LBA Properties Inc., a Newport Beach-based commercial property company, is in final negotiations to sell its 5 million-square-foot portfolio of Southern California holdings.
A winning bidder is expected to be announced this week, said sources close to the talks. Beverly Hills-based Arden Realty Inc. is considered the leading candidate, although other publicly held competitors have also looked at LBA’s portfolio.
Among the others that at one time expressed interest in the portfolio are Boston-based CarrAmerica Realty Corp., El Segundo-based Kilroy Realty Group and Menlo Park, Calif.-based Spieker Properties Inc.
The impending deal underscores a recent trend of private property owners filing to go public, but then agreeing to be snapped up by a REIT before the stock offering goes through.
“A lot of these would-be IPOs are finding that they can earn more money by joining an existing REIT than by actually going public,” said Jim de Bree, a REIT specialist at Deloitte & Touche LLP.
Earlier this year, Torrance-based Transpacific Development Co. also filed to go public. The privately held property management and development company is in negotiations to sell its 3.3 million-square-foot office portfolio to Spieker Properties. The deal is expected to close in January for more than $500 million, according to sources.
Janet Campbell, an analyst at Sutro & Co., said private landlords today must choose between “pulling the full value out of their portfolio” by selling it in an auction-like atmosphere among acquisition-hungry REITs or by going through with the IPO and retaining management of their properties.
REIT acquisitions are driven by a need on the part of REITs to constantly build portfolio size to lower their cost of capital and enhance profitability. Purchasing one large portfolio is more cost-efficient than acquiring properties individually or in small bunches.
LBA Properties, a privately held Southern California property owner and developer, has been rumored to be a buyout target ever since it filed with the Securities and Exchange Commmission in October to raise an estimated $378 million through an initial public stock offering. Its pending private sale is expected to fetch considerably more than that.
Dick Ziman, Arden’s chairman and chief executive, declined to comment on his company’s possible involvement. “There’s still a lot of fisticuffs on that portfolio,” he said.
LBA Properties is a partnership between Newport Beach-based Layton-Belling & Associates and Boston-based investment advisor Aldrick Eastman & Waltch. Officials at LBA did not return phone calls. Martha Thurber, a spokeswoman for AEW Capital Management of Boston, LBA’s chief financial backer, said LBA is currently in its “quiet period” with the SEC and cannot make any comments.
Real estate sources, however, said Arden is in negotiations to purchase a sizable portion of LBA’s office and industrial building portfolio. Sources said only LBA’s properties, not its management team, would be included in the transaction.
If such a sale did go through, the deal would expand both Arden’s geographic reach and its property type. Arden, which currently focuses on suburban office space, owns and manages almost 10 million square feet of space from San Diego to Bakersfield.
LBA’s portfolio includes 32 office and 15 industrial buildings. The majority of its properties 3.5 million square feet of its 5 million-square-foot portfolio is in Orange and San Diego counties. LBA’s one retail property, located in San Diego, would not be included in the deal, sources said.
John Lutzius, a senior analyst at Green Street Advisors Inc., said acquiring the LBA portfolio would make sense for Arden because it would broaden the REIT’s asset base to include industrial buildings.
“That might blur their focus a bit,” he said, “but I’d rather see Arden grow by adding industrial products than by expanding outside of Southern California, where they have such a specialty.”
