Business

Magic takes business into inner cities

Earvin “Magic” Johnson announced his arrival as a businessman 13 years ago, when he took part in an unusual meeting with gang leaders from the Bloods and the Crips.

At the time, the former NBA star was building a movie theater in Baldwin Hills. Would the gang members, Johnson asked, be kind enough not to shoot it up?

“I just laid it out to them that I'm building this theater for the community,” Johnson, the former Los Angeles Lakers standout, recalled from his seventh-floor office in Beverly Hills. “You can't have anything happen at this theater, because we're going to hire your cousins, your mothers, your sons and daughters. You come in here and shoot up the place – it might be your own relatives inside.”

The theater stands peacefully to this day, largely untouched by violence.

These days, Johnson meets with corporate CEOs, institutional investors and elected officials who want a piece of his growing collection of businesses and properties in 21 states.

The orchestrator of the Lakers' highflying teams of the 1980s that netted five NBA championships has crafted a second career by investing his time and, in many cases, other people's money in long-ignored urban neighborhoods through his Canyon-Johnson Urban Fund.

Canyon-Johnson, formed in 1998, has financed 31 real estate developments in 13 states and Washington. It launched its third and biggest investment fund in April – and in a matter of weeks drew $1 billion from pension funds and other sources with deep pockets.

What's more, the money came in at a time when investments in commercial projects had fallen off dramatically because of the credit crunch and the downturn in real estate values.

Johnson has other ventures cooking. In March, he signed a multiyear marketing deal to help electronics retailer Best Buy Co. bolster sales in urban neighborhoods.

His Beverly Hills-based Magic Johnson Enterprises now has AMC Magic Johnson Theatres in four cities, 116 Starbucks in 14 states and Washington, 31 Burger King restaurants in the Southeast, and 13 24-Hour Fitness/Magic Johnson Sport health clubs. And he owns nearly 5 percent of the Lakers.

Johnson consistently has declined to release financial data for his privately held businesses or himself. But a business associate, who asked not to be identified because he was not authorized to speak by Johnson, estimated the value of Johnson's various holdings at $700 million.

This associate estimated Johnson's personal net worth at nearly $500 million.

Many star athletes lend their names to bars or car dealerships and say they're in business. Johnson wasn't content with that. Instead, he parlayed his fame into a groundbreaking role in urban development.

“His role was quite revolutionary,” said Chicago-based real estate investor Quintin Primo, who occasionally competes against Johnson for deals. “And you still can't say that urban investment is commonplace today. His involvement still speaks to the vision Magic Johnson has had.”

Johnson was a well-known retired athlete in 1995 when he approached the California Public Employees' Retirement System about a pioneering investment in black, Hispanic and other urban neighborhoods.

But when Johnson spoke before the CalPERS board, “he said, ‘I'm almost as nervous as I would be shooting a free throw at a championship game,'” remembered former CalPERS executive Robert Aguallo Jr., who now manages the Los Angeles City Employees Retirement System. That system has invested in the second Canyon-Johnson fund.

Johnson was drawn to the tired Santa Barbara Plaza shopping center in the Crenshaw district. Although attempts to close deals on the property failed, Johnson saw the potential for profiting from urban redevelopment, a strategy that formed the foundation for subsequent transactions.

His post-basketball career began earlier than expected, after he was diagnosed with HIV in 1991. (Johnson said he remains healthy, the virus all but dormant inside him.)

Initially he was frustrated, though, because a string of potential business partners turned down his overtures.

“A lot of them wanted my autograph and a picture with me,” Johnson said. “But they didn't want to invest with me. People said, ‘If you believe in urban America so much, why don't you invest your money and prove it?'”

Johnson did just that in 1995, taking an equity stake along with what was then the Loews chain in the 12-screen movie theater in Baldwin Hills. Three years later, he opened a Starbucks coffee shop in south Los Angeles. He remains the Seattle-based coffee giant's only joint-venture partner.

He raised eyebrows, but usually was proved right, with ideas such as restocking theater refreshment stands in predominantly black areas with sweeter drinks, spicier hot dogs and Buffalo wings. Johnson since has struck equity and licensing deals with such diverse partners as Burger King, Royal Caribbean International, food services firm Sodexho and health insurer Aetna. Today, Johnson concedes that the roiled credit markets are forcing Canyon-Johnson to alter its investment strategy. Johnson plans to focus on somewhat smaller markets where development costs are lower than in major cities.

“The Carolinas are going to be the place where people are moving now,” he said. “No. 1, you get more for your money. It's affordable. We saw where the trend is going, so that's where we're going to go."

Earvin “Magic” Johnson announced his arrival as a businessman 13 years ago, when he took part in an unusual meeting with gang leaders from the Bloods and the Crips.

At the time, the former NBA star was building a movie theater in Baldwin Hills. Would the gang members, Johnson asked, be kind enough not to shoot it up?

“I just laid it out to them that I'm building this theater for the community,” Johnson, the former Los Angeles Lakers standout, recalled from his seventh-floor office in Beverly Hills. “You can't have anything happen at this theater, because we're going to hire your cousins, your mothers, your sons and daughters. You come in here and shoot up the place – it might be your own relatives inside.”

The theater stands peacefully to this day, largely untouched by violence.

These days, Johnson meets with corporate CEOs, institutional investors and elected officials who want a piece of his growing collection of businesses and properties in 21 states.

The orchestrator of the Lakers' highflying teams of the 1980s that netted five NBA championships has crafted a second career by investing his time and, in many cases, other people's money in long-ignored urban neighborhoods through his Canyon-Johnson Urban Fund.

Canyon-Johnson, formed in 1998, has financed 31 real estate developments in 13 states and Washington. It launched its third and biggest investment fund in April – and in a matter of weeks drew $1 billion from pension funds and other sources with deep pockets.

What's more, the money came in at a time when investments in commercial projects had fallen off dramatically because of the credit crunch and the downturn in real estate values.

Johnson has other ventures cooking. In March, he signed a multiyear marketing deal to help electronics retailer Best Buy Co. bolster sales in urban neighborhoods.

His Beverly Hills-based Magic Johnson Enterprises now has AMC Magic Johnson Theatres in four cities, 116 Starbucks in 14 states and Washington, 31 Burger King restaurants in the Southeast, and 13 24-Hour Fitness/Magic Johnson Sport health clubs. And he owns nearly 5 percent of the Lakers.

Johnson consistently has declined to release financial data for his privately held businesses or himself. But a business associate, who asked not to be identified because he was not authorized to speak by Johnson, estimated the value of Johnson's various holdings at $700 million.

This associate estimated Johnson's personal net worth at nearly $500 million.

Many star athletes lend their names to bars or car dealerships and say they're in business. Johnson wasn't content with that. Instead, he parlayed his fame into a groundbreaking role in urban development.

“His role was quite revolutionary,” said Chicago-based real estate investor Quintin Primo, who occasionally competes against Johnson for deals. “And you still can't say that urban investment is commonplace today. His involvement still speaks to the vision Magic Johnson has had.”

Johnson was a well-known retired athlete in 1995 when he approached the California Public Employees' Retirement System about a pioneering investment in black, Hispanic and other urban neighborhoods.

But when Johnson spoke before the CalPERS board, “he said, ‘I'm almost as nervous as I would be shooting a free throw at a championship game,'” remembered former CalPERS executive Robert Aguallo Jr., who now manages the Los Angeles City Employees Retirement System. That system has invested in the second Canyon-Johnson fund.

Johnson was drawn to the tired Santa Barbara Plaza shopping center in the Crenshaw district. Although attempts to close deals on the property failed, Johnson saw the potential for profiting from urban redevelopment, a strategy that formed the foundation for subsequent transactions.

His post-basketball career began earlier than expected, after he was diagnosed with HIV in 1991. (Johnson said he remains healthy, the virus all but dormant inside him.)

Initially he was frustrated, though, because a string of potential business partners turned down his overtures.

“A lot of them wanted my autograph and a picture with me,” Johnson said. “But they didn't want to invest with me. People said, ‘If you believe in urban America so much, why don't you invest your money and prove it?'”

Johnson did just that in 1995, taking an equity stake along with what was then the Loews chain in the 12-screen movie theater in Baldwin Hills. Three years later, he opened a Starbucks coffee shop in south Los Angeles. He remains the Seattle-based coffee giant's only joint-venture partner.

He raised eyebrows, but usually was proved right, with ideas such as restocking theater refreshment stands in predominantly black areas with sweeter drinks, spicier hot dogs and Buffalo wings. Johnson since has struck equity and licensing deals with such diverse partners as Burger King, Royal Caribbean International, food services firm Sodexho and health insurer Aetna. Today, Johnson concedes that the roiled credit markets are forcing Canyon-Johnson to alter its investment strategy. Johnson plans to focus on somewhat smaller markets where development costs are lower than in major cities.

“The Carolinas are going to be the place where people are moving now,” he said. “No. 1, you get more for your money. It's affordable. We saw where the trend is going, so that's where we're going to go."

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