Thomas Properties Group Inc. would seem to be in an enviable position as a developer.
While many of its competitors have gone into virtual hibernation, the downtown L.A. company founded by Jim Thomas has several big projects on its plate, including an $800 million office complex in Universal City and a $1 billion office, hotel and retail development at the site of the Wilshire Grand Hotel.
The projects – the latter of which would be the first new office tower in downtown Los Angeles in two decades – would seem to be a fitting way to cap off the career of the man credited for shaping much of downtown’s skyline.
But the multiyear projects also highlight an unsettling fact: At 73, the legendary developer won’t necessarily see them through completion – though Thomas has publicly stated that he doesn’t see the developments as the end to his career.
Though Thomas is not in a hurry to leave, his age has thrown an air of uncertainty into the company’s outlook and prompted the recent promotion of two possible successors to co-chief operating officers.
“I think it’s Jim’s style to want to work as long as he can,” said David Loeb, an analyst with Milwaukee-based Robert W. Baird & Co. Inc. “This company is his baby.”
The issue has been magnified by the sheer scope of the two projects. Assuming financing is secured in a timely manner and the projects proceed on schedule, it will still likely be more than five years – pushing Thomas’ 80th birthday – before they are completed.
Large, costly and complex developments are precarious by nature, but the build-out can be even more difficult when a company loses its top executive, particularly one regarded as the vision and driving force behind a company.
Consider West L.A.-based residential developer KB Home, which pulled out of the condo project at L.A. Live in 2006 after then-Chief Executive Bruce Karatz, a major champion of the development, resigned from the company amid an investigation into the backdating of stock options.
Thomas is cagey about his future, saying he will stay as long as he is enjoying himself, but he acknowledged the uncertainty.
“I could get hit by a bus,” he said, with more than a hint of irony.
Still, if he does leave the company, Thomas maintains that no projects will be imperiled.
“I can’t think of another company that has the depth of key management that has been working together as long as our team has,” he said.
Strong outlook
Even if Thomas were to leave soon, he’d be departing a company that has made it through the worst of times.
Founded in 1996, Thomas Properties made a major splash with a 25-story tower in Sacramento housing the headquarters of the California Environmental Protection Agency. In 2003, the company bought Arco Plaza in downtown Los Angeles, rehabbed it and renamed it City National Plaza.
The company was going strong during the boom, but was highly leveraged. Then the downturn hit: Vacancies rose and asking rents fell, swinging the company into the red. But by refinancing, the company has managed to get through most of its problems and cut debt by one-third to $337 million.
“The biggest challenge the company faced over that time period was how to deal with looming maturities,” Loeb said. “There was a big concern (but) they’ve done a very good job.”
This past month, the company announced that it had successfully refinanced mortgages on a pair of Houston office buildings for $95 million. The company no longer has any debt maturities through next year.
“They’ve really strengthened the balance sheet through these refinancings,” Loeb said.
The company is scheduled to report its third quarter earnings this week, while its $1.5 million second quarter loss was its best showing in two years. Its stock – which surpassed $17 per share in 2007 but fell as low as $1.12 per share early last year – closed Oct. 27 at $3.72.
The financial results seem to leave Thomas Properties in a good position to take on and complete its large projects.
The Metro Universal development would consist of two 24-story office towers and an adjacent studio on top of the Universal City Metro Red Line station. In addition to the 300,000-square-foot project, the company is the master developer on a separate residential town center plan for Universal Studio’s backlot that would add thousands of new housing units over the next 25 years.
Meanwhile, the downtown development, which is being jointly developed by Korean Air and Thomas Properties, is just as ambitious. It would replace the 896-room Wilshire Grand with a 45-story, 560-room luxury hotel topped by 100 condominiums; a 65-story office building; a six-story building between the two towers with space for ballrooms, meeting rooms and restaurants; and a small outdoor plaza.
The company recently submitted its environmental impact report for the downtown project and expects it to be approved early next year. Thomas said Korean Air is “in a hurry-up mode” and would like to get started as soon as possible.
The developers could phase in different portions of the project, including building the hotel first. Thomas said it could open as soon as 2016.
Succession issue
Over the past 36 years – including more than a decade partnered with Robert Maguire – Thomas has had a hand in developing more than 5 million square feet of downtown’s most recognizable buildings, including the Library Tower and the Gas Co. Tower.
“He’s a visionary,” said Carol Schatz, chief executive of the Central City Association, who has known Thomas for 20 years. “A lot of people didn’t see the potential for downtown, but he did.”
So there remains the issue of who will run the company after Thomas leaves. And the executives in line to succeed him would have some big shoes to fill.
Currently, there are two executives who have the inside line. John Sischo and Paul Rutter, who had each worked with Thomas and his companies for more than two decades, were promoted in June from executive vice presidents to the newly created positions of co-chief operating officers.
Sischo, with a background in real estate investment banking, joined the company as chief financial officer in 1998. Rutter, a real estate attorney by trade, became Thomas Properties’ general counsel in 2008.
Rutter said the board wants to see how the two perform in their new roles before deciding how to proceed, but that no commitments have been made to either executive. Though Rutter has no knowledge about when Thomas could step down, he noted that the chief executive, for the first time in memory, took a lengthy vacation this year without constantly checking in with the office.
If Thomas does resign his post, Rutter believes the projects will survive, but admitted the effects could be felt later.
“Those are projects that really transcend one person, however he is important,” he said. “He was the one that was critical in getting those projects in the door initially. (His resignation) would probably have most impact in terms of our ability to get new development opportunities.”
FACTS ABOUT: Thomas Properties Group Inc.
Business: Real estate development and investment
Headquarters: Los Angeles
CEO: Jim Thomas
Market Cap: $132 million
Dividend Yield: N/A
P/E: N/A
