Look for Alexander Haagen Properties Inc. to start acquiring more shopping centers in Los Angeles, the rest of California and bordering Western states.
That's the world from Fred Bruning, a senior vice president and director at the Manhattan Beach-based REIT, following last week's announcement that a fund managed by Lazard Freres Real Estate Investors LLC of New York will invest $235 million in the publicly held Haagen REIT over the next two years. The investment, which translates to about 15.6 million shares of Haagen stock at $15 a share, will give Lazard a 38 percent stake and make it the largest Haagen stockholder.
Bruning said Haagen expects to acquire both individual shopping centers and portfolios in the months ahead.
"We see this as a very opportunistic time to acquire individual assets and portfolios in California and the neighboring states, which is what we've done for the past 35 years," Bruning said.
Haagen has had an appetite for acquisitions for some time, Bruning added, but it hasn't had the capital. He said the capital infusion from Lazard Freres answers the question analysts have posed about where Haagen's future growth would come from.
For its part, Lazard Freres sees an upside in shopping centers because the retail sector has lagged behind the rest of the Southern California real estate recovery, said Anthony Meyer, managing director and chief investment officer of Lazard Freres.
Meyer said the deal with Haagen is Lazard Freres's first equity investment in a publicly held REIT, but he said Lazard has made similar investments in a number of private REITs. The agreement, which is subject to Haagen shareholders' approval, calls for the Lazard Freres unit to initially purchase 1.3 million Haagen shares for approximately $20 million within the next 30 days.
"We spent a lot of time studying the California recovery, realized that the retail sector was lagging behind other property types in its recovery, and decided it was a very opportune time to be looking at the shopping center business on the West Coast," Meyer said.
The deal calls for the Haagen management team to be expanded to include a to-be-named real estate executive recruited to serve as president of the company, with the Lazard unit to have the right to designate four representatives to a restructured 10-member board of directors.
Alexander Haagen, the company's 78-year-old founder, will continue as CEO and chairman. His son, Alexander Haagen III, will remain vice chairman. The Haagen REIT currently owns or controls an 8.3 million-square-foot portfolio consisting of 38 properties and has a total market capitalization in excess of $650 million, before the Lazard investment.
A similar scenario
Another local publicly held REIT that is raising and spending money is El Segundo-based Kilroy Realty Corp.
Kilroy announced recently that it has arranged a $150 million revolving credit line underwritten by J.P. Morgan Securities Inc., and last week the company agreed to buy the majority of Ontario-based Mission Land Co.'s income-producing properties in Los Angeles, Orange and San Bernardino counties for $43.6 million.
Tyler H. Rose, senior vice president and treasurer at Kilroy, said the company is buying the Mission Land properties with funds remaining from the $120 million raised in the REIT's Jan. 31 initial public offering. He said the revolving credit agreement, which runs for two years with a one-year option, will be used to help finance an "aggressive growth program in California office and industrial property."
The Mission Land Co. deal is the latest in a series of recent acquisitions by Kilroy, which spent about $15 million recently for a 91,000-square-foot office building in Calabasas and a 115,000-square-foot business park in Anaheim.
The Mission properties include a 79,967-square-foot office building in Torrance, 9.9 acres of land and seven office buildings totaling 276,278 square feet in Brea, six buildings totaling 275,971 square feet in Garden Grove and a 153,000-square-foot industrial building in Ontario.
According to Timothy Joyce, a vice president and manager in The Seeley Co.'s Irvine office who represented Mission Land, the Edison International subsidiary has been liquidating its properties for the past several years. Mission has built more than 60 industrial buildings over the past 20 years, most of them in Garden Grove, Joyce said.
Fast-growing L.A. Cellular could wind up in a new headquarters building at Cerritos Towne Center in Cerritos under terms of an agreement approved last week by the Cerritos City Council.
Rich Grimes, director of real estate and construction for L.A. Cellular, said the city council agreed to negotiate exclusively for 180 days with L.A. Cellular and the head of its development team, downtown L.A.-based CommonWealth Partners, to develop a new headquarters facility on a 9.5-acre site at Cerritos Towne Center.
The facility would be an eight-story building of approximately 250,000 square feet, according to Grimes, who said plans right now are "very preliminary" and the Cerritos site is only one of four on L.A. Cellular's short list of possible headquarters locations. The others are in Anaheim, Cypress and Long Beach.
The cellular phone company currently is based in about 160,000 square feet of space in a building developed by Transpacific Development Co. at Cerritos Towne Center, which is a 125-acre business park south of the Artesia (91) Freeway between the San Gabriel River (605) and Santa Ana (5) freeways.
Grimes said L.A. Cellular will decide by the end of summer whether to develop its new headquarters building in Cerritos or one of the other three sites it is considering, or whether to renew its lease at its current location and look for more space from Transpacific, which is planning to build a new 50,000-square-foot speculative office building at the Cerritos business park.
Grimes said L.A. Cellular wanted an exclusive negotiating agreement with the city to prevent any other company from coming in and developing the site while L.A. Cellular conducts a feasibility study to determine where its new headquarters will be.
According to Dennis Davis, assistant city manager and director of community development for the City of Cerritos, the city and CommonWealth Partners would strike a deal similar to the arrangements the city has with other Cerritos Towne Center developers. The city owns the 125-acre business park and typically signs 60-year ground leases with the developers, Davis said.
Bob Howard is a frequent contributor to the Business Journal and will be reporting on real estate developments in the coming weeks. Real estate writer Brad Berton will be contributing to the Business Journal on an occasional basis.
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