Poised to Pounce
Although they’ve managed to keep busy for the most part, the seven commercial real estate veterans who split from high-profile developer Rob Maguire more than two years ago have struggled in their bid to establish an investment and development company.
The team that formed Los Angeles-based CommonWealth Partners had the experience, having developed 17 million square feet of new business space during the 1980s and early ‘90s for Maguire Thomas Partners, but it lacked what so many other property professionals did during the recession: capital.
The new firm couldn’t get the money it needed to grow when the local office market started climbing out of its trough in the mid-1990s, said Ned Fox and Rick Gilchrist, co-managing principals. The absence of a deep-pocketed partner meant CommonWealth missed some promising opportunities to invest in existing buildings and tie up land for future development.
Today, as the local property market improves, the suddenly well-heeled firm is poised to pounce, thanks to an alliance with a financial partner that could lead to as much as $2 billion worth of investments over the next two to three years. CommonWealth last year teamed up with major multinational investment banking group Lazard Freres, whose New York-based real estate investment unit will operate with it as CommonWealth Pacific.
When the CommonWealth team left Maguire, it took with it the skills needed to buy and develop commercial real estate--entitlement, design, construction, finance and marketing--which they used to build the business’ consulting and asset management services, focusing on big real estate owners and corporate real estate users through fee-based assignments.
Its biggest mistake was “not aligning with capital earlier and making opportunistic acquisitions when we first formed the company,” recalled Fox, who was once Maguire Thomas’ president and chief operating officer. (He and his longtime partners had worked on some notable properties, including Library Tower, Wells Fargo Center and Gas Co. Tower in downtown Los Angeles; Santa Monica’s million-square-foot MGM Plaza complex; and Pasadena’s Plaza Las Fuentes mixed-use center.)
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One big deal that got away partly because of CommonWealth’s dearth of capital was a 600,000-square-foot luxury office development in the high-demand Burbank Media District that giant real estate investment trust Equity Office Properties and local developer J.H. Snyder Co. broke ground on last month.
CommonWealth had teamed with Roy Disney’s Shamrock Partners to pursue the strategically located site. But Snyder won and subsequently worked out a deal with investor Sam Zell’s Equity Office Properties to develop what many real estate professionals consider a potential “home run” in an area starving for new office space.
“That was a strong, bookable development deal that got away from us,” Fox said.
Although CommonWealth had cultivated a roster of corporate clients during its early years--it’s now involved in real estate projects valued at more than $500 million--the alliance with Lazard gives it a competitive boost in the West Coast’s improving commercial real estate environment.
“It allows us to put together a significant office portfolio a lot faster than if we just developed,” Fox said.
Gilchrist said the alliance’s “entrepreneurial” acquisitions and developments should generate a portfolio valued at $1.5 billion to $2 billion within two to three years--even faster if the partners close a mega-deal or two.
The alliance will no doubt bump up against aggressive real estate investment trusts vying for the same properties. Gilchrist said he believes his firm is more capable of creating value.
“In the right situations, where there’s under-developed property or a missed opportunity, we can offer hands-on management capabilities that many of the REITs haven’t developed yet, as they’ve been focused so much on growing through acquisition binges,” he said.
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Meanwhile, CommonWealth Pacific will continue to serve major real estate owners and users such as L.A. Cellular, Mattel, Tribune and Hughes Electronics.
Motivation for the alliance also extends to the personal level, said Gilchrist, who oversaw Maguire Thomas’ development activities for 14 years.
“We had worked extensively with [senior Lazard real estate executives] Art Solomon and Rob Freedman and felt very comfortable with the quality of the people there. And we’d reached a point in our lives where it’s very important to work with people you respect and with whom you share common goals and interests.”
Although some industry veterans say then-struggling Maguire could no longer afford to keep the CommonWealth founders, they and Maguire have always said the departure was primarily a matter of disagreements over goals and interests.
Reports of financial strife at Maguire Thomas persisted before and after the CommonWealth team left--although the recovery of local property values has helped Maguire sign some key refinancing arrangements in recent months. Maguire has also been at the center of the controversy surrounding Marina del Rey’s massive Playa Vista development, where the DreamWorks SKG studio plans to build its corporate campus.
The CommonWealth founders say that when they decided to leave Maguire in mid-1995, they considered where commercial real estate opportunities were most likely to arise and determined that the best strategy was to offer clients an array of disciplines.
“Many of us had become damn good at what we do,” said Michael Croft, a former senior executive at Maguire Thomas and a founding principal at CommonWealth. (The other principals are James Anderson, Robert Goodwin, Peter Johnston and Bret Munger.) Given Rob Maguire’s reluctance to diversify to the degree the team recommended, “the only way to fully capitalize on [the considerable talent and experience] was to have our own firm--and Rob understood that.”
In a statement, Maguire said he is “immensely proud of what we accomplished together and am equally proud of what they have gone on to pursue. . . . We remain friends. Our paths continue to cross, and it is only a matter of time before we work on something together or even compete on a project.”
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Although CommonWealth’s new relationship with Lazard Freres should help it compete in a market increasingly driven by Wall Street-backed operations, it was hardly idle before the partnership.
“During their first two years, CommonWealth has probably been involved in more high-profile projects than anyone in the U.S.,” said Lazard’s Solomon. Among the more visible of its projects in the Los Angeles area alone:
* Managing and securing financing for the development of a 250,000-square-foot headquarters building for L.A. Cellular in Cerritos.
* Helping Lloyd & Dabney Properties pursue entitlements for and plan development of its 4,000 Ventura County acres.
* Leasing downtown L.A. office high-rises for owners including Equitable Real Estate (now ERE/Yarmouth), Wells Fargo and Nippon Life.
* Preparing Hughes Electronics’ 70-acre Fullerton property for eventual disposition.
* Assisting in the master-planning for Mattel’s South Bay headquarters property while helping the toy maker dispose of excess property inherited through its Tyco Toys acquisition.
* Helping Tribune secure entitlements for and dispose of its prime Hollywood property.
CommonWealth is getting that kind of business because it boasts “the starting lineup from what was the best team in the business at Maguire Thomas,” said Jack Rodman, director of national accounts with big real estate consultancy E&Y;/Kenneth Leventhal.
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“They’re the Dodgers and the Yankees--all of them were consistent .300 hitters,” said Rodman, a longtime Maguire Thomas consultant who also advised the CommonWealth principals as they developed their business plan.
Rich Grimes, L.A. Cellular’s director of real estate and construction, whose firm hired CommonWealth to help assess long-term corporate real estate strategies, then retained it to seek a new headquarters site and manage its development and financing, said CommonWealth boasts “a fantastic collection of expertise, and we’ve been the beneficiary of that expertise in four or five different disciplines.”
