Maguire in $3-billion office buy
In a blockbuster deal, Maguire Properties Inc. will pay about $3 billion to acquire 23 office buildings in Los Angeles and Orange counties from New York investment firm Blackstone Group -- including the 52-story Two California Plaza in downtown L.A., according to people familiar with the purchase.
The deal would be the second-largest office transaction in Southern California history, after the $3.2-billion acquisition of Arden Realty last year by General Electric Co.
What’s more, the purchase is likely to further energize the robust Southern California commercial real estate industry by helping drive up the value of offices, shopping centers and other commercial properties for future investors, analysts said.
Office properties in particular have become desirable as vacancy rates have dropped over the last few years and rents have climbed to record levels in many markets, including parts of Southern California.
The trend may not be good for tenants, however, because owners who paid peak prices for their buildings could raise rents to help pay for them.
Maguire is already the largest office landlord in downtown Los Angeles, with properties including the 72-story U.S. Bank Tower, the tallest building in the U.S. west of the Mississippi River, and the 42-story One California Plaza.
The purchase will add 6.8 million square feet to Maguire’s portfolio and significantly expand its presence in Orange County by adding high-rises including Tower 17 in Irvine and Stadium Towers Plaza in Anaheim.
“This will give Maguire more dominance in the market,” said analyst Craig Silvers of Bricks & Mortar Capital. “They’ll have greater pricing power” when it comes to setting rents.
Executives with Maguire and Blackstone declined to comment. The Times learned details from people with knowledge of the transaction who asked not to be identified because a formal announcement was still pending.
Maguire owns 3.5 million square feet of space in Orange County, including the 1.7 million-square-foot Park Place office campus in Irvine. Chief Executive Robert Maguire said in a conference call with analysts this month that the company would look for acquisitions that were “attractive financially and can help us build market share in critical markets.”
The acquisition expands Maguire’s asset base by 50% and puts Orange County on a par with downtown Los Angeles for the top spot among its holdings, analyst Michael Knott of Green Street Advisors said in a report.
Knott called the properties “a neat strategic fit” for Maguire, which has been criticized in the past for being too concentrated in Los Angeles.
But the deal also raises questions about Maguire’s debt level, analysts said.
“While the rest of the real estate world enjoys capital that is flowing more freely than the champagne at Blackstone founder Steve Schwarzman’s recent birthday bash, [Maguire] is currently in the ‘penalty box’ with respect to capital,” Knott said.
Maguire is effectively precluded from raising public equity, Knott said, because its debt level is already high compared with those of other real estate investment trusts. Borrowing money to do the deal “may make investors uncomfortable,” he said.
A real estate investment trust allows individual investors to participate in large real estate ventures. Unlike other public companies, REITs must distribute 90% of their income to shareholders.
Maguire shares closed Friday at $41.29, down 10 cents. Shares had closed at an all-time high of $44.69 on Feb. 8.
In addition to Two California Plaza, the deal includes the 28-story 550 South Hope Street building in downtown Los Angeles.
Blackstone had acquired the properties this month in a heavily leveraged $23-billion cash buyout of Equity Office Properties Trust, a Chicago REIT that owned 590 buildings across the country.
Blackstone moved quickly to reduce its debt by selling off five groups of former Equity Office holdings. The five groups sold for $15.6 billion, according to an estimate by Bloomberg News.
Macklowe Properties Inc. bought buildings in New York, Beacon Capital Partners bought buildings in Washington and Seattle, Shorenstein Properties bought in Portland, Ore., and Irvine Co. bought in the San Diego area. The value of the Irvine Co. acquisition was not disclosed.
Blackstone sold Maguire all of its Orange County holdings but hung on to 15 properties in Los Angeles County outside of downtown L.A.
Among the prominent office towers it still owns are AIG SunAmerica Center in Century City, Yahoo Center in Santa Monica, 700 North Brand in Glendale and Pasadena Towers in Pasadena.
John Cushman, chairman of real estate brokerage Cushman & Wakefield, called Blackstone’s acquisition of Equity Office Properties “one of the greatest real estate deals ever” and described it as “the opening move of a chess game” that would keep rippling through the nation’s real estate market with future trades of the assets.
This is not Maguire’s first major acquisition. In 2005 the company bought 10 office complexes in the western U.S. from CommonWealth Partners for $1.51 billion.
Although last year’s Arden Realty deal was bigger, it also involved many more properties -- 192 buildings with 18.5 million square feet in Los Angeles, Orange, San Diego, Ventura and Kern counties.
GE quickly sold some of the best Arden buildings to Chicago-based Trizec Properties Inc., which in turn was sold to New York investment firm Brookfield Properties Corp. and Blackstone.
(BEGIN TEXT OF INFOBOX)
Maguire Properties is buying 23 office buildings from Blackstone Group, including the following:
Two California Plaza,
downtown L.A. 52 stories,
1.3 million square feet.
Tower 17, Irvine. 17 stories, 230,700 square feet.
550 South Hope Street, downtown L.A. 28 stories,
566,400 square feet.
Stadium Towers Plaza, Anaheim. 12 stories, 255,300 square feet.
18301 Von Karman, Irvine.
11 stories, 219,500 square feet.
Source: Equity Office Properties Trust