Kaempfer Co., a downtown Washington developer known for constructing some of the most architecturally significant buildings in the city, is in advanced negotiations to sell itself to Vornado Realty Trust, a huge New Jersey-based company, sources familiar with the talks said yesterday.
If the deal closes, it would strengthen Vornado's position as the Washington area's top office-space landlord, which it became last year when it acquired Charles E. Smith Commercial Realty. Perhaps more significant, the sale of Kaempfer would be a milestone in the takeover of local real estate by giant national companies -- a trend that brought billions of dollars in investment to the area but eliminated many old family-owned firms, run by colorful people.
The sources would not describe the financial terms of the planned deal. People not involved with the transaction said it is likely to be smaller than Vornado's $1.6 billion acquisition of Smith, because Kaempfer has a much smaller portfolio -- fewer than 6 million square feet of office space, compared with Smith's more than 18 million square feet -- and Kaempfer owns a relatively small proportion of the properties it controls. The rest is held by outside investors who do not intend to sell their stakes to Vornado.
It is a good time to sell. Investors have paid record-high prices in the past year for the kind of downtown buildings that Kaempfer controls.
Executives of Vornado and Kaempfer, through spokesmen, declined to comment.
Kaempfer was founded in 1977 by entrepreneur J.W. "Joey" Kaempfer. He spent lavishly on design and building materials, which was unusual in the staid, family dominated world of Washington real estate in the 1980s. The firm's noteworthy projects include the Warner, a historic theater and office building on Pennsylvania Avenue NW that the firm renovated in 1992; 2099 Pennsylvania Ave., a modern building with spare, glass facades completed in 2000; and the Investment Building, a Cesar Pelli-designed renovation of a 1924 building at 1501 K St. NW that was finished in 2001.
Kaempfer was scorched, as were most other major Washington-area developers, in the real estate and banking crises of the early 1990s. He had to give up control of some of his properties, but survived as an independent firm largely because of his relationships with institutional money, including European investors.
"Joey was one of these colorful guys who was one of the real entrepreneurs in this business," said Brian T. McVay, senior managing director of brokerage Cushman & Wakefield and manager of its Washington office. "He was one of the first to team up with the high-end New York design firms, the first to bring in institutional partners as equity sources. He had a very creative approach."
That is a stark contrast to Vornado's current Washington area operations. Charles E. Smith, accumulated a huge portfolio of, to many, unexceptional office buildings that earn stable returns but not top-dollar rents. And Smith has done relatively little new building in recent years. Vornado pursued the deal with Kaempfer to add top-quality buildings in downtown Washington to its portfolio and add more development expertise to its local staff, sources familiar with the deal said.
The company intends to put Kaempfer President Mitchell N. Schear, who has managed the company's day-to-day operations since Joey Kaempfer withdrew from the business in recent years, in a senior management position overseeing Washington area real estate, sources said. While Schear worked on the local portfolio, Kaempfer built shopping centers in Europe for much of the 1990s. He recently returned to the United States.
The deal with Vornado would give Schear access to the large portfolio of Smith properties for potential redevelopment as higher-quality properties. Moreover, being part of a publicly traded company worth $3.8 billion at yesterday's closing price would give Kaempfer access to Wall Street capital. Finally, sources said, Vornado hopes that Kaempfer Co.'s reputation for high-quality services as a landlord could make older Smith buildings more desirable.
People in the local real estate industry said the planned deal seems to make strategic sense, but expressed nostalgia for the days when all the big players in building Washington were local. A list of the most active developers in downtown Washington in the past three years is dominated by national firms such as Boston Properties, Tishman Speyer and Trammell Crow Co.
"Any time a home-grown developer gets bought by a national company, it's a step toward making Washington real estate more corporate," said Robert M. Pinkard, chief executive of real estate service firm Cassidy & Pinkard, which is locally owned. "Kaempfer, starting with Joey and going to Mitchell, has been one of the bright lights on the development scene in Washington, and that's a legacy that can go away when you're part of a big national company."