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REAL ESTATE

FDIC seeking new Southland home

The agency needs office space while it liquidates the assets of failed banks and thrifts.

October 22, 2008|E. Scott Reckard and Roger Vincent | Reckard and Vincent are Times staff writers.

The Federal Deposit Insurance Corp. plans soon to sign a major lease of office space in Orange County, probably in Irvine, where as many as 600 people would liquidate the assets of troubled banks and thrifts based in California and other Western states.

The agency needs 200,000 square feet of space and has looked at locations across Southern California, FDIC spokesman David Barr said.

"It's a temporary office -- three to five years is what we're looking at," Barr said Tuesday. "We hope to find the space within the next few weeks."

Thanks largely to the housing bubble, not a single U.S. bank or thrift failed from June 2004 through February 2007, the longest collapse-free stretch in the FDIC's 75-year history. But three banks went under last year, 15 have folded this year, and the FDIC has warned of more failures in coming years.

A contingent of FDIC officials has been occupying the Pasadena headquarters of IndyMac Bank, a giant mortgage lender that failed in July. Barr said the FDIC wanted its new office to be reasonably close to IndyMac. The first 100 or so employees could be in the new office by December.

If no buyer emerges for all of IndyMac, the FDIC could wind up with billions of dollars in high-risk IndyMac mortgages -- loans that the agency, as the current operator of IndyMac, has been trying to modify en masse to stem foreclosures.

The FDIC is already burdened with troubled assets from failed banks in Arizona and Nevada, which like California have seen huge declines in home values.

The agency's search for new office space has included sites near Pasadena and in the Inland Empire but is now focused on Orange County, particularly Irvine, said a person briefed on the process who wasn't authorized to discuss it publicly and spoke on condition of anonymity. The agency's only other location for handling the liquidation of troubled assets is a permanent office in Dallas.

Orange County was home to several major subprime lenders whose risky home loans helped trigger the nationwide mortgage meltdown, which has morphed into a full-fledged financial crisis including a surge of bank failures that the FDIC is charged with cleaning up.

And it is the collapse of those non-bank lenders that has helped create a glut of office space as well as a surplus of former loan professionals, both of which made locating in the county more attractive to the FDIC, the person briefed on the search said.

Another lure is the proximity of John Wayne Airport. Many senior FDIC officials now at IndyMac are commuting weekly from homes in the Washington and Dallas areas.

The agency also is familiar with Orange County, which was home to some of the most controversial savings and loans that collapsed in an earlier financial crisis in the late 1980s and early 1990s. The Resolution Trust Corp., an FDIC spinoff that disposed of hundreds of billions of dollars in S&L assets, operated an office in Costa Mesa that moved to Newport Beach before closing in 1996. The FDIC also had offices in Irvine throughout most of the 1990s.

A large lease would be good news for Orange County office landlords, who have seen their market veer from hot to cold in recent years. Times were so good during the housing boom that commercial landlords were able to steadily raise rents as vacancy rates fell. Then the housing market peaked and the subprime lenders with huge operations closed up shop, pouring office space back on the market just as new buildings totaling more than 2 million square feet were coming on line.

"Landlords, for the most part, are in a deal-making mood," said Kurt Strasmann, head of Orange County operations for real estate brokerage Grubb & Ellis. "They are going to do what it takes to make transactions."

Real estate sources said one potential site for the FDIC offices was twin 15-story towers completed this year in the Irvine Spectrum shopping, office and housing development near the Verizon Wireless Amphitheater.

Developed by the county's largest landlord, Irvine Co., the marble-clad towers at 20 and 40 Pacifica have more than 300,000 square feet of space each.

The 20 Pacifica tower is 33% rented, while 40 Pacifica remains empty, according to real estate data provider CoStar Group Inc. Marketing materials for the buildings promote on-site auto detailing and a nearby golf club.

The abundance of office space and laid-off financial workers makes Orange County a perfect location for the FDIC, said William J. Popejoy, a former S&L and Freddie Mac executive who became the county's chief executive after it filed for bankruptcy protection in 1994.

Office space might be cheaper in, say, Phoenix or the Inland Empire, Popejoy said, but those locations lack the financial workforce that has boosted Orange County's reputation as a major, if sometimes aggressive, hub for lending.

"Orange County has had much more of a financial frontier mentality," he said. "It sort of creates a magnetism for the new thing -- and the new thing starting in the late 1990s was the go-go real estate market.

"Of course, that's good when the economic tide is rising, and not so good when it's going out."

The banking-industry problems that began with mortgages and home-builder loans are spreading to commercial real estate and business loans -- the core products for commercial banks, said RBC Capital Markets bank analyst Joe Morford.

"We don't think there's any way to avert more bank failures," he said.

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scott.reckard@latimes.com

roger.vincent@latimes.com

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