Equity Office Properties Trust’s pending acquisition of Spieker Properties Inc. stands to catapult the Chicago company from the bottom to the top tier of property owners in Orange County.
The combined company will have a portfolio of 37 buildings from Laguna Hills to Brea spanning more than 6 million square feet of space. Equity is paying about $7 billion in stock and debt for Menlo Park-based Spieker Properties in a deal that’s expected to close in the second quarter.
The acquisition is set to be the largest yet among real estate investment trusts and is a show of confidence in California real estate by Equity and its chairman, Samuel Zell.
“This merger with Spieker is in line with our overriding strategy to build concentrations in high-growth, supply-constrained markets,” said Timothy H. Callahan, Equity’s president and chief executive officer. “We have seen multiple benefits in becoming the first or second-largest owner in a geographical market.”
The deal won’t give Equity claim to the top spots in OC. New York-based Insigna/ESG is No. 1 with 22 million square feet of space, followed by Los Angeles-based CB Richard Ellis at 18.8 million square feet.
But Equity stands to claim the No. 7 spot,a huge leap from the No. 25 bottom slot it had on the Business Journal’s property managers list last year. Spieker is the eleventh largest property manager here with 4.27 million square feet.
“Now you’re going to have another major player,” said John Burns, vice president of Newport Beach-based The Meyers Group, a real estate consultant.
Equity currently counts Orange’s 500 Orange Tower and 1100 Executive Tower, Irvine’s 1920 and 2010 Main Plaza and 18301 Von Karman near John Wayne Airport.
By way of Spieker, Equity stands to add key buildings in Irvine, Santa Ana, Anaheim, Orange, Brea and elsewhere. Among them: Irvine’s 2600 Michelson Drive, Griffin Towers at South Coast Metro, City Tower and City Plaza in Orange, and Stadium Towers Plaza in Anaheim.
“The addition of Spieker’s assets to our portfolio increases our presence across our key West Coast markets,” Callahan said. “We believe this merger will accelerate our growth rate due to below-market rents in the combined portfolio.”
For Equity, the Spieker buy indicates a continued change of heart about the West Coast by Zell. The blunt-spoken real estate financier once derided California and Orange County specifically for overbuilding in the late 1980s and early 1990s.
“This merger is consistent with the strategy that Equity Office has articulated since we went public in mid-1997,” Zell said at a press conference announcing the deal. “We have focused on building critical mass in high job growth office markets with barriers to new supply, the hallmark of Spieker’s portfolio.”
In OC, the transaction does not greatly impact the high-rent airport area, where property is divided among a number of managers. The impact will be strongest in the north and central parts of the county, according to John Weiner, a senior vice president at CB Richard Ellis. The deal gives Equity the clout to sway rents in the area, he said.
“From an ownership standpoint, Equity has done a better job of pushing rents than Spieker,” Weiner said.
Nationally, the deal stands to bring Equity’s portfolio to 616 office buildings consisting of 124 million square feet of office space. That includes 25 million square feet of office space acquired from Spieker. Equity also will gain Spieker’s industrial portfolio of approximately 13.5 million square feet and 1.7 million square feet of development properties. n
