the advantage of remaining autonomous. The second advantage is we now have sister companies that are in strategy, IT and business process reengineering. That means that our work can be complemented when those particular capabilities are needed."
Sibson has annual revenues of $45 million and employs 160 consultants overall. Founded in 1959, it serves a reported 40 percent of the country's largest firms and specializes in management consulting for sales and marketing and human resources needs. Its headquarters is in 19,000 square feet at 504 Carnegie Center, and Saunier reports, the Nextera acquisition could sent Sibson searching for more space -- perhaps even next door at the as-yet-unbuilt Carnegie Center 502 (see article above). "We're out of space in Princeton," she says.
For a company like Sibson, the consolidation-ridden consulting industry has produced other buyout offers, but Saunier emphasizes that independence was one of the key factors in Sibson's decision to go with Nextera. "We were looking to be acquired and had other opportunities but this one was by far the best in terms of meeting the needs of our business and at the same time preserving our autonomy and flexibility," she says.
"Our anticipation is that we'll have no changes in the amount of flexibility we have. We still elect our own senior managing principal and have our own governance and are free to serve our clients as we see fit and that will certainly continue. This will give us additional flexibility on infrastructure issues because we can look across all these companies for things like major software purchases and time and billing purchases and those kind of things."
Saunier, 52, was put in charge of the Princeton office a year ago and she has been head the New York office for the last five years. "I live in New York and spend time in both offices," she says. Prior to the consulting life at Sibson, she "worked in corporate America" in human resources and sales and marketing. She has degrees from Muskingum College in New Concord, Ohio (Class of 1968), and Ohio State University, and she completed the program for management development at Harvard's business school (Class of 1980).
Sibson has also replaced its senior managing principal, Steve Strelsin, with Roger Brossy. "Steve had been doing it eight years and this was kind of the culmination of his contributions," says Saunier. Strelsin will stay on as a "key principal" at the company, says the Wall Street Journal.
The president and CEO of Nextera is Gresham Brebach, an alumnus of Arthur Andersen, Digital Equipment, and Renaissance Solution. Milken, says the Journal, is allowed to use his $700 million bankroll in non-securities firms.
What does Saunier think about Sibson's newfound benefactor? "I don't think we want to go there," she says. "I'm not a spokesman for them."
Four years after Peterson's was acquired by the Thompson Corporation, Michael Brannick has replaced co-founder Peter W. Hegener as president and CEO. Hegener will be senior vice president of new business alliances for the parent firm, International Thomson Publishing. Karen C. (Casey) Hegener, co-founder with her husband, will remain as executive vice president of strategic development for Peterson's.
Brannick is former senior vice president of business development of Jostens Learning Corporation in San Diego. He majored in English at Niagara University and has a master's degree in industrial psychology from California State University at Long Beach. He has worked at Opinion Research of California, Smooth Tool Company, National Education Corporation, a for-profit firm devoted to adult vocational information. With his wife and two daughters he will be moving to the Princeton area.
The Hegener husband and wife team literally started the firm at their kitchen table. "With its dedicated staff now working under the direction of Michael Brannick, Peterson's will continue to fulfill its commitment to provide the best possible information for lifelong learning and career decision," says Peter Hegener. "I now look forward to the challenge of discovering new partners and opportunities for Thomson businesses."
Merrill Lynch may have lost a reported $145 million because of its business with foundering Russian markets, but that's not enough to stop its Scotch Road facility from moving forward.
Also not stopping Merrill Lynch is a $6.4 million connection fee to Hopewell Township to be hooked into the Trenton-Hopewell sewage link. It agreed to pay that much. This issue was an obstacle to Merrill Lynch's plan for its Scotch Road campus, formerly home of Bristol-Myers Squibb.
The sewer link itself is pretty massive. Hopewell will have borrow $24.6 million from state and federal governments to build it. Merrill Lynch will be chipping in $4.6 million of its own. There is some concern that escape clauses in the contract Merrill Lynch signed could result in an abortive project that will leave taxpayers footing the bill. The sewer link must be approved by the New Jersey Department of Environmental Protection by Friday, September 18, or Merrill Lynch will have to seek service elsewhere. Hopewell Township has said it wouldn't start building the eight-mile pipeline until it had Merrill Lynch's full commitment. However, if the project dies, the township would still be responsible for paying back $1.2 million legal and engineering fees incurred up to this point.
But so far, it appears as if Merrill Lynch is determined to make this sewage link work. Last weekend Merrill Lynch real estate vice president Harry Ferguson told reporters, "Every light on the road I see is green and no one is telling us to stop."
Fast-growing ITXC has made its move from North Center Drive in North Brunswick to the first floor space formerly occupied by the New Jersey Department of Personnel (U.S. 1, July 15, 1998).
The regional office of the Raleigh, North Carolina-based environmental firm closed. This three-employee office managed Entropy's stack testing of emissions compliance.
The office was closed because of a "lack of work," Roy Doster, director of equipment services, but Entropy hopes to open another office there eventually. It still maintains the lease, and is currently subleasing to DARE New Jersey. "We'd like to get back in the swing of things," he says.
After one year on Nassau Street the personnel consulting firm has consolidated and moved from Nassau Street to 119 West 23rd Street, New York NY 10011 212-352-2255; fax: 352-2304. (U.S. 1, March 5, 1997).
This page is published by PrincetonInfo.com -- the web site for U.S. 1 Newspaper in Princeton, New Jersey.