Investment Group Defies Wall Street Trend
After establishing a successful real estate investment firm, partners Bob Campbell and Tom Thompson considered tapping into the wealth and prestige of Wall Street by forming a publicly owned company.
The discussion didn’t last long.
“We were sitting around and someone asked, ‘Who is the guy who will go to Wall Street to meet the brokers and analysts?’ ” said Campbell, president of CT Realty Corp., recalling a meeting with fellow investors. “No one raised their hands.”
CT Realty seems like a relic in an industry where giant corporations and powerful investment bankers have forced many of Southern California’s real estate entrepreneurs to the sidelines. Many of the region’s most prominent players--such as Arden and Kilroy--have transformed themselves into publicly owned real estate investment trusts in order to compete.
But Newport Beach-based CT Realty shows that there is still plenty of opportunity--and profit--for private investors practicing real estate in a classic and very personal fashion.
In informal meetings of CT Realty investors, a group of wealthy golfing buddies and longtime business associates decide whether to pool their cash to buy a strip mall or an aging industrial park--properties too small or too risky for REITs and other firms wedded to Wall Street. Their strong local ties allow the CT group to sniff out deals before properties officially come up for sale.
“They face a higher risk [than the large, public firms], but they know the market better and get a higher return,” said real estate consultant Kenneth H. Townsend.
Despite losing ground to Wall Street-financed groups, private networks of individuals still account for about 25% of real estate deals--based on land value--in Southern California, said land broker Craig Atkins. That share could grow as real estate values continue to climb, attracting new investors, and the depressed shares of publicly traded REITs undermines their ability to make deals.
“Real estate is such a grass-roots type of business,” Atkins said. “You can buy a strip center and sell that and buy something bigger. It allows people to get in on a small scale and build their way up.”
The old boys’ network that many of these firms rely upon is an exclusionary and, when compared with Wall Street institutions, an inefficient and more expensive way to raise capital. But these networks can pay off handsomely for individual investors and play an important economic role.
In the early 1990s, for example, when large developers and lenders had all but abandoned Southern California during the recession, entrepreneurial investors were among the first to take chances and inject money into the real estate market.
“It’s about who you run into and who you feel comfortable with,” said economist Jack Kyser of the entrepreneurial investors. But “they are putting their money on the line. It’s a form of wealth creation.”
Personal relationships are at the heart of CT Realty. The firm was formed in 1994 by longtime friends and business associates Robert M. Campbell, a former real estate development executive at Bircher Real Estate, and U.T. Thompson III, an Orange County real estate attorney and investor.
Neither cares much for the corporate takeover of real estate and the changes it has forced upon companies and their employees, whose every move and misstep are monitored by Wall Street investors and analysts.
“They are no longer real estate guys,” said Thompson, who came out of semi-retirement to join Campbell. “They are Wall Street guys. Nobody [at CT Realty] wanted to pay that price.”
After property development dried up in the early 1990s, Campbell left Bircher to start a firm focused on finding Southern California bargains left behind in the real estate bust.
Campbell and Thompson, both 59, turned to an old network of Orange County associates and friends they knew from serving on the board of directors of a local bank, from friendly tennis matches and from involvement in the Young Presidents Assn. Each person was asked to come up with $75,000 to start up the firm.
“Nobody was sure it was the right thing to do,” said Forest E. Olson, a former Los Angeles-area residential real estate broker. “They usually didn’t go into deals that small. But they all liked Bob.”
And, in classic fashion, the early investors in CT Realty--and its many affiliated partnerships--brought in friends to raise more money.
“People come to me to ask where to invest,” said CT investor Donald R. Beall, a former chairman of Rockwell International Corp. and current director of Times Mirror Co., which publishes The Times. “I tell them ‘I’ll put you in touch with these guys at CT.’ ”
Olson, Beall and the other investors have helped finance the acquisition of more than $400 million worth of property. Most of the properties are valued between $4 million and $10 million and are hardly glamorous landmarks. Among their holdings: a 23,000-square-foot industrial building in San Clemente, a 142-unit apartment complex in Ontario and a six-story Burbank office building.
Often, with little more than new paint and landscaping, CT Realty boosted the value of its holdings as demand for office and industrial space began to increase. In one deal, the investors were able to reap a 30% gain on the sale of a small Yorba Linda industrial park that had been purchased less than two years earlier.
“We have been good at picking properties,” Thompson said. “We have stayed pretty local and it’s worked for us.”
At first, CT’s acquisitions were small enough to avoid much competition from the much larger real REITs. But as real estate bargains grew scarce, REITs were forced to lower their sights, putting them in competition with smaller players such as CT Realty. That forced CT Realty to shift its focus to redevelopment projects, which are usually not worth the trouble to REITs.
“They can’t afford to do it,” Campbell said.
It’s that kind of flexibility that will give entrepreneurial investors an edge over larger, slower-moving competitors in a rapidly changing industry, said Townsend, who heads the regional operations of E&Y; Kenneth Leventhal Real Estate Group.
“They may be less efficient in attracting capital,” he said. “But they will be in a much better position [to handle change] than these battleships we are creating in the form of huge public companies.”
