From boutique office buildings to giant wholesale markets, investor Judah Hertz has scoured the bargain basement of downtown Los Angeles real estate and has discovered some profitable gems.
In less than five years, the New York native has watched the value of his California Jewelry Mart and his International Jewelry Center nearly double in value. He recently put the Art Deco Oviatt Building--which he purchased for $1.5 million in 1997--on the market. The asking price: $13 million.
"He's been remarkably good at identifying properties with potential," said David Zoraster, a real estate appraiser who is familiar with some of Hertz's holdings.
Now, downtown's most active bargain hunter has emerged as one of its largest landlords after recently paying about $90 million for the California Mart, the sprawling complex that serves as the hub of the region's apparel and fashion industries. The purchase--Hertz's largest downtown acquisition--puts his firm in control of more than 3 million square feet of commercial space in the central city.
The deal poses serious challenges for the 50-year-old real estate executive, who must calm the nerves of some anxious tenants unfamiliar with their new low-profile landlord. In addition, his team must fill the California Mart's more than 300,000 square feet of empty space that the previous owner--Equitable Life Assurance Co.--could never lease.
But Hertz remains unfazed in his ability to turn around and generate a huge profit from yet another property that others have overlooked. "I believe in this building," Hertz said.
Hertz's interest in central Los Angeles, where his Hertz Investment Group owns about a dozen properties, comes after more than 20 years of real estate investment and development across the country. The son of a hosiery maker, Hertz began his real estate career in the 1970s by converting dingy warehouse and industrial buildings in Manhattan's SoHo district into chic residential lofts.
In Miami, where Hertz lived until he moved to Beverly Hills about a decade ago, he and his partners purchased and converted hundreds of apartment units into condominiums. Hertz's portfolio has included Louisiana apartment complexes, landmark hotels in Baltimore and a Beverly Hills medical center.
Hertz arrived in downtown Los Angeles in the mid-1990s when property values were at the bottom. In 1996, at the urging of Tom Gilmore, another downtown real estate player, Hertz purchased his firm's first central city property--the International Jewelry Center--for $24.5 million.
During the next few years, the group purchased historic buildings along Spring Street, shopping centers in Chinatown, a faded hotel near MacArthur Park and the Wiltern Theatre building on Wilshire Boulevard.
The Hertz real estate portfolio seems like a hodgepodge of properties. But the collection of buildings reflects a consistent strategy that has paid off handsomely. "We buy properties that are not doing well," as Hertz put it.
He figures he will pay less and reap bigger profits by scooping up troubled properties than by paying more for investment-grade buildings. By managing and leasing properties more aggressively, Hertz has been able to fill space and increase the value of his holdings.
The International Jewelry Center, for example, was nearly 40% vacant when Hertz purchased it. Now the building--packed with jewelry dealers, designers and manufacturers across from Pershing Square--has a vacancy rate of less than 10%.
Many of the properties that Hertz has purchased had already undergone expensive renovations by previous owners. That minimizes costly and time-consuming renovations for Hertz.
Developer Wayne Ratkovich, for example, had invested nearly two decades of his time and about $30 million to buy and restore the Art Deco masterpiece Wiltern Theatre, only to lose it to his lender. In 1998, Hertz stepped in and purchased the block-long complex for $19 million in cash.
At the California Mart, the dramatic, light-filled atrium and new interior spaces are examples of the more than $20 million in improvements made by the former owner. Though Hertz plans to remodel some of the floors, most of the work has already been done.
What Hertz and his executive team will focus on is improving building management and ensuring a quick response to those interested in leasing new or additional space. He has pledged to fill the building's empty floors with tenants in the fashion and apparel business.
Many in the complex at 9th and Main streets had feared that Hertz might lease the space to financial firms or for use as telecommunications switching stations.
"We are going to stay a wholesale mart," said Hertz, who has relocated his offices from the Oviatt Building to the seventh floor of the California Mart.
Initial meetings between California Mart tenants and Hertz seem to have eased some anxiety, said Peter Jacobson, who heads a tenant and industry trade group at Cal Mart.
"He has the fiscal ability and the entrepreneurial prowess to succeed," said Jacobson, a longtime Cal Mart tenant. "He's going to maximize its potential."
Hertz said he is interested in buying yet another downtown property. But real estate values have increased dramatically since the mid-1990s, making it harder for Hertz to find bargains. In fact, he has cashed in on the rising values by selling some of his downtown holdings, including the California Jewelry Mart, which is in escrow.
In addition, Hertz is devoting more time to seeking a gambling license in Nevada, where he is interesting in building a base in Reno.
But he said central Los Angeles remains a relatively attractive investment opportunity since values in most other areas have shot up even higher.
"I think there still is big potential for downtown," Hertz said.