Marginal Returns

0
Marginal Returns
Dr. Patrick Soon-Shiong

The net worth of William Barron Hilton is telling.

After being hit with $600 million in investment losses during the downturn, the former hotelier’s fortune shot back up by 45 percent in just two years on the strength of blue-chip stocks.

But in the last 12 months, that dramatic rebound slowed due to a stock market that – despite a lot of ups and downs – ended up almost flat. The Business Journal calculates that Hilton, who sold his stake in the family’s hotel chain in 2007, saw his wealth rise in the last year by just 4 percent to $2.6 billion.

Still, his returns were larger than for many of L.A.’s wealthiest residents, who after years of huge drops and rebounds spurred by the downturn and recovery saw an average gain of only 2.5 percent.

Mall magnate Peter Lowy saw just a 1 percent rise to $760 million from small gains in publicly traded Westfield Group and a family investment vehicle. His net worth had risen 41 percent the previous two years.

Media mogul Sumner Redstone did better, but that means his net worth rose by a steady 5 percent to $4.4 billion. It marked a stark contrast with his recent wild swings in value, down 74 percent in 2009, up 65 percent in 2010 and up 42 percent last year.

“(The rebound) has really stalled. It’s renewing a lot of concerns,” said money manager Brad Levin, president of Legacy Wealth Partners in Woodland Hills.

In all, the cumulative fortune of L.A.’s 50 wealthiest residents rose roughly $3 billion, far smaller than last year’s gain of 16 percent that brought them nearly $15 billion. Only 10 people on the list saw double-digit percentage gains from last year compared with 20 a year ago. The slowdown in growth also means their cumulative wealth remains below a high of $114 billion set prior to the downturn. Biotech entrepreneur Dr. Patrick Soon-Shiong topped the list for the fourth straight year with a net worth up 3 percent to $8 billion.

Up and down

Still, there were big winners and losers. Shares of Public Storage Inc. rose about 20 percent, propelling largest shareholder Tamara Hughes Gustavson’s net worth from $2.4 billion to $2.82 billion. And stock gains in electric-car maker Tesla Motors Inc. helped land founder Elon Musk on the list for the first time. His net worth is calculated at $2 billion.

Shares of construction company Tutor Perini Corp., meanwhile, plummeted nearly by half, contributing to Chief Executive Ronald Tutor’s decrease in net worth from $790 million to $615 million and dropping off the Business Journal’s list.

Media and entertainment stocks were a mixed bag. Walt Disney Co. continued its strong rebound. That propelled Michael Eisner, its former chief executive, to the $1 billion mark on the strength of his company stock holdings.

On the other hand, a roughly one-third plunge in DreamWorks Animation SKG Inc. shares dropped Chief Executive Jeffrey Katzenberg from $930 million to $865 million. It also partially offset gains in other areas for co-founders Steven Spielberg and David Geffen, limiting the increases in their net worth.

Elsewhere, stock gains for Mercury General Corp. and Qualcomm Inc. meant positive returns for Mercury founder George Joseph and telecommunications player Neil Kadisha, respectively. Double-digit losses at Occidental Petroleum Corp. and Dole Food Co. led to declines in the net worth of Occidental Chairman Ray Irani and Dole Chairman David Murdock.

It also was a year some wealthy investors moved away from stocks.

Financier Michael Milken and his brother, Lowell, have been steadily reducing all of their publicly known stock holdings, recently selling off yet more shares in education companies LeapFrog Enterprises Inc. and K12 Inc. Tutor’s stake in Tutor Perini has dwindled by half. And Kirk Kerkorian has sold off nearly $500 million in MGM Resorts International stock since 2008.

“It’s been really four solid years of money moving out of stock funds into bond funds and alternative strategies,” Levin said. “People have not been participating in stocks.”

One duo bucking that trend was Howard Marks and Bruce Karsh, the co-founders of Oaktree Capital Group. Oaktree had an initial public offering in April. Though the IPO was weaker than expected, each still reaped a $73 million payday and owns a 14 percent stake worth $900 million.

Real estate rebound

Those with real estate holdings saw better returns. Nationally, commercial properties are up 4 percent in value, according to Costar’s Commercial Repeat Sales Index, and the Class A properties owned by local billionaires meant even higher appreciation at those levels.

The hottest real estate sector continues to be apartments. Taking advantage has been Donald Sterling, who told the Business Journal he owns 155 buildings in Southern California after acquiring 15 in the last year. Their appreciation helped drive a rise in his net worth from $2.6 billion to $3.25 billion.

“We saw probably the best returns over the last year for people that were invested in apartment houses,” said money manager Lon Morton of Morton Capital Management in Calabasas.

Mall developer Rick Caruso, owner of the Grove and Americana at Brand, jumped 10 percent to $2.2 billion on an increase in value on his nearly fully leased, low-debt portfolio. That’s up from $1.53 billion in 2009. Industrial developer Ed Roski Jr., whose Majestic Realty Co. owns 73 million square feet of property across the country, benefited from a rise in industrial property values nationwide. The Business Journal calculated that his net worth appreciated 4 percent to $2.3 billion.

Cable TV entrepreneur Marc Nathanson’s net worth jumped 10 percent based on diversified investments, including real estate, which he described to the Business Journal as “doing a little better.” Murdock’s losses at Dole were partially offset by a vast real estate portfolio owned by privately held Castle & Cooke Inc.

Still, the struggles of two prominent local developers were a reminder that real estate is no easy game. Apartment developer Alan Casden lost control of six properties after a breakup with partner Cerberus Capital Management. Lenders have also filed for foreclosure on Casden’s Beverly Hills headquarters building. The troubles caused the Business Journal to drop his net worth from $2.63 billion to $1.3 billion. Robert Maguire is underwater on his most valuable property, the 900-acre Solana business park in Dallas, resulting in an 8 percent drop in his net worth to $850 million.

New investments

Despite the lackluster capital markets, the city’s wealthiest residents aren’t sitting on the sidelines.

One area that has received a lot of attention are media and entertainment companies, particularly those overseas. Forever 21 co-founders Do Won and Jin Sook Chang, who saw their net worth rocket from $2.45 billion to $4.3 billion, invested $43 million in a new South Korea TV channel last year. Univision owner Haim Saban invested $30 million in Hong Kong television company Celestial Tiger Entertainment and $78 million in Indonesian broadcaster Nusantara Media. Kirk Kerkorian has indicated that he was interested in entertainment industry opportunities in the Chinese, Indian and Latin American markets.

There was also plenty of local action in that industry as well. Entertainment mogul David Geffen invested in Sony Corp.’s $2.2 billion bid to buy EMI’s music publishing library. Pending approval, it would be his first major public entertainment deal since co-founding DreamWorks. Michael Eisner is reportedly investing in a film and television production venture for which he’s seeking $800 million in financing.

Local billionaires also vied to invest in sports teams, most notably participating in the bidding process to buy the Los Angeles Dodgers out of bankruptcy. Several of the people on the Business Journal’s list, including Caruso, Casden and Soon-Shiong, placed bids.

When former Dodgers owner Frank McCourt finally did sell the team, for $2.15 billion to a group led by Guggenheim Partners, it was enough to land him back on the Business Journal’s list at a net worth of $960 million, even accounting for his divorce settlement, banker and attorney fees, taxes and debt.

Indeed, sports teams, long seen more as toys than investments, proved to be an unlikely source of big returns this year. Sterling’s Los Angeles Clippers, which he bought for $13 million in 1981, had their strongest season in years and continue to appreciate in value. Ed Roski Jr. also benefited from the increased worth in his stakes in the Los Angeles Lakers, which jumped in value by 40 percent due to a new television deal, and the Los Angeles Kings.

“Most people that are buying sports teams are almost doing it as a hobby,” wealth manager Morton said. “But there’s also the thought that the value of sports teams is going higher and higher. It’s kind of a greater fool theory.”

Meanwhile, others got involved in politics – but sometimes less with ideology than business in mind. Roski has contributed more than $75,000 to politicians in Pennsylvania, where his Majestic Realty is trying to develop a 500-acre industrial park. Mercury’s George Joseph, meanwhile, is backing a November ballot measure that would allow insurers to offer discounts to drivers who switch providers. A similar measure he backed in 2010 was voted down.

The past 12 months also saw the city’s wealthiest residents continue their involvement in philanthropy. Among the biggest donors were Kerkorian, who donated $18 million to the Andre Agassi College Preparatory Academy in Las Vegas; Lowell Milken, who donated $10 million for a new business law institute at UCLA; and Berkshire Hathaway Vice Chairman Charles Munger, who gave $1.2 million in company shares to his alma mater University of Michigan.

Warren Buffett and Bill Gates’ Giving Pledge requiring signees give away a majority of their wealth to philanthropy also attracted more Wealthy Angelenos. At least eight L.A. residents have signed the pledge, including one of the newest additions to the list, Tesla’s Musk.

Following the Money

The Business Journal calculates the net worth of L.A.’s wealthiest residents through several methods. It asks all candidates for details on their portfolio, such as stock holdings, real estate, private equity investments and debt. Some deny our request and ask to be removed from our list. Others provide detailed information, some on the record, some off.
Reporters double check provided valuations through the same methods they obtain valutions for those who decline to participate: by consulting public records, data bases and experts. Stock holdings, for example, are often disclosed in Securities and Exchange Commission filings, while wealth managers, real estate brokers and industry consultants can be very helpful.
The final numbers are fairly accurate, but sometimes it is difficult to obtain more than a rough estimate for a minority who have private holdings and refuse to cooperate. The list does not include residents other sources may cite as L.A. billionaires if we cannot obtain our own independent verification
– Laurence Darmiento

No posts to display