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The Buddy System

After four years of false starts and close calls, this February Steve Hopkins finally found the partner he needed to fuel a new growth period at his Newport Beach, Calif.-based development company. Founded in 1973, Hopkins Real Estate Group undertook its first urban-infill development in 1981, and urban public/private partnerships have been its forte ever since, particularly those that involve the creation of community and neighborhood shopping centers.

Hopkins Real Estate Group has completed more than 100 projects totaling 5 million square feet of GLA since its inception, including the de-mallings of Los Angeles white elephants La Mirada Mall and La Habra Mall. The firm has also learned to navigate the choppy waters of public/private partnerships, including its first infill project, which involved using City powers of domain to assemble several properties with diverse ownership, relocate existing tenants and acquire funding through the U.S. Development Action Grant. Hopkins began his real estate career at Coldwell Banker in 1968.

After 31 years and 100 projects, Hopkins realized that for his company to thrive rather than survive, he needed to rethink his business plan. “Having several different equity partners and several different banks, as you move through the vagaries of the marketplace you're at the mercy of whomever you're dealing with and whether they want to put capital into the deal,” he explains. “You find yourself tying up a property but then having to go out and figure out if you can make it work.”

The Long And Winding Road

Hopkins didn't want to jump into bed with a new financial partner too quickly. In fact, the process of finding the right backer was tortuous. Opportunities abounded, but Hopkins relied on his intuition to sniff out the right choice. “I had a lot of people calling me with advice and with institutional partners and capital and it seemed like every other day I was meeting with somebody,” he remembers. “It got to the point where I thought, ‘Jeez, I'm going to end up in a partnership with a Bolivian Tin Miners Pension Fund.’”

In March 2003, a deal seemed to be on the horizon. Hopkins had executed a term sheet with identity and was finalizing a deal, but “I got cold feet,” he says. “Our key contact at the other company left and that put us at a pause point. He was the main reason we were making the deal. I could have gone forward but I chose not to. I just didn't think the culture was right.” Then, from April to September, Hopkins' plans grew even more muddled.

By early October of 2003, Hopkins threw his hands up and decided to focus on potential development sites and put finding a partner off for the balance of the year. “I was going to put together a private offering to infuse some capital into the company,” he says. “Then I wasn't going to do anything. Then I was going to pick it up again in January.” The close-knit Southern California real estate development community is always buzzing with potential deals, and friendly tips are as common as TKTK. But Hopkins' ambivalence ended over lunch just before Halloween.

Bruce Aikens, an investment bankerTKTK, who sits on the board of Internet brokerage company RE3W Inc.TKTK with Hopkins, had just finished putting together a master arrangement with an opportunity fund called Rockwood Capital, based out of San Francisco. Rockwood, whose investors are mostly high-net-worth-individuals, invests primarily in office properties on the East and West Coasts, though it does allocate about 10 percent of its funds for retail. The firm, which typically teams up with local players on its investments, invested about $200 million in 2003 and is known mostly for purchasing properties with upgrade potential.

Hopkins had met with Rockwood two years before when retail wasn't such a hot investment and the firm wasn't interested in allocating funds toward the sector. “No, it's not the right time, I've told myself I'm going to wait,” Hopkins recalls saying. But he did have plans to fly to San Francisco for an Urban Land Institute conference the next day, so he told Bruce to tell his contact at Rockwood he would be available during that time.

“By the time I got back to my office I had a call from Bob Gray, an executive vice president at Rockwood. So, on Friday morning, Oct. 31, I met him at the ULI show,” Hopkins says. And the rest is history. “I was saying to myself I hope this doesn't go that well because I really don't want to start to get involved again. But 15 minutes into the conversation I knew that this was what I'd really been looking for a long time and then everything happened really fast.” The courting period, meshing of business plans and agreement arrangements progressed quickly from that point. Hopkins and Gray signed the final deal on February 2 at 2:19 p.m.

To meet the demands of a reinvigorated project pipeline, Hopkins had to shore up his staff from overhead-conscious skeleton crew it had been operating with. “For the first time in a while, we're staffed properly,” Hopkins says. “We'd always been able to make it work. But getting involved in two or three of these de-malling opportunities requires really good people to take the projects through the system.” To find new people, Hopkins put the word out in the Southern California development community. He ended up hiring Dennis Reyling as his new director of development, a position that hadn't existed before. He also hired Greald Sappington as CFO/COO to help on the operations side with respect to debt and equity. Two new project managers, Todd Girrante and Eli Wendell. ADD MORE COLOR ON NEW HIRES. QUOTES FROM DENNIS REYLING.

Hopkins Real Estate Group is now looking at possible acquisitions, properties that would have been out of its league before the Rock/Hop partnership. The partnership's first project is developing a 10-acre South Orange County site it acquired for $TK from Talega Partnership into a neighborhood center.



Dealing with several banks and equity partners puts a smaller, private company in the unfavorable position of developing by need rather than strategy, resulting in a boutique business doing a few projects per year rather than a full-ledged business working on multiple projects.


Partner with an equity source with cash to close on highly competitive properties. It streamlines the capital side of the process, allowing a quicker closing time. But keep the option open to approach another equity source if the primary partner decline a particular deal.


Private developers need primary equity partners to compete against highly-capitalized REITs for important properties and development assignments.


Hopkins Real Estate Group has a war-chest of $50 million to go after new projects now that it has formed a partnership with Rockwood Capital Partners.



Last month, Hopkins entered into an agreement to buy a former landfill site in Carson, Calif., from LA Metro Mall LLC for a reported $30 million. WHO PROVIDED CAPITAL FOR THAT PURCHASE? The star-crossed site, owned by several would-be developers since the landfill closed in 1964, is one of L.A.'s largest parcels of undeveloped land. Hopkins is willing to take on the estimated $30-$50 million it will cost to clean up toxic waste from the property. Costco, Wal-Mart, movie theater chains and even the National Football League have expressed interest in the site.

Hopkins already holds an interest in TK across the street from the landfill. For one thing,



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