Donald T. Sterling has been on a losing streak with his L.A. Clippers but he is on a roll in real estate. "Real estate is a slam dunk," he said. "Basketball is a challenge."
Sterling owns 22 of the 104 luxury apartment complexes in Beverly Hills and, based on the amount of property he owns, claims he is the "largest individual taxpayer in town."
He has a $1-billion portfolio of California properties, mainly luxury apartments, stretching from San Diego to Santa Barbara.
"And he feels he is now perched for the biggest career move he can make," said Michael Selsman, director of corporate affairs at Sterling Corp.
Using his vast real estate holdings as collateral, Sterling borrowed $129 million from the Bank of America, Wells Fargo, Bank of California and Security Pacific to make $500 million in investments.
He may buy a cable TV station or a weekly financial newspaper, and he even had discussions about making a bid for the Dallas Cowboys. But Selsman said "a good portion" of the loans will go into real estate, and Sterling already has purchased six Westside apartment complexes for a total of $55 million since getting the loans.
He expects to buy many more apartments in the next six months when, he said, some landlords, fleeing vacancies and tax law changes, plan to sell.
"Some feel real estate is a risk," he said, laughing. "Sports is the risk, but we've developed a formula for real estate that works like a Swiss watch."
The Sterling formula: "Buy quality properties in quality locations close to home, then put in marble floors, plush carpeting, designer wall coverings and a new facade by one of the better architects."
The result: Many of his properties increase in value right away by as much as 25%, he said. Because of his formula and the rate of inflation, he figures that some of the properties he purchased over the past 26 years are worth 500% to 1,000% more than he paid for them.
Sterling, 53, bought his first property, a 26-unit luxury apartment building in Beverly Hills, in 1963 with his earnings as a trial lawyer. He grew up as Donald Tokowitz in Boyle Heights. His father, who worked in the produce business, changed the family name.
During the 1960s, the younger Sterling bought several apartment complexes from well-known entertainers. "I knew their business managers," he said.
He bought buildings from Raymond Burr, Chuck Connors, Robert Mitchum, John Wayne, Carol Burnett and Burt Lancaster. "And we bought many from Jerry Buss, so he could buy the Forum," Sterling recalled.
Altogether, Sterling acquired about 5,000 apartments, the Beverly Hills Comstock Hotel, the former MGM office building (now Sterling Plaza) at Wilshire Boulevard and Beverly Drive, and two oceanfront properties in Malibu: the former Malibu Yacht Club and an apartment building that was owned by producer Jack Warner.
Sterling hopes to build a hotel and condominium tower on top of the three-story, 119-suite Beverly Comstock, but his first new development will be 100 condos, which he expects to sell at $1 million each, on the Malibu Yacht Club site.
After being gutted, his new Sterling Plaza should open this summer. He paid $1 million for the office building in 1976, after it had been on the market for a year, and he will have about $10 million in it after new interiors are completed, Selsman said.
The chief executive officer of Sterling Corp., Robert J. Steele, said, "We have already rejected offers of over $20 million for the building."
Sterling's real estate days weren't always bright. Gripes in 1986 that he raised rents in Beverly Hills by more than 30% led to a city-imposed rent freeze and a subsequent 10%, once-a-year limit on rent increases for apartments not already covered by the city's rent stabilization law.
Selsman also waxes philosophical about that: "If you have thousands of tenants and apartments, you'll always have some complaints."
Sterling can weather such setbacks. He has deep pockets, and like the Japanese, holds onto property for years. Since Sterling started investing in real estate, he hasn't sold any.
"We pay high market," he said. "We don't buy properties that are losers, because if you buy gold, it will remain gold forever."