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    1-28-04

    BEVERLY
    HILLS BUSINESS

    Profile of:
    Richard S. Ziman

    “This business is about not just location, location, location but timing, timing, timing.”
    – Richard S. Ziman

    By John L. Seitz – Courier Managing Editor

          Growing up in a small Pennsylvania town, moving on to Beverly Hills while in his mid-teens, reaching his zenith as the head of a $4 billion real estate empire and being idolized as one of California’s most admired philanthropists, Richard Stephen Ziman has already done it all, fitting a dozen lifetimes into his current ultra-exciting one.
          The handsome co-founder and chairman/CEO of Arden Realty, Inc. has seen his 15-year old company become the largest owner of prime office space in southern California with a network of almost 200 buildings and over 18 million sq. ft. stretching from Ventura on the north to San Diego on the south.
          The 46-year resident of Beverly Hills was born in Williamsport, a town of 30,000 which was formerly big in lumber but now has as its chief claim to fame being the home of the annual Little League World Series. “My dad, Charlie, was a furniture manufacturer and he and my mother, Helen, decided to move our family (brothers Allan, Curt, and Larry and sister Phyllis) out West in 1958. We ended up in a duplex on So. Oakhurst Dr. and I was on my way to Beverly Hills High School.”
          After graduation from BHHS, Ziman attended the University of Southern California intent on becoming a dentist. Following three years of undergraduate studies and serving as class president, he entered dental school. It took all of a day and a half to discover that dentistry was not for him. Instead, her segued into his next career path, entering USC Law School and earning his JD in 1967.
          He was hired as a first year associate by the venerable firm of Loeb & Loeb at a salary of $500 per month. “I originally wanted to be a litigator but I quickly moved to a larger area. All the necessary research, library time and many of the mechanics seemed, at the time, to be downright boring. After just two months I was introduced to Frank Feder, a senior partner who asked me to help him in a very complicated, tax-driven real estate transaction. I found my niche.”
          Ziman made partner in 1971 after only three years as an associate and specialized in all aspects of real estate, including development, syndication and financing, though he had never taken a college business class and only a single real estate course while in law school.
          “By 1979 Loeb & Loeb’s real estate practice had grown to such an extent, it was one of the largest in the country with a quarter of the firm’s lawyers specializing in that field. After a dozen years, I felt I needed a new challenge and could succeed in the business of real estate. In essence, I became a client and retired from the firm.
          “At this point, I started Pacific Financial Group in a 900-sq. ft. office. My first deal almost went south as prime interest rates soared from 7% to 21%. As fledgling real estate investors, we had guaranteed a $52.5 million loan for the acquisition and conversion of 750 apartment units. In due course, it all did work out and also taught me a major lesson for my future dealings. This business is about not just location, location, location but timing, timing, timing, non-recourse financing and using outside funds.”
          Pacific was a small but aggressive real estate investment firm that made its name by acquiring mostly run-down structures, fixing them up and boosting their occupancy and rental rates. By 1987 the company had a portfolio of five million sq. ft., which primarily included office buildings.
          The overall market was booming, fueled by an influx of offshore capital. It was then Ziman happened to read an article in The Wall Street Journal, which made a significant impact. For years, most commercial buildings, apartments and private homes had been constructed using asbestos for fireproofing and ceiling and wall insulation. The growing number of concerns regarding asbestos-related claims on insurance companies, as pointed out in the story, caused many of these insurance entities and banks to no longer finance or purchase any of these properties in the future.
          “After checking with our head of property management, I soon discovered approximately two million sq. ft. of our buildings had asbestos, which was now deemed as an undesirable material,” stated Ziman.
          This raised a red flag and he immediately made a command decision to test the market value of certain of the company’s asbestos properties, including its Beverly Hills headquarters building without an indicated price. When an investor stepped up and paid a robust $335 per sq. ft., Ziman knew the time was ripe to unload his entire portfolio of office space in a reasonably fast marketing program.
          At that time, Japanese investors were snapping up commercial real estate in southern California competing with domestic pension funds which were pursuing commercial properties at historically low cap rates and high values. Within 18 months, Ziman had sold his entire portfolio and Pacific Financial had reduced its payroll from 90 employees to less than 10.
          Also, during the later 1980s and early 1990s, the real estate market had become saturated with almost 100 million sq. ft. of newly constructed office buildings. At the same time, the end of the Cold War had stimulated the beginning of a nosedive as 150,000 mostly high-paying defense and aerospace jobs were eliminated in less than a year. In addition, a raft of take-overs, mergers and failures in the savings and loan and banking industries furthered the vacancy problem by leaving thousands of sq. ft. of prime space empty as back offices and branches were closed, resulting in massive foreclosures throughout southern California.
          Having left commercial real estate just before it went into the tank, the company turned its attention toward buying mobile home parks with the idea of turning their pads into condominiums. To do this, Ziman, along with Victor Coleman and Andrew Sobel, formed Pacific Park Associates and in 1991 founded Arden Pacific Management Group (now Arden Realty, Inc.), named after one of his favorite Beverly Hills streets, Arden Dr., where he then lived.
          “Within three years after the real estate depression and debacle, we saw some light at the end of the tunnel and felt the southern California real estate market showed signs of finally hitting bottom. The banks and other institutions were stuck with a large number of foreclosed commercial buildings and eager to get these non-productive assets off their books. They certainly didn’t want anything to do with the day-to-day pain of managing them,” Ziman declared. “This was music to our ears as we started acquiring properties at 30% to 40% of what they last sold for in those so-called ‘trash for cash’ days.”
          “The right opportunities for us had to have the following common criteria: good location, primarily small tenants and owners capable of taking back financing of up to 90% of the purchase price on very favorable terms.”
          He explained his preference for the smaller tenant because the larger ones often leave a landlord vulnerable. “They would lease five floors and the next year be merged or go out of business. You are then left with a substantial vacancy problem, not to mention the tenant improvement concessions and leasing commission expenses. It could be weeks or even months of lost income before the new tenant takes occupancy. And in tough times, finding a new tenant to occupy such space makes it that much more difficult. From the standpoint of a building owner, I’d much rather have 20 smaller companies with better rental rates, easier negotiations, lower concessions and quicker occupancy than two or three larger ones.”
          The success of this approach can be seen in 2005 as the company has more than 3,000 tenants, most of which occupy an average of 6,000 square feet, thereby lessening the company’s exposure to big shifts in office space from the single tenant syndrome.
          Arden’s first big acquisition was a building adjacent to Beverly Hills at 9911 W. Pico Blvd., purchased for $25 million at the bottom of the market in 1993 with 90% financed by the sellers, two Canadian banks.
          This signature deal and several that followed inspired the Arden team in 1994 to approach Wall Street for the financing of other projects. Originally rebuffed, Arden was initially challenged by analysts for focusing on office space, exclusively on the Southland’s then very depressed real estate market, and not diversifying geographically.
          The firm is totally concentrated on this single, large metropolitan region - actually today over 30 major sub-markets - encompassing Los Angeles, Ventura, Orange, Riverside, Kern and San Diego counties. “But what a market it is!” enthused Ziman. “Though nothing is immune from occasional downturns, southern California has the second largest economy in the nation, by itself is the 8th largest in the world and is also one of the world’s most diverse economies. Southern California has also surpassed New York as the number one area in retail sales.
          “Above all, we thoroughly know southern California from end to end. By remaining strictly a regional firm which is the stated preference of both our management and our stockholders, we never have to do business in unfamiliar markets. Here, we already have long-term, built-in broker and client relationships here and can react quickly in servicing their needs and making the right business decisions. In addition, our network gives us a first shot at virtually every leasing, development and acquisition opportunity when they occur before they officially enter the market.”
          Despite its initial cool reception from the overall investment community in 1994, Arden continued adding properties and by June of 1996 had 24 office buildings with four million sq. ft. of space in its portfolio. In early 1995 the New York bankers finally figured out the southern California market had turned around as Ziman had predicted two years earlier. Lehman Brothers eventually joined them as a significant financial resource.
          With a bustling portfolio in a re-energized economy, Arden initiated a public offering, this time embraced by the Wall Street investment community. Orchestrated by Lehman, the IPO raised $435 million in Oct. 1996 while two subsequent underwritings in July. 1997 and Feb. 1998 delivered an additional $360 million and $710 million respectively.
          “The day Arden became a public company on the New York Stock Exchange more than 19 million shares were sold, which resulted in the launching of a whole new wave of REITs,” stated Ziman. “Becoming a public entity certainly meant we had to make a transition in our way of doing business. We were used to making quick decisions privately but now had to deal with shareholders, regulators, retail stockbrokers, institutions and lawyers.
          “These factors were outweighed by the influx of capital generated from what has now become 19,000 stockholders, 90% of whom are institutional investors. This enabled us to achieve the dominant position we’re in today, having a 7% share of the total office space in the entire southern California region.
          “Arden had the available resources to acquire top flight properties at appropriate prices when, for instance, the bottom dropped out of the dot coms several years ago. We’re always looking for potential buying and selling opportunities at the right price, not necessarily the lowest or the highest respectively. As I’ve said before, timing is everything in this business.”
          The company currently owns almost 200 buildings (five of which are in Beverly Hills) in 130 locales with almost 19 million sq. ft. of office space. Arden is by far the largest landlord in Beverly Hills and has 300 employees performing all types of real estate services from property and construction management to leasing, accounting, finance and marketing.
          With a highly respected and disciplined management team, Arden is at the forefront of commercial real estate owners and operators in southern California and listed on the NYSE under the symbol of ARI.
          Ziman is on the board of governors of the National Association of Real Estate Investment Trusts and the Real Estate Roundtable; was a California state commissioner on Building California for the 21st Century; a founding member of the council of entrepreneurs at UCLA’s Anderson School of Management and member of the latter’s board of visitors. His other professional memberships include the advisory boards of The Zell/Lurie Real Estate Center at Wharton School, Fisher Center for Real Estate at UC Berkeley, Real Estate Institute at New York University and the senior leadership forum at Harvard.
          Ziman has been named “Business Person of the Year” by the Beverly Hills Chamber of Commerce; “Citizen of Honor” by The City itself; “Distinguished Achievement” award and “Man of the Year” by the Los Angeles Property Council; “Real Estate Investor of the Year” by Los Angeles Business Journal; Greater LA’s “Entrepreneur of the Year”; and winner of the “Humanitarian” award by the National Conference of Christians and Jews.
          One of his proudest achievements has been a $5 million endowment to UCLA’s prestigious Anderson School to establish the Richard S. Ziman Center for Real Estate, which he believes was needed to deliver a top quality education in real estate – an industry that impacts everyone on more levels than they realize.
          “In the last three years, the center has created a broad research and academic environment for students to learn about the business whether or not they eventually become real estate entrepreneurs, go into teaching, or work for a planning company or some government entity. We bring them together with policymakers, academics, researchers, entrepreneurs and politicians, hoping to resolve issues which affect our state and local communities and to create a workable urban model for the 21st century and beyond.”
          Of course, philanthropy of every kind is nothing new for Ziman who learned this first hand from his late father and mother. “My dad donated all the lumber and money as well to build a new synagogue in Williamsport and challenged me that ‘if you don’t set an example yourself, how can you ever ask anybody else?’ It stuck with me.”
          His work with the City of Hope National Medical Center and its Beckman Research Institute since 1978 is legendary. Now chairman emeritus, for six years he chaired both boards of directors and has served as chair for virtually every committee there including his current involvement as chair of the construction committee which is overseeing a $250 million state of the art, acute care hospital development specializing in cancer, AIDS, diabetes, blood and immunology disorders.
          The City of Hope has honored him with its “Spirit of Hope” and “Gallery of Achievement” awards while, in turn, he and his wife established the Ziman Family Outpatient Oncology Center there.
          Meanwhile, he has been president, director and board chairman of the Guardians for the Jewish Home for the Aging and co-chair of the home’s very successful $72 million capital campaign; the winner of its “Humanitarian” award; and having endowed both the Ziman Family Synagogue (with his brothers and sister) and the Goldenberg-Ziman Alzheimer’s Special Care Center there.
          He is particularly passionate about the Jewish Home for the Aged, calling upon the Fifth Commandment to “honor thy father and thy mother.” As he puts it: “The elderly are not the responsibility of government but of their children and the community. If you think about it, as we get older, it becomes more difficult to eat, sleep, talk and walk. You keep adding doctors - never taking any away.”
          Ziman is western regional chairman and national board trustee of the American Friends of Hebrew University. He received the prestigious “Scopus” award and an honorary doctorate of philosophy from the Hebrew University in Jerusalem and serves on its international board of governors and its executive committee; is co-chair of its American Friends; executive committee; and has made significant financial endowments to its Rothberg International School.
          Other activities include being a founder of the University of Judaism from which he received the “Award of Merit” and having served as past chairman and advisory committee member of its Moriah Society; on the advisory board of the Jewish Community Foundation and ORT Schools; and general co-chair of the State of Israel Bonds.
          Among his cultural contributions, Ziman is a Los Angeles Music Center founder; on the board of overseers for the Los Angeles Philharmonic; and chair of the Los Angeles Arts Council. In the political arena, he is a trustee of the Democratic National Committee and member of its National Finance Council; and was finance co-chair of the DNC Convention at Staples Center in 2000.
          Despite all these activities, this business dynamo readily admits what’s most important in his life by far are his wife of 14 years, Daphna Edwards Ziman, and his four children: Todd, Jenna, Michele and Ashley. “All of them are so supportive of everything I do and without that, there would be nothing.”
          His spouse, Daphna, an independent film producer-director-writer and president of Edwards Entertainment International, is herself a major philanthropist serving, among many charities, as chair and founder of Children Uniting Nations, a proactive children’s rights organization created to elevate their welfare to the forefront of the world’s consciousness.
          Together, the Zimans are constantly playing host in their sprawling Beverly Hills home to a constant stream of charitable and political gatherings ranging from 50 to 850 guests. “We do this three or four times a month in an attempt to help people, fund causes and, hopefully, contribute to a better world.”
          And speaking of contributing to a “better world”, Arden was recently named winner of the Environmental Protection Agency’s “Commercial Real Estate Partner of the Year” award for the 3rd consecutive year in recognition of having the most energy efficient buildings in a single portfolio in the entire nation.
          “We are extremely proud of this honor,” stated Ziman. “It has resulted in our establishing a subsidiary called ‘next>edge’ as an Arden company to work with our own tenants and others to provide energy solutions for manufacturers, hotels, hospitals, and other governmental and commercial facilities. In fact, one of its largest clients is the state of California for which ‘next>edge’ has conducted analyses on some nine million square feet for potential energy upgrades.”
          When asked about Arden’s upcoming plans and challenges in its southern California, Ziman explained the company will take advantage of improving market conditions to increase occupancy, selectively purchasing properties in Arden’s core submarkets and continue its disposition program.
          “Our current occupancy is running nearly 91% which we would like to improve to 94% or better. We are seeing rental rates rising in several of our submarkets with one of the strongest of all being Beverly Hills.”
          With an uncanny sense of timing, a willingness to be patient during the treacherous roller coaster machinations of the real estate business, and a genuine love of donating time, effort and treasure to those less fortunate, Richard S. Ziman has already had quite a life. But those who know him best are likely to add a line from the late, great Al Jolson …“and you ain’t seen nothing yet!”

      
     
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