Recent big leases at Maguire Properties Inc.’s beleaguered Orange County office buildings haven’t stopped the Los Angeles-based landlord from looking to offload a good portion of the properties it owns here.
Maguire reported last week that its 7 million-square-foot portfolio of OC offices was a third empty at the end of the third quarter. That figure is flat from three months ago and up from 21% a year ago, but doesn’t reflect several deals that are said to be in the works.
The landlord’s OC portfolio,which contracted by about 1 million square feet in the third quarter thanks to big sales in Irvine and in Orange,remains much worse off than the county at large in terms of empty space.
OC’s office market, which totals about 107 million square feet, counts a vacancy rate of 16%.
Companywide, Maguire’s 20 million square feet of offices are about 19% empty. OC represents about 38% of Maguire’s portfolio.
While noting “a lot of dark clouds out there for our sector,” there’s some room for optimism for Maguire’s OC portfolio, Chief Executive Nelson Rising said during the company’s call with analysts.
“What’s encouraging is the level of leasing activity. It goes against the conventional wisdom” that most of OC’s office market is still on the decline, Rising said.
“The contraction may be just about completed,” he said.
Leases are coming from large and stable tenants, according to Rising, who cited Hyundai Motor Finance Co.’s recent 100,000-square-foot lease at the company’s 3161 Michelson Tower in Irvine as an indication of an improving market.
Maguire is closing in on leases for another 75,000 square feet of space at the new 532,000-square-foot Park Place tower and is in talks for several hundred thousand square feet of leases elsewhere at the 105-acre campus, Rising said.
The campus is rumored to be in the running to nab the Federal Deposit Insurance Corp. as a tenant, if the government entity decides to use Irvine as the site for expansion to manage asset sales for failed banks.
The FDIC is reported to be looking for about 200,000 square feet of office space.
Irvine Company’s 40 Pacifica tower in the Irvine Spectrum also is believed to be a potential office for the FDIC, which is expected to announce a decision on where it’s taking office space in a few weeks.
Maguire’s Park Place remains on track to be sold, and the landlord is in advanced discussions with one company to sell the mixed-use campus, Rising said. A sale,which market watchers expect to be near $500 million,would free up cash for the company to use elsewhere, he said.
Rising describes the potential buyer as a “very qualified buyer,” but did not disclose the company.
Local market watchers say the most likely buyer is Irvine-based LBA Realty.
Building Sales
Maguire also said it has entered a letter of intent with a buyer for another building near John Wayne Airport and is close to entering another letter of intent for an additional property.
It is in “serious negotiations” for the disposition of three other buildings, Rising said.
Officials did not specify which local buildings those are but said the deals would go a long way to eliminate debt and rid the company of properties that are a drain on its cash resources.
Two of Maguire’s worst-performing local assets appear to be candidates for sales.
Maguire’s newest office at the Washington Mutual Campus, 17885 Von Karman Ave. in Irvine, remains empty about a year after the 151,000-square-foot building was completed. Rising said the company has seen tenant and buyer activity for the property, which it owns in a venture with Australia’s Macquarie Group Ltd.
In Orange, the company is in talks with its lender about the three-building City Parkway complex, Rising said. The 457,000-square-foot property is about 27% full after the loss of Ameriquest Mortgage Co. and other tenants.
A possible bank-approved sale of the loan on the Orange complex appears likely. A similar deal was done in September when Maguire sold the 327,000-square-foot City Plaza tower to Los Angeles-based Hudson Capital LLC.
Analysts who cover Maguire say that the company could be a lot more aggressive in its disposition strategy by essentially turning over offices to banks where it owes more on loans than the property is worth.
“Why not be more aggressive, and maybe send back the keys to lenders on some assets” such as City Parkway, said Michael Knott, analyst with Newport Beach-based Green Street Advisors Inc.
Company founder and former chairman Robert Maguire last month told the Business Journal that the acquisitions of the bulk of the company’s OC properties in 2007 were structured in ways that would allow individual buildings to be given back to the bank without collateral damage to the company.
Rising said that issues such as master lease obligations and guarantees to banks would make it hard for the landlord to simply dump buildings back on its lenders.
