TACO BELL DECISION: STAY IN O.C. : Real Estate Slump Helped Chain Get ‘Sweetheart Deal’ : Lease: Landlord slashes rent, tosses in $4 million for improvements and offers free parking to keep tenant.

Taco Bell Corp. officials’ decision to stay in the same 12-story mirrored office tower they’ve occupied for eight years was largely due to a sweetheart deal wrested from a landlord already reeling from the real estate slump, sources said.

Under the new lease, which starts early next year, Taco Bell stands to slash more than $350,000 a month from its rent costs.

The 280,000-square-foot building’s Tokyo-based owner, Shuwa Investments Corp., was “bending over backward to get them to stay, especially since there’s no other company really hanging around wanting to use that space,” said Louis Masotti, director of the real estate management program at UC Irvine. “Shuwa is a winner here but so is Taco Bell--they got a great deal.”

While complete details of the deal were not released, Shuwa and Taco Bell reportedly signed a 15-year lease at a 66% discount in the first few years. It allows Taco Bell to end the lease at the end of five and 10-year periods. Shuwa also gave Taco Bell $4 million in cash or rent credits for building improvements and isn’t charging the company for parking, a Shuwa executive said.

Shuwa agreed to an early cancellation of Taco Bell’s current 10-year lease, which isn’t set to expire until November, 1996. The company pays $2 a square foot a month in net rental rates under the current lease.

“It’s a sweetheart deal,” one local real estate watcher said of the new lease.

Under the new lease, which begins Feb. 1, monthly net rent is 67 cents a square foot in the first five years, rising to 83 cents a foot in the second five-year term and once again to $1 a month in the third five-year period if Taco Bell renews.

The rates exclude taxes and building operations costs. In the first five-year term they would add about 83 cents a square foot, for total gross rent of $1.50 a foot.

Gross monthly rates in the area for high-rise office space average about $1.65 a square foot, according to Grubb & Ellis Co., a real estate brokerage firm.

“Taco Bell got a very good price,” said Dennis Macheski, director of real estate research at the Costa Mesa office of the Price Waterhouse accounting firm. “And rents right now are rising, so they got a price you could not have gotten a year and a half ago.”

Shuwa’s dilemma is one shared by many office building owners in the United States, where rents have plummeted after a boom in the 1980s. Japanese investment companies, hit hard by a real estate crash in their own country, are especially hard pressed. Like many of its contemporaries in Japan, Shuwa went on a U.S. buying binge in the 1980s, snapping up so-called trophy properties like Arco Towers in downtown Los Angeles and the ABC Building in New York.

Now, Shuwa is reportedly sagging under the burden of repaying principal and interest on accumulated debt estimated at $8.5 billion. To raise $204 million to help repay its debts, the firm this year sold a significant portion of the stock it owned in a major Tokyo-based department store.

Because of the real estate market slump, Shuwa is no stranger to bare-knuckle lease negotiations. In January, 1993, the company renegotiated a lease transaction valued at $115 million with Bank of America, which threatened to abandon Shuwa’s Arco Towers building in downtown Los Angeles. The lease was renegotiated at a savings to the bank to keep it in the 470,000 square feet of office and retail space.

Several real estate experts said Shuwa, with a bottom-line incentive to renegotiate, was working hard to keep Taco Bell as a high-profile tenant, offering a deal the fast-food company couldn’t match anywhere else.

“Given what’s going on in the Japanese real estate market, Shuwa could not afford to have another empty office building on the market,” Masotti said.

Officials of the Koll Co., the Irvine-based commercial real estate firm that constructed the Shuwa building and which owns properties that surround it, were tight-lipped about any role Koll may have had in persuading Taco Bell to stay.

But several sources said Koll had offered Taco Bell space nearby in the Shuwa building as a way to allow Taco Bell to both expand and remain where it is. And it is clear that Taco Bell was working with Koll in some capacity, possibly to do rehabilitation for the building.