Costa Mesa’s Pacific Arts Plaza, a high-end office complex that holds the headquarters of law firm Rutan & Tucker LLP and others, is expected to trade hands soon in what’s likely to be one of the largest local office sales of the year.
Real estate watchers are keeping an eye on a big San Diego investor—American Assets Inc.—as a potential buyer of the office campus, which has been operating out of receivership since early this year.
American Assets last week filed a registration statement for a $500 million initial public offering, in part to finance acquisitions in Orange County and other areas where it now has no investments.
The real estate investor owns 4.6 million square feet of office and retail space, in addition to apartments and hotels.
American Assets’ portfolio largely has been focused on San Diego, San Francisco and Hawaii. The company said in its registration statement that OC will be a target market of a new real estate investment trust, set to be called American Assets Trust Inc.
American Assets already counts a notable OC tie.
Ernest Rady, its president and chairman, is one of Southern California’s wealthiest businessmen.
In addition to Rady’s real estate investments, he headed up Irvine-based finance company Westcorp Inc. until its $3.4 billion sale to Wachovia Corp. in 2006.
As recently as 2007, the La Jolla resident was considered the richest man in San Diego, with a net worth believed to be more than $2 billion.
His wealth has slipped since then with a sharp drop in the stock of Wachovia before it was taken over by Wells Fargo & Co. in 2008.
Executive Chairman
Rady, who founded American Assets in 1967, is expected to be executive chairman of the new real estate fund.
A deal for Pacific Arts Plaza has yet to be announced, and any eventual sale is expected to be slow because of the complicated nature of the property’s debt.
American Assets made no mention of a potential deal in last week’s offering filing. But the company has been rumored to be the frontrunner to buy the complex for close to a month. Officials at the company could not be reached for comment last week.
Other companies rumored in recent months to be potential bidders for Pacific Arts Plaza have included Newport Beach’s Irvine Company, as well as an investment fund run by Los Angeles-based CB Richard Ellis Group Inc.
Real estate sources not involved in the transaction said the buzz is that American Assets has put money down for the complex.
Pacific Arts Plaza is an eight-building complex that totals 787,000 square feet. It’s next to the San Diego (I-405) Freeway on Anton Boulevard. Four of the buildings are offices, while the others hold restaurants, including Mastro’s Steakhouse, Jerry’s Famous Deli and T.G.I. Friday’s.
The complex has served as the headquarters of Rutan & Tucker, the county’s largest law firm, since 1981.
Rent
Tenants at the complex paid about $14 million in rent there last year, according to filings with the Securities and Exchange Commission.
The complex had been owned by Los Angeles-based Maguire Properties Inc.—now MPG Office Trust Inc.—since 2005. Earlier this year, the local office of Jones Lang LaSalle Inc. took over day-to-day operations as receiver.
Maguire defaulted on loans for the property about a year ago and struck a deal to place the property into receivership in March. It had a $270 million loan—which works out to about $343 of debt per square foot—tied to the property.
Estimates
Market watchers aren’t expecting the building to sell for that price.
A more conservative estimate of $250 per square foot would put the sales price closer to $200 million, market watchers estimate.
The complex also includes about 468,000 square feet of developable space, according to regulatory filings. Sources speculate that stores or apartments most likely could be built there, depending on which company buys the property.
American Assets, which has a sizable retail portfolio, eventually could look to put in some shops at the complex, sources said.
