CIM promenades its success on to Hollywood.

In the world of local commercial real estate, Shaul Kuba, Avi Shemesh and Richard Ressler have tried to stay below the radar while quietly amassing a portfolio that stretches throughout the city.

But the low-profile approach of CIM Group Inc. is getting harder to pull off, especially with a $200 million deal pending to buy the 645,000-square-foot Hollywood & Highland complex.

With the backing of two of the state's biggest pension funds, the real estate and development firm has acquired properties valued at more than $900 million in the last decade--and is sitting on an investment war chest of $1.6 billion.

Kuba, Shemesh and Ressler have made a fortune for themselves and their investors by buying up distressed properties in urban districts on the upswing, such as Old Pasadena, San Diego's Gaslamp Quarter and Santa Monica's Third Street Promenade, where their company was once one of the largest landlords.

In recent years, CIM also has been snatching up prominent buildings along Hollywood Boulevard and in downtown L.A., although the Hollywood & Highland purchase, which includes the Hollywood Renaissance hotel would become by far its most visible property to date. The principals would not discuss their plans for the complex because the purchase has not closed, but if completed, the deal would make CIM the third largest property owner in Hollywood, behind Grant Parking Inc. and the Church of Scientology.

"We look at what neighborhoods are missing to be vibrant," Ressler said in an interview last week at the firm's Hollywood offices. "We look at those differences, and that's where we invest."

Promenade beginnings

CIM, which stands for Capital Investment and Management or California Investment and Management, depending on which founding principal you ask, got its start with the purchase of five buildings along the Promenade in the mid-1990s, just as the pedestrian commercial strip was taking off.

After renovations, the buildings' rents soared to $6 a square foot from $1.50. Today, rents along the Promenade are between $9 and $11 a square foot. For more than five years, the company was the largest landlord on the Promenade and gained a reputation for being closely involved in the community, something it has done in other areas where it's investing.

The success in Santa Monica, along with waves of residents moving back into the urban neighborhoods from the suburbs, gave Ressler an idea for a business plan: invest in moderate-to-upper income areas with populations underserved by retail, parking and housing.

CIM's roots can be traced to a chance meeting on Ressler's lawn.

Kuba and Shemesh are Israeli-born childhood friends who knocked around the United States after being discharged from the military. They landed in Los Angeles and, as Shemesh tells the story, quickly ran out of money. Ressler came to town after spending time at white-shoe New York law firm Cravath Swaine & Moore LLP, where he worked on mergers and acquisitions before moving on to Drexel Burnham Lambert, where he was vice president of corporate finance.

By 1994, Ressler, by then semi-retired, had started private equity firm Orchard Capital Corp. He was overseeing work on his Westside home when he, Kuba and Shemesh, who had built commercial real estate and landscaping businesses, met to talk about his lawn.

The trio hit it off, and bought a building on Third Street.

They initially backed deals with their own capital and through partnerships with Federal Realty Investment Trust and Credit Suisse First Boston Mortgage Capital LLC.

But in order to move into larger projects, CIM began raising its first pooled fund and tried to recruit the state's large pensions as investors. The effort almost backfired when, in May 2000, it hired former California Public Employees' Retirement System board member and ex-L.A, deputy mayor Alfred Villalobos to lobby Calpers to invest in its projects.

Pension involvement

The involvement by Villalobos brought the company some criticism, although Calpers eventually agreed to invest $125 million in the CIM California Urban Real Estate Fund LP.

"I was very critical of CIM because of that," said Sean Harringan, president of Calpers' board, who was a board member at the time. "It had to do more with their approach than their product, but I think they have learned a lot from that."

Harringan, president of the United Food and Commercial Workers Region 8 union in Buena Park, said that the firm has adjusted its approach to seeking money.

"We have made additional and substantial investments in them since then without any dissent on the board," he said. "They are a superior manager and they will continue to generate superior returns for Calpers."

For its Urban Real Estate Fund, which closed March 2003, CIM raised $676 million, with Calpers and the California State Teachers' Retirement System the lead investors.

Calpers may be hoping for a repeat performance of its initial investment with CIM in 2001. On $125 million, Calpers has projected a return of 29 percent, according to a March 2003 staff report.

CIM is looking for similar returns in Hollywood, where it has been buying up buildings, gutting, refurbishing and looking for new tenants, many of them national retailers and restaurants.

Typical of the approach was last week's purchase of a run-down, 10-story office building at 7046 Hollywood Blvd., an 80-year-old office building with boarded up windows whose only tenants are a sex shop and souvenir store.

It bought what is now known as the TV Guide building at 6922 Hollywood Blvd., where the offices of Gemstar-TV Guide International Inc. are located, and is in the process of installing new storefronts that will house a Hooters restaurant, a Coffee Bean & Tea Leaf, a Baja Fresh and a Jamba Juice. A 4,500-square-foot storefront is still vacant.

Similarly, CIM plans to convert the vacant office building at Hollywood Boulevard and Sycamore Drive into apartments with ground floor retail. At the Hollywood Galaxy, the firm closed down the AMC six-screen movie theater and has struck a deal to move fitness center Bodies in Motion Inc. into the 26,000-squarefoot-space. It is also negotiating with a national pharmacy and two other retail tenants for leases at the spot.

Not every project is a rehab. Construction has begun on part of a block-long mixed-use project on Hollywood Boulevard between Cherokee and Whitley avenues, where the principals said leases are being negotiated with a sushi restaurant, a local clothing retailer and a nightclub.

Still, for all its investment in Hollywood, the three partners believe that the boulevard still lacks many amenities--including parking, housing and quality retail space--that could make it into a vital district.

"It's all about the challenge," Kuba said. "I think that's what draws me to Hollywood."

CIM Group Inc.

Headquarters: Hollywood

Founded: 1994

Principals: Richard Ressler, chairman of the investment committee responsible for CIM's decision-making; Shaul Kuba, responsible for acquisition and development activities; Avi Shemesh, oversees development, administration, financing activities and investor relationships

Offices: Los Angeles; Bethesda, Md.

Key projects: Hollywood & Highland *, TV Guide building, Hollywood Galaxy, Sunset and Vine Tower, Gas Co. Lofts, Ralphs supermarket (downtown L.A.), Metro Center, Grand Avenue Lofts, Pico Plaza, Hancock Corner

Project Locations: San Diego, Huntington Beach, San Jose, Los Angeles, Sacramento, Anaheim, West Hollywood, Santa Monica, Pasadena

Portfolio Value: $900 million

Acquisition Pool: $1.6 billion

* Under agreement of sale