by John M. Covaleski

Roseland, N.J. - Bruce Schonbraun expected to create a solid regional real estate industry niche practice when he and Michael Safris left Price Waterhouse in 1973 to create a CPA firm in the New York-area suburb of Milburn, N.J.

That two-partner firm with a regional focus has since grown into Schonbraun Safris McCann Bekritsky & Co., a seven-partner, 80-employee practice with a national commercial real estate industry reputation. It’s also relocated to another northern New Jersey town, Roseland, and has added offices in Boca Raton, Fla., and New York.

In that time it has also catapulted from regional to national, with a client list that features about 20 national and international real estate investors, including some of the most prominent real estate investment trusts or REITS - publicly traded commercial property owner-operators. Its consulting engagements include dozens of real estate transactions valued in the hundreds of millions of dollars, and due diligence on $12 billion worth of property in the past four years alone.

SSMB generated about $15 million in gross revenue last year, with 90 percent of it coming from real estate services. The niche has six general service areas: accounting and audit; taxes; lease audits; capital market services; executive compensation and consulting, advisory; and technology - and more than 60 specialty services within those areas.

For example, A&A services include acquisition reviews and due diligence audits. Tax includes property workouts, debt restruc-turing and like-kind exchanges; and con-sulting specialties include litigation support and valuations among many others.

Capital market services, which includes identifying funding sources, structuring transactions and due diligence, have become particularly important.

SSMB’s 2002 engagements include capital market services to New York-based REIT SL Green Realty Corp. and Canadian institutional investor SITQ Immobilier on their $500 million purchase of 1515 Broadway, the New York headquarters of Viacom.

In late 2001, SSMB advised Green and SITQ on their $233 million joint venture purchase of another major New York property. Another recent deal: advising Kushner Cos., Florham, N.J., on its $280 million of the WNY Group REIT.

SL Green is typical of SSMB’s larger national clientele. It owns interests in 25 properties, with a combined 11.5 million square feet. Kushner, owner/operator of more than 22,000 apartment units in the Northeast is one of SSMB’s larger regional clients

Other marquee name clients include Vornado Realty Trust, one of the industry’s 10-largest REITs and among the largest property owners in New York; Kimco Realty Corp., a New Hyde Park, N.Y., REIT that owns 557 retail properties comprising 75 million square feet in the U.S. and Canada; Mack-Cali Realty Corp., a Cranford, N.J., REIT with $5 billion in holdings; First Boston Credit Suisse, the U.S. investment banking arm of global financial services company; and Pan Pacific Retail Properties, a San Diego REIT invested in more than 100 West Coats retail sites encompassing approximately 16.1 million square feet.

Schonbraun, 55, is pleased with the client list. "We started out as a traditional firm with an emphasis on real estate and local clients. Now our database is 50 percent large national companies," he said during an interview at SSMB’s headquarters.

SSMB has more than just an impressive client base going for them, according to observers in the real estate and accounting industries. "Bruce Schonbraun has tremendous experience," said Steven Green, chief executive of SL Green." His expertise set us on track and has kept us there."

Green noted that Schonbraun has helped put together several other major deals for SL Green, and has provided "superior" financial reporting services. SL Green was listed as the REIT with the highest-quality financial disclosures in a June 2002, analysis of that industry by Salomon Smith Barney, New York, "This is one of the best-run boutique firms in accounting," said Jay Nisberg, a Ridgefield, Conn.-based practice management consultant, who’s been advising SSMB since 2000. "They’re writing the book on what its takes to succeed in real estate, or any other niche for that matter."

Nisberg spoke figuratively, but if SSMB were writing a book, the chapter about entering a niche would stress choosing an industry that excites you and offers untapped opportunity.

Schonbraun said that real estate’s "entrepreneurial nature" attracted him. "I liked the fact that real estate organizations tended not to be bureaucratic and that you could access their decision makers," he recalled of his days in Price Waterhouse’s tax department almost 30 years ago.

"At the time, I believed the real estate industry was dramatically under-served in getting advice - entrepreneurial companies in general were under-served, while corporate America was over-served," he said. So he and Safris, who also worked in PW’s tax department, went on their own, planning to offer traditional accounting and tax services and to concentrate on New Jersey area owner-operators of residential and commercial real-estate projects.

Schonbraun said that he would gladly write a chapter about how to staff a real estate practice. "One of the things that sets us apart is that we hire people who have worked in the real estate industry, so they truly understand the issues facing our clients," he said. "We are not a CPA/consulting firm that happens to be in real estate, we are real estate people, who happen to also be accountants, lawyers and management people."

Case in point is SSMB’s most recent hire, Larry Portal, CPA, a new tax partner who came from Vornado Realty Trust, where he was its vice president of tax and corporate secretary.

"This is not your typical CPA firm. They are very dedicated to real estate," said Portal, 33, who has also worked for Deloitte & Touche. Hiring Portal also helped SSMB pick up Vornado as a client.

Experience in the Big Eight, now the Big Four, is common among SSMB’s upper management. Along with the two founders’ Price Waterhouse experience, name partners Stanley Bekritsky was once associated with Ernst & Young, and Stephen McCann worked in the former Kenneth Leventhal real estate group, which is now part of E&Y. Immediately before SSMB, McCann was an executive with a homebuilding company.

Schonbraun expects to get business from the Big Four’s publicly traded real estate clients as a result of the prohibitions on consulting services contained in the Sarbanes-Oxley Act of 2002.

"We are very much focused on providing consulting services to those kind of clients," he said. "But we also see any federal legislation as a great opportunity for us to advise our clients on corporate governance and audit issues."

While it provides financial reporting services for public companies, the bulk of SSMB’s audit work is with privately held companies. Private company audits account for 15 percent of SSMB’s revenue.

Despite its growing national client base, 30 percent of SSMB’s total revenue still comes from small, regional clients, a sector where the real estate practice has its roots.

Schonbraun launched the real estate niche by offering tax and accounting services to firms in the Milburn, N.J., area, often visiting clients at work sites to learn about their businesses. "I was learning on the job and helping clients," he remembered. "I was in my 20s and spending meaningful time with some leaders in New Jersey real estate."

Schonbraun’s firm offered tax and accounting services to other industries, but local real estate owner-operators were its bread and butter. By the mid-1980s the firm boasted 230 real estate industry clients, primarily from New Jersey.

But back then, a local focus was good enough. Real estate markets across the country were booming and open suburban areas, including many parts of New Jersey, were being transformed into office parks.

However, following the stock market crash of 1987, commercial property market values began dropping nationwide and investors were pulling out of deals, projects under development were being foreclosed on and occupancy rates were skidding.

In the late 1980s, Schonbraun decided to reset his company’s sights on larger, national clients. "I remember sitting down with our new partner Steve McCann and saying, 'We have to change how we do business and go after better-capitalized, more stable real estate clients, and that’s what we did."

He added, "We love our local developers and owners, but the reality is that when cycles hit hard, have issues and because they’re not capitalized like institutions, they don’t generate business."

SSMB’s high-end break came with one of its local developer clients, the Cali Organization of Cranford, N.J. - a privately held owner-operator of about $200 million of suburban office space. Schonbraun, whose firm had been providing services to the business and to the Cali family, said that he urged the family to take their company public to gain greater access to capital.

In 1994, based on Schonbraun’s urging and with services provided by SSMB, Cali, became a REIT. Schonbraun also helped the company hire its first chief financial officer, Barry Lefkowitz, and its auditor, Price Waterhouse.

"We helped foster the idea that they could take a private company, re-capitalize it and make it into a major, publicly held real estate company at a time when everybody thought we were crazy," Schonbraun recalled.

Since going public, Cali has accessed the capital required to maintain its portfolio, take on new projects and make acquisitions that include one of its former New Jersey developer rivals, the Mack Cos. Today, that Mack-Cali Realty Corp. has $5 billion in capital, and interests in 257 properties.

After the Cali REIT, SSMB picked up an even larger client, Credit Suisse First Boston, which holds some $7 billion worth of real estate.

One of SSMB’s next big name clients was the Toys 'R’ Us chain, which leases several thousand store sites. SSMB’s lease audit services have saved Toys 'R’ Us several million dollars, Schonbraun said.

As more clients were added, SSMB expanded with offices in New York and Boca Raton, Fla. It also acquired O’Reilly Baime, a 12-person CPA firm in West Orange, N.J., which it bought in the late 1990s.

Schonbraun revealed that he is interested in expanding the firm, particularly in New York, and that another acquisition is possible. Any deal would have to protect the real estate practice’s reputation, he vowed. "A niche is a niche because you make it special with special people," he said. "I want to be careful to never take away from that."

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