Secret to His Success? Timing

Developer Robert J. Lowe is an unlikely real estate mogul. In a world of brash talkers and big egos, Lowe is laconic and low-key--more of a Gary Cooper than a John Wayne, according to his friend the mayor.

But mogul is what the 59-year-old bespectacled executive has become in recent years, with more than $3.5 billion worth of real estate assets under his control, and close alliances with Los Angeles Mayor Richard Riordan and other politicos, including former Gov. Pete Wilson.

The secret to Lowe’s success, others say, is his timing. Like Cooper in his classic westerns, Lowe always seems to know when to say “yep” and when to say “nope.”

At the height of Southern California’s boom in the late 1980s, when developers were still rushing to get new skyscrapers out of the ground, Lowe’s company, Lowe Enterprises, was already looking for bargains in other parts of the country that were slipping into recession.

When the market finally bottomed out, he was positioned to buy glossy high-rises and luxury resorts for a fraction of what they cost to build. Among his trophies were the spectacular Ritz-Carlton Huntington Hotel in Pasadena and the Wild Dunes resort in Charleston, S.C., which he snagged at a deep discount after the East Coast was pounded by Hurricane Hugo in 1989.

Lowe’s knack for picking winners, predicting rebounds and keeping his own greed in check during real estate booms has turned his 27-year-old real estate firm into one of the largest independent pension fund managers in the country, with 6,000 employees across the United States and Britain (175 at corporate headquarters in Brentwood) and annual revenue from these investments of about $750 million.

“What surprises me about him is how low-key he is,” says Riordan. “He’s got so many projects happening around the world at one time. And he’s just this quiet person managing all of these things and making them happen.”

Riordan and former Gov. Wilson have turned to Lowe for advice on everything from how to reuse former military base land to how to boost Los Angeles’ image to where to build and how much to spend on a downtown convention center hotel.

After all, hotels have been the bread and butter of Lowe’s real estate portfolio since he started his career in the late 1960s, developing the Snowmass resort in Colorado for Janss Investment Corp. His subsidiary Destination Hotels & Resorts now manages about 7,000 hotel and condominium units, mainly ritzy, four- and five-star affairs such as L’Auberge in Del Mar, San Diego’s Hotel del Coronado and Vail Cascade Hotel & Club in Colorado. But over the past decade, as he has lined up a large stable of pension fund and other institutional investors, Lowe’s influence has spread to other types of real estate. He has operated shopping centers and office buildings, including Detroit’s massive Renaissance Center. He controls huge planned residential communities such as the 3,200-home Klahanie development outside Seattle, which he picked up for little more than sweat equity.

That land, owned by the Hartford Insurance Group, was scheduled to be downzoned to 200 five-acre ranchettes, but Lowe was able to salvage the development deal and its profit potential by convincing King County officials that the growing high-tech hub needed more affordable housing for its workers.

The land’s entitlements were preserved, and Lowe built the first phase of 100 homes, using its profit for a down payment to buy the entire 870 acres of land from Hartford. Over the course of its 10-year construction cycle, Klahanie has netted Lowe about $15 million.

Developer Jim Thomas recalls another classic deal, when Lowe purchased the 383-room Ritz-Carlton Huntington Hotel from debt-ridden Japanese investors for the Los Angeles County Employees Retirement Assn. in 1994. The stately 383-room hotel had recently been renovated at a cost of more than $100 million. Lowe paid just $42 million.

“His timing was excellent,” says Thomas, formerly of Maguire Thomas Partners, which developed the less elegant Doubletree hotel near Pasadena City Hall. “He was able to buy it for about half of what we spent on our hotel. It just breaks your heart to see that kind of thing.” Not only was Lowe able to buy the hotel, but he also was able to buy the prestige of the Ritz-Carlton chain, which he persuaded for the first time in its history to franchise the name for the hotel without actually managing it; Lowe’s hotel division ran the property. Although the pension fund still owns the hotel, Lowe Enterprises has since been bought out and Ritz-Carlton management has stepped in.

Lowe says he’s been able to make such deft moves because of the entrepreneurial nature of his private firm. He doesn’t have to report to shareholders other than the 26 partners who help run the firm. And unlike real estate investment trusts and other types of publicly held investors, he can move quickly to purchase distressed properties.

People in the real estate industry also credit Lowe with creating a decentralized organization run by knowledgeable lieutenants who have the option of becoming part owners. The bulk of the company is owned by Lowe’s family, including two sons who work for the firm.

“People go to work there and want to stay because of the culture,” says George Smith, a Century City-based mortgage banker who has helped Lowe’s firm arrange financing. “There’s basically no turnover.”

The continuity seems to pay off. Most of Lowe’s investments have been notably profitable, generating unleveraged returns to investors of 15% to 25%. But there have been a few missteps too, like his 1988 purchase of 112 acres of land and buildings in downtown’s industrial zone. Many say he paid too much, and it took many more years to develop the land than he anticipated.

And there was the disappointment early in his career of a resort condo project that sat empty for nearly a year, beset by surging interest rates and the 1970s oil crisis.

“We had 52 condominiums up in Lake Tahoe, and no one from San Francisco was able to buy gas to get there,” Lowe remembers. That financial beating taught Lowe an important lesson about the value of diversification. Since then, he’s made an effort to spread his risk over many markets across the country and many types of real estate.

“You have to have a financial structure that allows you to survive the unexpected,” he says.

Survival hasn’t been an issue for a long time. As the volume of Lowe’s investments for institutional clients has surged, so has its bottom line. Although Lowe declines to reveal financial specifics, he says Lowe Enterprises’ profit doubled in 1998 from the previous year’s, which at that time was a company record.

And now Lowe has seized on a new business target: REITs. Lowe is developing office buildings for Arden Realty and Spieker Properties, which don’t have the manpower or expertise to build such complex projects. He’s also bringing his own stable of pension fund investors in to help REITs--whose shares have been battered on Wall Street--fund new acquisitions. This kind of fee-for-service work wouldn’t appeal to many real estate executives, who generally prefer to build their own projects. But no one would ever accuse Lowe of letting his ego get in the way of profits.

“He’s not a boisterous, pound-the-table real estate developer and investor,” says Arden Realty Chief Executive Dick Ziman. “He just understands what the objectives are and achieves them.”