Other industries in L.A. might generate sexier headlines, but it’s still real estate that runs the town.
In fact, when it comes to this year’s list of the wealthiest Angelenos, real estate is one of the most common denominators.
Whether they earned their fortunes through property investments or just added to their wealth with the right mix of real estate holdings, a wide swath of the members on the Business Journal’s list boast a strong ground game.
Appreciation of real estate across all asset types helped bolster the net worth of developers and long-term property holders alike.
“Ever since we got out of the last recession, the real estate market has generally fared very well,” said Paul Habibi, a lecturer in real estate at UCLA. “The market is very stable, especially in industrial and multifamily. We’ve seen good growth in value of properties.”
From April 2018 to April 2019, L.A. single-family home values increased 3.3%, according to data from CoreLogic Inc.
From May 2018 to June 2019, the price per square foot of office and industrial buildings increased 21%, according to data from CBRE Group Inc. Retail properties increased 50%, and multifamily units appreciated 9% per unit.
The Wealthiest Angelenos from other fields have gotten in on the game, purchasing a range of properties to pad or diversify their portfolios. One reason is that real estate is seen as a relatively safe asset by most buyers and investors.
“Real estate has generally been a very stable source of wealth for many individuals, Angelenos included,” Habibi said, adding that real estate is a “primary source of wealth generation for many.”
Real estate allows wealthy Angelenos to leverage their assets, use third-party capital and take advantage of an array of tax benefits.
It’s also attractive, Habibi said, because it allows for “passive activity,” meaning that investors can hold onto real estate as a side business that doesn’t require much daily effort.
Developer Rick Caruso had a huge year, thanks to multiple new properties.
In September 2018, he opened Palisades Village, a retail center in Pacific Palisades with more than 40 storefronts.
In March, he opened Rosewood Miramar Beach — his first resort project — in Montecito. The luxury hotel has 161 rooms and seven restaurants and bars.
Caruso’s holdings have grown by nearly $1 billion from the Business Journal’s 2018 Wealthiest Angelenos edition.
In addition to the retail projects with which he made his name, Caruso has worked on multifamily and office properties in recent years. He also has substantial personal real estate holdings.
Habibi said that for developers like Caruso, investing in multiple asset types is a way to protect themselves in case of a recession.
“Anytime one is not diversified, there is a certain level of risk,” he said. “Real estate investors have a hard time really diversifying themselves because their portfolios are the primary source of their net worth. Some folks diversify within real estate. That might mean investing in numerous cities or in other product types. That’s not necessarily reducing that risk but it’s spreading it out a bit.”
Developer Geoffrey Palmer also saw an increase in wealth driven by projects that either opened or are underway. Palmer had a portfolio of nearly 12,000 units valued at $4.5 billion with close to 3,000 units in development or under construction. Like Caruso, he also holds a sizeable amount of personal real estate.
Fellow billionaire Marc Nathanson made much of his wealth from the $3.7 billion sale of Falcon Communications in 1999, but he also has an extensive real estate portfolio. His Mapleton Properties, which invests in family, office and industrial assets, has real estate holdings valued at $571 million, up from $400 million the previous year.
Legacy real estate
Not all members of this year’s list took an active role in the real estate market.
Vera Guerin, who earned much of her wealth from the sale of a 43% stake in Shapell Industries Inc., has considerable real estate holdings. Despite not having any noticeable change in assets over the last year, the overall appreciation of real estate increased her net worth by 13%.
Edward Roski Jr., the president and chairman of industrial real estate development group Majestic Realty Co., saw an increase in wealth driven by an overall appreciation of the real estate market. The group owns about 78 million square feet of industrial space.
Donald Sterling, former owner of the Los Angeles Clippers, has significant real estate holdings, which are valued by the Business Journal at roughly $3.4 billion, a large year-over-year increase.
Another large chunk of his wealth came from the sale of the Clippers to former Microsoft Corp. Chief Executive Steve Ballmer for $2 billion.
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