Donald Sterling a Champ--in Real Estate

Donald T. Sterling bought the landmark former MGM headquarters in the heart of Beverly Hills, furnishing rooms with French antiques and restoring the detailed bronze elevator doors, sculpted wood wall moldings and parquet floors.

But when posh retailer Barneys of New York wanted to lease the choice ground-level space from him, the Los Angeles Clippers owner refused. Except for his own offices on the top two floors, the building he calls Sterling World Plaza is completely empty.

Said longtime Sterling friend Michael Selsman: “That’s the biggest moat this side of Camelot.”

Volumes have been spoken and written about Sterling, the quirky and unpredictable sports magnate who owns one of the worst franchises in the history of the National Basketball League. Dubbing him “The Donald,” sports columnists and talkmeisters have written him off as a lightweight; an agent for one of his players called him a “buffoon.”

But there’s a far different side to Sterling--one that is not public and is rarely examined. In three decades, he has built one of the largest real estate empires in Southern California and is the largest residential landlord in Beverly Hills.

“Whatever people might think of him, he’s a damn shrewd, smart businessman,” said E. Gregory Hookstratten, a Beverly Hills lawyer, agent and former courtroom adversary.

Sterling, 62, is an uncommon mix of Boyle Heights, where he grew up, and Beverly Hills, where he got rich. He works in the penthouse built for Louis B. Mayer and sleeps in a pillared Beverly Hills mansion once owned by Cary Grant.

A public figure who can be found at court side at almost every Clippers home game, he is aloof and intensely private when it comes to his business and personal lives. Though one of Southern California’s top real estate barons, he is a mystery figure in his industry because he doesn’t take partners, employ brokers or raise money on Wall Street.

In other ways--including his dapper style of dress, the Malibu beach barbecues he throws and the celebrities who sometimes surround him at Clippers games, he comes across as a typical Mr. Hollywood.

But Sterling doesn’t do lunch and he often works until midnight.

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A lot of shrewd investors have been humbled by the brutal real estate crash that continues to reverberate through Southern California. But Sterling, whose life is Southern California real estate, has survived largely unscathed because of his patience, caution and disciplined--almost prosaic--approach to real estate investment.

He owns a lot and now wants more. But unlike the people he so often finds across the table from him, he knows how to wait. The key to Sterling’s power is not that he can write a $35-million check or close a deal in three days that would take somebody else three months. (His net worth is believed to be in the hundreds of millions.)

The key is that he might decide not to.

Ever cordial, perpetually tanned, without partners or stockholders to push him for a quick return on investment, Sterling has the luxury of being able to say no to anything and anybody.

“I always felt we benefited more from the things we didn’t do,” he said recently in a rare on-the-record interview about his business affairs.

In June, for example, he rejected a reported $95-million package of inducements to move the Clippers from the Los Angeles Sports Arena, the NBA’s oldest venue, to the gleaming Pond of Anaheim.

And although the Clippers--who have lost roughly twice as many games as they have won during his ownership--may be bad, Sterling says he has turned down more than 10 times the $13.5 million he paid for them in 1981. (The expansion Vancouver Grizzlies and Toronto Raptors each paid $125 million last year just for the right to enter the league.)

As rich an asset as the Clippers may be, they’re the sideline to Sterling’s main calling, which is helping investors and banks out of distress by taking swank property off their hands.

He owns, in his own name, 56 upscale apartment complexes in Southern California, 25 of them in Beverly Hills. He is an investor in real estate investment trusts that he says hold another 48 multiunit residential properties.

Deals often come to him after other people’s foreclosures and bankruptcies. “People come to me because they know that if I like something, I can move immediately,” Sterling said.

A compact former gymnast, he runs his show from a gilded French writing table and has a Socratic conversational style, often turning a question back on the questioner: What do you think? What would you do? He is soft-spoken and unfailingly courteous, often sending complimentary personal notes and Clippers tickets to business and social acquaintances.

When he’s buying, Sterling sometimes buys in bunches. In a 1979 deal, he bought 11 Santa Monica apartment complexes from fellow real estate mogul Jerry Buss, who used the money to buy the Los Angeles Lakers from Jack Kent Cooke.

On the other hand, Sterling may go years without opening his wallet, as was the case in the late 1980s and early 1990s. But he’s buying now. He declared as much last year in a series of newspaper ads announcing that he had assembled a $500-million credit line through Bank of America, Bank of California and an investment banking group called Beverly Hills Trust.

His bankers did not return phone calls, but Sterling’s financing methods are well-established. When the real estate market moves into one of its hot cycles, as it inevitably does, it raises the value of his portfolio to the point where he can refinance and pour the equity into new properties.

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In the late 1980s, Sterling hired Selsman, a Hollywood press agent, to try to boost his image. Knowing that a story, like a song, needs a hook, Selsman pitched Sterling as the West Coast Donald Trump.

A flock of profiles picked up “the other Donald” angle, but in retrospect, the comparison may have sold Sterling short. While Trump later dipped in and out of bankruptcy, Sterling has stayed healthy through the worst real estate slump in Southern California’s modern history.

Those who believe the Clippers owner lives only for glitz and ego gratification are in for a surprise. He does the research, he negotiates like a badger, he sticks to what he calls “my corridor”--from Beverly Hills to the ocean--and he never sells.

“He’s the quintessential poor kid from Boyle Heights whose possessions define him in his own eyes,” Selsman said of the man he has known for 34 years.

Born in Chicago as Donald S. Tokowitz, the son of a produce salesman, he moved to Boyle Heights with his family when he was young. He changed his name to Sterling during his college years and aimed for a law career. He quickly established his own practice not long out of school.

Although he once courted media attention, he now grants interviews reluctantly and will not discuss his family (he is married with three children), his schooling or his early career.

He bought the then-San Diego Clippers at the urging of Buss and others who persuaded him that the NBA soon would explode in popularity and the television rights would be very lucrative. But he took a shellacking from the media after he launched a billboard campaign featuring his own smiling face.

He also was ridiculed when, after his inaugural victory, he sprinted from his court-side seat and threw himself into the arms of then-Coach Paul Silas.

Critics particularly fault Sterling for the team’s front-office vacillation and its inability to hang on to and develop promising young players.

Lawyers who knew Sterling early on, however, describe a serious man who analyzed cases meticulously and had a ravenous appetite for work.

“I never worked so many hours,” said Los Angeles Superior Court Judge Michael Harwin, an associate in Sterling’s Beverly Hills law firm in the 1970s. “He knew every issue in every file.”

Sterling built a large and varied practice that ranged from personal injury to business law to criminal defense to celebrity divorce. Selsman met Sterling in 1962, when he hired him to handle his bitter divorce from actress Carol Lynley, then a rising star under contract to 20th Century Fox.

Recalled Selsman: “Her agents were MCA, she had top lawyers. I was badly outmanned and outclassed.” But Sterling came on “like a tiger shark,” Selsman said. “He forced Otto Preminger to fly from a movie set in New York and give a deposition in his office. He went all out. Preminger was furious.”

In the eventual settlement, according to newspaper accounts, Lynley turned over $25,000 of her savings to Selsman, and he agreed to pay alimony of a dollar a year. She got the house on Benedict Canyon Road.

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His legal work taught Sterling the negotiating techniques he now brings to real estate. Arn Tellem once was a young Sterling associate and now is a well-connected agent for basketball players whose clients include some Clippers. He said Sterling had “a brilliant sense of what the other side was thinking, whether they had options or not, what motivated them to settle. He realized that most lawyers, especially from big firms, are afraid to go to trial.”

If he had a flaw as a negotiator, Tellem said, it was that he sometimes “pushed too far.”

In real estate, Sterling’s advantages are his massive credit line and the fact that he doesn’t have to clear deals with a committee.

“He does it all himself,” said Nick Kanieff of Heller Premium Finance, who negotiated with Sterling last year over the Wilshire Estina, an 18-story apartment tower at the tony Los Angeles intersection of Wilshire and Beverly Glen boulevards. “I’d never done business with anybody who didn’t bring a lawyer.”

The Estina was a building on which Heller, a unit of Japan’s giant Fuji Bank, had written a very large and, in hindsight, ill-advised mortgage in 1987 when there seemed to be no top to the regional real estate market.

By late last summer, however, Heller had foreclosed on the loan and badly wanted the Estina off its books by year’s end.

Sterling, of course, knew that. On his home court, few such details escape him.

Kanieff recalled the final stages of negotiations from Heller’s perspective: “He holds his ground, knowing that the momentum of the deal is on his side. We’ve already come so far we can taste the dollars being wired in. We can smell the end of the deal.”

In the end, Sterling did buy the Estina, paying about $35 million, or 80% of the $44-million asking price.

“He beat us up on the price a little bit at the end,” Kanieff said.

Sterling got the building even though there were 13 higher offers on the table. The other bids were subject to “due diligence” inspections that could have taken 60 to 90 days, Kanieff said.

“Sterling said, ‘I will close in three days with no contingencies,’ which is unheard of,” Kanieff said.

Sterling likes to give the impression that he’s a gunslinger who will sign off on a huge deal at a moment’s notice just because his gut tells him it’s right.

That impression would be wrong. True, with his bankroll, Sterling can pull the trigger as fast as anybody, but his style is cautious and defensive. He protects himself by concentrating only on what he knows well and sitting out market surges. He rarely strays into retail or office projects, never gets involved in new construction. He wants buildings with a history.

Although the Buss deal in 1979 was done in a hurry and outside bankers’ hours, it was not done carelessly. “Knowing Donald Sterling, he probably drove around that night and visited every place,” Selsman said.

People have tried to woo Sterling into deals in Las Vegas, but he won’t go. He doesn’t know the turf, and he can see nothing but risk in a place where the supply of land is unlimited, he said. You build your monster project at the end of the Strip, and along comes somebody else to put a bigger one next door.

Beverly Hills, on the other hand, is fully built. Only the demand expands.

Although he has been buying larger buildings lately, the classic Sterling property remains a well-landscaped, three- or four-story apartment complex on a quiet, upscale street. Cher might not live there, but the vacancy rate is near zero and the rents are high. He seems to have made an effort in recent years to keep his tenants happy. In the mid-1980s, Sterling’s rent hikes so infuriated his Beverly Hills tenants that their militancy brought rent control to the city.

For his building managers, Sterling often hires older married couples, many of them European immigrants like his parents, some of them Holocaust survivors.

“They have Old World values, they’re courtly, very grateful and they work very hard,” a former Sterling aide said.

His personal staff is decidedly younger, many of them recent college and business school graduates. He drives them hard.

When the time came to close the Estina deal, said Kanieff, “he calls in his whole staff--like 15 people and they’re all young--and he tells them to drop everything. Then he jams that 30-day process into three days, around the clock.”

With the notable exception of his longtime Clippers general manager, Lakers hall of famer Elgin Baylor, Sterling seldom holds onto senior staff people for long. Tellem moved on, as did Alan Rothenberg, a lawyer who runs Major League Soccer, and Bob Steele, a Pepsico executive in Australia.

“Sterling used to have casting calls for executives,” a former associate said. “He’d get these guys, hire them for $60,000 and give them the title of CEO of his corporation. They’d deflect phone calls and criticism and bring him deals.”

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Sterling suspects the stock market is in for a 2,000-point drop, and he thinks the next strong upturn in Southern California real estate is still years off. The crash dumped so much inventory on the market that he estimates it won’t be fully absorbed until 2005.

In short, it’s buying time. Sterling’s goal is to invest $100 million a year, he said, but “I can’t find enough property.”

What he means is property that fits his criteria at his price. The formula won’t change: He’ll walk away from a lot of deals, but he won’t be going anywhere.