John Saunders has done several multimillion-dollar real estate deals. Now he wants to work with some real money.
Saunders, who owns Newport Beach-based London Coin Galleries Inc., has been buying buildings on the side with his own cash. Instead of investing a million dollars here or there from refinancing his properties, he said he’s ready to handle hundreds of millions of dollars of other people’s money.
Earlier this month, Saunders and three partners formed Newport Beach-based Core Realty Holdings LLC.
Core Realty is set to raise money from individual investors to buy land or buildings in Orange County and beyond.
His partners are Vice Chairman Douglas Morehead, who also runs Newport Beach-based Optima Asset Management Services Inc.; Chief Executive Russ Colvin, who formerly headed an investment and development arm of Mission Viejo’s Mammoth Equities LLC; and Executive Vice President Sterling McGregor, who was vice president of acquisitions and finance with Irvine-based Passco Real Estate Enterprises Inc. and cofounder of Santa Ana’s Triple Net Properties LLC and San Juan Capistrano’s Argus Realty Investors LP.
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To start, Core Realty is set to buy buildings with investors who pool their money to share ownership in a structure known as tenant-in-common. These investors typically look to avoid paying capital gains taxes from a previous real estate sale, taking advantage of a part of the tax code known as 1031.
Big players in the tenant-in-common industry are based here, including Passco and Triple Net. The size of their deals has grown amid low interest rates, a hot real estate market, a growing number of investors interested in the deal structure and more investment banks willing to finance 1031 deals.
When McGregor worked at Passco, he orchestrated one of the biggest 1031 deals ever. In 2003, Passco pooled 32 investors to pay $148 million for Puente Hills Mall in Industry.
That deal involved one of the largest loans,$92 million,ever granted to a group of 1031 buyers up until then, sources said.
Saunders owns the biggest piece of Core Realty, which is housed in one of his buildings on Dove Street. He does not have a controlling interest.
Flying solo, Saun-ders has done larger and larger buys during the past couple of years.
Late last year, he said he closed his biggest deal yet: the $42 million acquisition of a 303,000-square-foot building on 27 acres of land in Mission Viejo. Other investors chipped in, but Saunders said he is the managing partner.
The building houses local operations of Unisys Corp.
The four partners have invested nearly $1 million in Core Realty, Saunders said. On their own, the partners own about 4 million square feet of real estate and manage another 1.5 million, they said.
The partners said the company will expand to include a real estate investment trust and other operations.
“We’ll buy the four food groups: office, retail, industrial and apartments,” Core Realty’s Sterling said.
As chief investment officer, Sterling is set to find and manage acquisitions. Colvin is charged with raising money for deals. Morehead is set to manage buildings once they’ve been acquired.
Colvin said he’s known Saunders for a decade. Colvin used to work for a company that arranged to lend money to Saunders, he said.
Core Realty’s Morehead said he’s managed buildings owned by Saunders for years.
The four players have experience and contacts on their side. But they’re starting a company as long-term interest rates are poised to rise. Higher rates make it more expensive to borrow money to buy buildings and push down the value of properties.
Saunders said there’s always a risk of interest rate spikes.
“We are going to be cautious,” he said.
In an interview last week, the partners said they are not setting targets for the number or value of deals they want to close in their first year. They’re reviewing a number of deals now. They want the company’s first buy to make an impression.
