At a time when real estate prices have skyrocketed and interest rates are rising, Arden Realty Inc., the biggest owner of office buildings in Los Angeles, has embarked on a new strategy of selling off as much as 25 percent of its portfolio while simultaneously buying higher-priced properties throughout Southern California.

Arden, which already had all of its holdings in Southern California, is doubling up its bet on the local economy, which executives believe is poised for strong job growth and higher rents in the second half of 2005.

The company plans to raise $757.2 million in both debt and equity to fund new purchases, according to a filing with the Securities and Exchange Commission.

Richard Ziman, Arden's chairman and chief executive, said the company is poised to make a slew of new acquisitions even though prices are at all-time highs.

"Ultimately, we'll be ahead of the game because we'll have buildings that are more efficient, newer and easier to manage and as rents grow, these rents will grow higher," he said. "This is a great market to be selling in, especially for smaller properties."

The new strategy comes as analysts cast a gimlet eye toward real estate investment trusts because many have thrown off average returns of 30 percent in the past two years, thanks to historically low interest rates.

But commercial office REITS like Arden have lagged the market, thanks to persistently high vacancy rates.

Ziman's actions are being closely watched because he has a reputation for impeccable market timing. In 1989, he sold 5 million square feet of office space his entire portfolio at the time just before the real estate market crashed. Then, when prices were hitting their nadir in the '90s, he came back into the market and snapped up many properties at ridiculously low prices.

Buying and selling

In the past year, Arden has sold off $225 million worth of properties and bought $240 million worth. The trick to the deals is matching sales with purchases because, by law, REITs must distribute 90 percent of their taxable income including gains on sales to shareholders through dividends. With like-kind exchanges, much of the gain, and thus the distribution, can be avoided. This helps maintain the company's asset base.

Earlier this month, Arden bought the Washington Mutual Tower in San Diego for $48 million from Shidler Group, and then sold Shidler 10 properties, including the Glendale Corporate Center, Whittier Financial Center and South Bay Technology Center, for $142.7 million.

In October, Arden bought the Warner Corporate Center on Victory Boulevard in Woodland Hills for $64.5 million.

Though not among the strongest REIT performers, Arden shares have jumped 27 percent over the past year, to $34.92 as of Jan. 20.

But shares have fallen 8 percent in January alone, off a 52-week high of $37.89 on Jan. 3. Many analysts are concerned about job growth in Southern California and the potential for a burst of the housing bubble.

Arden's recent moves have been generally welcomed on Wall Street, though not without quibbles. Some investors complain that the company was too conservative during the latest downturn, taking baby steps at acquiring properties in hot local markets like San Diego even as competitors such as Kilroy Realty Corp. were more aggressive.

Analysts also have criticized Arden for bulking up on office properties ahead of its initial public offering in 1996. That left the company with a mixed bag of properties that now need to be sold.

-Staff reporter Andy Fixmer contributed to this story.

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