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Shopping Centers Today -> July 2002
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‘MAGIC’ SEEKS TEAMMATES IN URBAN RETAIL VENTURES
By Dave Bodamer
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| He’s making money in inner cities; so can you, Johnson told developers. |
Displaying the same competitive fire that drove him to NBA, NCAA and Olympic basketball glory, Earvin “Magic” Johnson Jr. captivated a lunchtime audience on the convention’s third day with an exhortation to developers and retailers to join him in his foray into retail development in America’s inner cities.
Johnson, chairman and CEO of Beverly Hills, Calif.-based Johnson Development Corp., recounted how everyone warned that he would fail in his efforts to bring leading retailers into depressed markets, until he brought more than 40 Starbucks outlets, two TGI Friday’s restaurants and five Magic Johnson Theatres to under-retailed locations in inner-city areas across the United States.
“Everybody said, ‘Don’t do it,’” Johnson said. “They said we would lose money. Today I’m proud to say that we are making money in all of our brick-and-mortar businesses.”
More recently, the company has expanded its mission to include development and retail chain ownership; it is investing $53 million in the purchase and redevelopment of a 600,000-square-foot mall in downtown Milwaukee and has bought the 650,000-square-foot Severance Town Center, Cleveland Heights, Ohio, for $40 million. Johnson Development also purchased the 42-store Fatburger fast-food chain, which it is prepping for a national rollout, and has signed a deal to bring 24 Hour Fitness centers to the same markets.
“I want you to join us in these markets,” Johnson said to a packed ballroom. “We’re by ourselves catering to a captive audience. We will continue to grow, but we need you to come with us.”
In its ventures Johnson Development is remaining a partner with longtime ally Canyon Capital Realty Advisors, Beverly Hills; in September the partners launched the $300 million Canyon-Johnson Urban Fund, announcing the Milwaukee project in October. They are also in the process of buying projects in Chicago, Los Angeles, Philadelphia and Washington, D.C. If those deals pan out, the fund could be fully invested before the end of the year, executives say.
Johnson and the fund are focusing predominantly on centers in inner cities, which have been neglected by retailers and developers in the past.
“Institutional capital companies have missed a huge opportunity to invest in these communities,” said Bobby Turner, a co-managing director of the fund, in an interview earlier this year. “What we can do is make money by taking advantage of an overlooked market. At the same time, we can provide and foster these communities.”
The goal, he noted, is not to gentrify these neighborhoods, but to develop projects that will serve what he sees as vast untapped markets. The approach is to team with local developers and managers, and then after operating the properties for a few years, sell them, he said.
“I love this business because we bring joy to people,” Johnson said in his convention speech. “At Johnson Development we’re trying to make their lives easier and uplift the community. At the same time, we’re not there for charity. We’re there to make money, but you have to do that a little differently in urban markets.”
Building in such communities, however, is a difficult proposition and can be risky, said Kenneth Lombard, a fund co-managing director, earlier this year. Traditional brokerage houses do not normally profile such areas, so finding reliable economic data can be difficult.
Johnson Development and Canyon Capital rely on their own experience.
“No one has turned over more stones in urban locations across the country than we have,” Lombard said. “We’re in 22 cities right now. We’ve done research in more than that. We really have developed a pretty in-depth understanding of urban locations.”
 | Current Issue February 2012 |