Capistrano Group Eyes Arco Plaza, Other L.A. Properties
By DANNY KING
San Juan Capistrano investor group Kings Capital has bought part of the debt on Shuwa Investment Corp.’s downtown Los Angeles office properties,including the high-profile Arco Plaza, according to real estate sources.
The $255 million debt buy is a prelude to taking over Arco Plaza and other Shuwa holdings, several sources said. The total deal could be worth $315 million, they said. Kings Capital is taking on the debt held by about a dozen Japanese banks for four properties totaling about 3 million square feet.
“Estoppel certificates have gone out to tenants,it’s definitely moving,” said one source. “They went in to buy the notes to force the seller to cooperate.”
Estoppel certificates verify for a buyer the status of a lease and other financial agreements between a landlord and its tenants.
In buying the mortgages, Kings Capital would be positioning itself to take title to the properties by foreclosing on Shuwa, which has been rumored to be in arrears in its payments.
Kings Capital is headed by Kenneth A. Picerne, who has made a name for himself buying troubled mortgages on Southern California real estate from Japanese banks. Representatives of the buying group could not be reached for comment. Sources familiar with Picerne said they wouldn’t be surprised to see him try to sell Arco Plaza later this year.
In addition to the 2.4 million-square-foot Arco Plaza, Shuwa’s Los Angeles holdings include the 447,000-square-foot Chase Plaza at 801 S. Grand St., the 126,000-square-foot Figueroa Tower, and the 95,000-square-foot building at 655 S. Hope St.
Tom Bohlinger, senior vice president at CB Richard Ellis Services Inc. who has a listing agreement for Arco Plaza, said the property was not being actively marketed. He would not comment on the Kings Capital deal. Shuwa officials did not return calls seeking comment.
“It’s an ingenious way to get control of the assets,” said Bob Safai, president of Madison Partners, a real estate brokerage. “Obviously, that group has a great relationship with the Japanese lending community.”
While the asset sale has yet to be confirmed, it’s unlikely that Kings Capital would buy the mortgages without having entered into purchasing talks with Shuwa, said another source.
“That’s a whole lot of money to lay out to get the debt and then hassle with Shuwa,” the source said.
The most notable local example of a mortgage investor taking control of a property was McCarthy Cook & Co. and Blackstone Real Estate Advisors’ buy of the 1 million-square-foot Wilshire Courtyard in Los Angeles. The partnership bought the property’s mortgage from Bank of America Corp. for $150 million in 1998 following the 1997 bankruptcy reorganization filing by the property’s developer, J.H. Snyder Co.
The Shuwa properties long have been viewed as classic turnaround opportunities. Three of the properties are at least half vacant while the fourth, the 31-year-old Arco Plaza, would need $100 million to $150 million in upgrades due to deferred maintenance.
As recently as last October, developer Robert Maguire proposed to buy Arco Plaza for $200 million, with a plan to upgrade the two towers and sell one to the Los Angeles Unified School District for $230 million. The plan was nixed when the school district bought the 928,000-square-foot Beaudry Building instead.
The transaction would be an ignominious exit from the Southland real estate market for Shuwa, which bought Arco Plaza for $650 million in 1986 and paid similarly high prices for its other properties.
“They paid over $200 a foot for Hope Street,” said Kevin Dretzka, managing director at Eastdil Realty Inc. “You couldn’t get $40 a foot for that now.”
In the past few years, Shuwa has sold Century City properties such as 1900 and 1901 Avenue of the Stars, as well as Glendale’s 505 N. Brand Blvd.
When Shuwa bought Arco Plaza in 1986 it had two anchor tenants, Bank of America and Atlantic Richfield Co., and was one of the premier downtown addresses.
But two years ago Arco was bought out by BP PLC, and its lease commitments,once totaling 900,000 square feet,have been reduced by more than three-fourths.
Meanwhile, Bank of America, whose sign remains on the south tower, has reduced its occupancy to about 350,000 square feet from 600,000 square feet.
Other notable departures in recent years included Ernst & Young International and Deloitte & Touche, which took a combined 300,000 square feet. At the beginning of 2000, the 2.2 million-square-foot property was 55% vacant.
Things turned around a bit last year with two leases totaling 334,000 square feet and worth more than $120 million signed.
The larger of the two deals involved law firm Paul Hastings Janofsky & Walker LLP, which in December signed a 15-year deal for 209,000 square feet worth between $80 million and $90 million. The firm also took the building-top sign in the deal. The new sign, the first for a law firm downtown, will replace the existing Arco logo when the move is made this summer.
Earlier in the year, architecture firm DMJMH+N signed a 15-year lease for three separate blocks of space totaling 125,000 square feet.
The deal, in which Los Angeles County’s largest architecture firm took 110,000 square feet in the north tower while DMJMH+N parent company Aecom Technology Corp. took an additional 15,000 in the south tower, was worth more than $40 million. DMJMH+N had made the move from its 100,000-square-foot offices at 3250 Wilshire Blvd.
King is a staff writer with the Los Angeles Business Journal
