Getty Deal Raises Questions

The J. Paul Getty Trust sold a valuable piece of Brentwood real estate in 2002 for $700,000 less than its appraised value to billionaire philanthropist Eli Broad, a close friend and professional associate of Getty Chief Executive Barry Munitz, according to trust documents and officials.

Munitz directed his aides to delay listing the property so that he could discuss a transaction directly with Broad, despite what Getty records call “many requests to purchase the property,” which is adjacent to Broad’s hilltop estate.

Getty executives now say they conducted a proper sale and received full value for the wooded half acre. Broad received no discount, they said, adding that they had consulted counsel to make sure they followed the law.

“I played no meaningful, no material, no in-any-way-relevant role in the transaction,” Munitz said in an interview. “Everything I did was to try to have the lawyers and the appraisers and the third-party people be sure that there was no conflict of interest for me.”

But Getty documents show Munitz spelled out negotiating strategies to his deputies, even as he acknowledged that his relationship with Broad required him to stay out of the deal. He also discussed the property in person with Broad, he said.

A 2000 appraisal put the property’s value at $2.7 million, $700,000 more than the sale price in 2002. Median home prices increased 12% in Brentwood during that time, according to a real estate information service.

Getty officials say the land was worth less than the $2.7 million appraisal because a number of limiting conditions would have made it costly and difficult to develop.

Penny Cobey, the Getty’s acting general counsel at the time, refused to comment on her advice regarding the land sale, citing attorney-client privilege. But she said: “It should not be concluded

Munitz’s connection to Broad, which included working vacations abroad with their wives, gives the Getty president entry into a tight-knit group of leaders in education, philanthropy and politics. Broad’s ties to Munitz and the other Getty board members gives him sway with those who run the world’s richest museum.

Foundation executives and tax law specialists consulted by The Times about the sale said it raises legal and ethical questions that could trigger scrutiny from the state attorney general’s office or the Internal Revenue Service, which regulate tax-exempt organizations.

Private foundations such as the Getty are exempt from paying taxes because their assets are dedicated to public use, not private benefit. When selling property, they are required to get fair market value.

“The obligation is to always put the interests of the trust first,” said Arthur Rieman, managing director of the Law Firm for Non-Profits in Los Angeles, a center that advises foundations nationwide. “If someone gets a discount because of a personal relationship, then that duty is violated.”

Munitz’s ties to Broad created a conflict of interest that should have kept him from having any role in the transaction, Rieman and other experts said.

“It could be argued that Munitz breached his duty to the organization as a trustee,” Rieman said.

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Munitz’s relationship with Broad began over a decade ago and has deepened since he came to lead the $6.8-billion Getty Trust.

They met soon after Munitz arrived in California to become chancellor of the California State University system in 1991.

Munitz asked his staff for a list of 10 influential people with ties to CSU, and invited them to a small dinner party at his house in Long Beach. One of them was Broad, a former CSU trustee and one of the nation’s largest philanthropic donors.

Rooted in education, their association soon branched into other realms.

In 1994, Broad recommended Munitz for a position on the board at SunAmerica Inc., his giant insurance conglomerate.

In 1997, Munitz left CSU for the Getty. Two years later, after AIG acquired SunAmerica, Munitz was appointed to the board of KB Home, a position that pays $80,000 a year plus stock options. Broad was chairman of that company until 1993.

Not long after Munitz took the Getty’s helm, Broad invited Munitz to sail along the coast of southern France on his yacht, mixing recreation with visits to a string of small museums.

“ ‘Don’t you think it would be nice if you actually knew something about what you are about to get into?’ ” Munitz recalled Broad, a noted art collector, teasingly asking him. Munitz came to the Getty with no background in the art world.

It was Munitz’s first invitation to join Broad’s “boat trip summers” and travels to such places as Croatia, Greece and Cuba with a circle of entrepreneurs and philanthropists. The group sometimes included then Los Angeles Mayor Richard J. Riordan and billionaire investor Ronald W. Burkle.

Back in Los Angeles, Munitz and Broad’s collaborations in the arts, education and politics continued.

Munitz was among a small group of power brokers who walked down Grand Avenue with Broad on a Saturday morning in 1999, helping to inspire the billionaire’s vision for downtown revitalization.

Munitz said Broad’s interests never extended to the Getty. The period of art that Broad collects is not featured at the Getty, Munitz said, and Broad has never expressed interest in becoming a trustee.

“Eli is a tenacious, impatient, extraordinary person -- I love him dearly,” he added. “But I would never expect that I was going to look up around my board table and see Eli.”

But Getty expense records show that Munitz has a business relationship with Broad that involves the Getty.

In August 1998, after a tour of Greece on Broad’s yacht that included visits to Getty-sponsored projects, Munitz was reimbursed by the trust for a $3,200 check he wrote to Broad to cover “gratuities and the use of the phone” on Broad’s boat. A cover letter to Broad from Munitz said the check was “only a very small token of adequate participation, and stands only to reflect our gratitude for your support and for your elegant energy.”

The Getty paid for Munitz and his wife to dine at Valentino in Santa Monica with Broad and his wife, Edythe, Getty trustee Louise Bryson and her husband, John Bryson, chairman of Edison International, and another couple. The “working dinner” included conversations about the Getty, education and public television, expense records show.

In 2001, expense records show, Munitz was reimbursed $5,000 by the Getty for “yacht expenses” after another trip to Greece, this time with the Broads, Riordans and Burkles, as well as AIG SunAmerica Chief Executive Jay S. Wintrob and his wife.

During Munitz’s tenure, more than half the seats on the Getty’s board of trustees have opened up. Some of those who traveled with Munitz and Broad have filled those spots. Today, at least six of the 13 trustees have links to Broad.

Burkle and former Univision President Luis Nogales sit with Munitz on the board of KB Home. Wintrob, added to the Getty board earlier this year, is chief executive of AIG SunAmerica, where Broad is chairman.

In addition, Ramon C. Cortines, former interim superintendent of the Los Angeles Unified School District, who was on the Getty board when Munitz arrived, and USC President Steven Sample, who joined the board this year, are advisors to Broad on education initiatives.

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In the late 1990s, the Getty did what officials say was a routine review of the trust’s property holdings and decided to sell the land across the street from Broad’s front gate. The trust had acquired the land years earlier.

Today, Munitz downplays the value of the lot. “At an 89-degree angle to the earth, this is not an attractive lot to build on,” he said.

But an independent appraisal obtained by the Getty in 1992, which only considered about 60% of the land included in the 2002 property sale, painted a different picture.

The land is located in “the most prestigious neighborhood in West Los Angeles and the standard by which all others are measured,” it said, estimating its value at $1.55 million. Despite the “moderately steep terrain” on its eastern side, the property’s “highest and best use ... is as a site for a single-family residence.”

In 2000, a second appraisal done for the Getty put the value of the full lot at $2.7 million.

The initial plan was to list the property publicly, soliciting competitive bids, Getty documents show. The asking price was $2.295 million.

Real estate broker Joan McGoohan said the Getty asked her to approach Oakmont Drive residents first to assess their interest. Specifically, she was asked to approach Broad.

“He basically said, ‘Not interested, too expensive,’ ” McGoohan said.

At the same time, Broad’s representatives say he made it clear that he did not want the Getty property developed. A former Getty employee said Broad’s attorneys raised a gamut of potential building and fire code issues that could stall construction indefinitely.

Broad’s interest in blocking development on the land would be obvious to anyone who has visited his home, designed by renowned architect Frank Gehry. A large new home there could have crowded the dramatic entrance to Broad’s estate and detracted from the sense of space surrounding it.

Broad would not agree to an interview. Through a spokeswoman, he said he counteroffered $1 million for the land.

At that point, the Getty reversed its plan to list the property publicly, McGoohan said, instead opting to negotiate directly with Broad.

“They didn’t want to offend Mr. Broad,” she said. “They didn’t want to upset him.”

Officials at large nonprofits say there are ways to protect a foundation’s interests when dealing with potential conflicts of interest and property of debated value.

“I would advise that it be marketed publicly,” said Janne Gallagher, vice president and general counsel for the Council on Foundations.

“We would certainly have it appraised and sell it through an established broker or independent source,” said Nancy Feller, associate general counsel of the Ford Foundation. “We would not do it ourselves.”

In fact, Ford Foundation policy prohibits the sale of foundation property to employees, their friends or relatives, even at fair market value, she said.

In the case of the Getty property, Munitz stepped into the process.

In a document obtained by The Times, he instructed two senior deputies on options for dealing with Broad and directed them to send a formal memorandum back to him that included those options.

Munitz’s draft ordered his staff to delay listing the property and proposed several alternatives to a direct sale to Broad. One option he suggested was for the Getty to promise not to develop the property in exchange for a tax-deductible donation from Broad.

Another was for Broad to donate “an appropriate residence, named for the donor” to the Getty in exchange for a commitment not to develop the land. The only negotiating partner mentioned in the outline was Broad.

Yet, aware of his ties to Broad, Munitz also instructed his deputies to include a sentence saying, “It is essential to emphasize that our attorneys and advisors feel very strongly about certain alternatives that would not be beneficial to either party, and there [sic] concern that you [Munitz] must maintain some reasonable distance from this decision given your close relationship with Eli.”

Munitz sent his draft to Stephen Rountree, the Getty’s chief operating officer, and Russell Gould, the senior vice president for finance and investments.

They responded on Jan. 12, 2000, with a final memo addressed to Munitz. “At your request, we have now delayed the listing of the Oakmont properties with Joan McGoohan in order to allow you a chance to discuss the property with Eli Broad next week,” it began.

The Gould-Rountree version dropped Munitz’s idea of a swap or donation from Broad, but otherwise closely followed his draft.

It added that the Getty had set the asking price on the land at $2.295 million, factoring in the obstacles to its development. It said the trust already had interest from multiple potential buyers, including from an employee of the Getty Center’s own architect, Richard Meier.

“We have received many requests to purchase the property, so our expectation was that the property would sell fairly easily for the construction of one great house or as additional personal property for one of the neighbors,” Rountree and Gould wrote.

Stressing the property’s sharply increasing value, Rountree and Gould suggested that the trust might simply hold on to it.

The yardstick for whether the Getty had received fair market value would be the appraisals and the real estate agent’s assessment, the memo said: “As you know, our auditors and the attorney general will examine any sale of the property to determine that the board acted as responsible fiduciaries.”

Negotiations with Broad continued for two years.

Broad said he did not recall meeting with Munitz to discuss the property, and said he never negotiated with Munitz himself, only with Rountree, Broad’s spokeswoman said.

The Getty did not seek a new appraisal for the Oakmont land, a step the state attorney general’s office recommends that all foundations take in such circumstances.

“If you’re exercising good business judgment, why would [you] sell it without a current appraisal?” asked Belinda Johns, senior assistant for the attorney general’s charitable trust section. Although Johns would not comment on any specific case, she said in general, “You’d want to maximize your assets. In fact, you have an obligation to.”

In April 2002, Rountree approved the sale of Getty land to Broad. The final price: $2 million.

The board did not vote on the transaction but was informed of it, Getty officials said. John Biggs, the current chairman of the board of trustees, referred questions about the land sale to the Getty spokeswoman.

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The Getty says the documents demonstrate that Munitz handled the sale ethically and responsibly.

In a written response to The Times, Getty general counsel Peter Erichsen defended the trust’s actions. “The lot was sold at arm’s length for fair market value to the most practical and possible buyer,” he said. “Dr. Munitz suggested to Messrs. Rountree and Gould language for them to include in a memorandum to Dr. Munitz, that he could then share with Mr. Broad, to make abundantly clear that it was essential for Mr. Broad and his representatives to work directly with Messrs. Rountree and Gould, because Dr. Munitz could not negotiate or conclude any transaction with him.”

Erichsen said the Getty had received a lower valuation for the land in 1999 that put its worth between $1.5 million and $2 million, depending on the usability of the lot.

Further, he said, the property would have required a variance to develop, and as a neighbor Broad would have been able to protest any proposed development with the city.

Broad also may have been able to prevent access to Oakmont Drive, a private road maintained by a neighborhood association, Erichsen said. Claymont Drive, which also borders the property, is a public road.

By negotiating directly with Broad, the Getty saved a broker’s commission, Erichsen noted. Realtors say they usually get 5% of the sale price, in this case $100,000. It also saved on other transaction costs, he added.

Rountree is now president of the Los Angeles Music Center, where Broad and Getty trustees Burkle and Lloyd E. Cotsen are among 12 honorary directors.

Rountree said the Getty got a fair price because the Getty’s appraisals did not factor in a number of limiting conditions on how the land could be used, such as unresolved questions about access to the two roads it abuts and the lot’s steep terrain.

The statement from Broad’s representative also said “the appraisal did not take into account that the lot could not be developed because it was in a ravine and on a private street.”

Real estate professionals sometimes do factor in such limiting conditions. The Getty would not provide The Times with a copy of the $2.7-million appraisal written in 2000.

“We were overjoyed to sell the parcel for $2 million,” Rountree said. “Mr. Broad was well aware of the negative factors affecting the lot, and I know that he felt that $2 million was a very stiff price under the circumstances.”

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(BEGIN TEXT OF INFOBOX)

Land Deal

In 2002, the J. Paul Getty Trust sold Eli Broad a Brentwood property for $2 million. Two years earlier, an appraisal had said it was worth $2.7 million. Getty Chief Executive Barry Munitz, a close friend and professional associate of Broad, personally directed the early stages of the deal, Getty documents show. Experts say the deal raises legal and ethical questions.

* The Getty Trust sold the property to the Broad Revocable Trust on April 23, 2002, for $2 million.

* The property totals 26,392 square feet, or 0.6 acres.

Sources: Los Angeles County assessor, Forbes.com, Getty 2002 annual report.

Graphics reporting by Jason Felch