Just last month, Hollywood developer CIM Group Inc. acquired a $32.5 million low-rise – a property critical to its plans to build the nation’s tallest residential tower at 1,300 feet.
But it isn’t in Los Angeles. It’s in midtown Manhattan.
Indeed, the prominent West Coast development company is making a huge splash in the country’s biggest city, investing in about $1.4 billion of property since January 2010 as it seeks to transform itself into a truly national firm.
At the same time, CIM has hardly reduced the scope of its West Coast ambitions.
Last month, the company bought up at least five West Hollywood parcels as it prepares to build one of the largest residential mixed-use projects in that city: the $400 million, nearly 500,000-square-foot Sunset Millennium retail, residential and hotel complex.
“It doesn’t surprise me, but it’s very impressive, especially for someone who knew them when they were smaller,” said Gwen MacKenzie, president of L.A. investment adviser Shopping Center Investments Inc., which leased storefronts for the firm. “I wouldn’t be surprised if they continue to grow.”
Indeed, CIM has long had a reputation as being a savvy and aggressive developer since it was founded in 1994 by former Israeli paratroopers Shaul Kuba and Avi Shemesh, and Richard Ressler, an executive at defunct investment bank Drexel Burnham Lambert.
None of the principals and no one at the company would be interviewed for this article.
CIM was on the ground floor at Santa Monica’s Third Street Promenade, buying and fixing up buildings before the shopping district became popular. It did the same in Old Town Pasadena, and more recently has been a key player in the revitalization of Hollywood, where it developed the Sunset & Vine Tower, a mixed-use apartment complex. It acquired the massive Hollywood & Highland Center in 2004.
It now owns at least 33 properties in Los Angeles County and 88 nationwide, including properties in Sacramento; San Francisco; Dallas; and Washington, D.C. The portfolio totals some $9.5 billion, but prior to last year it was still little known outside its West Coast base.
Now, in Manhattan, just as it did in Los Angeles over the past two decades, the company is getting into a market when prices are low. Though Manhattan still boasts some of the highest real estate prices in the world, the market has softened and CIM is buying up distressed properties where it can.
Since January of last year, it has bought or invested in at least 12 Manhattan properties and others are expected. If its expansion proves successful, CIM could join the ranks of elite bicoastal developers such as Related Cos., which built Time Warner Center in New York and the Century condo tower in Century City, and has a portfolio of $15 billion.
Mott Smith, principal at L.A. real estate development company Civic Enterprise Associates, said that it appears to him CIM is following the same path it did in Los Angeles and other cities: investing in existing properties in resilient urban cores where there’s little risk but a good upside.
“Their model is to pick a neighborhood that functions … make strategic investments and hope others makes strategic investments around them and grow up together,” Smith said.
N.Y. investments
A key to CIM’s success has been ready access to financing. Structured as a private-equity firm, it receives most of its financing from pension funds, including the California Public Employees Retirement System, the nation’s largest public pension fund with assets totaling nearly $220 billion.
It also receives funding from the Los Angeles City Employees Retirement System, which committed at least $25 million to CIM’s real estate investment trust this year. It also has received funding from other smaller funds like the Alameda County Employees’ Retirement Association as well as from state pension funds including Texas, New York and Virginia.
CIM has not disclosed how it is funding its New York acquisitions, but it’s believed the financing model has not changed.
“They’ve had some of the biggest pension fund partners so there would never be any trouble raising money,” MacKenzie said.
Still, it appears CIM is trying to raise some extra cash. Last month, it sold and leased back its headquarters at 6922 Hollywood Blvd. for $92.5 million to Hudson Pacific Properties Inc., a publicly traded real estate investment firm based in West Los Angeles.
CIM jumped into New York early last year in a big way when it took over a project by prominent local developer Harry Macklowe, who planned to build a 70-story, $1 billion-plus residential tower on 57th Street near Park Avenue. CIM was able to elbow its way by acquiring the $510 million debt on the project, which Macklowe had defaulted on.
Since then, CIM has bought up six 57th Street properties, most of which were low-rise retail buildings. The project would include a small hotel, an enclosed mall and a 1,300-foot tower, making it the nation’s largest residential tower.
CIM has not publicly confirmed that it is moving forward with the original development plan, but Macklowe remains involved in the project and CIM has filed permits with the city to begin excavation and some construction on the site.
Perhaps even more surprising: Just blocks away, another prominent local developer, Gary Barnett, is building a luxury condo tower that would stand about 1,000 feet tall and would be the tallest residential tower in the city upon its completion in two years.
The $1.4 billion project – which has drawn attention because some 55 stories are complete – is being funded by two investment funds in Abu Dhabi. The condos will start at $20 million and are mostly aimed at ultrawealthy buyers from overseas.
Smith said he was surprised CIM would make such an aggressive move in New York, but said the firm has a solid track record – though the tower would certainly be its signature building if completed.
“CIM has not made too many blunders in their history,” he said. “They’ve tended to hit some good singles, doubles and homeruns.”
Among some of CIM’s other investments in New York is a 36-story, 110-unit condominium building on 34th Street, which was completed this year and acquired in October after CIM bought up the project’s debt at a discount for $54 million.
It has invested in an unfinished condo complex on 22nd Street called One Madison Park, which went into bankruptcy. CIM has commited $200 million to help complete it.
And it recently partnered with Jared Kushner, publisher of the New York Observer, to buy a 130,000-square-foot mixed-use building on 200 Lafayette St. that is facing foreclosure. Kushner and CIM are paying $50 million and plan to convert the structure into Class A office space.
West Coast strategy
CIM has opened a New York office with the help of Ryan Harter, who oversaw the development of the Sunset & Vine Tower. But Kerry Morrison, executive director of the Hollywood Entertainment Business District, said that she has not noticed CIM being less active locally.
“It’s about the same,” Morrison said. “Except, they are beginning to migrate toward Sunset.”
Indeed, last month, the firm picked up the Sunset Millennium project in West Hollywood from Area Property Partners. Sunset Millennium is proposed as a 190-unit condo, 371-room hotel and 40,000-square-foot retail project. The complex awaits design review from the West Hollywood Planning Department.
CIM has not disclosed the price of the acquisition, which is not yet available in public records.
A few months earlier, CIM purchased the Old Spaghetti Factory building on Hollywood Boulevard that is entitled for 305 residential units as well as retail. It bought the property, which has sat untouched for years, for about $20 million from Washington Real Estate Holdings, which secured the approvals.
It’s also riding the success of the Redbury Hotel on Vine Street, which it bought for $16.8 million last year. The hotel has been turned into a popular nightlife destination and posh extended-stay hotel in partnership with prominent hotel and nightclub developer Sam Nazarian.
Still, Jerry Neuman, a development attorney who worked on the Hollywood & Highland project, said there is no doubt CIM is taking a substantial risk jumping into New York while still having so much on its plate in Los Angeles.
CIM has a good track record, but it has some misses. Among the most prominent has been the Midtown Crossing project in Mid-City. The West Pico Boulevard retail complex has failed to get off the ground since planning started in 2002. The project has come under criticism for everything from its proposed supergraphic billboards to its funding from the Los Angeles Community Redevelopment Agency.
“The question is do they have the sufficient infrastructure and how do they manage that from a cultural perspective so that the mission stays the same,” said Neuman, partner at downtown L.A. law firm Sheppard Mullin Richter & Hampton LLP. “I don’t know that they have that yet.”
