Aluminum Co. of America, the original developer of Century City, said Thursday that it has agreed to sell most of its remaining real estate holdings--including the landmark Century Plaza Towers--to JMB Realty of Chicago for more than $600 million in cash, debt transfer and notes.
Alcoa said the transaction, one of the largest real estate deals ever in Los Angeles, would generate an after-tax gain of about $200 million in the fourth quarter.
The properties represent 85% of the market value of the holdings of Alcoa's 18-year-old real estate subsidiary, Alcoa Properties Inc. The sale would be rivaled in size only by the $620-million sale of the twin Arco Towers in downtown Los Angeles last month, according to Bob A. Ortiz, director of brokerage services for Cushman Realty Corp., a leading Los Angeles commercial real estate firm.
"The investments involved in this sale are some of the premiere real estate properties in the United States," said Neil G. Bluhm, president of JMB. "We've been owners in Century City for several years, and we've seen a clear tightening of the market. Rents have been heading way up."
JMB, a 17-year-old real estate management and development firm, currently controls more than $14 billion worth of real estate. Its extensive holdings include the Water Tower in Chicago and Copley Place in Boston, as well as several office buildings in Century City and downtown Los Angeles, according to Bluhm.
The Century City site acquired by JMB was originally part of about 280 acres Alcoa purchased from 20th Century Fox Film Corp. in 1961. The deal includes Alcoa's half ownership in the Century Plaza Towers, twin, 44-story office buildings at Century City (Prudential Insurance Co. owns the remaining 50% interest), the Century Plaza Hotel and Tower and two undeveloped sites in Century City that total about 1.5 million square feet.
Also included are three hotels in Rochester, N.Y., Winston-Salem, N.C., and Mobile, Ala. The companies did not place separate values on the properties being sold.
The transaction comes as the income tax revision, signed Wednesday by President Reagan, has forced major real estate developers and owners to re-evaluate their investment and management strategies and focus more on the income-producing aspects of property than their potential tax writeoffs.
"The tax bill didn't drive (our) decision to sell the property, but it was a factor," said Alcoa spokesman Alfred T. Posti. "We've been looking to sell it (the property) for several years."
Bluhm said the tax legislation had no bearing on JMB's decision to buy.
Desirable income-producing properties are likely to bring higher prices, and properties that were attractive solely because of tax considerations are likely to languish under the new tax rules, said James McKellar, director of the Center for Real Estate Development at the Massachusetts Institute of Technology.
According to McKellar, a forthcoming report on a study by MIT names Los Angeles, Houston and Phoenix as the most commercially overbuilt cities for the next decade.