Boutique/21″/mike1st/mark2nd

By ELIZABETH HAYES

Staff Reporter

Just a year or two ago, real estate entrepreneurs seemed headed for extinction, pushed out by publicly traded real estate investment trusts, pension funds and other institutions.

But today they’re thriving in Los Angeles, and the institutional giants are continuing to struggle.

“The new paradigm favors flexibility over size,” said Chris Bonbright, president and chief executive of the boutique brokerage Ramsey-Shilling Co. “Because of the vast increase in the amount and sources of capital available, it looks like the enduring model for principals and developers will be small, entrepreneurial, well-connected local players, as opposed to large, monolithic, institutionalized owners.”

Indeed, there are dozens of such small players making an imprint on L.A.’s real estate scene. They’re bigger than mom and pops, but smaller than institutional giants like Trammell Crow Co. and Arden Realty Inc.

Today’s L.A. real estate entrepreneurs are primarily niche players, specializing in historical buildings, apartment houses or strip malls. And they often partner with other investors or investment banking firms.

Some entrepreneurial real estate firms got an unexpected opportunity late last summer and early fall when global financial crises caused risk-wary investors to shy away from commercial mortgage-backed securities. That caused a credit crunch that resulted in several institutional real estate deals unraveling. Entrepreneurs, not burdened with institutional-type bureaucracies, were able to react quickly and snatch up the deals.

“When deals fall out, we get a call,” said Brian Fagan, owner of Selective Real Estate Investors, a 4-month-old firm in Santa Monica that invests in supermarket-anchored retail centers. “We’re more nimble. We can respond and move quickly. We have one or two decision-makers to talk to.”

Mark Weinstein, who has made $100 million worth of real estate investments in the last 18 months, said the climate today is ideal for boutique firms such as his.

“Because of the problems REITs are having and the turmoil in the capital markets, this is an exceptional time for us to buy based on relationships,” said Weinstein, president of Santa Monica-based MJW Investments. “We’re getting deals that fell apart because other people couldn’t perform.”

He said a major developer had been negotiating to acquire a property for five months, but the deal faltered and Weinstein came in and closed it in 30 days.

One of the more daring entrepreneurs is Tom Gilmore of Gilmore Associates, who in recent months has been acquiring rundown but architecturally significant buildings in L.A.’s urban core. Like many entrepreneurs, Gilmore targets buildings that are not in the cross hairs of bigger real estate companies.

“It’s easy for me to do what I do because I get it. When I look at a historical building in a downtrodden neighborhood, I see something understandable to me,” he said.

The proliferation of boutique firms is tied to the real estate cycle, which has been pretty much in a growth mode since emerging from the recession.

“What happened in the ’90s was, the small guys left the market when real estate was down and the only ones who could survive were REITs and ones who bought other companies,” said Jim Silton, owner of Silton Properties, which builds, owns and manages apartments around Westwood.

But more entrepreneurs have been cropping up since then.

“A lot of knowledgeable people are seeing that properties are not something to be afraid of,” said Ed Hudson, owner of Brentwood-based Lawrence Properties Group. Hudson’s firm has acquired, refurbished and manages half a million square feet of medical buildings in the L.A. basin.

As further testament to the strength of the market in recent months, several brokers at established Los Angeles firms have struck out on their own, including David Thurman and Gregory Sackler from Westmac Commercial Brokerage Co. and Ron Feder from Lee & Associates.

“I’ve watched it happen many times in my career,” said Michael Zugsmith, chairman of Capital Commercial Real Estate. “They think, ‘Why should I give the house a piece of the action?’ ”

What’s starting to dry up a bit, some say, are bargains. Too many entrepreneurial investors are looking for value-added opportunities, taking a rundown or mismanaged property and turning it around. “There’s less product than a year ago because it’s been traded or refinanced,” Fagan said.

Michael Adler, president of Agoura Hills-based Adler Realty Advisors Inc., says he looks to buy properties in the $2 million-to-$10 million range. “Up until six months ago, there was more than anybody could handle. It’s getting harder to find. Prices are going up and rates of return are going down,” he said.

As niche opportunities become few and far between, the smaller players likely will be looking to team up with the large players on more-mainstream deals.

“The real estate industry is transitioning,” said John Long, managing partner of Highridge Partners which is bigger than a boutique, but also not institutional. “Solo boutique entrepreneurs who want to do a project on their own will be more a thing of the past. Big institutions and REITs are going to rely on these boutique firms to identify opportunities and join forces.”