After selling off more than 10 percent of its portfolio, Jamison Services Inc. has lost its position as the largest private office landlord in Los Angeles.

Its recent downsizing, spurred by a declining rental market, now makes the company’s portfolio apparently the second largest by square feet, though it still owns more buildings than its competitors.

Jamison, an investment vehicle for Dr. David Lee, built up its holdings during the frenzied expansion of the real estate market in the last decade, accumulating at its peak an impressive 111 properties in Los Angeles County along with 20 more in other parts of Southern California and Texas.

Now it is reversing that trend, having sold at least 13 properties in little more than a year. The latest is the February sale of a 17,583-square-foot retail building at 400-422 S. Broadway in downtown’s Historic Core to developer Izek Shomof for $10.1 million.

Other notable properties it has parted with include the well-known North Hollywood Academy Tower and Macy’s Plaza downtown.

In all, Jamison has offloaded 1.57 million square feet. That brings its total to roughly 8.5 million square feet and now places it behind New York Blackstone Group LP’s Equity Office Properties, which has 9.5 million square feet in 22 buildings here. Hines of Houston apparently is in third place with 5.7 million square feet in 21 properties in Los Angeles County.

However, Jamison is believed to remain the largest private office landlord by building count.

New strategy

Jamison operated for years under a long-term hold strategy, rarely if ever selling any of its properties, most of which were concentrated in Koreatown and Mid-Wilshire.

But as the economy crashed and commercial office market shifted, Lee has taken a new approach: sell when the right offer is made. It’s a strategy that first came to light last year, when at least two of its properties fell into default and a portfolio of five buildings was sold to Beverly Hills’ real estate firm Kennedy-Wilson Holdings Inc.

Since then, Jamison has sold an additional eight buildings, and has at least one property in default with a loan balance of more than $40.7 million. Most of the sold properties were underperforming and all were outside of its core Koreatown market. It is actively marketing three properties and is entertaining offers as they come.

Scott Burrin, Jamison’s managing director, said the strategy has been working for the company, with some buildings selling for a profit.

“The market has been improving, and so obviously we have been the beneficiary,” he said. “The actual truth is that the company is not in any financial distress. They are looking to be more opportunistic. The business strategy was buy and hold, and now they are looking to take advantage of cycles and the old ‘buy low, sell high’ sort of adage.”

Among the properties that have been sold in the last year are downtown’s 144,000-square-foot Popular Center office building, former home of Banco Popular; the 82,000-square-foot Grand Avenue Plaza office complex in El Segundo; and the 174,000-square foot Academy Tower office building in North Hollywood.

As a privately held company, it’s difficult to know how much the company nets from the sales. Burrin said it plans to use the proceeds for acquisitions, not to pay down debt on other buildings. However, industry sources said they wouldn’t be surprised if the company decided to go that route in the future.

Arty Maharajh, vice president of research at real estate brokerage Cassidy Turley Inc.’s downtown L.A. office, said Jamison’s pattern of sales indicated the company might be seeking to recoup some capital.

“It is not surprising that a number of sales have occurred within the Jamison portfolio over the past year,” Maharajh said. “I see it more as a pruning of low-lying fruit. A few recent sales have even been retail assets and some current for-sale listings are land. The case could be made that they are selling some assets to maintain others.”

Downsizing

Through Jamison, Lee, a South Korean emigrant, began accumulating properties – mostly in Koreatown – in the 1990s. Its properties, predominantly Class B office buildings, are each owned through individual limited liability corporations funded through investment partnerships, many backed by other Korean emigrants. Jamison ramped up its activity in the middle of the last decade, expanding across Southern California and into Texas. At its height, it was buying at least one property a month, creating a portfolio that at one point exceeded 10 million square feet.

The company kept operating costs low, offering few amenities and limited improvements. That enabled it to charge lower rents than nearby comparable buildings, attracting cost-conscious tenants.

It was a strategy that worked when the economy was strong, but when the market crashed five years ago, so did its competitive advantage. Rental rates in Class A buildings across town crept down and Jamison lost tenants to higher-quality buildings. Vacancies began to grow.

Jamison’s purchasing pace slowed. It acquired only two distressed buildings, in Long Beach and Chatsworth, for bargain-basement prices in the last four years.

It has instead taken to selling pieces of its portfolio. Most, but not all, of the properties it has sold thus far have been lower-performing buildings outside of its core Koreatown market, such as the Popular Center. Some better-performing buildings, such as Academy Tower, have also been divested.

The Popular Center, at 354 S. Spring St. downtown, was 81 percent vacant when it was sold in June for $11 million to developer Neighborhood Effort, which plans to convert it to apartments. Jamison purchased the 143,902-square-foot former bank building in 2002 for $6 million.

On the other hand, it sold the 96 percent-leased Academy Tower office building at 5200 Lankershim Blvd. in North Hollywood for $48 million in November to Kennedy-Wilson. It was an $11.5 million discount to Jamison’s acquisition price in 2007, at the height of the market.

Today, Jamison is in escrow to sell its 385,000-square-foot 700 S. Flower St. mall, anchored by a Macy’s Inc. outpost, to L.A. developer Ratkovich Co. for an undisclosed price. Ratkovich is known for buying underperforming properties and adding value through adaptive reuse. Jamison bought the property and adjoining hotel and office building in 2005 for $160 million. The property is 97 percent leased but hasn’t seen any renovations since 2004.

Even if the company itself is not in financial trouble, as Burrin said, some of its buildings clearly are.

Its 3660 Wilshire Blvd. property, home of Hanmi Bank, is in default on its loan. The 267,360-square-foot property has more than $40.7 million outstanding on a securitized loan that was originated in 2007 for $41 million. Tenants such as Hanmi are not involved in the default.

Burrin called the default strategic, saying it was a means of commencing refinancing negotiations with its servicer. The loan does not mature until 2017, but the company might be eager to refinance before the income is unable to cover the debt payments.

The three largest tenants in the building, including Hanmi, have leases expiring this year, which opens up the possibility the companies move or negotiate lower rental rates. A report from Trepp LLC, a securities analytics company in New York, shows that revenue from the building has declined 5 percent over the last year and that occupancy dropped to 76 percent from 99 percent since 2007.

Cash-flow declines

A similar fate has befallen Jamison’s Del Amo Financial Center, a six-building, 350,000-square-foot Torrance office campus. Net operating income at the complex dropped 23 percent in 2011 from the year earlier, and it is no longer generating enough income to service its $52.5 million debt, according to Trepp. The company is current on its debt payments, but with income down, it’s not clear from what reserves the company is making those payments. Burrin said he did not know.

The Del Amo project had been on the market for several months and Jamison was unable to reach a deal on price with any interested parties, sources told the Business Journal. Burrin said the building had been in escrow for a period but was no longer on the market.

Other Jamison properties are actively being marketed, including the Little Tokyo Mall, a 185,000-square-foot retail property in downtown Los Angeles, and some land and buildings in Long Beach.

Burrin said the company has no specific divestment strategy or goal for how many buildings it will sell, but entertains offers for the right price.

Rick Putnam, managing director at Colliers International’s Irvine office who is familiar with Jamison and the market, suggested the sales would not likely cease soon.

“I would anticipate (Lee) is probably working on right-sizing, refinancing or selling another 20 percent or so,” Putnam said. “It may end up as half the size it was before.”

Putnam pointed out that what’s happening at Jamison is not unprecedented.

Downtown real estate development and investment firm MPG Office Trust Inc. expanded rapidly during the height of the market, only to be faced with more debt than it could service when the market fell. It has sold off the vast majority of its portfolio over the last two years, and might still sell its six properties, including the iconic U.S. Bank Tower downtown.

Meruelo Maddux Properties Inc. suffered a similar fate. After rapid expansion, its debt load forced it to sell off a number of properties. It recently exited bankruptcy reorganization after ousting its founder, and changed its name to Evoq Properties Inc.

“It’s a real reflection of the market,” Putnam said. “Dr. Lee, who at one point was the largest office landlord based on portfolio in Los Angeles, over the downturn had to skinny down his portfolio as a result of those occupancy and debt load pressures. It’s a real case study for what’s been going in L.A. in the office markets.”

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