Struggling savings and loan operator Downey Financial Corp. is looking to sell the posh Newport Beach office buildings that long have served as its headquarters in an attempt to raise cash amid the ongoing financial crisis.
Downey’s headquarters is part of the Bayview Corporate Center, a midrise office campus that sits near Jamboree Road and South Bristol Street, near the upscale auto dealerships that straddle Newport Beach’s city line with Irvine.
The buildings that Downey owns at 3501 Jamboree Road include two connected six-story buildings. They total about 320,000 square feet of office space. The buildings are managed by DSL Service Co., a real estate development and property management subsidiary of Downey.
The high-profile buildings were built for Downey in 1988 and hold the bulk of its administrative offices. The savings and loan,whose stock has fallen some 90% in the past year as it has dealt with fallout from its marketing of adjustable rate mortgages,occupies about 70% of the buildings.
It’s unknown whether Downey would relocate any of its operations to less expensive offices following a sale of the buildings.
The most likely scenario is that Downey will lease back much of the office space and stay as a tenant after the buildings are sold.
CB Richard Ellis Group Inc.,whose Newport Beach offices are also in the buildings,is marketing the property. The brokerage hopes for a sale by year’s end. Officials declined to discuss any possible deal.
Interest
There’s been heavy interest in the offices, according to real estate sources, who say the property is being marketed at close to $330 per square foot. If that price is met,a hard task amid the slow local office market,it would put the sale price at close to $115 million, if not higher.
A nearly identical property next door to Downey’s twin buildings, at 100 Bayview, sold for $117 million in 2005. It was the most expensive office sale of that year.
Downey could use the cash.
The Office of Thrift Supervision, the regulatory agency that oversees savings and loans, in early September told Downey it needed to sell assets to increase its minimum capital requirements and improve its financial strength.
Fredrick Cannon, an analyst with Keefe, Bruyette & Woods Inc., late last month estimated that Downey would have to raise $250 million to $300 million to meet the regulator’s capital requirements through next year.
Along with asset sales, Downey also could sell stock to raise the money. The savings and loan could look to unload the company, although finding a buyer for its risky mortgage portfolio could be difficult, Cannon said.
Downey officials said last month they would “diligently explore a broad range of strategic alternatives” to meet the Office of Thrift Supervision’s demands.
The thrift operator already has sold $110 million of “non-core” real estate assets in order to meet the regulatory agency’s requirements. It said it plans to report a net pre-tax gain of about $68 million from the sale, announced in early September.
The regulatory agency also told Downey in early September to strengthen its executive management team. The bank has since named Charles Rinehart as its chief executive.
Rinehart, 61, is the former chief executive of H.F. Ahmanson & Co.’s Home Savings of America, which was sold to Seattle-based Washington Mutual Inc. in 1998.
Downey, which counts a market value of about $80 million, has been under fire because of bad mortgages caused by adjustable rates that became unaffordable for its borrowers when the mortgages reset at higher rates.
Bad Loans
For August, the company said that 14.7% of its assets, which mostly were loans, were bad. That was down from 15.1% in July, and is its second consecutive monthly decline.
At the end of the second quarter, Downey held about $7 billion of option adjustable rate mortgages, which is about two-thirds of all the loans it held.
Of the country’s five largest owners of option ARMs, Downey is the only one still independently in business, with the pending sale of Wachovia Corp., according to Bethesda, Md.-based trade publication Inside Mortgage Finance.
Larry Dodge Raises Money for Bank
Foothill Ranch-based American Sterling Bank has received a cash infusion to meet the demands of regulators, according to a report last week in the Kansas City Star newspaper.
Larry Dodge, chief owner of the bank’s Foothill Ranch-based parent company American Sterling Corp., tapped an insurance subsidiary to provide $7.5 million to the bank, according to the report.
In the past two months, Dodge has provided $20.5 million in funding for American Sterling Bank, which has its operational headquarters near Kansas City.
In August, regulators ordered American Sterling Bank to raise its capital level to 7.5% of assets, which stood at $258 million at the end of June, or face a sale.
“We’re moving closer to that target,” Dodge told the Kansas City Star.
Loan problems and accounting issues put American Sterling’s capital at 1.6% of assets at the end of June.
Dodge, who lives in Dana Point’s Monarch Beach, acquired the bank in 1971. He’s a prominent philanthropist and businessman in Orange County.
The Federal Deposit Insurance Corp. had asked banks to bid on American Sterling in case of a regulatory takeover, according to the Kansas City Star.
That process has been shut down, Dodge told the paper.
Banks made offers for American Sterling that were rebuffed, Dodge said.
“We haven’t felt the need to (sell),” Dodge told the paper. “At this juncture, we’re trying to get it done with my own personal resources and have succeeded in doing so.”
,Michael Lyster
