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Shuwa Decides to Sell Its Properties Individually

Office buildings: Retreat in capital markets and disappointing bids for its portfolio prompt change.


After reviewing apparently disappointing bids for its 8.5-million-square-foot portfolio of office buildings, Los Angeles-based Shuwa Investments Corp. has bowed to the real estate capital markets' recent retreat and decided instead to sell individual buildings or small groups of properties.

Prominent towers in the strong office markets of Century City and Glendale are likely to be among those offered first, according to sources familiar with Shuwa's recently revised sale plans. Shuwa's struggling properties in soft markets such as Arco Plaza and Chase Plaza in downtown Los Angeles will presumably take longer to sell.

Notoriously publicity-shy Shuwa, affiliated with Tokyo's Kobayashi family-controlled Shuwa Corp., acquired its huge roster of U.S. office buildings when real estate values were at historic peaks in the 1980s. Its acquisitions included high-profile towers in downtown L.A., Century City and Glendale; several buildings in Orange County, including the Taco Bell Corp. headquarters in Irvine; and large high-rises in San Francisco, Boston, Philadelphia, Chicago and New York.

Values generally plunged with the subsequent recession, but stormed back dramatically over the last two or three years--particularly as Wall Street poured capital into publicly traded property owner-operators such as real estate investment trusts, as well as into mortgage-backed securities. Many owners took advantage of the aggressive capital environment and sold to property-hungry REITs and other buyers.

Shuwa recently sold at least one of its larger holdings--a San Francisco office tower--and engaged brokers to pursue sales of others. But Shuwa may have missed the window of opportunity to sell its entire portfolio at once.

Commercial property sales prices have plunged in recent months as Wall Street dramatically cut back the flow of equity capital into REITs. And more recently, concerns about foreign financial markets have driven bond buyers toward the safety of U.S. Treasury issues--in turn driving up interest rates of the mortgage-backed securities that had financed so many property purchases.

Shuwa is said to have been seeking some $2 billion for the entire portfolio. But knowledgeable sources indicated that the top bids from half a dozen prominent real estate investors were below $1.5 billion. Representatives of Eastdil Realty, which was engaged to handle the portfolio sale for Shuwa, declined comment.

Although the buildings apparently won't sell as a group, sales of some individual properties would nevertheless represent substantial investments. Eastdil is said to be marketing the 28- and 20-story towers at 1900 and 1901 Avenue of the Stars in Century City. Cushman & Wakefield, which had been engaged to sell the 16-story towers at 505 N. Brand Blvd. in Glendale, is once again seeking a buyer for that property. Cushman & Wakefield declined to comment.

Veteran local commercial real estate broker Bob Safai said Shuwa should do much better in the current market by selling its portfolio through so-called one-off transactions because the list of potential buyers is greatly expanded under that strategy.

Although investment banks and well-heeled real estate investment specialists had been top bidders for the entire Shuwa portfolio, "lots of pension funds will step up and play the game in given markets" for individual properties, Safai continued. "Downtown, Century City and Glendale each have a different set of prospective buyers," he added.

Safai estimated that certain bidders would offer $200 per square foot or more for the Century City and Glendale properties, which he described as "difficult to replace" amid the Southland's generally restrictive development regulations.


Orange County Properties

Shuwa Corp. has put six properties in Orange County up for sale, including Taco Bell Corp.'s headquarters in Irvine. The sites:

* Taco Bell headquarters. 17901 Von Karman Ave., Irvine. 12 stories. 264,919 square feet. 100% leased. Irvine Business Complex.

* 19000 MacArthur Blvd., MacArthur Plaza, Newport Beach. Nine stories. 150,643 square feet. 70% leased. Major tenant: Salomon Smith Barney.

* Downey Savings & Loan, 3200 Bristol St., Costa Mesa. 8 stories. 120,405 square feet, 82% leased.

* 9501 Jeronimo Road,, Irvine. One story. 69,366 square feet, 100% leased. Irvine Spectrum.

* 17771 Cowan, Irvine. Two stories. 62,581 square feet, 46% leased. Irvine Business Complex.

* 17601 Fitch, Irvine. Two stories. 42,663 square feet. 100% leased. Irvine Business Complex.

SOURCE: Eastdil Realty

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