Tishman West loses major management contracts; new owners grapple with loss of downtown buildings.

L.A.'s Tishman West Cos. commercial property management operation has lost its president and nearly 6 million square feet of management contracts -- including downtown L.A. landmarks Arco Plaza and Security Pacific Plaza -- since Balcor Co., an American Express Co. unit, assumed 100 percent ownership of the firm last fall, Balcor Chairman Marvin Chudnoff acknowledged last week.

While Chudnoff claimed the losses had "nothing to do with (Tishman West's) performance" and noted that Tishman West has assumed more than 2.6 million feet in new contracts since January 1992, sources have suggested Skokie, Ill.-based Balcor's acquisition of the local firm was an important factor in the losses.

Tishman West Cos. was created in 1988, when the owners of Tishman West Management Corp. -- then L.A. County's No. 1 ranked building manager -- solidified the firm's finances by selling Balcor a 50 percent interest in its operating assets for a reported $20 million.

Last summer, TWMC's owners, including current Tishman West Cos. Chairman Perry Herst Jr. and former president Alan Levy, arranged to sell Tishman West Cos. to Newport Beach-based Koll Management Services Inc. in a deal that would have created a new KMS division, Koll/Tishman.

Herst was to become chairman emeritus of the division and Levy chairman. At that time, the firm managed about 20 million square feet of commercial space nationally, with about 12.5 million in L.A. County, according to the Business Journal's List of top local property management firms.

However, that deal hinged on TWMC's re-acquisition of the half-interest in Tishman West Cos. it had sold to Balcor. And Balcor opted last October to exercise its option, specified in the partnership agreement, to acquire the balance of Tishman West Cos. for an estimated $5 million.

But Balcor's brain trust should have realized it risked losing some top Tishman West officials -- and consequently jeopardizing contracts those "hands-on" officers had maintained through strong personal relationships -- by exercising its option to acquire Tishman West Cos. outright, according to knowledgeable sources requesting anonymity.

"They should have known that longtime clients would be much more likely to look at their options" in the wake of ownership and possible management personnel changes, one commented.

Since the ownership change was announced -- and Chudnoff and Balcor President Robert Lutz began playing more active management roles in the wake of Levy's resignation and Herst's departure from daily management -- Tishman West Cos. has been replaced as manager at nearly 6 million square feet of property.

But Chudnoff noted that the three biggest related contracts -- the two downtown properties and the 1.4 million-square-foot Columbia Seafirst Center in Seattle -- had been under review by the respective property owners for more than a year (management contracts typically carry 30-day termination clauses).

While one source suggested that Levy "helped anchor" Tishman West's relationship with Metropolitan Life Insurance Co. in particular, Met Life Assistant Vice President Robert Duboff denied that the management change at Security Pacific Plaza is related to Levy's departure or the ownership change at Tishman West.

The insurer's primary motivation in granting the assignment to Metropolitan Structures West was to help expand the portfolio of a development/management operation of which Met Life is a part owner, Duboff explained.

"It's not a commentary on Tishman; they were doing an excellent job for us and for the anchor tenant," Duboff said. "But it was a new year, and we took a fresh look at a situation we had been discussing for some time."

Duboff also confirmed that PM Realty has taken over Tishman West's assignment at the 83,000-square-foot Equidon building in Culver City. He noted that Tishman West is especially adept at managing big highrises, but some of Met Life's "smaller" office properties "could use a little more TLC."

Ironically, Met Life also recently replaced Tishman West -- with KMS -- as the property manager at five office properties in Phoenix and another in Tucson totaling just under 500,000 square feet.

"Koll was very aggressive, and we looked at what Tishman was doing and thought we could enhance management there -- but I can't say Tishman wasn't doing a good job," Duboff said.

Chudnoff noted that Tishman West still manages 3 million feet of Met Life properties and is discussing additional contracts with the institution. While Met Life's 447,574-square-foot Century Centre complex in Irvine is the largest on the list of 20 "recent acquired properties" Tishman West gave the Business Journal, one source indicated the contract had been under negotiation since 1991 and was consummated before Balcor assumed full ownership.

The list, which identifies new contracts totaling about 2.6 million square feet, includes two Sherman Oaks office properties owned by clients of L.A. pension adviser TCW Realty Advisors. Chudnoff said Tishman West's gross revenues are "up 7 or 8 percent" since the October transaction.

One source, familiar with prevailing property management fee structures at the three big properties Tishman West is losing, indicated that the Arco Plaza contracts brought in about $500,000 in annual revenues, with Security Pacific Plaza and Columbia Seafirst Center generating $400,000 and $350,000, respectively.

To help stem the tide, Balcor early this month named Bob Shibuya, Cushman & Wakefield's Southern California management chief, as Levy's successor.