Airport Hotel, Westwood Property For Sale as MetLife Thins Portfolio

By DANNY KING
Staff Reporter

MetLife Inc., embarking on the largest of the periodic churns of its national real estate holdings, has put three major Los Angeles properties on the block.

MetLife has retained Cushman & Wakefield Inc. to market 21 properties nationwide accounting for 20 percent of its portfolio value. The L.A. properties up for sale are the 727-room Sheraton Gateway Hotel LAX at 6101 W. Century Blvd., the county's seventh-largest hotel; the 20-acre Park One parking lot adjacent to the airport; and the two-acre parcel under the 534,000-square-foot Oppenheimer Tower in Westwood. The properties could fetch a combined $100 million, according to real estate sources.

MetLife would like to have its properties sold by the end of the year, according to sources. The entire MetLife package being marketed has an estimated value of $2 billion.

"We view this as an opportune time to reap the benefit of a well-positioned portfolio," said Brian Fox, national marketing manager at MetLife, who declined to put a value on the three L.A. properties. "There's a substantial amount of private and institutional capital seeking high quality real estate assets."

Cushman & Wakefield officials did not return calls.

In a second-quarter filing with the Securities and Exchange Commission, MetLife said the book value of its real estate holdings was $6 billion. But Fox estimated the market value as closer to $10 billion. The disposition effort is "probably the largest" MetLife has ever undertaken, Fox said.

MetLife's $3.6 billion cash balance as of June 30 was less than half its 2001 year-end figure of $7.5 billion. Its stock price has declined about 20 percent in the past year.

Industry watchers surmise that MetLife's sell-off is being done with an eye on insurance rating agencies that have kept close tabs on capital levels.

Still, MetLife has maintained an A+ rating with Oldwick, N.J.-based insurance rating company A.M. Best Co. throughout the past five years.



Market factors

Fox pointed to current real estate conditions, not other factors, as the reason for the activity. "This is no fundamental change in strategy for us," he said. "Our strategy has always been to buy and sell properties."

MetLife is no stranger to churning properties. This latest effort, which also includes such properties as Houston's 1.7-million-square-foot Wells Fargo Plaza and Chicago's One South Wacker, follows on the heels of MetLife's $270 million sale of downtown's 1.4-million-square-foot BP Plaza to Boston-based Beacon Capital Partners Inc. in August.

Last year, MetLife bought the 240,000-square-foot Continental Grand Plaza II in El Segundo for more than $67 million. And in 1997, MetLife sold downtown's 469-room Sheraton Grande for $57 million.

The book value of MetLife's real estate has fallen by 5 percent between Dec. 31, 1999 and June 30.

While MetLife is disposing of the properties, the company still expects to have a stake in them after they're sold. MetLife has a debt position in BP Plaza and financed more than 60 percent of Beacon Capital's $100 million purchase of the 465,000-square-foot Tower in Burbank last April.

"We're actually participating in debt financing of these properties," said Fox.



Airport expansion factor

Of the three local properties being sold, the hotel could bring in the most money, but also provides greater risk due to its airport location, according to Wayne Williams, president of L.A.-based hotel asset management firm Williams & Associates.

"It's a difficult time to be selling a hotel like that," said Williams. For July, average room rates and occupancy rates for airport-area hotels were down 9.1 percent and 14.4 percent respectively from the year-earlier period, according to PKF Consulting.

Still, the hotel, built in 1981, could sell in the $50 million to $55 million range, or about $70,000 a room, according to Alan Reay, president of Atlas Hospitality Group. By comparison, Decron Properties bought the nearby Furama Hotel last March for about $35 million, or about $45,000 a room.

With income levels of the other two properties difficult to ascertain, so are valuation levels. The Park One site was developed by MetLife and Newport Beach-based Koll Development Co. about 10 years ago, with MetLife buying the site outright shortly thereafter. The site is not yet in line to be taken as part of Mayor James Hahn's airport redevelopment plans. At a South Bay going rate of about $50 a square foot, it could be worth more than $40 million.

Meanwhile, Chicago-based REIT Equity Office Properties Trust has 64 years left on a master lease at the Oppenheimer site at 10880 Wilshire Blvd.

With a high-quality tenant in tow, the ground value could be worth about $100 a foot, or between $8 million and $9 million, according to David Thurman, senior vice president at Grubb & Ellis Co.

"EOP is investment-rate credit," said Thurman. "If you're going to park some money, what could be better?"

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