San Diego Business Journal

Ask Marc Brutten, managing partner for the Shidler Group's West Coast operations, the names and addresses of the company's local real estate and he can probably tell you the names, but the addresses will send him scurrying to a folder to look them up.

It's no surprise. With more than 7 million square feet of office, industrial and retail properties across several Western states that he co-owns with two partners, some of the minor details are forgotten.

Among the company's San Diego assets are: the Mission Valley Financial Center at Interstate 8 and Highway 163, a 170,000-square-foot office building; Scenic View Industrial Park, a 145,000-square-foot complex off Scripps Poway Parkway in Poway; and Kearny Mesa Corporate Center on Hazard Way, an 85,000-square-foot research and development facility. It also owns several other office and industrial properties of similar size in the county.

The asset list doesn't stop there. The Shidler Group owns a 65,000-square-foot Kmart building in Ft. Worth; seven gas stations in the Chicago metropolitan area; and a 4,710-square-foot Boston Market building in Coronado among other holdings. There's also the Lake Hills Office Plaza in Laguna Hills, a 44,000-square-foot office building; and a 31,000-square-foot office building on Otay Lakes Road in Bonita.

In all, the San Diego office of the Shidler Group controls real estate worth in excess of $600 million, Brutten said. In 1999, the company bought $300 million in office, industrial and hotel properties and so far this year it has acquired about $100 million more.

Short Term

The company holds its purchases for an average of 22 months, rehabilitating and remarketing them, before spinning them off or selling, Brutten said. Since its founding in 1970, the Shidler Group has formed 34 subsidiaries. Three of its partnerships became publicly traded companies. Brutten became a managing partner of the company in 1989.

A separate partnership funds commercial real estate mortgage insurance and also owns commercial real estate in the eastern United States.

The partners are founding shareholders in three real estate investment trusts formed with assets spun off from the Shidler Group. The publicly traded REITs are TriNet Corporate Realty, First Industrial Realty Trust and Corporate Office Property Trust.

The Shidler Group is now in the process of concentrating its industrial real estate into the Westcore Industrial Properties subsidiary while keeping its office, retail and hotel properties.

That's being done to expand the organization's relationships with institutional investors such as pension funds looking for investments in a specific property type, Brutten said.

He said the new strategy has paid off and the Shidler Group is negotiating with five potential institutional partners.

The company has a 40-person staff. It hires outside leasing agents, property managers and building contractors to do the work on specific properties.

"Over the last five years, we've had an unleveraged return on equity of 29.4 percent per year in the Westcore portfolio," Brutten said. "When you figure that 70 percent of the property value was acquired with borrowed money, you can see our rate of return is significantly higher."

In 1998, the Shidler Group's subsidiary, Pacific Realty Trust (now Westcore Industrial Properties), acquired from an Indonesian company a 2.5 million-square-foot office and hotel portfolio in the Southwest valued at more than $265 million, Brutten said.

The cost for the entire portfolio was around $90 a square foot. Six months after the purchase, the Shidler Group sold one of the portfolio's Los Angeles area office towers for about $195 a square foot.

"We buy a lot of portfolios," Brutten said. "In the last three years we've bought six portfolios with between six and 45 properties in each one."

Exploring Options

Brutten said the partners don't have rigid parameters when determining what properties to buy.

They look first at the seller's circumstance to determine if a favorable deal can be struck.

The Shidler Group has bought many properties from Asian real estate companies that wanted to dispose of U.S. assets.

"We look for inefficiencies in operation, marketing or ownership," Brutten said. "We also look at the vacancy rate before we look at the actual physical real estate."

It also looks for estate planning sales or those sellers in financial distress due to poor management.

Brutten, 44, believes his experience as a commercial real estate leasing agent helps him see the potential in properties he buys. Characteristic of what the Shidler Group does is the recent acquisition of a Sorrento Valley industrial building that the company is now converting into a biotechnology building.

"We've also taken other industrial buildings, put new facades on them and made them into showroom buildings," Brutten said.

The partners prefer to redevelop existing properties instead of building new ones, because there's less government paperwork, Brutten said. One exception to this rule is the Scenic View Industrial Park in Poway.

Rich Byer, president of Bycor General Contractors Inc. of San Diego, was the general contractor on the concrete tilt-up building.

"They are excellent to work with," Byer said July 24. "Christina Keating was their project manager and they made decisions quickly and worked together with us as a team throughout the whole process."

Jason Hughes, a principal of tenant representation brokerage Irving Hughes Group, had equally positive comments about the Shidler Group. He's represented several tenants who were seeking to rent Shidler Group property in the county.

"They're very reasonable and responsive landlords and they have always taken care of our clients once they were in the properties," Hughes said. "We've met nearly every commercial landlord in the county and Marc and his companies are right up there with the best landlords here."