In one of the biggest property sales in L.A. history, New York-based Tishman Speyer Properties has agreed to purchase massive MGM Plaza in Santa Monica for an estimated $360 million.
The sale, expected to close next month, provides a windfall of perhaps $60 million or more for prominent Los Angeles developer Robert Maguire, furthering his recovery from deep setbacks suffered during the 1990s real estate crash. Maguire said he'll funnel some of the profit into several other projects, including development of the long-delayed Playa Vista planned community near Marina del Rey.
For the Record
Los Angeles Times Wednesday March 22, 2000 Home Edition Business Part C Page 3 Financial Desk 1 inches; 20 words Type of Material: Correction
MGM Plaza--A story on the sale of MGM Plaza in Tuesday's paper incorrectly identified the author of the report. Brad Berton wrote the story.
The sale also illustrates how strong tenant demand for office space within the Westside's top commercial districts translates into rising property values.
A group headed by Maguire essentially lost control of then-debt-strapped MGM Plaza in late 1996 when local investment manager Douglas Emmett Realty Advisors worked out a deal with the Maguire group and the property's mortgage lender consortium.
That deal--struck as the economy was starting to rebound from the severe early-1990s recession--valued the property at around $230 million, well below the balance of the $300-million mortgage placed on the property when values were higher in the 1980s. But Maguire retained an option to repurchase the property at a specified price--and did so as Westside commercial property values stormed back in 1997.
Credit Suisse First Boston financed Maguire's late-1997 acquisition at virtually 100% of the approximately $260-million price, said Mark Finerman, the managing director overseeing Credit Suisse's real estate finance group.
Maguire and Finerman declined to specify what Tishman Speyer is paying, but Finerman said that the difference between the financing amount and the sale price--not including CSFB's fees--amounts to about $100 million.
Hence, the property's valuation has jumped well over 50% in a bit more than four years. Put another way, the value has risen an average of $2.5 million per month since Douglas Emmett assumed control in late 1996.
"People counted Rob out and thought he'd sell the option," Finerman recalled. "But we knew he'd buy [MGM Plaza] back. He said it would eventually be worth $400 million, and he's probably right."
What's behind the escalation? As real estate investment professionals point out, it's a landlord-friendly combination of robust tenant demand for Westside digs amid a space supply that hasn't kept pace.
"It's unquestionably the hottest of many hot sub-markets on the Westside," said veteran real estate broker Bob Safai.
MGM Plaza's rapid gain in value reflects the rents tenants are paying within that district--where the 600,000-square-foot Water Garden phase 2 complex is under construction and two smaller office buildings within the Arboretum development were entirely leased shortly after opening.
The fast-growing Internet sector has clearly augmented tenant demand, along with the continued interest of the entertainment industry and traditional professional services as well.
Although Safai cautions that many uncertainties surround the highflying Internet sector, its immediate-term impact has sent commercial rents sharply higher. Top space at the highest-quality office complexes on the Westside commands rents of well over $40 per square foot monthly, he added.
"We're seeing enormous increases in rent" on the Westside, Maguire said. He added that the rise in value reflects an increase in MGM Plaza's operating income, some of which comes from its huge underground parking facility.
Those strong rental rates--and prospects for even higher rents in the future--are the key factors behind the higher prices investors are paying today. Even though publicly traded real estate investment trusts haven't been as aggressive over the past couple of years as they had been previously, well-heeled private buyers have continued to bid up values in recent months.
The MGM Plaza deal factors to about $330 per square foot of office space--ranking it among the top prices paid recently under that measurement. Douglas Emmett paid just under $400 per square foot last year for downtown Santa Monica's beachfront 100 Wilshire tower. And the complex deal that restructured the ownership and financing of Century City's SunAmerica Center valued that high-rise at about $420 per square foot.
Tishman Speyer, an internationally prominent company founded in 1978 by New York real estate figures Robert Tishman and Jerry Speyer, oversees a portfolio valued at more than $10 billion. Among its properties is The Tower, a luxury office high-rise in Westwood.
Maguire engaged brokerages Cushman & Wakefield and Secured Capital Corp. to handle the sale of MGM Plaza.
Major tenants in the 1.15-million-square-foot, fully leased property include Metro-Goldwyn-Mayer Inc., Symantec Corp. and architect Gensler.