Shamrock Confident Despite the Risks
The real estate specialists at Shamrock Holdings Inc. have generated huge returns through savvy investments in a wide variety of projects ranging from movie studios to senior housing.
“It doesn’t matter whether it’s a residential project or a hotel,” said Clifford A. Miller, managing director of the Burbank-based investment firm. “What matters to us if it can make money.”
That no-nonsense approach will be put to the test as Shamrock--which is owned by the Roy E. Disney family--oversees a fund designed to stimulate real estate investment in depressed neighborhoods of Los Angeles.
Shamrock is on the verge of raising the $75 million needed to close the first phase of the Los Angeles Genesis Real Estate Fund, which may eventually grow to $100 million. But raising the money, which has come primarily from banks, may be the easy part when expectations are running so high and many previous revitalization efforts have fallen short.
Shamrock executives, however, remain confident that they can identify projects that can generate good-paying jobs--a key goal of city officials--as well as the profit investors demand. In addition to helping finance the projects, Shamrock may act as a developer in a few of the projects.
“It’s going to be a big difference because [investors] won’t get the usual government runaround,” said Jack Kyser, chief economist, Los Angeles County Economic Development Corp. “This is a good model to go on.”
In recent years, real estate--particularly in California--has played a larger role at Shamrock Holdings, which is headquartered on a quiet side street in the shadow of Warner Bros. studios. Real estate accounts for about 25% of Shamrock’s investment portfolio compared to about 10% five years ago.
The real estate operation is headed by George Buchler, the company’s former chief financial officer. Buchler makes sure the proposals meet Shamrock’s financial standards--with returns usually exceeding 20% annually--while Richard Gentilucci, senior vice president of real estate, applies his experience in construction engineering and real estate sales to identify and size up potential properties.
“We saw a lot of opportunities for us in real estate,” Buchler said in an interview in Shamrock’s offices, which are grouped around a three-story atrium filled with sculpture and plants.
Its most notable projects in the Los Angeles region include the Raleigh Manhattan Beach Studios, the area’s first new studio facility in 50 years. In West Hills, Shamrock teamed up with Regent Properties to redevelop a part of the former Hughes Aircraft missile plant into a 30-acre office park. The firm is also developing a 200,000-square-foot office park near Sacramento in addition to other projects.
The firm’s small and tightknit executive team permits Shamrock to respond quickly to deals once they receive the blessing of Stanley Gold, who co-founded Shamrock with Roy Disney in 1978. “We have a meeting as we go down the hall. We move swiftly,” said Miller.
The West Hills project is an example of Shamrock’s ability to find and polish up undervalued properties. After partnering with Beverly Hills-based Regent, Shamrock took on the task of renovating the empty and earthquake-damaged buildings. It also won city approval to boost the amount of commercial space on the site by more than 20% to 565,000 square feet.
Three years after being purchased by Shamrock and Regent, the newly christened West Hills Corporate Village is about 75% occupied, and negotiations are underway to fill the remainder of the spaces. Existing tenants include Sterling Software Inc. and Boeing Co.’s Rocketdyne Propulsion & Power division
“There was tremendous opportunity in the site,” Gentilucci said.
Impressed with Shamrock’s turnaround of the former Hughes plant, Los Angeles Mayor Richard Riordan approached the firm about raising and managing the Genesis real estate fund. Shamrock is paid a management fee and has invested $5 million of its own money in the fund. Shamrock executives say they will remain free of the conflicting political pressures and government bureaucracy that have undermined many previous inner city investment programs. Only projects that generate the necessary financial results will get backing. The Genesis fund managers say they expect their investments to earn an annual return in the high teens.
“It’s a for-profit fund,” Miller said. “We won’t forget that.”
But the sharp rise in interest rates and economic uncertainty might complicate Shamrock’s mission, Kyser said.
“It’s probably going to be harder than they imagined,” Kyser said. “You are finding a new sense of caution on the part of the business community.”
But Shamrock executives say the Los Angeles area real estate market remains attractive. Property values, in many areas, have yet to recover fully from the last downturn, leaving room for improvement, Buchler said.
Finding suitable investments is “always going to be a challenge,” Buchler said. “But you have to look beyond what’s on the site and have a little bit of creativity and imagination.”
