Facing mounting debt payments and lagging demand for office space, Maguire Properties Inc. has sold a 19-story office high rise in Southern California to another real estate investment firm for $160 million _ a discount of roughly 35 percent.
Maguire, which owns and operates office buildings, sold the 3161 Michelson building in Irvine, Calif., to New York-based Emmes Group of Cos., the companies said Monday. The Wall Street Journal reported the sale on Sunday.
The transaction, which closed Friday, represents a sharp discount from the $245 million the building cost to build, suggested Michael Knott, an analyst with Green Street Advisors in Newport Beach, Calif.
"It's a fair price, but I don't think it's a steal by any means," Knott said Monday. "(The buyers) still have to fill it up and rents are under pressure across the entire market."
The deal reflects the pressure commercial property owners are facing across the U.S. The recession has led to higher office and retail vacancies, sapping owners' lease revenue. And many can't refinance the debt on their properties.
In a statement Monday, Maguire said the deal freed it from $165 million in debt that was scheduled to come due in September, among other potential financial obligations.
"We are pleased to close this important transaction, which eliminates our entire obligation under the project loan and significant master lease obligations," Nelson Rising, the company's president and CEO, said.
A company spokeswoman declined to comment on the deal.
The building, which was completed in 2007, has 530,000 square feet of office space and is 60 percent leased with law firms Gibson, Dunn & Crutcher and Jones Day among its roster of tenants. Maguire had initially tried last summer to find a buyer for all the properties in the 5-acre Park Place office park where the building is located, but the effort stalled.
Then Emmes came along, with an offer to buy just the office tower.
"It's very difficult to buy in markets like this and it's even more difficult to sell because there are so few buyers," Emmes CEO Andrew Davidoff said. "In this particular case, what we saw was an opportunity to acquire what we believe to be the best asset in this market place at an attractive price with reasonably good financing."
Emmes financed the deal with a $120 million loan from EuroHypo AG, the same group of lenders that held Maguire's debt on the property, Davidoff said.
The real estate firm came up with the balance of the purchase price and raised additional capital to remodel space for new tenants, he said.
In a separate statement Monday, Maguire said it might default on loan payments for a group of buildings in Irvine dubbed the Quintana Campus.
Maguire, which has a 20 percent stake in the joint venture that owns the office complex, said rental income from the property plunged after the Federal Deposit Insurance Corporation, operating as receiver for the failed Washington Mutual, relinquished the majority of its lease.
Maguire said it has begun negotiations with a special servicer in hopes of reworking the loan, which matures December 2011.
Shares of Maguire added 50 cents, or more than 46 percent, to $1.57 on Monday.
Terms & Conditions
RSS Headlines
Fool UK