Developer Robert Maguire is in final negotiations to sell virtually his entire portfolio of properties to Sam Zell’s Equity Office Properties Trust for slightly more than $1.6 billion, according to sources familiar with the deal.
The pending sale, which would be by far the biggest commercial property transaction in Los Angeles history, involves 5.6 million square feet of office space, most of it in downtown Los Angeles, and a 350-room hotel in Pasadena.
While Maguire and other officials at his firm, MaguirePartners, were unavailable for comment late last week, sources close to the deal said it is being urgently negotiated to close before loans on various Maguire properties downtown come due.
“It would cost Rob a bunch of money, millions, to extend that debt for six months,” said one source close to the deal. “And where Rob has a lot of baggage with lenders, Sam Zell has a lot of clout to renegotiate those debt extensions. Lenders know they’ll get repaid with him in the deal.”
Exercising Playa option
Simultaneously, MaguirePartners is circulating a book seeking parties interested in possibly refinancing his portfolio, another route by which he could meet his looming downtown debt payment. But one source familiar with the deal and with Maguire’s deal-making strategies suggested that the “refi book” is merely a ploy to “get a better deal from Equity (Office Properties).”
Meanwhile, an outright sale for $1.6 billion would leave Maguire with about $100 million in cash, after his mortgages are repaid. That is the amount he needs by early September to meet his deadline for exercising an option to buy land at Playa Vista land that is entitled for 2 million square feet of commercial space.
“(Maguire) really sees Playa Vista as a major future play for himself,” said another source familiar with the deal. “For development, there’s nothing left like it on the Westside.”
The 2 million square feet of entitlements would enable Maguire to keep his development pipeline full for five or six years, which would essentially be a career-capper considering he is now in his mid-60s.
Maguire already is in partnership with Equity Office Properties on the $85 million first commercial phase of Playa Vista, a 450,000-square-foot office complex called Water’s Edge, currently under construction at the intersection of Lincoln and Jefferson boulevards.
Evidence of the intensity of Maguire’s desire to get the sale completed quickly is his decision to hire two competing firms to simultaneously market the portfolio Secured Capital Corp. and Credit Suisse First Boston.
“That shows the urgency involved in this deal. I’ve never heard of that being done before,” said one veteran L.A. broker.
Another plus is that the deal is being structured to enable Maguire to sidestep any tax consequences.
As for Chicago-based Equity Office Properties, the deal would make it one of the largest commercial landlords in downtown L.A. The company’s chairman, Zell, has made no secret of his bullishness about downtown U.S. office high-rises, and those in downtown L.A. in particular.
“Sam Zell loves to buy downtown urban buildings,” said George Smith, a veteran commercial real estate financing consultant. “I attended a speech he gave here (in L.A.) about a year and a half ago when he was saying the future of L.A. is still downtown, given what is happening with the transportation system here.”
An investment by Equity Office Properties is considered “institutional” because it is a publicly traded real estate investment trust, and one of the nation’s largest property owners.
According to documents circulated to select parties by Secured Capital on behalf of MaguirePartners, the properties being sold include four downtown L.A. high-rises: Library Tower (1.43 million square feet), Gas Company Tower (1.37 million square feet), Wells Fargo Tower (1.43 million square feet) and KPMG Tower (1.14 million square feet). Also included in the deal are the Plaza Las Fuentes complex in Pasadena, which includes 196,617 square feet of office space and a 350-room hotel. The portfolio also includes the Las Colinas office development in Dallas, said one source close to the deal.
The deal does not include projects that Maguire currently has under development the Water’s Edge complex at Playa Vista and a 60,000-square-foot office project he is building near the beach in Santa Monica.
Of course, another party could conceivably outbid Equity Office Properties for the Maguire portfolio. But considering the urgency of Maguire’s various deadlines, and the high likelihood that any deal struck with Zell would be finalized quickly, the chances that a competing bidder will emerge victorious seem slim.
“Why would you risk your entire empire for another $25 million or so when Equity has already proven themselves?,” said a source close to the deal.
