Maguire Properties Inc. has an aggressive plan to ramp up rents and development at the Orange County offices and land formerly owned by Equity Office Properties Trust.
Rents could increase 20% to 26% at newly acquired buildings that have leases expiring in the next three years, Maguire officials said.
Also on the books: close to 1 million square feet of new offices that could be built across the central and northern parts of the county in the near future, according to the company.
The news came a day after Maguire said it would pay $2.9 billion for Equity’s former OC holdings, along with two towers in Los Angeles, in an acquisition from Blackstone Group LP. The OC holdings include 22 properties with 29 buildings, totaling 6.1 million square feet.
New York-based Blackstone acquired the buildings earlier this month as part of its $39 billion buy of Equity, the country’s largest office landlord. Blackstone has been selling off selected parts of the portfolio.
Earlier this month, The Irvine Company said it was buying Equity’s former buildings in San Diego, 17 high-rise and low-rise office buildings in La Jolla, totaling more than 2 million square feet. Terms of that deal weren’t disclosed. Sources put the likely sales price close to $900 million.
As for Maguire, it expects to close its buy within the next few months. Maguire, a Los Angeles-based real estate investment trust that already owns about 4 million square feet of office space in OC, will own 10.3 million square feet of space here once the deal closes.
That puts it alongside the county’s biggest landlord,Newport Beach-based The Irvine Co.
“We’re solidly No. 2” in OC, Chief Executive Rob Maguire said.
The company’s deal also includes 10 sites in the county that could see about 2 million square feet of development. More than half of that land could be ready for construction within a year.
The buy of the former Equity buildings is one of the biggest the county’s seen.
Maguire’s already looking to make back its money.
“We intend to aggressively push rents and cut expenses,” Rob Maguire said in a conference call last week.
Chicago-based Equity had started pushing asking rents up for its OC buildings starting late last year,once Blackstone entered as a potential buyer.
Maguire plans to continue that strategy, news that isn’t likely to be well received by tenants.
In the area around John Wayne Airport, the landlord says Equity’s current monthly rents, which now average about $2.48 per square foot, are 21% below market value. Maguire wants to get monthly rents closer to $3.14 per square foot.
In Central County, Equity rents now run an average of $2.17 per square foot. That’s 26% below market value, which is $2.91 per square foot, according to Maguire.
A majority of the Equity leases in the county,which tend to be for smaller tenants,are set to expire in the next three to four years, Maguire said. It can gain close to an extra $50 million annually by pushing rents to what it feels are market rates.
Asking rents aren’t the only thing expected to increase,Maguire said it plans to raise parking fees it charges tenants at its buildings in OC.
“In places (Equity) rents, for whatever reason,they weren’t necessarily mismanaged,were substantially below what they will be,” said Paul Rutter, executive vice president for Maguire.
Tenants at Equity buildings are concerned, according to brokers.
“It’s an unsettling set of circumstances,” said Randall Parker, managing director for Newport Beach-based brokerage Travers Realty Corp., which represents tenants in lease deals.
Along with rent increases, tenants in these buildings should expect a big hike in their property tax bill as well,a result of the sale from Equity to Blackstone, and then to Maguire, Parker said.
“It could very well force many tenants to find alternatives to class A high-rise space,” he said.
Maguire, which is building the biggest office tower here in Irvine, could soon begin more office construction near Orange and around Anaheim’s Platinum Triangle.
The company hopes to have upward of 1.3 million square feet of space approved for development by the end of the year.
At the company’s newly acquired City Plaza building and City Parkway campus, next to the Block at Orange, there already are approvals for 560,000 square feet of offices that Maguire expects to move forward on soon.
It’s also close to tying up approvals for two more potential projects near the Platinum Triangle, a 282,000-square-foot office at its Stadium Tower site in Anaheim, and a 475,000-square-foot site at its 500 Orange property.
More deals are on the horizon for Maguire. The company’s expected to sell about $700 million worth of buildings it owns to cut down debt.
Those buildings,older, stable properties that the company already owned,will be put on the market within a matter of weeks, officials said.
