Inside The Madison Marquette-PMRG Merger That Will Create A $7B National Powerhouse

Two multibillion-dollar real estate companies are preparing to close a major merger, announced last week, that will create a $7B powerhouse with hundreds of properties around the country. Madison Marquette and PMRG's executives, in interviews with Bisnow, shed light on how the deal came together and what to expect going forward. 

The companies began discussions about a year ago. D.C.-based Madison Marquette had just brought on John Fleury as president to chart a rapid expansion and soon began looking at merger opportunities. The company, founded by Amer Hammour in 1992, had acquired some small firms in individual markets, but has never navigated a large-scale nationwide merger.

Fleury brought that experience to the table. As chief financial officer of Cassidy Turley, he worked on the firm's merger with DTZ, which later merged with Cushman & Wakefield in 2015.

Madison Marquette soon began talks with Houston-based PMRG, and Hammour said it appeared to be a perfect fit. The companies operate in mostly separate markets, and PMRG allows Madison to grow in markets where Hammour had been looking to expand, such as Atlanta and Dallas. The companies also have expertise in different sectors; Madison Marquette is known for its retail and mixed-use projects such as The Wharf in D.C., while PMRG specializes in office and has a growing medical real estate portfolio. 

"We started talking to them and it was initially just interest, would it make sense to look at the portfolio of assets and business," Hammour said. "With time, I think especially after the summer, we started getting a little more serious about 'would it make sense for us to join forces?'" 

PMRG Chairman Rick Kirk said the merger allows his company, which has a large presence in the southern U.S., to gain a foothold on the East Coast and West Coast and to improve its multifamily and retail prowess. 

"Our services were very complementary, and our geographic regions were very complementary; there's not a lot of overlap in either of those," Kirk said. "We've got all the pieces together for a real machine."

The merger is expected to close within the next three weeks, as the companies iron out the last technical details and finalize the contracts. Hammour said the companies will likely work as separate entities for the remainder of 2018 as executives make operational decisions and then he hopes to be one seamless company by January. 

The executives have not yet settled on a name for the merged company. The firm will have about $7B of assets under management, with major investments in most large U.S. markets and several big developments in the pipeline. Both companies also have third-party property management and leasing services, and the combined platform will manage about 350 properties nationwide. The private companies did not disclose the financial terms of the deal. 

Hammour will remain chairman of the merged entity, which will operate under the umbrella of Capital Guidance, Madison's parent company. PMRG's executives, including Kirk, will remain with the company and maintain their Houston office. But the merged company's headquarters will eventually be in D.C. Madison Marquette is preparing to move this summer into The Wharf's 1000 Maine office building. 

In addition to the D.C. and Houston offices, the company will have regional outposts in New York, Boston, Atlanta, Dallas, Los Angeles, San Francisco and Seattle, Hammour said. The companies are laying off about 20 people to create operational efficiencies, he said, but those have already been announced and he does not foresee a need to further reduce the workforce.

The absence of large-scale layoffs, attributed to the companies' complementary footprints, helped convince PMRG executives that this was the right move. 

"One of the very attractive components of this merger from PMRG's standpoint was it represents one of the very few opportunities we'd have to do a combination on this scale while affecting virtually none of our employees," Kirk said. "The vast number, in the high 90% range, will be doing the same thing the day after the merger."

The key to making a merger of this size successful, Arent Fox partner David Martin said, is the executives on both sides going into it mindful of what they hope to achieve and strategically planning for the integration of the companies. 

"I can think of plenty of mergers that fall apart because they thought it was going to be a good idea and didn't put much thought into it, nothing happened, they never integrated and started falling apart later on," said Martin, a real estate attorney who has worked on mergers. "If they continue to act like separate companies, they haven't really merged and become one." 

Hogan Lovells partner David Bonser, who worked on the merger that created JBG Smith last year, said the Madison-PMRG deal strikes him as one that could ultimately lead to the company going public. 

"It's an interesting idea as to whether or not they're doing this with an eye toward getting a critical mass that could make an IPO attractive," Bonser said. "Private real estate companies still have to deal with liquidity issues. The only real way to get liquidity is to sell or take it public. I wouldn't look at this as the type of transaction to think anybody is liquidating ... so this certainly would be an interesting first step toward ultimately going public." 

JBG Smith's initial public offering coincided with the merger closing because Vornado, which merged its D.C. business with The JBG Cos., had already been public. But Bonser said, in the case of two private companies merging, it would make more sense to complete the integration and then launch an IPO after a year or two. 

Hammour said going public was not part of the discussions around the merger. 

"Maybe 10 years from now things could change, but at this point that was not one of our considerations," Hammour said. 

Both companies are currently working on large developments. Madison Marquette is preparing for The Wharf's 1.2M SF Phase 2, a joint venture with PN Hoffman. It is also partnering on an Asbury Park project on the Jersey Shore, slated for 2,000 residential units and 400K SF of retail. It is also working on the redevelopment of major retail properties in Seattle and Fort Myers, Florida. 

PMRG recently completed a high-rise multifamily project in Denver, just broke ground on a residential tower in Houston and has deals in the works for future developments. Those projects will be completed under the merged company, and Hammour said each of the ongoing and near-term developments will proceed as originally planned. He then hopes to exponentially increase the pace at which the company acquires and develops new properties. 

"My goal is to ramp up our activity," Hammour said. "We have a bigger team now to support it. My goal is to really ramp up and really leverage those capabilities." 

The combination will allow the company to launch large-scale developments composed of all product types, but Hammour said he does not want that to change how people think about his company. 

"One thing I'm concerned about is to make sure we retain the great image that Madison has of being a great mixed-use investor and developer that creates great destinations in urban areas," Hammour said. "We do not want to be seen as a commodity player. That's important for me and that will be a challenge as we grow to keep that image."