Meruelo Maddux Properties Inc., the largest landlord in downtown Los Angeles, raised $400 million Wednesday in an initial public stock offering intended to capitalize on investors' widespread demand for commercial real estate.
Meruelo Maddux sold 40 million shares at $10 each, well below the $12 to $14 a share the L.A.-based company was seeking. The stock will begin trading today on Nasdaq under the symbol MMPI.
The disappointing reception comes when stocks of publicly held real estate companies have generally performed well and may reflect investors' skepticism about the future value of the company's holdings.
A Bloomberg News index of 140 real estate investment trust shares jumped 1.3% to a record 276.11 on Wednesday. It's up 5.8% year to date after soaring 28% last year. Meruelo Maddux, however, is not structured as an investment trust, a type of corporation that must distribute to investors at least 90% of its returns from real estate properties.
Founders Richard Meruelo and John C. Maddux have a reputation for buying unglamorous properties in secondary locations that have appreciated substantially in recent years as downtown's real estate fortunes have improved.
Meruelo Maddux said it had 19 developed properties. It also leases with rights to buy, or has rights to acquire interests in, an additional 34 development and redevelopment projects, mostly around downtown Los Angeles. Among its properties is Alameda Square, the sprawling 20-acre former headquarters of food service provider S.E. Rykoff that is now home to garment manufacturer American Apparel Inc.
"By and large, their properties are not going to make the cover of real estate magazines," said analyst Craig Silvers of Bricks & Mortar Capital, who intends to buy Meruelo Maddux stock. "They are in a part of downtown most people don't get to see, but they are at the core of what makes Los Angeles tick -- an import-export economy."
Although Meruelo is heavily invested in industrial real estate, it also has a handful of residential development sites, including some large parking lots near Staples Center in the path of housing development that has been sweeping through South Park."It's bread-and-butter redevelopment," Silvers said. "The prospects of this company are fantastic."
But analyst Jim Sullivan of Green Street Advisors described Meruelo Maddux properties as being in "fringe locations that someday may be closer to the center of town, but you have to have a positive long-term view of Los Angeles to really get your hands around this."
Other Southland real estate companies going public recently include Santa Monica-based Douglas Emmett Inc., which in October raised $1.39 billion in its initial public offering. Los Angeles-based Arden Realty Inc. cashed out last year in a $3.2-billion sale to General Electric Co.
"There is a nearly insatiable appetite today for real estate," Sullivan said. "And as people increasingly search for higher yields, they need to move up the risk spectrum."
Meruelo Maddux, he said, might meet such investors "right where they want to be."
Meruelo, 41, and Maddux, 47, were unavailable for comment.
The firm had a loss of $664,586 on revenue of $17.8 million in the first nine months of last year, according to a filing with the Securities and Exchange Commission. Meruelo Maddux had a loss of $2.51 million on revenue of $19 million in 2005 but was profitable in 2003 and 2004.