Genesis L.A. Real Estate Fund
Manager:
Shamrock Holdings Inc.
Headquarters:
Burbank
Launched:
July 2000
Amount Raised:
$85 million
Amount Invested:
$15 million
Projects:
SunQuest Industrial Park, Sun Valley; Academy of Motion Pictures Arts and Sciences, Hollywood; Artists-in-Residence Project, Venice
In July 2000, when then-Mayor Richard Riordan launched an $85 million fund to foster real estate development in low-income areas of L.A., there were high hopes that the for-profit fund would make a significant impact.
There also were questions, however, about whether Burbank-based Shamrock Holdings Inc., chosen in a secretive process to run the Genesis L.A. Real Estate fund, was up to the task of managing such a fund.
Now, with Riordan gearing up for a gubernatorial run that stresses his record of revitalization in Los Angeles, the fund an entity that is allied with but separate from the non-profit Genesis L.A. Economic Growth Corp. is certain to receive increased scrutiny.
The consensus so far is that it’s off to a slow start.
It has funded just three deals to date, totaling $15 million. Shamrock has made an effort to find fund-able projects, but unfamiliarity with the inner-city turf has slowed its progress.
“Three projects in a year and a half is probably average. It’s not stellar, it’s not poor. These projects are complicated,” said Larry Kosmont, president of Kosmont Cos., a real estate firm that specializes in public/private transactions. The test, said Kosmont, is whether the fund can accelerate its activities over the next 18 months. “If they don’t double or triple their output, they’re not going to be considered a success.”
There is skepticism whether Shamrock can turn the volume up quickly enough. Riordan and his Business Team, which worked in concert with the Genesis L.A. effort, are out of office. The new mayor, James Hahn, hasn’t yet named a deputy director for business development and has been sidetracked by economic crises that have arisen out of Sept. 11. And the fund no longer will get special treatment.
“As there are a number of funds (targeting the inner city) we don’t look any more or less favorably at the Genesis fund when bringing needed financing to a project,” said Jonathan Kevles, director of Hahn’s L.A. Business Team.
Shamrock’s own team, despite its claims of ambitious outreach efforts, hasn’t made its presence felt in inner-city development circles. It recently expanded its mandate beyond L.A. city limits, to all of L.A. County, although the fund’s managers insist they will still concentrate on deals inside the city. “I haven’t seen them on the deals I’m involved in,” said one lender targeting urban zones.
Large projects sought
In addition, the fund’s structure it seeks to invest $3 million to $10 million, and aims for a 15-19 percent return on its investment puts its capital out of reach of smaller developers who are the lifeblood of local activity.
“The type of project you run into in the inner city, they’re not typically that kind of scale,” said a developer who has taken a project to Genesis but didn’t like the terms. “They’re looking for large-scale projects, and there just aren’t that many that come up,” the developer said.
Bottom line, there’s nothing to distinguish the Genesis L.A. fund from any other private investment fund looking for opportunities, said Kosmont. “The difference is they have been willing to look at urban in-fill projects, but so what?” he said.
He points out that other funds target similar demographics, including one set up by CALPERS, the state employees’ retirement system, and a venture between Johnson Development Corp. and Canyon Capital Realty Advisors Inc.
Bruce Dobb, an economic development consultant, points out there’s plenty of competition to lend into the large projects Genesis targets, even in the inner city.
“To the extent they’re willing to go into inner city, tough locations, it’s all terrific,” Dobb said. “I don’t see Genesis coming forth with any new economic models for economic development.”
Richard Gentilucci, the Shamrock senior vice president in charge of the fund’s operations, admits that some of its projects have been held up by demands from community groups.
He also acknowledges that the mezzanine-level financing provided by Shamrock is too expensive to make sense for some smaller projects.
Yet he defends the fund’s accomplishments to date, and points to numerous projects in the pipeline.
“I think we will have three to four deals (in place) that will have a $10-15 million value in the next three to four months,” he said. He said Genesis fund has put in term sheets on these projects but hasn’t yet made a commitment.
To date, the Genesis fund has invested $3 million in a project at 1313 Vine in Hollywood, where the Academy of Motion Pictures Arts and Sciences will house its archives. It’s also put $2.5 million into a Venice artists’ residence project at the former Roger Corman film studio, and $9.5 million at the SunQuest Industrial Park development in Sun Valley. Of the three, only the SunQuest deal is among the 21 sites identified as target developments by the Genesis L.A. non-profit.
Gentilluci said the SunQuest deal, which includes both debt and equity, is a prime example of a deal that wouldn’t have gotten done without Genesis involvement. The property, which will occupy part of the city-owned Branford Landfill in Sun Valley, wasn’t zoned for the planned industrial park when the Genesis fund made its commitment, Gentilluci said. “Most lenders would not be involved in properties that have entitlement risk. We felt comfortable enough with the development and the process to take that risk.”
(The SunQuest project, which was delayed by negotiations with community groups, is dependent on city council approval of a sale of land to the developer, SunQuest Development LLC. Approval is expected by the end of the year.)
Meeting with many
Gentilucci also points out that he’s met with many possible partners, from major development players in the inner city to developers seeking as little as $500,000 although the fund’s goal is to invest in projects that are large enough to stimulate a ripple effect of residual development.
“We are talking to a number of developers, and they continue to talk to us. We’ve been tracking 10 projects (that aren’t ready for financing yet) and they continue to come back to us because the projects make sense.”
Among the three deals the Genesis fund has in the pipeline, Gentilucci said one the Lanzit Industrial site near Watts is a Genesis L.A. target site. “The city is in negotiations with the developer and we have had discussions with the developer. They have given us the indication they’d be interested in working with us, and we are very interested in working with them.”
This project, too, has been held up by community activists. Some critics have suggested that Shamrock hire someone who is more experienced in navigating the political landscape, but Gentilucci said he prefers to offer bounties to sources such as mortgage brokers or community activists who bring deals Shamrock’s way.
“We feel we can get a far broader base of individuals working on our behalf, sourcing transactions for us,” he said.
