If you bought a fancy residential complex in West Los Angeles 10 years ago on the advice of a national securities brokerage, and plan to sell it now, are you going to make money?
Not if you invested in the Century Hillcreste apartments.
Back in 1988, investors paid $72 million for the 315-unit complex on Pico Boulevard near the Hillcrest Country Club.
Shearson Lehman Hutton (now part of Salomon Smith Barney) sold the complex to more than 6,000 investors nationwide. It’s known as the Century Hillcreste Apartment Investors LP with units (shares) priced at $10 each.
Longtime Los Angeles real estate developer Alan Casden was and is the managing general partner of Century Hillcreste, through a wholly owned real estate entity.
The Century Hillcreste, as an investment, went in reverse almost before the ink was dry on the prospectus. The apartments didn’t prove lease-able at projected monthly rents, and occupancy rates didn’t hit targets.
Then, the 1990s Southern California real estate recession hit, pushing down rents. Now, Managing General Partner Casden is recommending to the limited partners (ordinary investors), that he purchase the property through a trust for $58.5 million 19 percent less than what investors paid 10 years ago.
Casden did not return calls for comment. But given that L.A. apartment rents are starting to rise again, and vacancy rates are declining, some investors may balk at selling now. And with monthly rents of $1,445 for the one-bedroom units, and $2,120 for two-bedroom apartments, the Century Hillcreste could eventually become a profitable investment.
At the same time, some investors may just want to get out of Dodge.
Consider that back in 1988 the Dow Jones Industrial Average hovered around 2,000. Now the Dow is about 8,500. In a roaring bull market, Century Hillcreste investors have watched from the sidelines. Or maybe the bleachers.
The Century Hillcreste investment hasn’t been a total bath; investors have received distributions (similar to dividends) on the property over the years, amounting to more than $40 million.
That means an investor who put in $5,000 would have gotten about $2,800 in distributions but then, the value of that $5,000 would now be about $4,000 under Casden’s buy-back plan. Moreover, an investor who plunked $5,000 into one of the stock-market index funds back in 1988 would have seen that money grow to more than $20,000.
In any event, the Hillcreste limited partners have until Aug. 21 to put thumbs up or down on Casden’s proposal.
One local investor, who asked not to be named, is miffed that Casden is exercising a “first right of refusal” on the property, which effectively gives him the right to match any purchase offer.
“Other investors don’t want to put the time and effort, the due diligence, into making a bid, knowing that Casden can simply piggy-back on their analysis, and make an equivalent bid, and take the property,” said the investor.
Casden, in filings with the Securities and Exchange Commission, has indicated that he plans to finance his acquisition of the Century Hillcreste by privately raising $250 million for a new real estate investment trust, which he will eventually take public.
Whose rockin’ the Dow?
Who put the Dow Jones Industrial Average on its roller coaster ride? Los Angeles investment bankers, venture capitalists and money managers keep pointing to Japan.
“Obviously, Japan is the trigger there,” said Steven Michaels, managing director of high-yield bonds, with money manager Financial Management Advisors in Century City. “We look at earnings … and the Far East (situation) may weaken earnings.”
Michaels may coolly look at the numbers and earnings, but others say old-fashioned human emotions also play a role. Can the Dow rally if Japan’s economic stupor continues?
“Psychologically, I’d say no,” said Jeff Rollert, principal of ALM Advisers Inc., a Pasadena bond manager. “We need them to recover.” Rollert noted that the Japanese have been net sellers of U.S. Treasuries of late, and that is lowering bond prices mildly.
Although Los Angeles is much more attuned to Tokyo than is New York, not everybody here is obsessed with Japan.
“I think the (market turmoil) is a combination of things,” said Bryant Riley, founder of the Santa Monica brokerage B. Riley & Co. Inc. “There has been too much speculation in the market for a long time.”
In the super-hot real estate market of the 1980s, a lot of people with other jobs began selling houses part time. In a similar way, Riley points out that the hot stock market of the 1990s brought in a lot of amateurs, like the e-traders individuals who buy and sell stocks over the Web, usually holding them for very short time periods.
“Maybe,” says Riley, “you need to flush some of these guys out.”
Quick takes
The Westside private leveraged buyout and investment shop Freeman & Spogli (many years ago, Riordan, Freeman & Spogli, as in Mayor Richard Riordan) has teamed up with Peter Starrett Associates, a retail advisory firm. Starrett, most recently with Warner Bros. Studio Stores Worldwide, and formerly of May Department Stores, and the Federated Department Stores, will help Freeman & Spogli in running the retail operations they own and acquire, and in selecting new targets for acquisition … John Emerson, senior vice president at institutional money manager Capital Guardian Trust Co. in downtown Los Angeles (and former Friend of Bill, as a former White House staffer), has joined the 70-member board of governors of the The Music Center … Steven Kriegsman, of the Pacific Palisades-based Kriegsman Group, has raised $11.8 million for the Sunnyvale-based Calydon Inc., which makes organ-specific virus cells that kill cancer cells. The company is testing a virus that destroys prostate cancer cells. “We should go public with this company next year,” said Kriegsman, who is putting together a $50 million fund to invest in biotech companies.
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal.
