This much is known: Maguire Properties Inc. is officially now the county’s second largest office landlord, behind The Irvine Company.
Maguire finalized one of the biggest office buys here in recent memory late last month, completing the 8 million-square-foot, $2.9 billion buy of Orange County and Los Angeles office buildings that were formerly run by Equity Office Properties Trust.
Beyond that, there are plenty of questions remaining about how the Los Angeles-based landlord’s OC portfolio will shake out in coming months.
Maguire is preparing for more office sales, while readying for additional housing development, and assessing fallout from the subprime mortgage industry’s crash.
The real estate investment trust plans to sell an additional $750 million to $775 million worth of local office properties, with some deals finalized in the next month, according to Chief Executive Robert Maguire.
The company is “in active discussions” for a number of OC sales, company officials said. Some of the sales, likely for offices in Anaheim and Orange, could be made to joint ventures that Maguire retains an ownership stake in.
Upon the completion of those sales, the landlord will end up “with the best of the best” buildings currently in its roughly 9 million-square-foot OC portfolio,” Maguire said in a conference call with analysts last week.
“We may have some selective sales (but) we like the market long-term,” he said. “If we’re going to sell, we want to sell down to the buildings that are truly compatible.”
It’s still a guessing game as to who any new buyers for the $750 million worth of office buildings could be. Local sources suggest that two companies with OC ties,the Muller Co. and the Shidler Group,could be among the leading bidders.
Muller, a Laguna Hills-based commercial developer, was last in the news here about two years ago, when a partnership it was involved in sold Newport Beach’s 100 Bayview office properties for $117 million.
Shidler Group, a Honolulu-based commercial real estate owner, has made some big buys here in recent months. In December, it bought a 15-building portfolio from an affiliate of Arden Realty Inc. for a reported $187 million.
That buy counted 10 buildings in OC, including Costa Mesa’s South Coast Executive Center, the five-building Yorba Linda Business Park and Savi Tech, a four-building complex in Yorba Linda.
The upcoming sales are part of about $2 billion worth of OC and Los Angeles properties that Maguire announced in March it would sell.
Bixby Deal
Last month’s sale of five former Equity Office properties to Newport Beach-based Bixby Land Co. for approximately $345 million was part of that plan. The Bixby deal, which Maguire said was sold at about a 4% capitalization rate,the rate of return in the first year of ownership,should close this month.
Maguire also is awaiting final word on how its relationship with key tenant New Century Financial Corp. is going to shake out.
New Century, which filed for Chapter 11 bankruptcy protection last month, was pre-leased to take 190,000 square feet of space at 3161 Michelson, the $240 million office tower Maguire is building just off the San Diego (I-405) Freeway and Jamboree Road. The office should be done in the third quarter of this year.
New Century leases another 267,000 square feet in two other Park Place buildings owned by Maguire. More than half of that space was still being used by the subprime lender’s pared-down operations until it announced another round of layoffs last week. New Century last week said it’s laying off 2,000 workers after it failed to find a buyer for its loan lending unit.
Maguire is part of the creditor’s committee in the bankruptcy proceedings. So far, no motions have been made with the Delaware bankruptcy court to reject any leases at Park Place. The landlord is preparing to remarket space once that happens, likely within the next month.
Further cutbacks in the local subprime industry, which takes up about 4% of the area’s office space, could drive vacancy rates here from a little more than 9% to about 11%, according to Paul Rutter, Maguire executive vice president.
That vacancy rate doesn’t factor in the nearly 4 million square feet of office space currently under construction here, including about 1 million square feet of competing high-rise office space nearing completion in Irvine.
Analysts and tenant brokers believe those factors could cause softening in the area’s lease rates, particularly for some of the newer offices coming online. Rutter disagrees.
“Will it drive down rates? We don’t think so,” he said. “We think the buildings that are being built need to hold their rates to get the returns they need.
“My understanding is that (other developers) will hold their rates at $3.50 (per square foot) or above,” Rutter said.
In Talks
Maguire says it’s in talks with two potential tenants who could each take a floor at 3161 Michelson. The company also is talking with large tenants about the possibility of them taking the top four floors of the new building, replacing New Century.
Office development isn’t the only construction at Park Place being eyed by Maguire.
The company also is planning a new apartment development project at the 105-acre campus located at the corner of Jamboree and the 405 Freeway in Irvine.
The company now is looking to build 1,100 apartment units at Park Place, which would be valued at about $165 million. For-sale homes, such as high-rises condominiums being built by Canada’s Bosa Development Corp. elsewhere at Park Place, are not being considered, officials said.
The company is in talks with an apartment developer to partner on the project, and would retain ownership in the development, Maguire said.
