Who Owns the Most : REITs Are Now Among Top Holders of Industrial and Office Property
Real estate investment trusts, the Wall Street creations with an insatiable appetite for commercial buildings and loads of capital to buy them, have emerged in the last three years to become some of the most prominent commercial real estate owners in Los Angeles and Orange County.
REITs now account for five of the top 20 office and industrial building owners in both counties, according to a ranking compiled by The Times and CoStar, a real estate data firm owned by Bethesda, Md.-based Realty Information Group. Large landholders, big real estate investment firms and defense industry giants help round out the remainder of top major commercial real estate owners.
Several years ago during the depths of the region’s commercial real estate slump, REITs were not major owners of commercial properties here. In the last few years, however, the trusts have been on a binge, purchasing buildings and land from insurance companies and banks that no longer wished to own real estate directly. Their quest to build portfolios and boost earnings will soon make these investors the Goliaths of Southland real estate, analysts say.
“In most major marketplaces, REITs have moved in and very quickly acquired a large amount of the most high-profile properties,” said Brett White, president of the brokerage division of CB Commercial Real Estate Group Inc. “They’re in a feeding frenzy.”
But REITs are only part of the story. What’s noticeable about the list of the counties’ major building owners is not only who’s new, but who’s absent.
Swept under the REIT wave are the smaller developers who financed grand projects in the 1980s with expensive bank loans. Also on their way out are the Japanese investors who poured money into acquiring many of those expensive developments just before the market headed south.
But some Japanese firms, including Los Angeles County’s eighth-largest owner, Shuwa Investments, and 19th-largest, Mitsui Fudosan, have held on and now have a chance to recoup some of their investments made at the top of the market.
Other real estate firms that have managed to weather the prolonged real estate slump and stay on top are big land owners such as Irvine Co. and Carson-based Watson Land Co. When the market slumped, they simply collected rents on their existing buildings.
“I don’t think our occupancy ever dropped below 92% or 93%,” said Richard Sim, Irvine Co. executive vice president. In 1995, the Irvine Co. began building again in its 3,600-acre business park, the Irvine Spectrum. Twenty of its trademark research and development buildings were built between 1995 and mid-1996, Sim said. Another 20 are currently under construction.
Rounding out the list of major Southland office and industrial building owners are some more surprising entries, such as retailers and huge aerospace firms. Although the defense industry downsized its Southern California operations considerably, these firms still own some of the largest buildings for their manufacturing operations.
Boeing Co. is Los Angeles’ second-largest office and industrial landlord with 12.8 million square feet spread out between nine locations.
Retailers, with their large distribution centers, also ranked as some of the biggest office and industrial building owners in the region. Lucky Food Centers was Orange County’s eighth-largest office and industrial building owner with 2.5 million square feet of industrial space in two facilities. Distribution centers like these have been expanding over the years, analysts say, as the size of stores has mushroomed.
“It used to be the size of a supermarket was 20,000 square feet. Now it’s 60,000 to well over 100,000 square feet. Keeping those places stocked has changed the whole science of distribution,” said Sandford Goodkin, a San Diego-based real estate consultant.
The emergence of REITs as major commercial property owners stems largely from their ability to accumulate large amounts of money practically overnight. To raise cash for new purchases, these companies typically sell stock to the public.
Equity Office Properties, Spieker Properties Inc. and Security Capital Industrial Trust were the first to begin spending their money on Southern California commercial real estate several years ago, after deciding that the real estate market had hit bottom.
“At the time, people were a little nervous about [us buying down here],” said John Davenport, regional senior vice president for Spieker. “Southern California was still a dirty word as far as Wall Street was concerned.”
But picking up properties at fire-sale prices helped transform these REITs into major owners, and with rents climbing, industry observers now think of Sam Zell’s and Warren Spieker’s investments as shrewd rather than foolish.
Last year, Zell’s Equity Office Properties was able to purchase trophy properties, such as the sleek 52-story Two California Plaza in downtown Los Angeles, for almost a third of what the 5-year-old building would cost to build today.
Spieker acquired 2.8 million square feet of Orange County office parks in two years, enough to make them the county’s seventh-largest landlord.
To compete, local developers such as Richard Ziman and John Kilroy have rolled their holdings up into REITs and sold stock to finance acquisitions.
In Los Angeles County, Ziman’s Arden Realty Inc. now owns 6.6 million square feet of small office buildings and Kilroy Realty Corp. owns 2 million square feet of office/industrial buildings, making them the fourth- and 16th-largest landlords in the county, respectively.
All of this competition has made good bargains much harder to find. Analysts say REITs will soon have to build office buildings, buy up other real estate companies that own property or merge with other REITs to stay competitive.
“It’s the first advent of giantism in the field of securitized real estate,” Goodkin said. “There’s so much pressure to acquire more.”
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Top Building Owners
Here’s a look at the biggest commercial building owners in Los Angeles and Orange counties, ranked by the square footage of their developed office and industrial properties as of October.
Los Angeles County
Rank: 1
Company: Majestic Realty
Square feet, in millions: 23.0
Total buildings: 222
Types of buildings / Office: 5
Types of buildings / Industrial: 217
*
Rank: 2
Company: Boeing
Square feet, in millions: 12.8
Total buildings: --
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
*
Rank: 3
Company: Watson Land
Square feet, in millions: 9.6
Total buildings: 85
Types of buildings / Industrial: 85
*
Rank: 4
Company: Arden Realty
Square feet, in millions: 6.6
Total buildings: 51
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
*
Rank: (tie)
Company: Maguire Partners
Square feet, in millions: 6.6
Total buildings: 6
Types of buildings / Office: 6
*
Rank: 6
Company: Crow Investment Trust (and affiliated partnerships)
Square feet, in millions: 4.9
Total buildings: 33
Types of buildings / Office: 3
Types of buildings / Industrial: 30
*
Rank: 7
Company: Douglas Emmett (and its partners)
Square feet, in millions: 4.7
Total buildings: --
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
*
Rank: 8
Company: Shuwa Investments
Square feet, in millions: 4.3
Total buildings: 11
Types of buildings / Office: 11
*
Rank: 9
Company: J.H. Snyder
Square feet, in millions: 3.6
Total buildings: 7
Types of buildings / Office: 7
*
Rank: 10
Company: John Hancock Mutual Life Insurance
Square feet, in millions: 3.4
Total buildings: 25
Types of buildings / Office: 2
Types of buildings / R&D;: 1
Types of buildings / Industrial: 22
*
Rank: 11
Company: Catellus Development
Square feet, in millions: 3.3
Total buildings: 42
Types of buildings / Office: 4
Types of buildings / Industrial: 38
*
Rank: 12
Company: Metropolitan Life Insurance
Square feet, in millions: 2.4
Total buildings: 5
Types of buildings / Office: 5
*
Rank: 13
Company: Equity Office Properties
Square feet, in millions: 2.3
Total buildings: 4
Types of buildings / Office: 4
*
Rank: 14
Company: One Hundred Towers (a J.P. Morgan partnership)
Square feet, in millions: 2.2
Total buildings: 2
Types of buildings / Office: 2
*
Rank: 15
Company: Continental Development
Square feet, in millions: 2.2
Total buildings: 17
Types of buildings / Office: 16
Types of buildings / R&D;: 1
*
Rank: 16
Company: Kilroy Realty
Square feet, in millions: 2.0
Total buildings: 19
Types of buildings / Office: 15
Types of buildings / R&D;: 4
*
Rank: 17
Company: Walt Disney
Square feet, in millions: 2.0
Total buildings: 4
Types of buildings / Office: 3
Types of buildings / R&D;: 41
*
Rank: 18
Company: Teachers Insurance & Annuity Assn.
Square feet, in millions: 1.8
Total buildings: 10
Types of buildings / Office: 10
*
Rank: 19
Company: Mitsui Fudosan (USA)
Square feet, in millions: 1.7
Total buildings: 2
Types of buildings / Office: 2
*
Rank: 20
Company: California Mart
Square feet, in millions: 1.6
Total buildings: 2
Types of buildings / Office: 2
Orange County
Rank: 1
Company: Irvine Co.
Square feet, in millions: 12.4
Total buildings: 187
Types of buildings / Office: 78
Types of buildings / R&D;: 76
Types of buildings / Industrial: 33
*
Rank: 2
Company: Boeing
Square feet, in millions: 5.8
Total buildings: 6
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
Flex*: (not specified)
*
Rank: 3
Company: Olen Properties
Square feet, in millions: 3.6
Total buildings: 185
Types of buildings / Office: 68
Types of buildings / Industrial: 117
*
Rank: 4
Company: Kilroy Realty
Square feet, in millions: 3.6
Total buildings: 56
Types of buildings / Office: 11
Types of buildings / Industrial: 45
*
Rank: 5
Company: Hughes Aircraft
Square feet, in millions: 3.4
Total buildings: 2
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
Flex*: (not specified)
*
Rank: 6
Company: Catellus Development
Square feet, in millions: 3.2
Total buildings: 62
Types of buildings / Office: 6
Types of buildings / Industrial: 56
*
Rank: 7
Company: Spieker Properties
Square feet, in millions: 2.8
Total buildings: 62
Types of buildings / Office: 20
Types of buildings / Industrial: 34
Flex*: 8
*
Rank: 8
Company: Lucky Food Centers
Square feet, in millions: 2.5
Total buildings: 2
Types of buildings / Industrial: 2
*
Rank: 9
Company: Security Capital Industrial Trust
Square feet, in millions: 2.3
Total buildings: 12
Types of buildings / Industrial: 12
*
Rank: 10
Company: Warland Investments
Square feet, in millions: 2.0
Total buildings: 35
Types of buildings / Office: 7
Types of buildings / R&D;: 23
Types of buildings / Industrial: 5
*
Rank: 11
Company: Steelcase
Square feet, in millions: 2.0
Total buildings: 3
Types of buildings / Office: 3
*
Rank: 12
Company: Metropolitan Life Insurance
Square feet, in millions: 1.9
Total buildings: 10
Types of buildings / Office: 8
Types of buildings / Industrial: 2
*
Rank: 13
Company: CJ Segerstrom & Sons
Square feet, in millions: 1.9
Total buildings: 33
Types of buildings / Office: 17
Types of buildings / R&D;: 14
Types of buildings / Industrial: 2
*
Rank: 14
Company: Jamboree (owner of Park Place office complex)
Square feet, in millions: 1.8
Total buildings: 8
Types of buildings / Office: (not specified)
Types of buildings / R&D;: (not specified)
Types of buildings / Industrial: (not specified)
Flex*: (not specified)
*
Rank: 15
Company: Albertson’s Food & Drug Stores
Square feet, in millions: 1.5
Total buildings: 1
Types of buildings / Industrial: 1
*
Rank: 16
Company: Fujita
Square feet, in millions: 1.5
Total buildings: 27
Types of buildings / Office: 4
Types of buildings / R&D;: 3
Types of buildings / Industrial: 20
*
Rank: 17
Company: Equitable Real Estate Investment Management
Square feet, in millions: 1.4
Total buildings: 7
Types of buildings / Office: 2
Types of buildings / Industrial: 5
*
Rank: 18
Company: Equity Office Properties
Square feet, in millions: 1.2
Total buildings: 4
Types of buildings / Office: 4
*
Rank: 19
Company: Lincoln Property
Square feet, in millions: 1.1
Total buildings: 11
Types of buildings / Office: 6
Types of buildings / Industrial: 5
*
Rank: 20
Company: Arden Realty
Square feet, in millions: 1.1
Total buildings: 5
* Variable uses.
Note: The rankings do not include retail space. They are based on information supplied by CoStar, a real estate data firm owned by Bethesda, Md.-based Realty Information Group, a research service with a branch in Los Angeles. CoStar representatives and Los Angeles Times correspondent Melinda Fulmer attempted to interview each property owner to confirm holdings as of October. Not every owner returned calls seeking confirmation. While every effort has been made to ensureo ensure accuracy, omissions and typographical errors sometimes occur. Please address corrections or additions to Melinda Fulmer, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053.
Sources: Individual companies, CoStar
