At Rubenstein, there is such a thing
as a free lunch

The real estate investment firm is growing rapidly. The meals keep things personal and participatory.

By Henry J. Holcomb, Inquirer Staff Writer

Mark Rubenstein (right) eats lunch with his staff in the offices of Rubenstein Co. in Center City. He has been buying lunches for his employees since 1969. (Ron Tarver / Inquirer)

When he started his real estate company in 1969, Mark Rubenstein offered a free lunch to his employees, mainly to get more work done.

"We were a small company. If one person went out, it left a big hole in the office," he said the other day.

He still buys the lunches - every day - even though the staff has grown to 100-plus and the annual tab is $60,000. "Relative to what the value is, I don't think it's that much," he said.

Employees gather around a big table in lunchrooms on the 35th and 41st floors of 2005 Market Street in Center City. Everyone - from Rubenstein to the most junior employee - sits together. About half of the time, they talk business. The rest is spent chatting about lawn care, movies worth seeing, or stuff about their families.

Rubenstein said these lunches helped build the kind of teamwork that, earlier this month, allowed his company to wrap up its most complex purchase and to break ground on its most ambitious office development.

It bought the 1.4-million-square-foot office and research park of Wyeth-Ayerst Pharmaceuticals Inc. in Radnor. It began construction on the first three buildings of a planned 17-building Valley Creek Corporate Center in West Whiteland Township.

"The lunches allow people to hear discussions of what's going on higher up in the company," Rubenstein said. "This might be a risk, but people around here pretty generally understand that they have to be careful what they say outside the company. The lunches allow them to feel participatory in the process. That's important."

The Rubenstein Co. L.P. owns several major buildings in Center City: One and Two Logan Square, Ten Penn Center, and 2000 Market Street. It owns 49 percent of 2005 Market, and it manages the Bell Atlantic Tower. It also owns upscale "Class A" office buildings in Pittsburgh, Atlanta and the suburbs of Washington.

In all, it manages 10.4 million square feet of office space, most of which it owns outright or with investment partners. Another 630,000 square feet is under construction. The private company does not disclose its portfolio's value.

More than 95 percent of its space is leased, said Peter A. Talman, president of the firm's brokerage division.

From its start until 1983, the Rubenstein Co. built garden apartments, office and shopping center developments - and did consulting for banks.

When pension funds and foreign investors bid up real estate prices in the 1980s, the company sat still, managed what it owned - and paid down debt. Deals in those days were "predicated on quickly growing rental rates" that Mark Rubenstein did not believe could be sustained.

As it turned out, he was right. So his company came out of the 1980s with the ability to borrow money, which many rivals lacked because of heavy debt.

Federal tax laws changed in 1986 to eliminate real estate tax shelters. "Tax-driven real estate investments came to an end, which we think was a good thing. Investors had to assess the fundamentals of real estate, which we always followed," said Frank Ferro, Rubenstein's executive vice president and general counsel.

Mark Rubenstein's son, David, joined the company in 1991, and they soon discovered "they were a good blend . . . My expertise is in engineering, the fundamentals of building and managing property. David is much better trained and much more attuned to the financial part of the business," Mark Rubenstein said.

The company sold its apartment and retail holdings, and focused on Class A office space. "There's so much specialization that goes into each sector . . . they almost become different industries," said David Rubenstein, now president of the firm.

Their first big deal came in 1994: the acquisition from the Radnor Corp., the real estate unit of what is now Sunoco Inc., of the 58-acre Radnor Corporate Center in suburban Philadelphia.

Since then the Rubensteins, father and son, have focused on assembling a team, people they believe have the talent, ability to work together, and experience to tackle acquisitions too complex for many rivals.

Its biggest test began last summer when the Wyeth-Ayerst property went on the market. "Every department was involved. It was a complete team effort - much more than any deal we've done," David Rubenstein said.

The Rubenstein team had to investigate the condition of the buildings and the systems in them, and figure out how much they would have spend over the next decade. They had to design the financing, and develop a marketing strategy for putting 1.4 million square feet of space on the suburban office market at the same time.

And they had to negotiate a lease with the seller, which wanted to remain on the property until its new Collegeville campus was ready in 2003.

Another bid was $10 million higher. "As with any negotiation, the more time and energy one expends, the more you want what you're going after," Talman said. "But we didn't get emotional and make a mistake. We were very persistent and steady, and we had faith in our numbers."

The other offer fell through, and Rubenstein won the deal.

"A lot of companies put an offer out. . . . and if a seller bites, they try to put a deal together," Mark Rubenstein said. "By the time we make an offer, we've done an enormous amount of due diligence. Sellers and brokers know that an offer means we've done our homework, and we're going to close at that number."

This is important to many sellers, especially big corporations, that need to complete a deal during a certain quarter. "A great offer that doesn't close is worthless," David Rubenstein said.

Robert Fahey, senior director of Cushman & Wakefield Inc., said Rubenstein has become "a unique company in our industry. It combines the best attributes of a traditional family-run business with attributes of a good-sized international real estate investment company. They are very focused on their people and values, very aggressive, and deep in talent . . . and, very importantly, they keep their word."

As the company grows, the free lunches become more important, David Rubenstein said. "We're trying to create a good mix of entrepreneurial and institutional mentality here, and we don't want to give up certain things that were building blocks of the company."

To Talman, the value of the free lunch is more personal: "I like working with people that I like, and this gives people a chance to get together and learn to like each other."

Henry J. Holcomb's e-mail address is hholcomb@phillynews.com