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Cornering Downtown

There’s a tale about Barry Shy and a suitcase stuffed with $75 million in cash that’s legendary in downtown Los Angeles. That the yarn is exaggerated only illustrates the developer’s outsized reputation.

The story goes that Shy clinched a deal to buy three Spring Street buildings by walking into the offices of the property owner and plunking down the suitcase on the chief executive’s desk.

The truth?

The deal was consummated when Shy boasted he could produce, within three days, a deposit of $10 million in the form of a nonrefundable cashier’s check – a down payment about 20 times higher than a buyer typically would pay.

“They got excited,” said Shy, snapping his fingers. “They signed the deal.”

However, he takes offense at the urban legend of the suitcase, believing it’s a “bashing story” passed around by enemies trying to make him look foolish and impetuous.

“I would never consider for a second to do such a thing. I think somebody would be an idiot to do that,” said Shy, who has reason to think he has enemies.

During a meteoric 12-year run, he has developed more than 1,500 apartments and condominiums in the historic Spring Street neighborhood, becoming downtown’s second biggest residential landlord.

But Shy may be No. 1 on the unofficial list of most quarrelsome developers. Not including evictions, Shy and his businesses have been involved in more than 100 civil court cases over his career – which means he sues or is sued every couple of months, on average.

The 55-year-old businessman owns and manages 1,126 rental units, and, downtown at least, has a bigger-than-life reputation to go along with his portfolio. For a time, he named his developments, such as the ShyBarry Grand, after himself.

Despite that, he’s not well known in the wider L.A. business community – though he’s fodder for downtown publications that detail his alleged transgressions and poke fun at his extravagances. For this article, Shy gave his most wide-ranging interview.

A slender 5 feet, 4 inches tall, Shy is known as a fiery, impatient personality who doesn’t back down from anyone. He recently commissioned a mural of the downtown skyline for the lobby of his latest apartment property that features lions protecting his buildings, presumably from his adversaries.

They’ve accused him of everything from mortgage fraud and shoddy construction to destroying historic property. A few recent legal disputes cost him tens of millions of dollars.

Along the way, he’s become estranged from business partners, clashed with city officials, and angered tenants and buyers in his buildings. A bitter feud with former business partner Andrew Meieran has stretched a half-decade and involved multiple legal fights, with Shy ordered to pay Meieran about $28 million in two disputes over property. (See sidebar page 27.)

“Certainly more than any other developer downtown, people who have run across Barry very much dislike him,” said Eric Richardson, editor of BlogDowntown.com, which has long covered Shy. “He’s been followed by a string of lawsuits in everything he’s been involved in, but at the same time, he’s too big of a player to say, ‘He’s no good, let’s not work with him.’”

To his supporters, he’s just a misunderstood immigrant entrepreneur with a forceful personality who eschews unimportant business conventions. Shy, for example, doesn’t attend meetings of downtown business organizations, unlike most developers.

“He’s an old-line guy, going to do things himself, not going to hire expensive consultants,” said Fred Cordova, the broker who represented L&R Investment Co., which owned the three office buildings Shy bought with the $10 million down payment. “He’s got a good street sense. God bless him, those are the kind of people America was founded on.”

Shy sat down with the Business Journal earlier this month in a model unit at SB Tower, one of the former office buildings he bought from L&R. Dressed in a navy suit and light blue shirt, he was quick with a smile and at ease answering most questions. However, Shy grew angry when discussing some of his legal troubles, even as he admitted he had brought some problems on himself.

“I used to use the word ‘fair’ all the time. But there is no such thing as fair,” Shy said. “I used to say, ‘Oh, it’s not fair, it’s not supposed to be.’ But this is life. I think I’ve grown up in the last few years. I realized it is what it is. It bothers me to some degree, but I don’t let it get to me.”

Lacking the basics

To understand Shy’s drive, you don’t have to look much further than his upbringing.

Born Baruch Shitrit, he grew up poor in Haifa, a port city in Israel. His parents owned a grocery store, but with seven children to provide for, theirs was a meager existence. Shy said that he lived without simple amenities such as heating, and went without hot water often enough that he still revels in taking long, steamy showers.

“I saw all my classmates who had the basic things that I thought would be nice – the basic things I was lacking,” he said. “I had a very strong desire to afford the basic things.”

Even at an early age, he had a knack for business. As a 9-year-old, he worked for a florist, delivering flowers. He bartered coveted goods such as cigarettes.

“I never got money from my parents. I always had enough money to go to the movies or buy sweets,” he said.

Shy acknowledged that his slight stature bothered him in childhood, especially in sports. But it also contributed to his drive to succeed as a self-made entrepreneur who wouldn’t have to answer to others.

“For a woman to be short it is not really that big of a deal; for men, being short – it’s a bummer,” he said. “Short men are discriminated against as much as a woman being way overweight.”

Shy followed one of his brothers to Los Angeles in December 1977, after completing a compulsory stint in the Israel Defense Forces in an anti-aircraft artillery division. He served during the Yom Kippur War of 1973 and said it was instructive.

“You learn discipline. It definitely makes you mature,” he said.

Before leaving Israel, Shy changed his last name, realizing that the American pronunciation of “Shitrit” evoked a profanity. He settled on Shy because it sounded like his original last name and is a Hebrew word for “gift.” After realizing English speakers stumbled on “Baruch,” he changed his first name to the similar “Barry.”

Shy hadn’t initially expected his move to Los Angeles to be permanent, simply believing it would be easier to reach financial independence in the United States. He took English classes and found quick success in business, getting a job cleaning pools and later installing hot tubs in the San Fernando Valley, where he lived at first with his brother.

Eventually, Shy, who didn’t have a college education, decided to get a contractor’s license and plunged into homebuilding. Around 1979, he cobbled together enough money to buy his first investment property, a home in Tarzana. His second investment was a parcel in Reseda. He subdivided the lot and built and sold two homes. Shy was working hard and fast.

“To succeed financially I had a very strong drive. I wanted to be able to give my kids a better life than I had,” said the businessman, who married in 1982, settled in Encino and has four children. He describes himself as a family man.

“The most significant thing for me was the birth of my kids. I was present during the birth of all four of them,” said Shy, since divorced.

From homebuilding, he segued into apartments, which he began building in the 1980s.

“It took me about maybe five or six years to make the first million, but after you make the first million, it is so much easier, because you can go to larger projects,” he said.

Shy did just that for much of the mid- to late 1980s and 1990s, partnering with various businessmen on about 30 Valley developments. He built several with Joe Bednar, owner of Agoura Hills-based Bednar Building Corp.

Together they developed apartments, condominiums, tract homes and other projects. They still own an assisted living facility in Agoura Hills and are developing a townhome project in Thousand Oaks. Bednar said Shy is a natural businessman.

“It’s easy for him,” Bednar said. “He does it himself; he’s a fearless, fierce negotiator.”

Fast and loose

But even early on there were hints of troubles to come.

One of his early partners was civil engineer Al Mozafar, who owns a Northridge company called Engineering Design Services Inc. Mozafar said that he and Shy partnered on a handful of projects during the 1990s.

“He is an intriguing character but I would not want to deal with him again,” said Mozafar. “He’s intuitive and he’s street smart. He knows how to wiggle around things.”

They worked together on townhomes in Castaic; a home in Tarzana; and a subdivision in Thousand Oaks, which they started in 1999. Mozafar said problems with Shy arose on the first two deals, but they sparred significantly over the last project.

Shy sued Mozafar for allegedly failing to complete his engineering work on time, delaying the project. Shy said he filed the lawsuit “to prove the point that ‘Yes, you owe me money and you have to pay me.’”

Mozafar countersued, claiming Shy forged his name and engineering license on project documents submitted to the city of Thousand Oaks, according to legal filings provided by Mozafar. After protracted legal proceedings, both parties dropped their lawsuits in 2009, with Mozafar, as part of a settlement, paying Shy’s $15,000 in legal fees.

Mozafar said he dropped his lawsuit after realizing that his pursuit of Shy would be costly and lengthy.

“I think people are measured by their actions. With Barry there is only money,” said Mozafar, bitterly.

Once Shy made his move downtown in 1998, he mostly went his own way, selling off most of his other assets. In addition to the two Bednar developments, in which he has limited involvement, Shy retains some commercial property in Van Nuys and two apartment buildings in Tarzana.

Shy is known as somewhat of a pioneer for the bet he made on the nascent downtown residential community. In 1998, he partnered with Meieran to purchase what would be the first downtown project for both of them: the Higgins Building, a 10-story beaux-arts office building at 108 W. Second St. that the duo thought would be perfect for converting into residences. The project was a success, though it became a source of the dispute that estranged the partners.

After the Higgins Building, Shy purchased seven shabby office properties from 2001 to 2006, converting two into condominium properties and the other five into apartment buildings. Shy took advantage of downtown’s Adaptive Reuse Ordinance, which was implemented in 1999 and allows older buildings to be more easily converted to new uses, largely by relaxing building codes. While Shy did most of his work after developer Tom Gilmore opened his first downtown adaptive reuse project in 2000, he outflanked rivals by turning out buildings quickly and offering low prices.

“A lot of people don’t like Barry. I don’t know why they don’t. I think he’s just done a phenomenal job of finding the niche,” said Michael Ross, a Grubb & Ellis Co. broker who also represented L&R in the portfolio sale. “He’s one of the people who has brought people to downtown. He’s built a product that’s affordable.”

There are gripes from tenants that the properties could have been built to a higher standard – and lawsuits alleging substandard work, among other problems – but most units offer stainless steel appliances, high ceilings and large windows. Some buildings have rooftop pools or hot tubs.

Ian Gould is an actor who lived in SB Lofts at 548 S. Spring St. for about a year and a half before moving out in 2009. He said the building had a subpar gym and shoddy kitchen appliances, but he enjoyed the rooftop pool and found life there pleasant.

“I don’t think I dealt with any more issues than I would have in another building of that size,” Gould said.

Shy said the average rental rate for his apartments is about $1.80 to $1.90 per square foot per month. That’s far below downtown’s average asking rate of $2.44 in the second quarter.

“I try to be a little below market to attract tenants,” said Shy, adding that he has fewer than 10 vacancies at each of his properties, except SB Tower, which opened in April.

It’s a niche that has separated Shy from some of downtown’s other big landlords, including Geoff Palmer, owner of G.H. Palmer Associates, a Brentwood company that owns 2,424 newly constructed apartments, the most of any developer.

The controversies

Still, the developer has been dogged by a disparate array of troubles for the better part of his time downtown.

In one high-profile case Shy settled, U.S. Bank sued him claiming mortgage fraud, alleging that he conspired to sell four residences in the SB Grand condominium building to “nonexistent or unqualified” individuals. (See sidebar page 24.)

Then there’s the Higgins Building, which spawned litigation beyond his dispute with Meieran. The partners operated the property as an apartment building in 2003, before Shy bought Meieran’s share of the residential project a year later and converted it to condos.

Several tenants, who had been on a lease-to-buy program, sued Shy in 2005, alleging the developer breached contracts by demanding “excessive” prices higher than previously agreed upon. Shy agreed to a partial settlement in 2007, allowing two tenants to purchase units at prices that were a compromise, according to Jenny Goodman, the tenants’ attorney.

But the case continued over whether one of the tenants could buy a second unit. In 2009, after a bench trial, a judge ruled in the tenant John Agnew’s favor, and Shy was required to pay attorney fees, which Goodman said stand at $175,000.

Would Shy reconsider how he handled it? No, in fact he believes he was the one willing to compromise.

“Even when they filed the lawsuit, I said, ‘No problem, I will sell you the units,’” he said.

In some situations, petty fights have grown into cutthroat battles, such as with a dispute involving Jessica Jordan, a television and film script supervisor who bought a condo at the SB Grand in March 2006.

Jordan, 36, said she clashed with building management, including once when workers she hired to redo countertops and flooring were barred from entering the building. Then when Jordan and Shy met to air their grievances, she claimed he said, “I’m a very wealthy man, I can make things very hard for you.” When she asked him if that was a threat, she recalled Shy saying: “It’s not a threat, it’s the truth.”

Shy maintains he never threatened Jordan, calling her a tenant who “had no consideration of the others.” It didn’t stop there. The two got into it again when Jordan demanded to examine the homeowners association’s finances after the organization said it was $700,000 in debt. She claimed the board, headed by Shy, rebuffed her, so she started a website, TrueDowntown.com, to address issues at SB Grand.

Shy, who denied keeping the finances secret, said he was offended by the website and sued Jordan for libel, slander and business interference, alleging she called him a “slum lord.”

Jordan got the First Amendment Project non-profit law firm to represent her, and the case was thrown out in September 2008. Shy was ordered to pay Jordan’s $35,122 in legal fees.

“I didn’t care to get any money from her,” he said. “I just wanted her to stop.”

Jordan may have got the worst of it. She sold her condominium for just $185,000 in a fire sale after buying it for $504,900 during the housing boom. She was happy just to get away.

“It was like I don’t even have to think about him anymore,” she said.

Cutting corners?

Shy also has had to deal with problems relating to the quality of his buildings.

In another case involving the Higgins Building, the homeowners association sued Shy in 2008 for “a variety of defects, deficiencies and resulting damages.” The ongoing lawsuit alleges Shy did not properly paint and seal the building’s exterior, which has led its façade to deteriorate. It also alleges defective or inadequate drainage and waterproofing, plumbing and mechanical systems, and windows and ventilation.

Shy blames some of the problems on vibrations caused by the construction of the new Los Angeles Police Department headquarters across the street.

Shy’s attorney, Steven Schuman, said the parties are in settlement talks, but declined to discuss specifics.

“Barry has suffered from the fact that he’s done a lot, a lot of business, and his buildings are older,” said Schuman, who has represented Shy in several legal matters.

For his part, Shy is resigned to the legal troubles.

“Whenever you develop a condo (building), you have to figure that most likely you are going to be sued,” he said.

But it isn’t just private condo buyers with whom Shy has tussled over the quality or scope of his construction work.

At the Business Journal’s request, the Department of Building and Safety examined records related to the Higgins Building, SB Tower and SB Manhattan to spot-check claims that Shy builds without city permits and corrects the matters after the fact.

David Lara, a department spokesman, said there was evidence at each of the three buildings of “unpermitted work.” That included demolishing walls and floors at the Higgins Building and constructing a mezzanine floor in SB Manhattan.

However, except for one outstanding issue regarding parking spaces at SB Tower, the matters were rectified and permits were later issued, Lara said.

“It seems there were a lot of corrective actions necessary on behalf of the developer to correct the various code deficiencies and bring these buildings into compliance,” he said.

Shy said he doesn’t consider some of the work as lacking permits. He argues that it was covered by supplemental permits, noting he pulls between 20 and 30 permits per building.

“In all the buildings, I pulled many permits, and I got approval, and they were finalized,” Shy said.

He said that the unresolved issue at SB Tower has to do with striping spaces, and that he’s been trying for two months to get his work approved but has had trouble scheduling a visit with an inspector.

He also tussled with the city’s Office of Historic Resources after workers handling the conversion of the 650 S. Spring St. office property into the SB Spring apartment building destroyed historic features of a conference room. The building was the original Southern California outpost of Bank of America and featured a top-floor conference room named after the famous founder of the bank, Amadeo Giannini.

In 2006, Shy’s workers removed ceiling and wall paneling from the room, according to Ken Bernstein, Historic Resources manager. The work was done despite the building’s location inside the historic Spring Street district, which is recognized by the National Register of Historic Places.

Shy told the Business Journal that contractors removed the elements without his knowledge while he was out of town, though he believes that a permit issued for the building allowed for such work. Shy believes a contractor’s employee stole ceiling and wall panels.

“I suspect the guy that took the furniture but I don’t know; I have no evidence,” Shy said.

Shy has agreed to work with Bernstein’s office to create an on-site tribute to the Giannini Room since it can’t be reconstructed. The room is now part of a residential unit.

Personal style

Supporters of Shy believe that many of his problems stem from the fact he is not much more than a one-man show. He only has about 20 employees, including assistants and an office manager – small relative to the size of his portfolio.

He mostly relies on family members, including a nephew and his eldest child, 27-year-old Rommy, who manages his ground-floor retail space. Shy hires more people if he’s working on a large project.

“It’s not a surprise to me that it’s tough for a one-man operation to execute perfectly all the time,” Cordova said. “He’s probably putting out a lot of fires all the time and has to decide which one is burning the hottest.”

Shy said he has never had a trusted adviser or mentor to show him how to do it differently, admitting, “It could be easier if I had somebody I could learn from and consult.”

He also has a decidedly different approach to his image. While other developers hire public relations teams, Shy goes it alone, answering his mobile phone and returning e-mails personally. And there was his penchant for putting his first and last name on his buildings, starting with the ShyBarry Grand in 2006. That only changed later when he decided it was a security risk.

“It’s an ego thing,” he acknowledged. “One day I figured, ‘OK, it would be nice.’ I knew at the time I was going to build many buildings in downtown, and I figured, ‘Why don’t I call them by my name?’”

Then there’s Shy’s notorious mural in the lobby of SB Tower. The 20-foot-by-15-foot painting of the downtown skyline is replete with lions, imagined waterfalls and lakes. The artwork, by professional artist Daniel Henigman, includes eight lions perched atop and alongside Shy’s eight downtown properties. Each feline is meant as a protector of one of his buildings.

Shy is proud of the piece. He knew the lobby space called for a mural of downtown, but he wanted to expand on the idea.

“I love lions – I’m a Leo,” Shy said. “This thing kind of evolved. It wasn’t like one day I had a vision. It took me a few days to develop it in my mind.”

Yet for all his braggadocio, Shy is intensely private about his personal life, for example, declining to discuss anything about the breakup of his family after his divorce, or his fiancée. The Business Journal had to obtain his age from public records. Shy will turn 56 on Aug. 12.

But he did talk effusively about how he and his children – who range in age from 15 to 27 – spend time together. They’ve taken trips to China, Brazil, Thailand and other destinations.

“I really value traveling. I think (my children) learn a lot traveling overseas,” said Shy, who departed last week for a three-week family trip to Israel and Italy. “They are learning traveling with us more than I think they are learning in school.”

He’s also a bit of a romantic, though it’s not apparent unless you know him. His SB Tower mural features a hidden, special touch, an ode to his fiancée, Rosani Stephens, who requested the painting feature a lioness. In one corner, a large, regal lion and his lioness serenely look out across a lake.

He’s also not an active member of any downtown organization, such as the Central City Association. Downtown business people said they know very little about Shy.

“I don’t see him at all,” said Mark Tarczynski, a well-known CB Richard Ellis Group Inc. broker. “He’s reclusive.”

Typical of his impatient personality, Shy has allowed son Rommy to represent his interests at Historic Downtown Los Angeles Business Improvement District get-togethers.

“He loves it. He listens, he talks,” Shy said. “But you know honestly, nothing ever, ever happens with any of those things.”

Shy said he cares about the downtown community, but has found that the few meetings he’s attended to discuss civic concerns have been unproductive. “If I want something, you know – boom – just go into it and do it. People over there just talk and talk and talk,” he said.

Now, with no big building project at the moment, Shy has occupied himself with small tasks such as the mural, and a bar he is building in the basement of SB Spring.

But he is thinking about what would be his biggest project yet: SB Omega, a planned 40-story tower that would rise next to SB Tower on land he acquired in the L&R portfolio purchase. It would be his first stab at new construction downtown.

Shy said he is in the process of securing entitlements, though with the economy the way it is, he hasn’t pinned down a start date. He views it as potentially his final project; that’s why the $100 million condominium tower would be named for omega, the last letter in the Greek alphabet.

But he isn’t ready to retire. “I’m too young to retire; I don’t think I will ever retire,” he said.

Shy said he might try his hand at producing movies after finishing his real estate career, noting that his son-in-law is a director and his 24-year-old daughter, Natalie, is a screenwriter.

No matter what he does next, Shy said that he’s learned useful lessons from his time downtown. He said he’s learned to work better with others, including low-level city employees, who he admits embarrassing and making enemies of in the past.

He’s also started delegating more authority to some of his employees, and he’s tried not to get involved in every dispute tenants or condo owners might have.

“I did everything myself, and I figured the best way for it to be done is to do it myself, which was my mistake,” he said.

If there is one person who the businessman might lean on for more substantial help in the years to come, it’s his son. Rommy believes that he’s influenced his father, showing him that downtown requires more civic involvement. In turn, the son said that his father has taught him the value of hard work.

“While I did grow up privileged, my dad always made it a point to make me appreciate where everything comes from,” the son said.

But he said his father does not share everything about the business, namely the legal issues. “It does weigh on him, I can tell you that much,” he said.

Shy smiles when talking about his son, acknowledging his importance to the future of the family business.

“I hope that he will be the best he can be. I will try to guide him,” he said. “Every father dreams that his children will take after him.

“He can learn from all my mistakes.”

&#8226 RELATED STORY: Shy Tripped Up by Mortgage Fraud Allegations

&#8226 RELATED STORY: Damaged Basement, Busted Partnership

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