By LISA STEEN PROCTOR
Investors in the market for high-profile Century City properties are in luck.
Following what has been dubbed “the deal of the decade” the $480 million sale of the Century Plaza Towers LaSalle Partners is now offering up Fox Plaza for sale.
And while the sale of Century Plaza Towers may have been the biggest deal in more than 10 years, Fox Plaza may turn out to be the priciest.
The 10-year-old, 710,767-square-foot glass and granite building is expected to command a higher per-square-foot price than any other large office building on the West Coast in almost 10 years.
So who’s going to pony up the $300 per square foot or more that this property is expected to fetch?
Large publicly traded real estate investment trusts will be the likely bidders, say most experts.
“If the stock market holds up, the top-tier REITs are probably the likely candidates,” said Kevin Dretzka, managing director at Eastdil Realty, the company that represents the sellers of the Century Plaza Towers. “The price (of Fox Plaza) will knock out a few players, but REITs have almost unlimited funds given where the market is today (even after the recent downturn). Secondary REIT offerings are easily instituted.”
Dretzka mentioned Beacon Properties Corp. as one possible bidder; the company already is planning a secondary public offering to help finance acquisitions of eight other office buildings.
Another possible candidate is Crescent Real Estate Equities Inc. The price, Dretzka said, may preclude others, such as Spieker Properties Inc., which may not be able to come up with enough money. “They’re going to have to make at least a $200 million bet,” said Dretska.
Other possible purchasers include CarrAmerica Realty Corp., which just this month announced it is purchasing several office buildings, and Equity Office Holdings, a Chicago-based real estate investment firm. A spokeswoman for Equity Office refused to comment on Fox Plaza other than to say that, if the company were not interested in bidding on Fox Plaza, she would say so.
The high price Fox Plaza is expected to bring (one source estimated as much as $325 per square foot) is due to its location, construction and strong tenant base, said Howard Sadowsky, executive vice president of Julian J. Studley Inc. “It’s clearly one of a handful of the best buildings in the city,” he said.
Tenants in the buildings include 20th Century Fox and related companies, with more than 200,000 square feet; Donaldson Lufkin & Jenrette Securities Corp., with about 60,000 square feet; the law firms of Jeffer Mangels Butler & Marmaro and Christenson White Miller Fink Jacobs Glaser & Shapiro, with about 50,000 square feet each; Marvin Davis’ The Davis Cos., with about 43,000 square feet, and the Ronald Reagan Presidential Foundation, with 13,000 square feet on the top floor.
Some of those tenants recently renewed their leases or have at least another five years remaining on their leases. Among those are the two law firms, the Davis Cos. and Fox. DLJ recently renewed for another 10 years.
The recent renewals by strong-credit tenants help make now a good time to sell the property.
“A merger of the cycle of the building the building has finished renovations and signed good leases with the cycle of the market all other trophies have sold and gotten high prices makes this the best time to sell,” said Tony Natsis, an office leasing attorney at the law firm of Allen Matkins Leck Gamble & Mallory.
The high prices paid for other trophy buildings in the area should also help maintain high rental rates at buildings such as Fox Plaza, said Natsis. “The trophies that have sold have to have higher rental rates to support the high purchase prices,” he said.
Given the appeal of Fox Plaza, REITs are not likely to be the only potential bidders to step forward.
“Everybody feels that the L.A. market is back, and there’s a good amount of money chasing deals in Southern California,” said Sadowsky. “It could be a foreign investor. It could be somebody from the Far East or Europe.”
An investment group led by Hong Kong’s wealthy Lo family (operating in the United States as Pacific Eagle Holdings Corp.) and the Government of Singapore were mentioned by real estate insiders as possible bidders. Pacific Eagle initially had been interested in buying the Century Plaza Towers.
But most experts said it’s unlikely the property will end up in foreign hands.
“They (foreign investors) typically are much more bottom fishers,” said Dretzka. “They need much more of a yield.”
In addition, said Natsis, even if foreign investors are interested, they may not possess the credibility needed to buy Fox Plaza.
“Offshore money may not have the credibility in the market to close,” said Natsis. “You don’t want to go with someone who doesn’t have the track record of closing major office deals. You’ve got to have the right price, but closing and credibility power is also important. The seller is only going to want to go through this once.”