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Stockbridge’s Hollywood Park Bid Appears to Have a History

The private equity firm that unexpectedly emerged as the lead bidder for Hollywood Park first proposed buying the racetrack last year, long before owner Churchill Downs Inc. formally sought buyers, according to people involved in the process.


Stockbridge Capital Partners, a real estate fund that is redeveloping the site of Bay Meadows racetrack in San Mateo, spent months courting Churchill Downs executives before investment banker Lazard Fr & #269;res & Co. was hired to conduct an auction of the 238-acre site, these sources said.


The decision to negotiate exclusively with Stockbridge, reported by the Business Journal last week, took Inglewood officials by surprise. They expected to meet with two or three finalists before a final developer was chosen.


Now, some of the losing bidders wonder if Louisville, Ky.-based Churchill Downs and Lazard Fr & #269;res used the bidding process simply to set a price for a candidate that it already favored. “I would be disappointed if that is what happened,” said developer Bob Bisno, who is working with a partnership led by J.H. Snyder & Co.


Downs and Lazard Fr & #269;res used the bidding process simply to set a price for a candidate that it already favored. “I would be disappointed if that is what happened,” said developer Bob Bisno, who is working with a partnership led by J.H. Snyder & Co.


Snyder’s bid, for $250 million, was the second-highest among more than a dozen offers that Hollywood Park drew, according to sources involved in the bidding. Stockbridge bid more money and has agreed to let Churchill Downs continue managing the track for three years.


While losing bidders were generally aware of their competitors, none knew that Stockbridge was involved until it was selected as the winner.


“I don’t believe that it would be a professional way to market a property because it wastes a lot of people’s time,” Bisno said. “It undermines the credibility of the next deal sold by the principal.”


While such tricks may be frowned upon by losing bidders, investment bankers have long used them to extract the highest price for assets. And sellers have a duty to their shareholders to seek out the highest price possible, even if some egos are bruised.


“Nothing says the bidding process has to be fair,” said Lloyd Greif, chief executive of Los Angeles-based investment bank firm Greif & Co., which is not involved in the deal.


“Usually there is a disclaimer that goes out with bid instructions saying that the guy who is bidding is at the mercy of the seller, and the seller reserves the right to pick whomever they want. As long as the board picks a bid that matches the best offer, then that’s seen as fair.”



Taking initiative


Stockbridge and Churchill Downs officials met last year during the campaign for Proposition 68, according to people involved in the deal. The initiative would have allowed five California racetracks, including Hollywood Park and Bay Meadows, to install slot machines to better compete against Indian casinos.


When the ballot measure was defeated, Stockbridge officials approached Churchill Downs because they knew Hollywood Park’s owner wanted to cut its losses in California’s struggling horse racing industry.


Stockbridge had the advantage, sources said, of a proven record working with local officials to develop the land adjacent to Bay Meadows. A linchpin of the current deal was Stockbridge agreeing to hire Churchill Downs to manage Hollywood Park for three years as it goes through the entitlement process with city officials.


In Inglewood, though, Stockbridge will have to win over city officials who have become frustrated by the bidding process. Inglewood Mayor Roosevelt Dorn and several city council members said they were originally told by Churchill Downs executives that the city would be allowed to interview several top contenders as they emerged in the bidding process.


Inglewood City Councilman Curren D. Price Jr. said he would rather have had the city more involved in the process. But he noted that no development will occur without the city’s ultimate approval.



Undervalued assets


“They will have to come back to the city to determine uses, so we’ll be able to determine the outcome,” Price said, adding that the three-year management agreement ensures time for a lengthy public review.


Though Stockbridge Capital Partners is not a well-known name in Los Angeles, the firm and its executive managing director, Terry Fancher, have been buying up undervalued real estate assets for more than a decade.


Fancher headed the real estate investment banking group at the former Kidder Peabody & Co. and at its successor, PaineWebber, which bought Bay Meadows race track and its adjacent land in 1997.


(PaineWebber was bought by Swiss financial services firm UBS, which sold the fund to Fancher and his partners in 2003.)


A lawyer by trade who got his start working in the New York law office of O’Melveny & Myers, Fancher also has worked as an underwriter of real estate investment trusts.


The company’s first fund includes $490 million of investments in office buildings in Los Angeles, San Francisco and Boston. In Los Angeles, Stockbridge is part owner of Wilshire Courtyard (where the Business Journal has offices) in the Miracle Mile and the Pinnacle office and retail complex in Burbank.


The Hollywood Park deal is so large that other developers including losing bidders may be brought in to bite off parcels of land. For this reason, many losing bidders did not want to criticize Stockbridge or Churchill Downs on the record.



Development partner


Fancher is expected to bring in Wilson Meany Sullivan LLC, a San Francisco development firm that has won praise from city officials in San Mateo for its work on Bay Meadows.


“They’ve been very responsive to what the community has been talking about and to what has come up in public hearings,” said Bob Beyer, director of community development in San Mateo, which had a 17-member Citizen’s Advisory Committee and a two-pronged planning process for the 179-acre site.


Stockbridge also has a track record of agreeing to hire union workers on its developments, which should go over well in pro-labor Inglewood.


In addition, its Bay Meadows Land Co. has spent roughly $65 million on the area’s public transportation infrastructure a key issue for any development in traffic-snarled Los Angeles.


Steven Baum, chief investment officer at Five Mile Capital Partners LLC in Stamford, Conn., was Fancher’s boss at PaineWebber for nearly a decade.


“Terry is a master negotiator who is known for bringing disparate people together, for compromising and finding common ground,” he said. “He has shown that he has a direct interest in racing and in supporting a community over the long term.”

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