Time Now on Side of Downtown Property Owner

0

News that financially strapped MPG Office Trust Inc. could sell several of its downtown L.A. buildings as soon as next June boosted its stock to a 52-week high last month – even though such a sale could leave the company a shadow of its current self.

The real estate investment trust announced July 26 that a tax indemnification agreement that would have forced the company to pay tens of millions of dollars to founder Robert Maguire if any of four downtown properties were sold would expire in June instead of 2015 in some cases.

That agreement had effectively prevented MPG from selling or walking away from those properties as it tries to lower a $2.7 billion debt burden. The announcement lifted the stock to a 52-week high of $3.31 on July 26 before settling down to close at $2.97 for the week ended Aug. 1. That still made it one of the leading gainers on the LABJ Stock Index, up 16 percent. (See page 34.)

MPG was released from the tax agreement when Maguire reduced his ownership stake below 50 percent in five MPG buildings, including some of downtown’s biggest trophies. Among those are the U.S. Bank Tower at 633 W. Fifth St., the largest high-rise in the Western United States; the Gas Co. Tower at 555 W. Fifth; and Wells Fargo Tower at 333 S. Grand Ave.

A note by analyst John W. Guinee of Stifel Nicolaus & Co. in Baltimore estimates that the Gas Co., KPMG, Wells Fargo and another high-rise at 777 Figueroa St. could fetch $350 to $400 a square foot. Those prices would be among the highest in the downtown market in the last two years. Such a sale could generate gross revenue of $1.83 billion given the total square footage of about 4.9 million square feet – going a long way toward paring down MPG’s debt.

Of course, that wouldn’t leave the company with much of a portfolio after a string of smaller sales that already cut it down to just nine buildings and 8.2 million square feet. All that would be left: a couple of plots of land in Los Angeles and Orange counties as well as a Pasadena office property and partial interests in a few other buildings.

At its height in 2007 – while it was still run by Maguire and named Maguire Properties Inc. – the portfolio comprised some 50 properties. But many were acquired at a premium price through an Orange County portfolio acquisition at the height of the real estate boom, leading to Maguire’s ouster in 2008 as the company struggled with a debt burden that was then $4 billion.

However, if the company were able to sell its downtown properties at a premium price, it could perhaps remake itself with new acquisitions.

Guinee said there are other alternatives that investors might find attractive, including a total company sale or equity infusion that could change control.

“This is an opportunity people are taking seriously,” he said.

No posts to display