More Real Estate Investors Believe in Magic in Inner City

Magic, it appears, still has the magic.

A fund co-founded by former Laker guard Earvin "Magic" Johnson has banked $490 million in a second round of financing for commercial developments in inner-city neighborhoods.

Canyon-Johnson Urban Fund has commitments for an additional $110 million that would bring the total to $600 million by the end of April. The fund expects that the new pot of money, when combined with $300 million it raised in 2001, will allow it to expand its portfolio to more than $3 billion of property in cities across the country.

"We had to sell everybody on it the first time. Now they are calling us," Johnson said. "I'm happy we were able to prove to people there is viable business in urban America."

The former NBA star known for his enthusiasm and flash on the court has been a key partner in the fund's money-raising and community outreach efforts. He also brings to the table his network of corporate partnerships with Loews Cineplex Entertainment Corp. (Magic Johnson Theatres), Starbucks Coffee Corp., Burger King Corp., 24 Hour Fitness Worldwide Inc. and Washington Mutual Inc., which has set up home-loan centers in low-income neighborhoods.

Among the projects Canyon-Johnson has completed: building a retail and apartment complex in Hollywood and replacing Chicago's old police headquarters with condos and stores.

"They have proven that there is money to be made in what seem to be forgotten and rundown urban areas," said John Shirey, executive director of the California Redevelopment Assn., a trade organization for municipal redevelopment agencies.

Investors in Canyon-Johnson -- including the California State Teachers' Retirement System, the University of Michigan and Verizon Communications Inc. -- profit when projects the fund undertakes are sold.

The latest example is SBC Tower, formerly Transamerica Center, in downtown Los Angeles. Canyon-Johnson and a partner, New Pacific Realty, paid about $100 million for the center in 2003, then sold one of the complex's buildings to the city for $35 million and some land to developers for $40 million. Now, sources said, the fund and New Pacific have agreed to sell the main 32-story tower and another building for close to $130 million to Irvine pension fund advisor LBA Realty, more than doubling their investment.

Bobby Turner, the fund's managing partner, said that Canyon-Johnson focuses on "misperceived markets" that have been overlooked by the broader investment community.