Los Angeles commercial landlord
The company has agreed to be sold to
Thomas Properties is also letting go of its interest in City National Plaza, a 2.5 million-square-foot office, restaurant and shopping complex that covers a city block at 5th and Flower streets. As recently as July, Thomas Properties had hoped to buy out the interest of the property's co-owner, the California State Teachers' Retirement System.
Thomas Properties was unable to raise enough money to buy out CalSTRS, and Parkway will lend Thomas Properties as much as $80 million to help liquidate Thomas' joint venture with the teachers pension fund. As part of ending that venture, two Houston office towers owned by Thomas Properties and CalSTRS will land in Parkway's portfolio.
"We elected to take the Houston properties and give City National Plaza to CalSTRS," Thomas Properties founder and Chairman James A. Thomas said Thursday. "They want to sell it."
Both Thomas Properties and CommonWealth are based in City National Plaza, one of downtown's most prominent office locations. Originally known as Arco Plaza, the property built in the early 1970s has twin granite-clad 51-story towers over an underground mall and parking garage.
Thomas Properties took control of the complex in 2003. It had been neglected by its former owners and was only about 20% occupied. Thomas signed City National Bank as the primary tenant, brought in two upscale restaurants and made other improvements. City National Plaza is now 90% leased.
James Thomas helped develop some of downtown's best-known skyscrapers in the 1980s and 1990s, including U.S. Bank Tower and Gas Company Tower, when he was one of the top executives at Maguire Thomas Partners. After that partnership broke up in 1996, Thomas founded his own firm that became Thomas Properties Group.
Thomas Properties is a public company but not a real estate investment trust, or REIT, which limited its ability to borrow money — especially after the last real estate downturn, Thomas said.
"The 2008 financial crisis came at the worst time for us," he said. "We had over $1 billion in debt coming due that in ordinary times we would have been able to refinance."
Financial markets dried up "and our stock just plummeted," Thomas said, falling from about $16 a share to below $2 at one point.
"We never could get back to the point where we could effectively raise money in the public market," he said.
The merger with Parkway is based on a sale price of $6.26 a share for Thomas Properties stock.
"I thought the final price was a little bit low," said analyst Craig Silvers of Bricks & Mortar Capital, who said he expected it to be closer to $6.50 to $7 a share.
"I think what they are doing is an easy way to convert Thomas Properties to a REIT," Silvers said. "It's probably the right move because people have wanted them to become a REIT."
The company was indeed looking "for a transformative event to get into growth markets and move toward REIT status," Thomas said. "We took a hard look at Parkway and their philosophy coincided with our philosophy and our board determined that it was a good fit."
If shareholders and federal officials approve the deal, Parkway and Thomas Properties will merge by the end of the fourth quarter. James Thomas would become chairman of Parkway's board of directors.
Shares of Thomas Properties stock rose 30 cents, or 5.3%, at $6 on Thursday on the news. Parkway fell 28 cents, or 1.7%, to $16.09.