Thomas Barrack Jr.
Chairman and CEO
Colony Capital Inc.
Total Portfolio Value: $6 billion
Notable L.A. Property: Water Garden II
One of L.A.’s most prolific and successful real estate investors, Tom Barrack heads Colony Capital Inc., the quintessential “opportunity fund” that specializes in buying undervalued assets at bargain prices and waiting for the market to turn around.
In the early ’90s, Barrack bought $1 billion worth of apartment buildings at rock-bottom prices when the Resolution Trust Corp. was selling off holdings from failed saving and loans and few people wanted to touch real estate investments.
In the late ’90s, he teamed up with real estate services firm Kennedy-Wilson Inc. to invest $1 billion in Japan, after the collapse of the real estate market there.
Locally, he is an investor in the 600,000-square-foot second phase of the Water Garden office project in Santa Monica.
Barrack’s approach to real estate investing has been groundbreaking in that he focuses not just on buying bricks and mortar but also on acquiring companies that are real estate-dependent. As a result, his numerous investments include casinos, hotels and public storage companies.
These days Barrack is exploring a new strategy. Now that Gary Winnick, founder of Global Crossing Ltd., has bought a majority stake in Colony Capital, Barrack and Winnick are joining forces to invest in switching stations, telecommunications easements and other real estate infrastructure needed by “new economy” companies.
At the time of the deal with Winnick, Barrack said that alliances rather than location have become the key ingredient for success in the real estate business, and that eventually Colony Capital and Winnick’s investment firm, Pacific Capital, may invest in insurance and financial services companies as well.
The son of a Lebanese grocer, Barrack, 53, grew up in Culver City and attended law school at USC. He worked as a lawyer before embarking on his real estate career in 1976.
Since then, he has served as an executive at a number of firms, including a stint as managing director of RMB Realty Inc., the real estate investment and management vehicle of Texas investor Robert M. Bass. In addition, Barrack served two years as deputy undersecretary of the U.S. Department of the Interior.
Total Portfolio Value: $700 million
Notable L.A. Property: Several deals pending
With $150 million earmarked for spending in Southern California, Wayne Brandt is planning scores of deals in the Los Angeles area this year.
“We’re looking to invest heavily in Los Angeles in downtown, Tri-Cities, South Bay with a particular focus in telecom development and redevelopment,” Brandt said.
Menlo Equities focuses on conversions of office, R & D; and telecom space, such as converting empty warehouses to hold telephone switching equipment or Web-hosting facilities. While this is considered an opportunistic niche due to the rapidly increasing demand for such facilities, the firm isn’t thinking short-term.
“We’re not going to ignore our core strategy, which is to be a long-term holder, up to seven to 10 years,” Brandt said.
Besides the $150 million targeted for investment in Southern California, Menlo Equities, which is based in the Silicon Valley city of Menlo Park, plans to spend another $150 million in Northern California. That’s a big jump from last year, when it invested a total of $165 million. Brandt works out of the company’s office in downtown Los Angeles.
Menlo Equities garners its capital funding through private equity, family foundations and trusts, and investments from wealthy individuals most of whom are Silicon Valley millionaires.
Due to current growth opportunities, Menlo’s partners have targeted L.A., Irvine and San Diego to diversify their portfolios; as such, the firm is expected to become a significant local investor. Those Southern California cities are known as “knowledge-worker markets,” where the tech communities are coming into their own and wired facilities are in demand.
Tishman Speyer Properties Inc.
Total Portfolio Value: $400 million
Notable L.A. Property: MGM Plaza
Jim Brooks is a key player in Tishman Speyer’s new push to become one of the premier investors in large-scale commercial properties in the L.A. area. He came to Tishman from Kearny Real Estate Co. two years ago, with the task of building up the local holdings of well-funded, New York-based Tishman Speyer, which owns a worldwide real estate portfolio worth $14 billion.
At the time, Tishman had only one L.A. office building, The Tower at Wilshire Boulevard and Gayley Avenue in Westwood, which it co-owned with Travelers Insurance Cos.
Tishman now has a portfolio of 1.3 million square feet in Southern California, with a valuation of about $400 million. The bulk of that comes from the acquisition last month of the 1 million-square-foot MGM Plaza in Santa Monica.
“Our mantra is to continue the development and acquisition of class-A office product with space greater than 200,000 square feet, with the focus on the western portion of L.A. County,” Brooks said. “There’s little or no new product there, so it presents tremendous barriers to entry for less-capitalized players.”
Brooks has a low-key, direct negotiating style that doesn’t put off potential sellers.
“He’s very personable and he checks his ego at the door when he goes into negotiations,” said David Thurman, senior vice president with Grubb & Ellis Co.
Brooks believes the recent rise in interest rates has merely slowed down the market a bit, not brought it to a halt.
“Some of the properties were beginning to be overpriced and have come down to more reasonable levels,” he said. “The market is still fundamentally sound.”
But the perception that the market may have peaked has prompted some owners of trophy Westside properties to put their assets on the market, which makes for some prime opportunities, Brooks said.
President and CEO, Real Estate Division
Shamrock Holdings Inc.
Total Portfolio Value $200 million-plus
Notable L.A. Property: Raleigh Studios Manhattan Beach
George Buchler never gets bored with the diverse real estate ventures handled by Shamrock Holdings Inc.
Can you blame him? There are sound stages in Manhattan Beach, a corporate center in the San Fernando Valley, and an upscale senior housing development outside Reno.
Buchler has spent 13 years with Shamrock Holdings, a private investment fund co-founded by Roy Disney and Stanley Gold.
He was recently named president and chief executive of the real estate division, which has invested north of $200 million in its L.A. portfolio. Shamrock favors retail, commercial and industrial projects that have already lined up tenants or prospective owners. Once a deal is done, Shamrock acts as co-developer, signing off on all major decisions.
One of Shamrock’s major real estate investments has been West Hills Corporate Village, an earthquake-damaged commercial complex that was practically abandoned after the 1994 Northridge temblor. Shamrock Holdings, with Regent Properties, purchased the 30-acre complex for $100 million in late 1997. After renovating the office portion, Shamrock leased nearly one-third of the property to Rocketdyne Propulsion & Power, a division of Boeing Co.
Also in late 1997, Shamrock bought Raleigh Studios Manhattan Beach, where TV programs such as “The Practice” and “Ally McBeal” are filmed. Shamrock recently put the studios up for sale for $130 million.
“It’s fully occupied now by our tenants, and we think it is an opportune time to sell it,” Buchler said.
Buchler is also leading the capital-raising charge for Genesis L.A., the inner-city investment fund spearheaded by Mayor Richard Riordan that’s managed by Shamrock.
Shamrock is also looking beyond L.A. for investments. It’s currently developing, in conjunction with housing developer Jenamar Co., a 480-unit senior-citizen housing development in Sparks, Nev.
Buchler, a graduate of Cal State Northridge, started his career at Arthur Andersen & Sons as a commercial auditor. For 12 years, he was vice president and chief financial officer at Shamrock Holdings.
Chadwick, Saylor & Co. Inc.
Total Portfolio Value $1.7 billion
Notable L.A. Property: None
Until last year, Bill Chadwick, founder and principal partner of Chadwick, Saylor & Co., had operated his real estate investment banking business largely behind the scenes, quietly investing with real estate investment trusts and pension funds in various properties around the nation and building up a portfolio exceeding $1 billion.
But then Chadwick burst on the scene for something only tangentially related to his real estate investment business: L.A.’s failed bid for a professional football team. Chadwick, a longtime friend of Gov. Gray Davis, was tapped by the governor as his personal representative in talks with the National Football League. In the end, Houston outbid L.A. and Chadwick returned to his business, but not to obscurity.
Earlier this year, he announced the formation of Metropolitan Development Partners, a joint venture between Chadwick Saylor, Ron Burkle’s Yucaipa Cos. and the Wetherly Capital Group, to invest up to $750 million in urban infill projects. This type of investment has really accelerated in recent months as more upscale areas have become too pricey.
The Metropolitan fund officially opened this month. “We really believe that there are tremendous development and redevelopment opportunities in urban locations,” Chadwick said.
He added that Metropolitan hopes to invest primarily in retail and multi-family projects, with a possible smattering of hotels and offices. What’s more, Chadwick said, all of the projects will use union labor.
Chadwick hasn’t given up entirely on the football effort. He remains on the Coliseum Commission and says it is still “actively looking for a tenant for the Coliseum.” The most attractive tenant now, he says, would be an existing NFL team looking to relocate to L.A.
Pacific Coast Capital Partners LLP
Total Portfolio Value: $750 million
Notable L.A. Property: Port of L.A.
Nick Colonna believes that, although it’s becoming harder to find good real estate investments, Los Angeles’ unique position as a hub for international trade will continue to create some excellent opportunities for savvy investors.
Earlier this year, Colonna’s firm, Pacific Coast Capital Partners LLP, partnered up with developer Overton Moore & Associates to finance an $80 million, 1.8 million-square-foot industrial park in San Pedro, one of the largest new developments in L.A. County.
“We are particularly bullish on the growth potential for port-related businesses, such as distribution-and-fulfillment centers, as well as those near other centers of merchandise movement, like the Alameda Corridor and LAX,” Colonna said.
But light industrial usage is hardly the sole focus for Colonna and his partner William Lindsay, who together oversee Pacific Coast’s Southern California investments. Last month the firm invested in a 73-acre site off Coldwater Canyon in Beverly Hills. The property was acquired from Texas millionaire David Saperstein, whose plan to build a horse stable on the site ran into opposition from neighbors.
Pacific Coast, in a joint venture with homebuilder McGregor Co., plans to undertake grading, infrastructure and landscaping improvements and then sell individual home lots.
Colonna started Pacific Coast a little over two years ago, along with Lindsay and two other partners Aaron Giovara and Donald Kuemmeler, who work out of Pacific Coast’s San Francisco office. Like Colonna, his partners are former principals of Wells Fargo Bank’s Capital Market Group.
At Wells Fargo, Colonna was responsible for originating more than $850 million in bridge loans, $200 million in mezzanine loans, and $150 million in equity investments, over a three-year period. Prior to that, he had restructured more than $1 billion in problem loans as a principal in Wells Fargo’s managed asset group.
Colonna and his partners formed Pacific Coast to go after under-performing assets, development deals and investment opportunities that don’t show up on the radar screens of the larger institutional investors. During the past two years, the firm has closed 38 deals with a total value of $1.2 billion, mostly as direct equity investments in California.
“We are now at a point in the cycle where execution has become the No. 1 priority,” said Colonna. “That’s the reason we invest only in California, because you need to be close to the submarkets and really understand them to know where the opportunities lie.”
Partner and CEO
Total Portfolio Value $1 billion-plus
Notable L.A. Property: Trillium at Warner Center
Michael Croft was part of the brain trust at Maguire Thomas Partners that left that firm four years ago to strike out on their own. Since then, he has positioned their new firm, CommonWealth Partners, as a premier co-investor in Southern California.
CommonWealth has made a name for itself primarily through its investment alliance with the huge California Public Employees Retirement System.
When Croft and partners Ned Fox, Richard Gilchrist, Jim Anderson and Peter Johnston launched CommonWealth four years ago, the firm was merely another player looking for good properties to buy or develop on behalf of major tenants. It wasn’t long before they landed a major deal: developing a 250,000-square-foot headquarters for LA Cellular in Cerritos.
Two years ago, CommonWealth saw an opportunity to form an alliance with the state employees’ retirement system, which would position the fledgling firm to help guide billions of dollars of investments made with pension fund money. CommonWealth beat out a dozen bidders to get the contract in July 1998.
Through its partnership with CalPERS, CommonWealth has built up a portfolio of more than $1 billion nationwide, with $750 million of that being in commercial properties throughout the Southwest, including the 801 S. Figueroa St. Tower in downtown L.A. and the Trillium office high-rise in Warner Center.
“They have definitely earned and deserve the trust of CalPERS,” said Lisa St. John, senior vice president of Trammell Crow Co. “It’s a huge portfolio going to a very young company, which indicates just how seasoned the people are at CommonWealth.”
Last summer, CommonWealth and CalPERS expanded their partnership, launching a $100 million fund to invest in inner-city infill projects. So far, Croft said, one deal has been closed providing funding to an affordable-housing developer for several projects in South Central L.A. and Oakland. The fund is looking at several similar projects.
CommonWealth itself is also considering investing in sites for industrial-to-office conversions, especially in places like El Segundo, Croft said.
West Coast Managing Director
Morgan Stanley Real Estate Funds
Total Portfolio Value $6 billion
Notable L.A. Property: Playa Vista
Currently “a breath away” from fully investing the $2.1 billion in Morgan Stanley’s third real estate fund, Jeff Dritely is gearing up to start raising his firm’s fourth fund.
Since Morgan Stanley launched its first real estate fund in 1993, Dritely has been investing an average of $300 million to $400 million a year. And he’s not expecting to slow that pace any time soon.
At the moment, Dritely is directing 60 percent to 70 percent of his firm’s investment capital to properties in Asia and Europe, with the remainder going into U.S. properties.
“It’s not so much a fear of the peak of the real estate cycle here, it’s just that there are better opportunities (in Asia and Europe),” he said. “In Asia, you can buy assets substantially below replacement cost. And in Europe, there are some fairly major renovation opportunities.”
In the U.S., Dritely and his team are focusing primarily on funding ground-up developments and major renovations, rather than on existing top-quality buildings. And a primary domestic target is Southern California.
“I’d say Southern California is on the top of our list, domestically, in terms of attractiveness,” Dritely said.
Morgan Stanley’s most recent investments have been in Northern California the 3,200-acre McClellan Air Force Base site, where development of what will be the region’s largest business park is planned, and a 20-acre site in South San Francisco, where a 600,000-square-foot office project is planned.
Locally, Dritely’s focus has been on Playa Vista, where Morgan Stanley is one of the three big capital partners, along with ULICO and Goldman, Sachs & Co.
“We’re pretty confident (about Playa Vista),” Dritely said. “We’re building the apartments, and we have the site at Lincoln and Jefferson (boulevards) for sale, which is entitled for 400,000 square feet of office space. That sale should happen in the next 60 days.”
The company is also targeting the Tri-Cities area with its acquisition of Glendale Plaza and the two-building Pasadena Corporate Park. A tenant deal involving one entire building in the Pasadena park will be announced as soon as this week, Dritely said.
The Carson Cos.
Total Portfolio Value: $240 million
Notable L.A. Property: Dominguez
Jim Flynn’s new job says a lot about the maturity of the real estate market in Southern California.
Flynn joined the Carson Cos., a private real estate investment trust based in Rancho Dominguez, last August after a 16-year tenure with AEW Capital Management and its predecessor company, Copley Real Estate Advisors.
At AEW, Flynn oversaw the Boston-based investment firm’s $3.5 billion West Coast portfolio, and his recruitment by the Carson Cos. is an indication of that firm’s renewed interest in real estate investments over and above development, its traditional bread and butter.
“Investments are becoming a bigger part of our activities because there are fewer development opportunities,” said Flynn. “Just recently we acquired a $16 million, 285,000-square-foot distribution center in Santa Fe Springs, and we are selling some of our older assets in order to invest in newer, state-of-the-art distribution centers throughout Southern California.”
The Carson Cos.’ portfolio is 90 percent industrial, and Flynn says future investments will focus exclusively on industrial properties, particularly distribution facilities, in Southern California. With the rapid growth of international trade through the ports of L.A. and Long Beach, and with an acute shortage of class-A industrial space to accommodate the flow of goods passing through the region, he believes there is a tremendous opportunity for his company here.
As Flynn looks for industrial properties to buy, he is also overseeing 900,000 square feet of industrial space under construction. Moreover, the Carson Cos. has 3 million square feet of additional industrial space on the drawing board for various South Bay locations.
Whereas at AEW Flynn’s job was primarily to deploy capital in real estate investments, at the Carson Cos. he is charged with both managing the company’s real estate portfolio and raising capital from institutional investors for new ventures.
“It’s always a challenge to match capital with a business plan,” said Flynn. Although he would not disclose specifics, Flynn indicated that the company is near to closing two major deals with institutional investors.
Vice President, Western Regional Manager
Total Portfolio Value: $1 billion
Notable L.A. Property: Sunset Media Tower
Nancy Haag entered the Southern California commercial real estate market more than 20 years ago because she believed it would be the best place for a new business school graduate. At the time, she was one of the few women in the field, and she’s still among a minority.
Haag joined the local office of Dallas-based Archon in 1997 and now heads the Western regional office, overseeing 28 employees at the downtown office in California Plaza.
Haag specializes in buying and selling commercial properties on behalf of Archon, a subsidiary of Goldman, Sachs & Co. that manages a $6 billion portion of the Whitehall Street real estate investment fund. (Haag’s western region handles $1 billion of the firm’s $6 billion portfolio.)
Last October, Archon paid $41 million for the 21-story Sunset Media Tower at 6255 Sunset Blvd. in West Hollywood, where tenants include House of Blues and A.C. Nielsen.
Other local buildings owned by the fund include the 85,000-square-foot Wilshire Rexford office building at 9301 Wilshire Blvd. in Beverly Hills, which was acquired in 1998 for $18 million. Also in the portfolio is Janss Marketplace in Thousand Oaks, a shopping center that encompasses 460,000 square feet.
Archon’s latest West Coast deals include buying the Aventine building in La Jolla, in partnership with Strategic Hotel Partners in Chicago, for more than $140 million. Haag is also working on a $70 million deal to buy a complex of eight office buildings in San Jose from Divco West Properties.
Over the years, Haag’s investment strategies have changed.
“Today I look at real estate somewhat differently than I did 20 years ago,” she says. “I focus more on societal workplace trends, selecting more by the area and product you want to invest in. Hollywood would be a good example of where the residential areas have come back recently and have revitalized the area, along with what the Community Redevelopment Agency has done.”
Hertz Investment Group
Total Portfolio Value: $200 million-plus
Notable L.A. Property: CaliforniaMart
Judah Hertz is a relative newcomer to the Los Angeles real estate scene. He moved here a decade ago from Miami, where he was busy converting apartments into condos.
A native of Brooklyn, he started his career in the late 1970s as a pioneer in the gritty SoHo district of Manhattan. He was one of the first to take down-at-the-heels warehouses and industrial structures and transform them into upscale residential lofts.
Now he has brought that approach to downtown Los Angeles, where he has been scooping up historic buildings and rehabilitating them to their former beauty. One of his first purchases in the downtown area was the International Jewelry Center in 1996 for nearly $25 million.
“It was a great building and was terribly managed,” said Hertz, 50. “Three years ago it was 65 percent occupied. Today it is 100 percent occupied.”
The achievement was no small feat.
“It was a hands-on management concept that did it,” he said. “These tenants are not AOL or Disney. They are smaller companies, and you have to deal with each one on an individual basis.”
Hertz plans to bring that same hands-on management style to the CaliforniaMart, which the Hertz Investment Group purchased last month from Equitable Life Assurance Society of America for $90 million. The CaliforniaMart, a center of showrooms for the apparel and textile industry, is a behemoth structure that encompasses two buildings spread across more than one square block at Ninth and Main streets.
The mart has had trouble keeping tenants and currently has a 35 percent vacancy rate. But Hertz plans to change that.
The Hertz Investment Group likes to take under-appreciated properties and bring them back to life. In 1998, Hertz purchased the Standard Oil Building in downtown Los Angeles. The company kept the structure’s original 1910 fa & #231;ade and completely restored its interior. Hertz also owns the Art Deco Wiltern Theatre building, purchased in 1998 for $19 million, the historic Oviatt Building on South Olive Street in downtown, the Park Plaza Hotel near MacArthur Park, and buildings in downtown’s historic district of Spring Street.
“Most developers look at buildings that are 50 or 60 years old and want to demolish them. I look for buildings with character and renovate them if it is economically feasible,” Hertz said.
Mark S. Higgins
Cornerstone Real Estate Advisers Inc.
Total Portfolio Value: $850 million
Notable L.A. Property: First Financial Plaza, Encino
For most of its existence, Cornerstone Real Estate Advisers has been investing primarily with MassMutual Corp.’s money, because Cornerstone is a subsidiary of the financial giant.
But Mark Higgins says that’s about to change.
Higgins runs the Western region for Cornerstone, out of offices in Century City, controlling about $850 million worth of real estate investments west of Denver. It represents a sizable portion of Cornerstone’s $3.5 billion nationwide portfolio. Going forward, Higgins says Cornerstone’s goal is to decrease its reliance on its parent’s money, instead looking to advise pension funds, institutions and endowments on real estate investments. He is already managing money for a major university, a corporate foundation and both public and private pension plans.
Cornerstone’s strategy is to buy class-A office properties worth in excess of $20 million, and to buy or develop quality apartment complexes. Besides First Financial Plaza in Encino, it owns the Grand Apartments in Sherman Oaks, a large complex near the soon-to-be-refurbished Galleria. It is also involved in a joint venture that is developing apartment buildings in Long Beach and Santa Clarita.
In addition, Cornerstone controls a handful of shopping centers, but not really on purpose; Higgins says most of them are properties that MassMutual foreclosed upon in the early ’90s.
“By today’s standards, we are probably what people would consider long-term holders,” Higgins says, meaning that Cornerstone typically holds properties for five to 10 years before looking to sell. “We’re not build-and-flip, but we sell 10 to 15 percent of our portfolio every year. Nobody just buys and holds anymore, or at least that’s not a compelling story to institutions.”
Senior Vice President of Western Region
Total Portfolio Value: $3 billion
Notable L.A. Property: Sanwa Bank Plaza
Orange County native Doug Holte returned to Southern California in 1992, fresh from a stint at the Atlanta office of Hines, to find himself smack in the middle of the local real estate recession.
Eight years later, things are looking up.
“We’re very bullish on Los Angeles,” said Holte, who earned his MBA from Harvard. “We are aggressively pursuing both completed buildings and development properties, particularly infill.”
Holte oversees $500 million worth of property investments in Los Angeles alone, mostly large office properties like Wilshire Rodeo Plaza, the Grand Avenue Courtyard in El Segundo and Lantana Center in Santa Monica.
Hines uses its own capital base and partners with institutional investors like the California Public Employees Retirement System and the New York Common Retirement Fund to acquire, develop and manage properties. Hines’ local tenants are mostly Fortune 1,000 firms with long-term leases, as well as emerging technology and entertainment companies.
Having weathered the tough times of L.A.’s real estate recession, Holte intends to make investments this year in large projects in decidedly unrisky locations stable markets like West L.A., where demand for office space will remain fairly consistent over time and supply is limited.
Holte considers good office locations to be those with sufficient parking, nearby amenities like restaurants and hotels, and access to public transportation, which he predicts will gain importance in this increasingly congested region. He ranks Burbank, El Segundo and downtown L.A., where Hines spent $215 million last year to buy the Sanwa Bank Plaza, as good “permanent locations.”
“We believe downtown has a bright future, although it may not be for a year or two,” he said.
President and CEO
American Realty Advisors
Total Portfolio Value: $1.3 billion
Notable L.A. Property: Ventura Place office complex, Studio City
Stanley Iezman just laughs when asked to name his company’s most visible project.
“We pride ourselves on investing in stuff that nobody would take a picture of,” said the head of Glendale-based American Realty Advisors.
The no-frills approach seems to be working the firm has repeatedly been named one of the country’s top 100 pension fund managers and lenders by National Real Estate Investor magazine.
The private company invests money from the accounts of clients like Kmart and United Mine Workers of America, and from a co-mingled $50 million mezzanine fund, also funded by pension plans, that targets office, industrial, retail and multi-family housing properties.
Iezman’s formula for keeping his flock of institutional investors happy is simple: make low-risk investments in bread-and-butter core properties with a stable cash flow, like grocery-anchored shopping centers.
Iezman favors well-leased, well-maintained properties where tenants have good credit. He also will invest in less-plum projects if value can be added by improving property management.
Recent local acquisitions include office buildings in Studio City and Century City. Also in the works is a major infill development anchored by a Target store on Wilshire Boulevard. Elsewhere, Iezman is looking at industrial projects in Commerce and Valencia and infill retail throughout Los Angeles County.
The firm will continue scouting for office properties and high-end apartment buildings in the San Fernando Valley, Westside and South Bay.
American Realty Advisors’ biggest current project is the 500,000-square-foot 101 Constitution Avenue office building in Washington, D.C., which will have some of the highest rents in the country.
Iezman founded American Realty Advisors in 1991 after years of practicing real estate law and teaching courses on the subject at UCLA Extension.
Douglas Emmett & Co.
Total Portfolio Value: $2.5 billion
Notable L.A. Property: 100 Wilshire Blvd., Santa Monica
After a buying spree last year that included the purchase of the premier 100 Wilshire Blvd. tower in Santa Monica, Douglas Emmett has emerged as one of the largest investors in class-A commercial space on the Westside. And its chief deal maker has been Jordan Kaplan.
“If you had to pick only one buyer for a Westside property, Jordan Kaplan would be that buyer,” said David Thurman, senior vice president with Grubb & Ellis Co. “On the first call, he will tell you if he’s interested in buying an asset; then if he is, he’ll do whatever it takes to buy that asset.”
Kaplan and Douglas Emmett have been active on the Westside since the mid-1990s, buying up major properties at a time when they were still relatively cheap.
“They were one of the first ones to spot an opportunity in L.A. They started buying way back in 1994, when the market was still depressed, with little end in sight,” said John Bertram, executive vice president of real estate brokerage Westmac Commercial. “They were real bullish on a turnaround at a time when most were shying away. It was great foresight on their part.”
When Westside property values came roaring back in the late 1990s, Kaplan and Douglas Emmett were well positioned to take advantage of the surge. Last year alone, the firm invested $329 million in L.A.-area properties, making it the largest investor in L.A. County for 1999, according to a recent Business Journal survey. Besides the ocean-view 100 Wilshire tower, Douglas Emmett purchased the 360,000-square-foot 1801 Century Park East property for $75 million, the 550-unit Santa Monica Shores apartment complex for $95 million, and the 400,000-square-foot City National Bank building in the San Fernando Valley for $70 million.
Sources in the real estate industry say Douglas Emmett plans to continue its buying spree, with another major fund in the works. “They have pension fund money, which is typically cheaper to obtain. That means they can outbid you because the cost of their money is cheaper,” Bertram said.
Kaplan and other Douglas Emmett officials declined to comment on their future investment plans.
Ted Leary Jr.
Lowe Enterprises Investment Management
Notable L.A. Property: Arboretum Courtyard
Ted Leary started out his career in politics as an aide to U.S. Sen. Abraham Ribicoff from Connecticut, and ended up overseeing a $3 billion real estate investment portfolio. But he doesn’t see this as a dramatic shift.
“Real estate is not rocket science,” said Leary. “It is a common-sense, problem-solving business, and politics is essentially the same type of thing. In addition, marketing is an important element in both of them.”
Leary says he enjoys the marketing side of the business, particularly creating and developing close personal relationships with the pension funds that invest in Lowe Enterprises Investment Management, the investment arm of L.A.-based real estate development and management firm Lowe Enterprises.
Lowe’s investments are exclusively in the office and hotel sectors, focusing on high-end properties in fast-growing, gateway cities. In the world of pension fund investors, Lowe is seen as a value-added player because it invests in “troubled” properties and, through capital improvements, aggressive management and marketing, increases their market value.
That strategy has paid off wonderfully as the real estate market went through a chaotic period over the last five to 10 years. But as the market began to stabilize in recent years, profit margins have begun to slim.
“There still is a good level of opportunities, but the yields are lower,” Leary said. “We have between $300 million and $350 million in deals in the making, and I expect that we’ll invest around $500 million this year.”
Because the stock market has become increasingly unpredictable, Leary expects pension funds to start allocating more money to real estate investments, in particular because the real estate sector provides steadier returns.
Leary learned the ropes of dealing with troubled properties during the savings-and-loan crisis of the 1980s. Both at Lowe Enterprises and as founding co-chairman of the Real Estate Capital Recovery Association, he was deeply involved in the “workout” business, in which investors would take over the real estate assets of defaulted S & Ls; and re-market them.
Dr. David Lee
Total Portfolio Value: $300 million (est.)
Notable L.A. Property: Equitable Plaza Tower, Mid-Wilshire
David Lee is one of the more unusual real estate investors in town. For starters, he’s not even a real estate professional; he’s a physician who typically spends 12- or 14-hour days at his San Fernando Valley internal medicine practice. His investment partnerships are a sideline, albeit an extremely lucrative one.
And then there is the unique nature of Lee’s investment strategy. Rather than going after trophy properties around the region, he has sought outright domination of one specific submarket the Mid-Wilshire district. Partnerships under Lee’s control now own an estimated 60 percent of the entire submarket and about 75 percent of the class-A space.
Lee began his investments rather modestly in 1994, but made his first really big deal in 1997 with his purchase of the Equitable Plaza Tower for an estimated $35 million. Since then, he’s been snapping up buildings at a breakneck pace. Partnerships controlled by Lee now own 24 buildings with a combined 5.5 million square feet of space, according to Charles Dunn Co. Executive Vice President Mike Dunn.
“When he started his play, Mid-Wilshire was in the dumps and the prices reflected that,” Dunn said. “You can look back now and say, ‘Wow! He really had great foresight.'”
Lee has earned a reputation as one of the shrewdest investors in town.
“When he looks at a building or an area, you know there are deals to be had,” said David Thurman, senior vice president with Grubb & Ellis Co.
He’s also one of the more secretive, rarely giving interviews and never issuing press releases about major purchases. (He declined a request for an interview last week.)
Over the last several months, Lee’s pace of acquisition in Mid-Wilshire has slowed, in part because there simply aren’t very many properties left. But he has also looked at other areas, including downtown and along Century Boulevard near Los Angeles International Airport. So far, his bids in those areas have been unsuccessful, although brokers say it’s only a matter of time before he cracks those or other markets.
Meanwhile, Lee is reaping the rewards from his contrarian investments. Office lease rates have improved dramatically in the Mid-Wilshire area, boosting his income. And, Dunn said, because he holds a near-monopoly on class-A space there, he has much more leeway in setting his own rent levels.
Robert F. Maguire III
Total Portfolio Value: $2.3 billion
Notable L.A. Property: Library Tower
Local real estate pros like to say that Robert Maguire has more lives than a cat even when he’s down, he’s not out.
After developing some of L.A.’s largest office buildings during the 1980s, Maguire stumbled in the late-’90s, most notably when he lost control of the stalled Playa Vista project. But a spate of other deals soon returned Maguire to prominence, notably a windfall of close to $160 million that his firm took in by selling MGM Plaza in Santa Monica and property in the Dallas-Fort Worth area earlier this year.
MaguirePartners plans to begin construction this month on a $15 million, 91,000-square-foot building in Santa Monica. Maguire has obtained permission to build a 700,000-square-foot office complex in Glendale, and the second phase of development at his 350,000-square-foot Plaza Las Fuentes office complex in Pasadena is slated to soon break ground.
This rush of activity comes after Maguire lost control of Playa Vista in 1997 to a new ownership group led by Morgan Stanley and Goldman Sachs & Co. after coming near default on $195 million worth of loans. But even after DreamWorks SKG decided to abandon its plan to build a headquarters at the site, Maguire still retained the right to develop 3.2 million square feet of commercial space there. He also still has a small ownership stake in the project.
Known as being a complex mix of tenaciousness, stubborness and charm, the 65-year-old Maguire will likely focus this year on increasing his stake in Playa Vista and acquiring major properties downtown. Maguire plans to buy out his Japanese partner, Dai-Ichi Kangyo Bank, in the Gas Co. Tower downtown by the end of the year.
A private firm, MaguirePartners leverages its equity investments with loans from CS First Boston, Lehman Bros., and GE Capital, among others.
Apollo Real Estate Partners
Total Portfolio Value: $3 billion
Notable L.A. Property: Arboretum Gateway
As the West Coast representative of Apollo Real Estate Partners, David Margulies has rapidly built a sizable real estate portfolio in a little over three years.
Through a series of joint ventures, the company developed the Arboretum Gateway office project in Santa Monica (which is 100 percent leased to Universal Music Group), created a homebuilding business (Western Pacific Housing), invested in golf courses and neighborhood shopping centers, and is developing the high-profile, $250 million Sunset Millennium retail/hotel project in West Hollywood.
Notwithstanding the magnitude of these deals, Margulies and his firm are decidedly low profile.
“It’s by design,” he said in an interview with the Business Journal earlier this year. “We’re very private people. We very quietly built up one of the greatest portfolios on the West Coast.”
Margulies scouts the West Coast from Seattle to San Diego to Denver for new investment opportunities, and he believes that the end of growth is not in sight for the West Coast real estate market, with its fast-growing high-tech and biotech sectors.
At 33, Margulies has already had an impressive career. He started out as a financial analyst for real estate broker John Cushman, oversaw the development of a $54 million office project in Northern California while attending business school at UCLA, grew the special projects group at JMB Realty from $250 million to $1.3 billion in assets in three years, and co-founded and sold a real estate investment company.
That was before joining Apollo Real Estate Partners in 1997. The New York-based investment firm is a subsidiary of Apollo Advisors, Leon Black’s leveraged buyout firm, and was created in 1993 to invest in real estate and real estate operating companies.
Total Portfolio Value: $300 million
Notable L.A. Property: Long Beach
Stuart Rubin graduated from USC in 1982 and soon was working in the parking-lot business with his father, Gabriel, who owned Joe’s Auto Parks and later Five Star Parking. From there, the younger Rubin branched out on his own to invest in properties up and down California.
Rubin, whose partners include his brother, Nathan, a cardiologist, and bankruptcy attorneys Richard and Isaac Pachulski, has a sure-fire strategy for investing. He looks at areas where there is high employment growth and then examines housing costs, discretionary income and consumer spending habits. “Before, we were concentrated in the West L.A. area, but we have expanded geographically,” Rubin said.
Currently, the self-funded group is investing in Long Beach, an under-exploited market they believe has growth potential. Last month, Rubin-Pachulski spent $26 million to buy the Long Beach Marketplace, an upscale shopping center that has one of the highest-grossing Trader Joe’s stores in the chain, a Claim Jumper restaurant, a cinema and several small boutiques. Rubin plans to add more upscale boutiques and services.
Four months ago, the investment group bought its first apartment complex, a 77-unit building valued at $14 million near downtown Long Beach. After extensive renovations, the project is being rented out. It is currently 35 percent occupied.
“There is a housing shortage and rents will continue to spike, and housing prices will increase because of low unemployment,” said the 39-year-old real estate investor. “The shopping centers we keep a long period of time, and the office buildings we rehabilitate and (sell) in 12 to 24 months.”
In addition, Rubin-Pachulski recently acquired a 66,000-square-foot office building in Redondo Beach and last year bought the Vagabond hotel chain, with 40 hotels, from Credit Lyonnais.
“Stuart buys on a cash basis. He will put down significant dollars real quick and then close quickly,” said David Lachoff, a real estate broker with Grubb & Ellis Co. “A lot of institutions that want to get something off their books like that kind of method.”
Barry A. Sholem
DLJ Real Estate Capital Partners
Total Portfolio Value: $3.2 billion
Notable L.A. Property: Westwood Promenade
When Donaldson, Lufkin & Jenrette decided to get into the opportunity fund business identifying under-performing real estate assets, snapping them up and redeveloping them it lured Barry A. Sholem and partner David R. Weil from Goldman Sachs & Co. in 1995 to form DLJ Real Estate Capital Partners. Their first fund raised $680 million, and so far has invested $460 million of that fund to acquire more than $2 billion in real estate, and achieved a 40 percent annual rate of return.
“We go after higher-risk acquisitions,” Sholem said. “And we’re the largest investor in everything we do.”
DLJ Capital Partners closed its second fund in January to the tune of $1.2 billion for global real estate investments, and to date has invested $250 million of that fund to acquire $700 million worth of real estate assets. Sholem, who holds a bachelor’s degree from Brown University and an MBA from Northwestern University’s Kellogg School, predicts that the annual returns will be “north of 20 percent.”
His shop goes where the deals are: downtown office buildings in Dallas and Tokyo; resort hotels in Puerto Rico and Napa Valley; office developments in Boston; multifamily projects in Colorado and Virginia; and regional shopping centers in Madrid, Barcelona and Montreal. He says Capital Partners is “very aggressive” in Japan, where it has a deal with Mitsui Bussan, the country’s second largest real estate firm.
“I spend a lot of time in airplanes,” Sholem said earlier this month, en route to Italy. “I wish we spent more time in our backyard.”
Part of that “backyard” is the 180,000 square feet of shops in Westwood Village that DLJ Capital Partners has invested in. Sholem thinks the time is ripe for that area’s revitalization.
“Our goal is simple: to return the energy to Westwood,” he said. “The demographics there are incredible. I think there will be real progress.”
Thomas Properties Group LLC
Notable L.A. Property: Wells Fargo Center
Jim Thomas is on the lookout for good deals, but he’s being careful in today’s changing real estate market.
“A lot of people believe, and we do, that a lot of markets are at equilibrium, or at their peak,” Thomas said. “So it’s a time to be very careful in making investments.”
That approach is just the sort that Thomas’ investors are looking for. One of his biggest clients is Calsters, the California State Teachers’ Retirement System pension fund. Because pension funds tend to be interested in more-conservative opportunities, Thomas primarily focuses on low-risk, core investments in office buildings and build-to-suit projects.
Thomas Properties also manages a higher-risk opportunity fund, comprised primarily of money from about 10 public and private pension funds. The firm is also a co-investor in that fund, which focuses mainly on new development and renovation projects.
Thomas’ company is also investing in new developments that it is undertaking itself. It has built a 1 million-square-foot building in Sacramento and a huge complex in Philadelphia that is designed to ultimately include residential units and a high-rise office tower. The firm poured $225 million into development and predevelopment last year.
Thomas projects his company will invest about $500 million in existing properties this year, and $600 million on developing new projects. His primary targets for investment are the mid-Atlantic states, the West Coast and Texas.
In addition to managing funds and developing property, Thomas Properties is also a full-service real estate management company, which owns and operates around 2 million square feet of office space.
When asked his favorite part of his diverse company, Thomas couldn’t choose. “I’ve been in real estate for a long time and I find it all very interesting and exciting,” he said. “I like a good deal.”
Canyon Capital Realty Advisors
Total Portfolio Value: $1.3 billion
Notable L.A. Property: City of Hope Medical Tower
Inner-city and urban investments will continue to be a major focus this year for Bobby Turner’s Canyon Capital Realty Advisors.
Canyon is a money management company that invests on behalf of institutions (including banks and insurance companies), trusts, family foundations and wealthy individuals. The company seeks out undervalued properties, particularly in the inner city, and looks to boost values by redeveloping and re-leasing. Transactions are typically small, ranging from $2 million to $30 million in partnership capital.
“We believe there will be a tremendous number of opportunities in the urban market,” Turner said. “I think it offers the most compelling real estate opportunities with regard to financial returns.”
Opportunities are growing in urban areas, in part due to increased recognition from developers and retailers, who are discovering ways to capitalize on population density, he said. To provide more focus and attention to the firm’s inner-city investments, Canyon is currently forming the Canyon Johnson Urban Fund jointly with Earvin “Magic” Johnson’s Johnson Development Corp.
Canyon Capital Realty Advisors, and its sister company, Canyon Capital Advisors, manage a total of eight funds. Canyon Capital Realty Advisors invested a total of $225 million last year, and will invest approximately $250 million more this year.
Like so many of L.A.’s financial top guns, Turner is a Drexel Burnham Lambert alumnus, having served in the defunct junk-bond firm’s commercial mortgage finance department in 1989. A graduate of the Wharton School with a bachelor’s degree in finance, Turner has been involved in more than 150 real estate and mortgage transactions totaling in excess of $1.3 billion since joining Canyon.
ING Realty Partners
Total Portfolio Value: $150 million-plus
Notable L.A. Property: 9000 Sunset Blvd.
John Wickser likes to call his company “the hospital of real estate” because it specializes in finding poorly managed buildings and fixing them up before reselling them.
That’s just what ING Realty Partners did with a 567-room hotel near Los Angeles International Airport. In a joint venture with Tishman Hotel Corp., the firm bought the ailing Continental Plaza in 1998 from a Mexican company. It then spent two years renovating the 1960s-era building, which reopened two weeks ago as the Sheraton Four Points.
ING also built, from the ground up, a 314-room Marriott Courtyard Hotel on the edge of Old Pasadena, which is scheduled to open next month.
“The strategy is to buy property where work needs to be done,” said Wickser, who joined the realty partners in 1993. “We repair, do deferred maintenance, correct bad management and market the property We are classified as what used to be called an opportunity fund. We target leveraged returns in excess of 20 percent.”
Among its Southern California holdings, ING owns 900,000 square feet of office properties it acquired from AEW Capital Management in a joint venture with the Muller Co. The firm also owns a major office building at 9000 Sunset Blvd.
ING Realty Partners, through joint ventures with its operating partners, invests capital on behalf of ING Group, a Dutch-owned concern, as well as 25 investors that include U.S. and European pension funds, life insurance companies, educational endowments, corporations and wealthy individuals.
ING Realty Partners, formed in 1998 as a unit of Dutch finance giant ING Barings, is primarily focused on markets in the United States and Canada.
CB Richard Ellis Investors LLC
Total Portfolio Value: $9 billion
Notable L.A. Property: Wilshire Landmark I
Bob Zerbst believes opportunities abound overseas, and the president of CB Richard Ellis Investors LLC expects the firm to invest about $1 billion there this year, in places like Japan and the U.K.
That’s about half of the total $2 billion in investments the Los Angeles-based company anticipates making in 2000. The remaining $1 billion will be invested in properties throughout the U.S., including $100 million to $150 million in the Los Angeles area.
One of the firm’s most noteworthy L.A. properties is the Wilshire Landmark I office building in Brentwood.
CB Richard Ellis Investors receives its funding from a variety of sources pension funds, foundations and endowments, offshore banks, insurance companies and government agencies.
Unlike some firms that put American dollars into overseas investments, the company primarily invests U.S. dollars in U.S. properties and foreign currency in properties located in foreign markets.
“Probably about 70 percent of (all) commercial real estate is outside of the United States,” Zerbst explained. “Our parent company, CB Richard Ellis, invested considerable money in creating a global platform for its primarily corporate real estate customers as they spread across the globe.”
To facilitate that “global platform,” the investment group has opened offices in England and Japan. As a result, Zerbst is logging a lot of frequent-flyer miles as part of his job, and recently circumnavigated the globe, traveling from L.A. to London, to Paris, to Tokyo (flying over Siberia), and back to L.A.
In L.A. and elsewhere, many of the company’s low-risk investments involve high-quality office, retail and industrial properties occupied by stable tenants with long-term leases. While those deals are geared for pension funds, Zerbst notes that those investors are increasingly looking to diversify their portfolios with higher-risk bets.
“They aren’t quite as conservative as they used to be,” he said. “More and more are moving toward higher-value-added activity, where we target (annual) returns in the high teens for our investors.”
As for higher-risk ventures, the firm closed a new $700 million fund in March, earmarked for high-return investments in U.S. properties.