Billionaire developer Rick Caruso is creating suspense with his expected announcement this week on whether he will challenge Los Angeles Mayor Antonio Villaraigosa in the spring election.
And if he does take on the mayor, the upscale mall developer will break the mold for the traditional businessman turned politician.
Unlike former L.A. Mayor Richard Riordan or current New York City Mayor Michael Bloomberg both of whom ran for office as their business careers had peaked Caruso’s career is in full bloom with proposed developments spanning from Santa Barbara to Santa Anita.
What’s more, the 49-year-old builder of the Grove has a penchant for taking a personal interest in his projects. To wit: He freely hands out his cell phone number while seeking approvals of his projects and speaks to every buyer of his condo units.
The big question is whether a guy who is so busy with the nuts and bolts of his still-arcing business can take on the full-immersion task of running for mayor.
“He’s very hands on, but he has an enormous capacity to do lots of things,” said Richard Lichtenstein, a political consultant and owner of Marathon Communications Inc. “But if his projects are economically upside down and challenging, which they may be, he might feel he needs to spend more time shoring up his businesses.”
For example, the Americana at Brand mixed-used project in Glendale, which opened with much fanfare in May, has seen slow sales of its 100 luxury condominiums. And an opponent of his proposed $200 million redevelopment of the Miramar hotel recently filed an appeal of the project’s approval.
Moreover, Caruso is bogged down in a long-running battle over his proposed $400 million shopping mall at Santa Anita Park. A judge recently sided with rival Australian mall developer Westfield Group, ruling that Caruso must redo an environmental impact report.
Caruso acknowledged to the Business Journal last week that he does “enjoy being directly involved” with his projects. But he maintained that if he does run for mayor, it would be because of his family. He must make a decision by Nov. 8.
“There are certain things I enjoy doing that I don’t need to do. I like the details. I like the vision and seeing that vision being implemented,” he said. “(But) I have a strong team that I would put in charge. The business is healthy and isn’t a hindrance to me at all. The issue is with my family I have two young kids.”
Indeed, Caruso does have a strong support team. About 250 employees work for Caruso Affiliated Holdings LLC, which might be called a “vertically integrated” developer. All engineering and design is performed in-house, as well as accounting and finance. Caruso himself has been known to personally select materials and finishes.
Offering enticements
Consider how he is handling Americana at Brand, which despite its luxury appeal has not escaped the woes of the souring residential real estate market. Ninety-eight percent of the retail space has been leased, and apartment rentals are at 60 percent occupancy, according to Caruso.
But prospective renters are being offered enticements such as one month’s free rent, and he admitted the condos aren’t selling quickly.
“There’s a good amount of interest, and we give a ton of tours during the week,” he said. “The problem is people can’t sell their homes or are having a tough time getting financing. A lot of people are on the sidelines even if they can afford it.”
Condo prices started at $700,000 when they went on sale in early May. But by the end of August starting prices were lowered to the mid-$500,000s, with the most desirable units topping out at $2.5 million.
Caruso said he does not plan to lower prices any further, but he has been talking directly to buyers. Louie Sadd, a Glendale technology consultant, recently bought a condo for $561,000, but, he said, only after Caruso himself called to negotiate.
“He talked to me person to person, took notes, and listened to my unique situation,” Sadd said. “He seems really busy. It’s interesting that a billionaire would take the time and didn’t think it was beneath him to sell a half-million-dollar condo to me.”
Caruso disputed the characterization of his call as a “negotiation,” but acknowledged calling Sadd.
“Yes, I called to thank him for buying and for being a part of our community, as I have with everyone who has purchased a condo. I don’t get involved in the negotiations,” he said.
Caruso did say he was offering buyers the option of temporarily living in the apartments until their condos close escrow, with the rent paid credited toward their condo’s closing costs.
He also has decided not to close escrow on any of the condos until more than half have been sold, which would reduce the money he legally would have to spend on homeowner association fees on unsold units. The monthly fees range from $800 to $1,000.
As a result, Sadd said he settled on a deal that required him to put up a $20,000 deposit in exchange for a contract to buy his condo within 365 days something he said he understood all the buyers were being given.
Caruso wouldn’t confirm those details, but did say he does have a “bunch of condos under contract.” He added: “We’re stuck in this economy, but we’re holding prices. We’re going to ride this economy out. We’re in no rush. We’ve got the capital.”
At the races
Also dogging the developer is his 60-acre Santa Anita project, which would be built next to the racetrack and would be his biggest shopping center to date.
Westfield and some residents have battled the project since it was first proposed four years ago, pushing through a ballot measure that prohibited Caruso from building residential units there.
Then in July, a judge ruled that 11 sections of the environmental impact report needed to be redone, which will delay the project for a year and push the opening to 2012. Westfield filed the challenge to the report last year.
And his resort development at the old Miramar hotel site in Montecito looked like it had finally been given the green light last month when the Montecito Planning Commission approved the project.
Caruso bought the closed and dilapidated hotel in January 2007 with plans to build a $200 million resort, but ran headlong into opposition from residents who fear the 202-room project was just too big. But then in late August was given planning commission approval after downsizing several guest rooms and making other changes.
Then just a few weeks ago, an appeal of the commission’s decision was filed by a local resident, which means another hearing before the Santa Barbara County Board of Supervisors Dec. 9.
In a typical display of how Caruso handles such matters, instead of dispatching one of his subordinates, he drove up to Montecito himself last week to try to resolve the issue so it wouldn’t have to go to the board.
“It’s important for me to be there as a principal of the company to try to settle the matter,” he said.
