Investment-Banking Boutique
Pushes into the REIT Sector

At a time when Wall Street is struggling with tremors in the mortgage sector, the investment-banking boutique KBW Inc. is tacking in the other direction.

Earlier this summer, the firm launched what it expects will become a broad push into the real-estate investment trust, or REIT, sector. It has hired a new team of research analysts and traders from other firms including Stifel Financial and Wachovia Securities. Over time, the firm also intends to hire a team of investment bankers who specialize in the REIT market.

Executives at KBW -- which is best known for its Keefe, Bruyette & Woods brokerage arm -- say it wants to capitalize on tough times in the U.S. real-estate market.

Year to date, as the real-estate sector has weakened, publicly traded REITs have fallen 15%, according to the Dow Jones Composite All REIT Index. At the same time, the pace of deal-making in commercial real estate has slowed, and property values in that arena appear to be dropping, albeit less sharply than those in the residential market.

But KBW believes market dislocations provide opportunities for growth.

"We do things here that are sometimes a little counterintuitive," says Chairman and Chief Executive John Duffy. "When a particular sector or subsector is out of favor, it's easier to hire analysts."

At least one bigger player on Wall Street, Goldman Sachs Group Inc., also has been eyeing growth in the mortgage area.

Earlier this year, Goldman bought a small subprime-loan originator for about $20 million. In recent weeks, as rival firms Lehman Brothers Holdings Inc. and Bear Stearns Cos. laid off workers in their mortgage and related businesses, Goldman hired several executives in London for its European securitization division, where assets like home loans are packaged into new securities. The most senior among them, managing director Jeff Stolz, previously oversaw that business in Europe for Deutsche Bank AG.

KBW, which provides research, trading, and investment-banking services to the financial sector, had long hoped to branch into the REIT market, says Mr. Duffy. The company's rationale: REITs will remain an important force in markets and the economy. They are also potentially a complement to KBW's focus on financial services. It specializes in insurance, brokerages, and asset-management, among others.

Since July, the firm has hired seven analysts who are covering about 30 REITs, as well as a dedicated stock trader and sales trader, or liaison between institutional investors and the trading desk. The firm hopes to be tracking about 50 publicly traded REITs by year end.

In 4 p.m. New York Stock Exchange composite trading Friday, shares of KBW ended down 2.3% to $24.51. Since the company's public debut this past November, its stock has fallen roughly 9%, a performance better than those of many major brokerage firms, some of which have seen their shares decline by double-digit percentages.

-- Kemba Dunham contributed to this article.

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