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Wealth of Nations

More rich foreigners are choosing L.A. for their home and their business.

By DANIEL MILLER
Los Angeles Business Journal Staff
May 19, 2008

With its famous beaches, mild climate and Hollywood glitz, Los Angeles has long been a destination for the world’s megawealthy and jet-set elite.

Yet the city has been more of a vacation destination, a stopover, compared to financial powerhouse New York City, or European capitals such as Paris and London.

There are signs, though, this is changing. Just ask Nick Candy.

An international Brit who makes his home in Monaco, Candy and his brother are building a luxury condo project in Beverly Hills on land purchased last year for half a billion dollars.

And the 35-year-old multimillionaire developer isn’t just eyeing L.A.’s well-heeled residents. About half of the buyers are expected to be foreigners seeking second homes – everyone from Middle Eastern sheiks, to Latin American businessmen, to new Russian potentates.

“I think it is a great city. One of the great cities on the planet,” said Candy, during a recent phone interview from Doha, Qatar, where he was on business. “People across the world want to live in condos there and not worry about having a pool boy, butlers and three housekeepers.”

Candy & Candy Inc. is aiming to tap into a growing international population of wealthy individuals, investors and businesses that are giving L.A. a second look, whether as a place to do business, invest or live.

The Dubai royal family recently invested $100 million in downtown’s $2.1 billion Grand Avenue project, proclaiming L.A. one of the few “gateway” cities where it plans to invest. Last year, Beverly Hills’ Two Rodeo Drive shopping plaza was snapped up by Irish investors.

Meanwhile, businessmen from Latin America and elsewhere have settled here to do business. Case in point: Antonio Cue, the wealthy Mexican businessman who co-founded L.A.’s Chivas USA soccer team four years ago.

Real estate agents who sell homes on the tony Westside and exclusive hillside neighborhoods report wealthy foreigners are snapping up homes for cash amid the credit crunch that has put the squeeze on locals.

So what’s at play?

There’s a consensus on this much: Spurred by communications advances, increasing liquidity in the world’s financial markets and strong growth in trade, there’s been a quantum leap in international business.

And this rise of the global economy has minted a vast new class of ultra-rich who are comfortable hopping around and doing business in a growing number of world-class cities, whether it’s established ones like New York City or Tokyo, or emerging ones such as Dubai, Shanghai or Sao Paulo.

It’s an elite club L.A. has joined, bolstered by a cheaper dollar, its Pacific Rim location, a huge immigrant population and its coming of age as a city of the arts, with the opening of spectacular venues such as Walt Disney Concert Hall.

“There is an increasing level of wealth internationally – what we call global families – that didn’t exist before. These people have had the wherewithal to travel around the world and see other places. And I think L.A. is a very welcoming home,” said Clinton Hodges, an international money manager with EFG Capital Asset Management LLC, a unit of Swiss bank EFG International, which opened an L.A. office in March to meet increasing demand.

Sense of freedom

Candy, who runs his namesake company along with his brother Christian, 33, said now that his company has bought the Beverly Hills property he would love to buy a home locally where he could spend up to half the year.

“There are more billionaires and millionaires on the West Coast than the East Coast,” said Candy. “I’d like to have a place in Beverly Hills.”

Many foreigners who move here cite a feeling that L.A. is a freer place with more opportunities than more established cities like New York.

For example, Richard Schaefer, chief executive of Golden Boy Enterprises, Oscar De La Hoya’s boxing promotion and development business, said he came to Los Angeles in 1988 because of its “promise.”

Schaefer emigrated from Switzerland, where his father is a leading banker. Once in L.A., he enjoyed a successful career as the head of UBS Warburg’s Western U.S. money management unit. Then he joined Golden Boy in 2000, shocking his family.

“If you’re an entrepreneur and want to strike it rich, the promise from over 100 years ago – when California was covered in gold and people came from all over the world to strike it rich – that promise is still alive today,” said Schaefer.

In addition to opportunity, Los Angeles offers diversity that is often important for barons looking for a home base. Whether it’s a Persian Jew attracted to Beverly Hills or a Korean attracted to Mid-Wilshire’s Koreatown, L.A.’s many large ethnic populations are appealing to foreigners.

Take Mexican real estate developer Antonio Cue, co-owner and president of Major League Soccer’s Chivas USA, who moved from Mexico City to Brentwood in 2005, one year after the soccer team started play. He chose to live in Los Angeles because of the strong Latino presence here.

“It has great weather, good communication, LAX and a lot of other airports,” said Cue, who is the grandson of the founder of Grupo Modelo, the Mexican conglomerate that owns Corona and Modelo beer. “People are interested in a city with this type of amenities.”

As a real estate developer and investment banker in Mexico City, Cue is no lightweight; he developed Altus, the tallest condo tower in Latin America.

Foreign investment

Indeed, when the sovereign fund of the Dubai royal family decided earlier this year to invest $100 million in the stalled Grand Avenue project, the family declared L.A. one of the world’s “gateway cities” where they plan to invest some of their oil money.

Nelson Rising, chair of the Grand Avenue Committee overseeing the project, said the investment underscored L.A.’s growing stature.

“I’d suggest that L.A. is a world-class city and a gateway city and very attractive to foreign investment of all kinds,” said Rising, who believes sovereign wealth funds will become more important global financing sources.

The liquidity injection by Istithmar underscores another point: In the current real estate market, which has been rocked by the credit crunch, foreign investment is sometimes needed to get the job done. “We ran into a situation in our economy where it is fair to say there is a lack of liquidity. To have access to a sovereign wealth fund like Istithmar is very healthy for growth in our city,” he said.

Perry Wong, a senior managing economist in regional economics for the Milken Institute, said it’s important not to underestimate the dollar’s value in attracting this kind of investment.

“The recent value of the dollar has declined, but over the long haul if you look back from the 1950s to now, we are very safe, a lot safer than many other countries,” Wong said. “That is a big driving force. They know that legally we are safe, we have a stable government. You aren’t going to see the rules change in the middle of the game.”

He said that Los Angeles is particularly attractive to foreign wealth from new Asian powers like China and Taiwan. Many Chinese and Taiwanese go to school in the United States and familiarize themselves with the business system while getting their education or starting their careers. And because of Los Angeles’ relative proximity to Asia, the city is a good bet. “It’s the closest to Taiwan, also Hong Kong too,” he said.

Wong said he expects significant foreign wealth to continue to flock to L.A. “I think so, unless we hit a big wall and our financial community is near the condition of being shut down,” he said.

Location, location, location

Gary Fleishman, manager of the Coldwell Banker office in tony San Marino, said that the city and the surrounding San Gabriel Valley appeals to Chinese nationals who are scooping up second homes because “there are local relatives and friends, so there is a comfort level.”

That appeal extends far beyond Asians in the San Gabriel Valley to the entire region.

Drew Fenton, a broker and senior vice president at Hilton & Hyland who specializes in high-end homes, said that he has begun marketing his listings in London and Dubai newspapers. What’s more, the asking prices are listed in pounds.

“We’ve gotten calls from it,” said Fenton, who added that one current $25 million listing, for an estate at 1310 Tower Grove Drive in the Beverly Hills area, is being marketed in this manner. “We’ve gotten interest from everywhere.”

And once the well-heeled international buyers have their homes, they start spending money here. Cars, art and wine are often at the top of the list. Jon Boardman, the sales manager of O’Gara Coach Co. in Beverly Hills, which sells exotic vehicles like Lamborghinis, said he is seeing more foreign buyers.

“There are certain areas we are seeing additional funds coming from – Russia and China. Those are the obvious growing economies that exist,” said Boardman. The hot model is the Bentley Brooklands, a large coupe with a base price of $341,000.

And then of course there is Hollywood – which still draws jetsetters who want to soak up the movie star lifestyle.

“The one thing you can never take away from L.A. is the allure of Hollywood and celebrity – especially with nouveau riche,” said nightclub impresario Sam Nazarian, the multimillionaire chief executive of SBE Entertainment Group. “It may seem shallow but it’s a reality.”

Nazarian is of Persian and Jewish descent and emigrated from Iran as a young boy. His latest project is the SLS hotel on La Cienega Boulevard near San Vicente Boulevard at the former Le Meridien hotel site.

SLS will include 297 rooms and food service from renowned Spanish chef José Andrés. The hotel will cater to posh locals and the international jet-set crowd. Guests of the hotel will have special privileges at Nazarian’s various nightspots.

“We’ve specifically embraced everyone always and appreciated them and given them a level of service that they are used to,” said Nazarian, who added that the first generation of Iranian immigrants who came to L.A. in the late 1970s often didn’t feel welcome at some nightspots.

Expect more of these luxury offerings as international wealth continues to flow into the local economy.

Seth Polen, a commercial broker with Ramsey-Shilling Commercial Real Estate Services Inc., said that half of his business is with foreign investors. Five years ago it was just 20 percent.

He has a cadre of Australian clients and one Korean client who splits time between Houston, Dallas and L.A. The Korean investor has acquired more than $10 million in Koreatown property in the last year. Polen said the investor likes the sense of community there.

Nick Candy likes that sense of community too. He said more and more of his British business associates are opting to do business on the West Coast instead of the East Coast.

One major attraction is the fact that high-end L.A. real estate – although seeming in the stratosphere these days from a local perspective – is still a relative bargain compared to places like New York City or London.

And that’s a direct reflection of L.A.’s short time on the international A list.

“We love the way of life,” said Candy. “We believe it is undervalued as a global city.”
 

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Discussion Starter · #3 ·
They Already Have ‘Ties to Their Homeland’

By HOWARD FINE
Los Angeles Business Journal Staff
May 19, 2008

Besides having an attractive climate and a huge market with access to Pacific Rim countries, L.A. is a magnet for foreign investment because so much of the world is already here.

Indeed, L.A. County is home to at least a half-dozen ethnic communities with the largest populations outside their native lands and another four communities with the largest populations in the U.S.

L.A. County has more people of Mexican descent than anywhere outside Mexico, more people of Korean descent than anywhere outside the Korean peninsula, more Thais, more Filipinos, more Guatemalans and more Salvadorans than anywhere outside those countries, according to the Los Angeles County Human Relations Commission.

“If L.A. is not home to the largest number of ethnic communities with the largest populations outside their native lands, then it’s very close,” said James Allen, professor of geography at California State University Northridge.

The county also boasts the largest U.S. populations of Iranians, Cambodians, Japanese and Romanians. There are also major concentrations of Armenians, Russians, Taiwanese, Vietnamese, British and Canadians, just to name a few.

In all, there are more than 100 languages spoken in L.A. County and more than 80 languages spoken in Los Angeles Unified School District schools.

All of these ethnic communities make L.A. the rival of any great global city, from London and Paris to Sao Paolo, Brazil, and Hong Kong, Allen said.

By far, Mexicans constitute the largest foreign-born community in L.A. County – about 1.5 million people, according to the 2000 U.S. Census. That was about 16 percent of the county’s entire population in 2000. Next are the Salvadorans (252,000), followed by Filipinos (202,000), Chinese (196,000), Guatemalans (150,000) and Koreans (145,000).

These figures are just the people born in those countries who have moved here; all of these communities are even larger when second and third generations are counted. With so many large ex-pat communities already here, it’s no wonder that they serve as a draw for direct foreign investment in the region.

“All of these ethnic communities have ties to their homeland,” said Bee Canterbury Lavery, former chief of protocol in the administration of the late Mayor Tom Bradley.

In the case of the immigrants from Mexico and Central America, the investments largely flow out of Los Angeles to those countries in the form of remittances, though in recent years there has been some investment from Latin America in L.A.

In the East Asian communities, the flow is both ways, with immigrants investing back in their homelands and wealthy businesspeople in these homelands investing here.

Howard Fine
 

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Discussion Starter · #5 ·
^ Thank you for the foreign investment. No, really.

I didn't know you were from Sao Paulo. Tell your friends back home of Los Angeles. :)
 

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Those were articles I was disappointed about. Disappointed they had to END! The best thing the city can do is remain somewhat stable. No earthquakes, no scandal and by all means, no riots. We'll bank off of our location, our weather and keep ourselves on the minds of the international community. Someone please put out those fires :)
 

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Discussion Starter · #9 ·
Foreigners have been investing in Los Angeles for decades now. A little history...

L.A.’s Sun, Glamour Steadily Draw Foreign Born

By HOWARD FINE
Los Angeles Business Journal Staff
May 19, 2008

Asian investors on a buying spree of local real estate. Sovereign wealth from oil-rich Persian Gulf and Middle Eastern countries pouring into the region.

These headlines could sum up the current boom in foreign investment in the L.A. region, but they also describe past waves of foreign wealth hitting the city’s shores.

Indeed, L.A. has been on the receiving end of several booms of foreign investment, most notably in the late 1970s and late ’80s. L.A.’s geographical position as gateway to the Pacific Rim, its attractive climate, the presence of Hollywood and recurring real estate booms all beckoned to foreign investors.

“As L.A. increasingly became a global city, it attracted more foreign investment,” said Bee Canterbury Lavery, an international protocol consultant who served as protocol chief to the late Mayor Tom Bradley.

Although L.A. was settled by the Spanish, for much of its early history, foreign investment was a relatively minor component of the overall economy. Most capital came either from San Francisco or from big New York financiers.

But in the 1910s and 1920s, as movie studios were established, the early studio heads – many of whom were immigrants from Eastern Europe – brought in European talent and some foreign money. The 1920s also saw a land boom that attracted foreign investors, chiefly from Britain. Indeed, the British have quietly amassed what’s believed still to be the largest real estate and investment holdings by foreigners in L.A.

“British investments in Southern California real estate have been consistent for the past 100 years,” said D.J. Waldie, public information officer for the city of Lakewood who has written on Southern California in the post-World War II era.

Then the oil price and supply shocks of the 1970s ushered in the first major wave of high-profile foreign investment, mostly from royal families in the oil-rich Arab countries of the Middle East. Members of the Saudi royal family bought property in Beverly Hills, while others simply cavorted in the area.

“Saudi princes and princesses all partied here, with many staying at the Beverly Hilton hotel,” Lavery said.

In 1987, an investment fund controlled by the Sultan of Brunei purchased the Beverly Hills Hotel from Marvin Davis, while the lavish lifestyle was epitomized by Sheik Mohammed al Fassi. The sheik bought a mansion on Sunset Boulevard in Beverly Hills and decorated it with a copper roof and nude statues. Irate neighbors cheered when an arson fire burned much of the mansion to the ground on New Year’s Day 1980.

Meanwhile, tens of thousands of wealthy Iranians fled their country and settled in the Beverly Hills-Westwood area when the Shah fell in 1979, buying up local mansions and starting their own businesses. The Shah’s sister had considerable holdings in the hills above Beverly Hills.

By that time, the other major wave of foreign investment was well under way – from Japan. Lavery said Japanese investment in L.A. really began in 1975 when then-Emperor Hirohito paid an official state visit to the U.S., stopping first in Los Angeles.

Japanese investment really picked up steam in the mid-1980s as the stock market and real estate bubble in Japan swelled. Japanese companies bought stakes in office buildings downtown and on L.A.’s Westside.

In 1986, for example, Sumitomo Bank bought the 1000 Wilshire Blvd. building by the Harbor (110) Freeway in downtown for what was then a record price of $150 million. A couple years later, Meijiseimei Realty of America bought half of the Wells Fargo building at 444 S. Flower St. for $147 million. Even Hollywood got its share of Japanese investment when Sony Corp. purchased Columbia Pictures for $3.4 billion in 1989.

The Japanese buying spree was so intense that it fed a backlash, exemplified by book and movie “Rising Sun,” which depicted corrupt Japanese business leaders cutting deals in downtown L.A. office towers.

But the Japanese investments came to an abrupt halt in 1990 as Japan’s stock market and real estate bubble burst and the Southern California real estate market went into its own tailspin. Many Japanese companies that had splurged on local real estate suddenly found themselves short of cash and were forced to sell their trophy properties in L.A., sometimes at less than half of what they paid a few years earlier.

The 1992 riots and the lengthy downturn of the early 1990s kept foreign investment to a minimum – until new foreign investors emerged. By the mid-1990s, Korean businessmen were buying up cheap office space and real estate in the Mid-Wilshire District, while Chinese businessmen and companies were investing in the San Gabriel Valley and buying homes on the Palos Verdes Peninsula. This was aided by a small surge in investment from Hong Kong as the Chinese takeover of that British colony neared in 1997.

“Now it’s the Chinese investment that’s in full flood,” said Jim Flanigan, former Los Angeles Times business columnist who is now writing a book on globalization and Los Angeles.
 
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