May 22 (Bloomberg) -- Donald Sterling, the billionaire who may lose ownership of the Los Angeles Clippers basketball team after racist comments he made surfaced, stood outside a Nobu restaurant last month and enthused about a real estate deal.
“He told me a bank approached him with a bunch of houses,” Stephen Shapiro, chairman of Westside Estate Agency, a Beverly Hills, California-based brokerage specializing in multimillion-dollar homes, said in an interview. “He didn’t always buy the priciest properties. He bought what made sense. He never sold anything.”
He’s still buying -- and a sale of the Clippers would bring hundreds of millions of dollars to buy even more. Even as Sterling and his estranged wife, Shelly, fight to retain control of the team, they’ve completed deals for single-family houses and apartment properties in Beverly Hills and on Los Angeles’s Westside. They’ve purchased at least 12 houses and three multifamily buildings from the beginning of 2013 through last month for a total of $58.7 million, according to Los Angeles County Office of the Assessor records.
Whatever happens with the ownership of his basketball team, Sterling, 80, will probably remain a major player in Los Angeles real estate. He owns at least 160 apartment buildings, office properties and single-family homes in the area, many of which he purchased with cash, according to county records compiled by data provider LexisNexis.
“The worst case for Sterling: he sells the team and pockets an additional billion dollars,” Curtis Palmer, the Beverly Hills-based head of CBRE Capital Markets’ multifamily group, said in an e-mail. “He won’t be capital-constrained, and people generally don’t use a moral compass when making a decision to sell real estate to the highest bidder.”
Two days after Shapiro’s encounter at the Nobu sushi restaurant in Malibu, California, a recording of Sterling telling a female friend not to bring black people to Clippers games was posted on TMZ.com, prompting criticism from President Barack Obama and spurring National Basketball Association Commissioner Adam Silver to demand Sterling be stripped of the team. The NBA’s Board of Governors has scheduled a June 3 hearing on whether to force the sale.
Sterling has been offered a chance to present his side of the story at the hearing. Shelly Sterling, who has been married to Donald Sterling for 58 years, also has said she’s entitled to keep her 50 percent ownership interest in the Clippers, a claim opposed by the commissioner.
The buildings the Sterlings have purchased since the beginning of 2013 range in price from $1.3 million to $14.6 million. All of the properties were recorded with the county under Donald Sterling’s name, and most also have the Sterling Family Trust on the property records. The trust and Sterling himself have the same Wilshire Boulevard address in Beverly Hills. A portfolio like the one Shapiro said Donald Sterling described has yet to be recorded.
Max Blecher, an attorney for Donald Sterling, didn’t return phone calls seeking comment on the couple’s property purchases. Shelly Sterling declined to comment on the acquisitions.
“Shelly continues to be unfairly tarnished by the words and actions of her co-owner and estranged husband,” Pierce O’Donnell, her attorney, said in a statement e-mailed on May 20. “In fact, they have been living apart for more than a year, and both have announced their intentions to divorce. While they remain business partners, Shelly has denounced his racist statements in the strongest terms.”
Donald Sterling’s latest recorded real estate deal was the $5.16 million cash purchase of a six-bedroom, six-bath, Spanish Mission-style house in Beverly Hills. He bought the home, built in 1931, for $423,000 below its list price.
“I’ve worked with him on a number of transactions over the last two years,” said Michael Libow, an agent with Coldwell Banker who represented the seller of the Beverly Hills house. “They’ve all become rentals.”
The sale was recorded on May 12, the same day cable network CNN aired an interview with Sterling, who apologized for his racist comments while also accusing retired NBA star Earvin “Magic” Johnson of failing to help the black community and criticizing him for contracting the virus that causes AIDS. Those comments were included in the NBA’s summary of termination charges seeking to end Sterling’s ownership of the Clippers.
The Sterlings’ real estate holdings include large apartment properties such as Sterling International Towers and the Sterling Wilshire in West Los Angeles, Sterling Ambassador Tower in Koreatown, and Long Beach Tower Apartments. They also have dozens of smaller multifamily buildings scattered across Los Angeles County, primarily on the Westside. The properties, acquired over several decades, often at a fraction of current prices, can be highly profitable and tend to be in demand because rents are lower than at higher-end buildings, according to Palmer of CBRE.
“The older, nondescript buildings Sterling owns can get a lot of demand because not everybody can afford brand-new, shiny things,” Palmer said. “A lot of people may not be able to pay $3,500 a month, but only $2,000 a month. And they are cheaper to maintain, especially if you don’t do any upgrades.”
Average rents for market-rate apartments in the Beverly Hills, West Hollywood and Park La Brea area rose to a record $2,024 last year, up from $1,963 in 2012 and 12 percent above the previous annual peak in 2007, according to New York-based research firm Reis Inc. The vacancy rate dropped to 1.9 percent last year from 5.9 percent in 2007. For the entire Los Angeles metropolitan region, rents last year averaged $1,458 and the vacancy rate was 3.2 percent.
“The Westside is very pricey, but it does make sense to buy there still because you’re seeing a lot of rent growth,” Palmer said. “It’s very hard to develop there and so you have a limited pipeline of new competing product. And you have tremendous job growth, particularly in the tech sector, so you have tremendous demand with little supply.”
In addition to rental income, Sterling has access to debt. He has a $250 million line of credit with Bank of America Corp., according to a document filed with the Los Angeles County Recorder’s Office on May 19, the same day the NBA initiated the termination charges.
While Sterling may be able to afford to buy more if he sells the Clippers, he probably won’t always get a warm reception, said Dean Zander, a senior partner at Hendricks-Berkadia, the apartment investment-banking unit of Berkadia Commercial Mortgage LLC.
“I don’t think an offer by him today would be well-received by most owners, just because of the current notoriety,” Zander said in a telephone interview from Los Angeles. “He’s performed beautifully with me in the past, closing on time, on schedule and providing quick cash. He owns some high-profile communities throughout better parts of Los Angeles and is a natural buyer for these assets. But it’s a different world after those tapes were released and he made subsequent ill-informed comments.”
Sterling faced allegations of racism before the recording was released last month. In November 2011, he agreed to pay $2.73 million to settle a U.S. government lawsuit accusing him of discriminating against black and Hispanic prospective tenants for buildings he owns with the Sterling Family Trust in the Koreatown area. After contesting the claims in court, the trust denied any liability as part of the settlement.
Under the accord, the Sterlings agreed to display tenants’ rights posters at their property management offices, to send their employees to a fair-housing training program and to let an independent auditor monitor their compliance with the Fair Housing Act.
In 2005, Sterling settled a suit by the non-for-profit Housing Rights Center over claims his former employees and tenants were fired or mistreated because they weren’t Korean. Sterling told his staff at his buildings in Koreatown, west of downtown Los Angeles, that he didn’t want black or Latino tenants, according to the complaint.
Sterling denied most of the claims in the case and said the tenants who brought it had “hidden agendas,” according to a court filing. He and his wife appealed a judge’s order that they pay $4.9 million for the Housing Rights Center’s legal costs. The appeal was dismissed in February 2006.
Sterling, an active member of the California bar, has a history of litigation. Blecher, his attorney, told the NBA in a letter this month that his client intends to fight his punishment in court.
Shelly Sterling also has used the courts to try to settle disputes. In March, she sued the woman her husband talked to on the tape released by TMZ, who goes by the name V. Stiviano.
The lawsuit alleges Donald Sterling had a sexual relationship with Stiviano and that he bought her a $1.8 million duplex, two Bentleys, a Ferrari and a Range Rover, as well as spending $240,000 on her upkeep, all of which came out of community property without Shelly Sterling’s consent.
Shelly Sterling has said she doesn’t think her estranged husband is a racist. Instead she believes his comments on the tape were the result of “the onset of dementia,” she told Barbara Walters of ABC News earlier this month.
“I said, ‘Well, this is the tape.’ And he says, ‘Hmm. I don’t remember it,’” Shelly Sterling said in the interview. “That’s when I thought he had dementia.”
Shapiro, the real estate broker who spoke with Donald Sterling outside Nobu last month, said past controversy never slowed Sterling down, so it may not have an effect now.
“I don’t think anybody particularly wanted to do business with him, because he probably always got the better of everybody,” Shapiro said. “No matter what you say, he’s a smart guy.”
To contact the editors responsible for this story: Kara Wetzel at email@example.com Daniel Taub