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REAL ESTATE

The Times' downtown building could be sold

June 26, 2008|Thomas S. Mulligan and Roger Vincent | Times Staff Writers

Cash-strapped Tribune Co. is considering putting two of its signature properties -- the Los Angeles Times' main office downtown and Tribune Tower in Chicago -- on the block.

Tribune Chief Executive Sam Zell told employees in an e-mail Wednesday that the company had contacted "several of the country's leading real estate firms" about the Times property and Tribune Tower, the company's 40-story headquarters in Chicago.

"Both Tribune Tower and Times Mirror Square are iconic structures," Zell said. "But they are also underutilized, and as employee-owners, it's in our best interests to maximize the value of all our assets."

Tribune is considering all options, including a sale, Chief Administrative Officer Gerry Spector said. "We don't need to be in the heart of Michigan Avenue to run our business."

Zell, a real estate billionaire, said the company would focus on options that would allow for "some level of ongoing occupancy in both buildings" by The Times and the Chicago Tribune.

The company said in a press release that it intended "to maintain an ongoing ownership position in the Tower and in Times Mirror Square."

Under Zell, Tribune has focused on so-called tax-efficient transactions, structured so that Tribune retains enough of an ownership stake to avoid triggering the massive capital-gains tax liability that comes with a conventional sale.

That was the approach in the recently announced $650-million sale of its New York newspaper, Newsday, to Cablevision Systems Corp.

The same is expected for the sale of the Chicago Cubs baseball team.

When Zell took control of Tribune last December in an $8.2-billion buyout, he said he didn't anticipate extensive asset sales beyond the long-planned sale of the Cubs.

But the deterioration of the newspaper business has accelerated faster than predicted by all but the most bearish analysts. Advertising revenue has plunged under pressure from the Internet and the effects of a weakening economy.

Tribune's most liquid bonds lately have traded at 45 cents on the dollar. According to bond analyst Dave Novosel of Gimme Credit Finance in Chicago, that means that although the market doesn't consider bankruptcy to be imminent, "things are a bit dicey." He added that the trading price wasn't purely reflective of Tribune's financial straits but also represented investors' skittishness about corporate bonds in general.

Novosel said that with the cash from the Newsday sale and from the expected sale of the Cubs, Tribune should be able to meet its debt obligations for this year.

"They're covered for '08," he said, "but '09 is another story."

The former Times Mirror Square, with 750,000 square feet of usable space, is a hodgepodge of five interconnected structures built between the 1930s and the 1970s.

Newcomers to the square -- a block cater-corner to Los Angeles City Hall and bounded by Broadway and 1st, Spring and 2nd streets -- often lose their way while trying to navigate the complex, which has large areas with no natural lighting.

Real estate experts are hard-pressed to assess the property's value. Not long ago, the price probably would have been boosted by the planned $3-billion Grand Avenue retail, hotel and residential project on nearby Bunker Hill, but groundbreaking on that project has been delayed at least until next year.

Construction on a large residential and retail complex a few blocks away on Main Street stopped a few weeks ago as the developer expressed concern about the viability of the downtown real estate market.

"It would be difficult to find a buyer" for the Times property, said commercial real estate appraiser David Zoraster of CB Richard Ellis. "I don't know who would buy it at this point."

The most valuable pieces of the Times property are the two buildings that front 1st Street, Zoraster said. One, completed in 1935, houses the newspaper's offices and has an Art Deco lobby that includes a large revolving globe; the other, built in 1973, housed the corporate headquarters of Times Mirror Co., which was acquired by Tribune in 2000.

Land was selling for about $300 per square foot in the area not long ago, but "there has been almost no sales activity downtown in the last six months," Zoraster said. He declined to estimate what the property might be worth now.

The Times building isn't an official historic landmark but has been determined to be eligible for listing in the National Register of Historic Places, which offers some protection from being razed, according to the Los Angeles Conservancy. "It's one of the great buildings of L.A. history," said Linda Dishman, executive director of the conservancy.

Tribune Tower, completed in 1925, was one of the first Chicago skyscrapers built north of the Chicago River. Its neo-Gothic design was chosen from 263 entries in a $100,000 international competition.

The building has 940,000 square feet of usable space and an adjacent parcel of land, about an acre in size, that is used as a surface parking lot.

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thomas.mulligan@latimes.com

roger.vincent@latimes.com

Phil Rosenthal and Robert Manor of the Chicago Tribune contributed to this report.

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