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Company Establishes More Aggressive Strategy

Westcore Properties, LLC is ratcheting up its investment plans for 2005.

The Miramar-based private real estate investment firm, with offices in Los Angeles and San Francisco, announced in December that it would invest $300 million in opportunistic and value-added acquisitions this year.

But after receiving $150 million in a discretionary allocation from an unnamed partner, Marc Brutten, the president and chief executive officer of Westcore, said the company now plans to acquire up to $500 million this year in retail, industrial and office properties.

And with the San Diego real estate market “as tight as a drum,” Westcore is actively looking for acquisition opportunities here, Brutten said.

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The firm expects to allocate three-quarters of its planned investment to industrial and research-and-development properties in San Diego County alone.

Westcore holds 800,000 square feet of industrial and office property in San Diego. Since its inception in 2000, the company has acquired 2 million square feet of office and industrial space in the San Diego market.

“We are very bullish on San Diego from South Bay to North County,” said Gary Katz, Westcore’s director of acquisitions for Southern California.

After surpassing its goal of acquiring $200 million in real estate in 2004, according to Brutten, Westcore, which has invested more than $1 billion in properties since 2000, has started the new year with a bang.

Brutten said in 2005 the company is “very acquisitive in the (San Diego) market because its prospects are driven by strong demographics.”

Judging from Westcore’s activity in San Diego during the last three weeks, Brutten means what he says.

In its first transaction of the year, the firm spent $12.8 million on a five-building, 102,200-square-foot office and research-and-industrial property on a block of Aero Drive in Kearny Mesa.

Longwing Real Estate Ventures, based in New York City, partnered with an affiliate of Westcore, Westcore Sandrock LLC, in the transaction.

The property is 50 percent leased and is across from Montgomery Field municipal airport, with access to state Route 163 and Interstate 15.

The acquisition exemplifies critical elements of Brutten’s general investment strategy, as articulated at the Certified Commercial Investment Member Real Estate Investment Forum in La Jolla this month.

Brutten said two primary drivers, location and functionality, factor heavily into Westcore’s investment strategy.

“If the building is more than 1.5 miles from the closest freeway, it is at a competitive disadvantage,” Brutten said.

In terms of functionality, he said the firm seeks to obtain industrial buildings with good sprinkler ratios, which means there is enough water density dispersed from a sprinkler head to safeguard an industrial building. The requirement varies depending on the flammability of the product being stored.

Westcore also seeks industrial buildings with suitable clear heights, the distance from the slab, or floor, to the ceiling beam, in order to ensure adequate storage space.

“If the asset is functional and placed in a good location, we can lease it,” he added.

One of the critical components of Westcore’s strategy is its preference for utilizing a joint venture partner, as opposed to either acquiring assets on its own or using a co-mingled fund format, in which the company must market to outside investors. According to Brutten, half of all properties Westcore seeks to acquire in San Diego are through a joint venture format.

Finding the right partner is important.

“We spend a lot of time with them. Like a dating process, you have to know who you’re planning on marrying in the future,” Brutten said.

“We primarily look for partners who can be strategic. In this competitive environment, we have to align ourselves with partners who can move quickly. There’s no room for mistakes, or changing your mind, or getting blown out by an investment committee,” he said.

Westcore found that partner in Longwing Real Estate Ventures, LLC, a private equity and real estate fund wholly owned by the crown prince of Dubai and operated out of Rockefeller Center in New York, according to Brutten and Owen Frost, the chief investment officer for Westcore.

Longwing manages $150 million and invests on a diversified basis in opportunistic deals.

Vincent Pica, the chief executive officer of Longwing, said the relationship with Westcore has deep roots.

Pica was an investment banker at Prudential Securities in New York when he first worked with Brutten and Frost in the late 1990s.

“When we set up Longwing in October 2002, we were already talking about having a relationship together,” Pica said. The companies first worked together on a transaction in December 2003, when the joint venture acquired the LA Fitness health club in a small shopping center in Poway.

The recently announced $12.8 million acquisition on Aero Drive was Longwing’s third joint venture with Westcore in the San Diego market.

“We have big plans with them (Westcore),” said Pica. He added, “We are very excited about California, and San Diego in particular.”

Westcore has $140 million worth of properties in escrow now, across all regions.

Westcore has at least two more local deals in progress. One is a quarter-acre of vacant retail property in Point Loma, acquired for $1 million. Westcore plans to construct a build-to-suit building there.

The other, Brutten said, “is one of the more interesting deals.”

The building is in a prime location and, although it is environmentally impacted with some soil contamination problems, Brutten said Westcore has managed to control the cleanup process and ensure a good-risk adjusted return.

Westcore is looking to grow its financial services arm in Los Angeles, which provides capital for small-scale developers and has generated $10 million to $20 million in loan volume during the last two years.

The company also recently ventured outside of its traditional geographic market, comprising California and most of the southwestern United States, acquiring its first property in the Northeast in December for $4.2 million. The 22,000-square-foot industrial facility in Bridgeport, Conn., which is still in escrow, may be the first of many transactions in this region, according to Brutten.

“As opportunities arise, we will look toward the Northeast,” Brutten said.

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