The first-class compartment aboard a recent flight from Los Angeles to Honolulu included a contingent of professionals representing some of the most prominent commercial real estate firms operating in Southern California. Traveling to tour a major Hawaii high-rise up for sale were senior executives of big office real estate investment trusts Arden Realty and Equity Office Properties, giant institutional investment managers ERE Yarmouth and LaSalle Partners and diverse property investment firm Highridge Partners.
Joining that prestigious crew was Steve Ohren, president of Pacifica Capital Group, a quiet Marina del Rey-based real estate company that has managed to rival the name players in local investment activity over the last two years while maintaining a substantially lower profile.
That profile has leaped dramatically over the last six or seven months--but not because Ohren and his team of well-heeled partners and co-investors have sought the limelight. On the contrary, Ohren, Pacifica Capital co-principal Steve Leonard and Pacifica Capital's roster of regular investors "would just as soon avoid publicity," the president of the 16-year-old operation said.
Rather, Pacifica's profile is rising in tandem with size and visibility of the office buildings the firm has been acquiring here in recent months--an era dominated by bidding wars among Wall Street-backed REITs and other institutional buyers betting on the L.A. recovery.
As Pacifica Capital's latest activities illustrate, Ohren's firm is no longer pursuing only smaller properties that tend to be passed over by the REITs and other large real estate investors. After buying a bevy of smaller properties over the last two years--initially in the sub-$5-million range--Pacifica Capital won the heavy bidding on the former Washington Square in Marina del Rey last August for $27 million and, most recently, Pacific Palisades' Sunset Coast Plaza earlier this month for $21 million.
Ohren said he expects in early April to close escrows on Pacifica Capital's purchases of two El Segundo commercial complexes, the Pacific Concourse and a portion of the El Segundo Research Center. Those acquisitions, which would cost Pacific Capital around $50 million, would bring the firm's Southland investments over the last two years to 37 buildings totaling 3.5 million square feet and valued today at more than $300 million.
Despite the intentionally low visibility, Pacifica has become one of the more eye-catching examples of the independent, entrepreneurial spirit still alive among local real estate investors. While institutions tend to be more herd-like, conservative and sometimes cumbersome, the successful private entrepreneurs with ready access to capital are relatively nimble, contrarian and entrepreneurial.
"Some REITs are able to react pretty quickly, but the Pacifica guys tend to respond even faster and can jump in and tie up a property" before their more institutional competitors get through their approval processes, said Steve Solomon, a commercial real estate broker who worked at Pacifica before joining the Seeley Co.
Pacifica Capital's local investment activity and its ability to raise rents at the acquired properties are reminiscent of the contrarian strategies Leonard and Ohren implemented successfully in the Denver area over the last several years.
Pacifica Capital, of which Ohren is majority partner, has close ties to Denver's Pacific Holding Co., of which Leonard is the majority owner. The two companies include many common investors--primarily a close-knit group of wealthy individuals--but the two for the most part operate separately.
After the partners opted to stop investing in Southern California about three years before the local market tanked in the early-1990s, their Pacifica Holding operation began assembling a major portfolio of office, industrial and retail properties in then-struggling Colorado.
Over the last four months, Pacifica and its partners--including noted investor Leon Black's Apollo Real Estate Advisors--have taken advantage of vastly improved market conditions and aggressive investment by growth-minded REITs buying in Denver. Pacifica cut three deals totaling more than $430 million as it sold and traded stakes in its Colorado properties to major REITs.
As Pacifica Capital looks for a repeat of its Denver experience here in L.A., it has tapped into such finance giants as GMAC and CS First Boston, as well as Apollo, to finance some of its latest acquisitions.
"We saw rents in Denver rise 25% to 30% two years in a row; no one thought that was possible" a few years back, Ohren noted. And now some local markets are seeing the same velocity of appreciation, allowing Pacifica Capital to raise rents substantially at many of its newly acquired properties.
Pacifica's most recent acquisitions also reflect Ohren's penchant for ocean-view offices within walking distance of Southland beaches. Ohren said California real estate near the ocean is particularly difficult to develop--keeping future competition minimal--and that tenants from the "creative industries" in particular will pay a premium for such digs.
That was obviously the case at Washington Square, and Ohren anticipates a similar story at Sunset Coast Plaza as well as the 192,000-square-foot office tower Pacifica Holding, Apollo and others are jointly developing at Santa Monica's Arboretum mixed-use center.
Pacific Capital Group bought the former Washington Square last August and renamed it Pacifica Square as Ohren and company relocated their offices from a nearby building. The new owner soon cut a deal bringing ad agency Kovel Kresser & Partners from Santa Monica to the complex's 30,000-square-foot "plaza" building, which had been vacant for a year. After Pacifica invested some $2 million into renovations at Pacifica Square, "We found that we could raise rents significantly and haven't met much resistance," Ohren added.