A few gems go with the sale
One of the most successful real estate investors of all time, Sam Zell now has a whole new batch of properties to play with. They came with the $8.2-billion purchase of Tribune Co. he led last week and could be part of his remedy for paying off the pile of debt used to take the owner of the Los Angeles Times and KTLA-TV Channel 5 private.
Zell valued the real estate portion of the deal at about $2 billion -- far more than most analysts had estimated.
Among the dozens of newspaper and television-related properties spread across the country are a handful of trophies. They include the company’s headquarters in the Gothic-style Tribune Tower in downtown Chicago, the historic Warner Bros. movie studio in Hollywood now occupied by KTLA, and a prime piece of waterfront property in Baltimore, real estate experts said.
Zell’s team has studied the portfolio for months, and already has put the KTLA studio up for sale. Those who know him predicted that Zell would wring new value from Tribune real estate. Earlier this year, the Chicago native orchestrated one of the biggest real estate transactions of all time, selling a national collection of office buildings he had assembled for $23 billion. He said in an interview with Barron’s that he personally pocketed $1.3 billion in the deal on an initial investment of $70 million.
Zell’s bid for Tribune wasn’t “a real estate play,” said longtime acquaintance John Cushman, chairman of international real estate brokerage Cushman & Wakefield. “But when it comes to real estate there is no one smarter. If there is an acorn in the portfolio, Sam will figure it out like nobody else.”
Investors already have inquired about Tribune’s crown real estate jewel: the iconic headquarters tower completed in 1925. It overlooks the Chicago River at the gateway to the city’s popular Magnificent Mile hotel and shopping district along Michigan Avenue, said real estate broker Michael Vesper of CB Richard Ellis in Chicago.
“If Sam decided to sell Tribune Tower, it would generate worldwide interest,” Vesper said. The 36-story skyscraper would be “worth its weight in gold” as an office building, Vesper said, or well-suited for conversion to luxury condominiums. Based on the recent sale of another historic Chicago building, at about $250 per square foot, the tower’s value could be close to $160 million. The building also has a parking lot suitable for development.
Industry observers have speculated that the Tribune Tower may be too hallowed to the company’s heritage for even Zell to cut loose. Legendary Tribune publisher Col. Robert R. McCormick set out to build the most-beautiful office building in the world as his headquarters and ended up with a dramatic limestone-clad tower topped with flying buttresses and menacing gargoyles that direct rainwater away from stained glass windows.
On display at street level are chunks of stone gathered by Chicago Tribune correspondents from such famous locations as the Coliseum in Rome, the Great Wall of China, Westminster Abbey in London and the Alamo in San Antonio.
In a recent interview, however, Zell said there were “no sacred cows.” Zell does not yet control the historic downtown Los Angeles home of The Times, but he plans to exercise an option next year to purchase eight properties, including the paper’s downtown headquarters, for what is considered a bargain price of $175 million. The properties are owned by the Chandlers and were leased to Tribune when the newspaper chain bought Times Mirror Co. in 2000 from the California family. They include buildings in Baltimore and Melville, N.Y., that are home to the Baltimore Sun and Newsday, respectively.
“Obviously, this is a lot of real estate,” Zell said. “It’s a lot of value and it needs to be redeployed.”
Squeezing money out of The Times headquarters -- known as Times Mirror Square before Tribune’s acquisition of Times Mirror -- could be challenging despite a recent downtown renaissance. The paper’s Civic Center location has not been desirable to corporate tenants for decades, but the downtown office market has improved in favor of landlords in recent months and The Times offices are close to the $2-billion mixed-use Grand Avenue development set to begin construction early next year on Bunker Hill.
Yet the hodgepodge of office space is considered ill suited for uses other than putting out a newspaper.
As a result, The Times is expected to continue to occupy its home since 1935. In the coming months, the new owners plan to complete an earthquake safety retrofit of the property and to finish a long-delayed upgrade of the newsroom, said Russell Compton, director of facilities for The Times.
One possible exception is the newest of The Times’ five interconnected structures, which cover a full block diagonally across from City Hall. The building at 1st Street and Broadway, built in 1973, became the corporate headquarters of Times Mirror Co. The suites are mostly vacant today and have been used in recent years as sets for television shows and movies, including the musical “Dreamgirls.”
That building may be sold or leased to other tenants, Compton said. Zell also could add shops at street level in spaces.
Moving the operations of a daily newspaper would be an expensive undertaking but could be worth the trouble if the real estate has the potential for a more intensive and profitable use such as housing or shopping.
One such location is in Baltimore. The $180-million printing facility of the Baltimore Sun, a former Times Mirror newspaper, sits on nearly 60 acres of what is rapidly becoming prime harborside land.
The city’s waterfront locations are rapidly being improved with such uses as condominiums, apartments, stores and hotels. The historic Inner Harbor about a mile away is a popular tourist attraction, where land has sold for $20 million an acre.
Land near the printing plant is worth as much as $1 million per acre, suggesting a value of nearly $60 million for the Sun’s property. Next to the harbor and served by a freeway, it could be turned into a mixed-use development with multifamily housing, retail and hotels, real estate professionals said. Its value is expected to rise significantly in the next few years.
“This is probably one of the best remaining development sites in Baltimore city,” said Spencer Levy, senior managing director of capital markets at CB Richard Ellis in Baltimore.
As for the Baltimore Sun’s newspaper offices, they could be sold to investors who would lease them back to the company to create a cash infusion. A lease-back of the Sun offices would actually increase their value in a sale because the owner would know he or she had a long-term tenant.
Zell said he would consider “the whole toolbox” of financial tactics to get the most out of Tribune’s real estate, including sale lease-backs, mortgages and tax-advantaged sales.
“We have been doing a lot of work in understanding the real estate resources of the company,” Zell said. “We think there is measurable improvement in the utilization of those assets.”
Times staff writer Thomas S. Mulligan contributed to this report.
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