A 'Magic' touch in the business world

By V. Dion Haynes
Washington Post Staff Writer
Monday, June 7, 2010; 12

Flashing his megawatt smile, Earvin "Magic" Johnson recently entered the cavernous exhibit hall in the newly refurbished Washington Hilton hotel near Dupont Circle to lead a pep rally of sorts.

A majority owner of the luxury hotel, the former all-star point guard for the Los Angeles Lakers, and now a team co-owner, stood before several dozen housekeepers, bellmen and security guards and encouraged them to perform their best to win their customers' repeat business.

"When I played sports, I only wanted to play with the best," Johnson said, sounding like an NBA coach rousing his players to victory. "When I invest money, I only want to invest with the best. Guess what? All these faces -- I'm playing with the best.

"If we over-deliver to our customers, we get retention, retention, retention. They will always come back," Johnson said. "They'll say the Washington Hilton is my home away from home."

Johnson has been a cheerleader-in-chief for an array of enterprises that has earned him a $500 million fortune and put him on Forbes's list of the five richest African Americans.

In 1990, Johnson, 50, made his foray into the Washington area business scene when Black Enterprise Publisher Earl G. Graves Sr. recruited him as a partner in the purchase of a $90 million Pepsi-Cola distribution operation in Forestville. (Graves later bought out Johnson and sold the facility.) Since then, Johnson has built his empire largely by catering to the black community. He has opened multi-screen movie complexes, TGI Friday's locations, Burger Kings and retail outlets in underserved urban communities across the country.

The Washington region has been especially important to Johnson. Besides the Hilton and an upcoming high-rise residential development on that site, he has opened the AMC Magic Johnson Capital Center 12 theaters in Largo; seven Starbucks in the District and Prince George's County; and home loan centers in the county. He also has a partnership with Gaithersburg-based Sodexo to co-brand cafeterias it operates at hospital, college and corporate campuses around the country.

"I love D.C. -- that's why I keep investing here," Johnson said in an interview. "It's a great city to do business in and get a quality return on your investment."

Now he's ready to fire up businesspeople of a different sort.

Johnson aims to mentor small, minority-owned professional business service firms here and elsewhere, providing them with advice and contracts with Fortune 500 companies. And in a separate effort, he is establishing a fund called TCW CapitalAssist Management that will offer some of those firms financing.

He discussed his ideas while strolling around the hotel, stopping repeatedly to sign autographs and pose for pictures. He talked with and made time for anyone who approached him. Similarly, he plans to make himself available to the small-business owners, giving them access to his expertise and contacts.

"I've been around the country talking to small-business owners asking them what's missing, and the number-one thing is capital. How can they get capital to go to the next level?" he said.

"Small businesses can't get loans. A lot of people who were playing in that space are not any longer playing in that space of loaning medium-sized to small businesses money," Johnson said. "So I'm raising a fund right now to give those businesses loans ... We already have a couple hundred million now committed to us and we're going to raise about $750 million to $1 billion. That's going to be important because now when we help those small businesses, we can also give them money, too."

While basketball was his first love, Johnson said, he started envisioning himself as a businessman during his teen years. He said he admired several black entrepreneurs in his hometown of Lansing, Mich., who drove Mercedes-Benzes and other fancy cars. He managed to snag a job cleaning their offices. When no one was watching, he said, he'd sit behind their massive desks and fantasize about being like them.

"For 2 1/2 hours, I was the CEO, right? I'd hit the intercom button like I had an assistant out front," he said. "I mean, I playacted the whole thing. But I'm a big believer that if you don't dream it, you can't become it. Here I am today. I'm able to say, 'I am the CEO.' "

A year after going into partnership with Graves on the Pepsi operation, Johnson dropped a bombshell: He announced he was HIV positive. Some players shunned him, and he soon retired from basketball.

Still, the California Public Employees' Retirement System (Calpers) took a chance on him, given his health and his risky idea of bringing name-brand franchises into depressed communities. The pension fund invested $50 million in the mid-1990s, allowing him to open his first TGI Friday's and Starbucks in a long-neglected shopping center in the Los Angeles area. When it determined the project was succeeding, Calpers invested $100 million more.

"We saw this as an opportunity because no one else was doing this," and there was "potential for growth," said Calpers spokesman Brad W. Pacheco.

Johnson is known for customizing, or "Magicizing," the franchises to minority customers' tastes.

"It's very important that you ... let minorities know they're part of it and that they're welcome -- [for instance at Starbucks] making sure you have pound cake and sock-it-to-me cake," Johnson said.

"Now that customer or people in the community can say, 'Magic built this for us,' " he added. "That's all the 'Magicizing.' "

After helping major brands earn millions, Johnson says he wants to put his stamp on small minority-owned businesses.

This year, Johnson joined forces with Chicago-based Aon Cornerstone Innovative Solutions, a new company formed by the risk management and insurance company Aon. The thrust of the new company is to link small minority-owned professional business service companies with large corporations seeking minority suppliers.

Aon Cornerstone and Johnson provide the connection -- as well as strategical advice and back-office functions such as engineering and administrative support to build their capacities and better enable them to win contracts. The president of Johnson's company says he does not intend to make money on the venture.

So far, 150 firms around the country have signed up -- and the partners are looking for more to apply. The goal of the program is to help the firms grow at least 15 percent over the next few years.

"What they get from this deal is instant credibility," said Leonard E. McLaughlin, president of Aon Cornerstone. "We give them instant capacity ... Where doors were closed before, they're now open."

Johnson and Aon have already begun working with several small businesses in the region, including PRM Consulting Group, a District-based firm specializing in human resources and general management.

"We're definitely postured to expand," said Jim Moss, PRM's managing director. "Now we have partners in Chicago, we have partners in Dallas, we have partners in New York that we wouldn't have had if it had not been for this relationship."

One of Johnson's partnerships called Canyon-Johnson Urban Fund in 2007 teamed with Lowe Enterprises, a Los Angeles-based real estate investment and development company, to purchase the Washington Hilton from the hotel chain. Under the deal, Hilton retains management of the 45-year-old hotel, which had long been known as the Hinckley Hilton -- the site where John W. Hinckley Jr. shot and wounded then-President Ronald Reagan in 1981.

Johnson and the other new owners spent $150 million to overhaul the facility -- refurbishing all 1,100 rooms; replacing the plumbing, heating and air-conditioning systems; and reconfiguring the main lobby and exhibit spaces. Plans call for the construction of a nine-story tower that would house about 180 apartments or condominiums, possibly next year, on the site.

Developers acknowledge that when they launched the project, they had no idea the economy was heading into a severe recession that would ultimately pound the housing and hotel markets.

Indeed, Johnson's other businesses have been affected by the downturn. Foot traffic declined significantly in many of the Starbucks outlets; Starbucks shut down two of them as part of its mass closure. And Johnson opted not to re-up with Washington Mutual Bank when his five-year commitment to the home loan centers ended in 2007; the bank, which in the wake of the mortgage crisis was taken over by J.P. Morgan Chase in 2008, ultimately closed the centers.

Still, developers say they expect the hotel and housing markets to pick up substantially during the next year. "Washington has been relatively resilient compared to just about any hospitality market in the country," said Michael S. Balaban, president of Lowe Enterprises Real Estate Group East. "That's why we're confident the investment will be productive for all our partners."

Added Johnson: "We see people are traveling again. People are having conventions. Things are going in the right direction."

Staff researcher Eddy Palanzo contributed to this report.

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