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Maguire Testing Brookfield's Patience

If the REIT hires a new CEO, it may spell the end to a proposed property deal with Brookfield.

The drama at

Maguire Properties


, a major Southern California office property owner in the midst of buyout discussions, has taken a strange turn.

The buzz of late is that the real estate investment trust is considering hiring commercial real estate veteran Nelson Rising as its new CEO, which may end up putting a logjam in

Brookfield Properties'


bid for a portfolio of Maguire's Los Angeles assets.

Maguire Properties shares have tumbled more than 50% off their 52-week high and now trade around $16.50. The company is facing high debt burdens and a difficult leasing market in Orange County because of layoffs in the mortgage industry.

At this point, shareholders seem to be looking for any escape route possible from the dismal stock. A few months ago, the company scrapped a process to sell itself, saying it was unable to find buyers due to the credit crunch in the commercial real estate industry.

Then in late April, Robert Maguire III, the company's chairman, offered to buy the company in a complex deal that would value Maguire at $21 a share. Under the proposal, Robert Maguire would purchase 75% of the company's shares and keep the firm's Orange County assets while Brookfield would purchase the firm's Los Angeles assets.

According to a

Wall Street Journal

article in early May, Brookfield Properties submitted a bid to buy Maguire's Los Angeles properties for $750 million while also assuming $2.57 billion in debt.

Maguire Properties' special committee of independent directors dismissed Robert Maguire's plan, saying it was not "currently actionable" because of numerous contingencies.

Now comes the news that Rising -- who worked with Maguire back in the 1990s -- might be offered the CEO role at Maguire. This info was first reported in

TheStreet Recommends


, a newsletter written by veteran industry watcher Barry Vinocur.

All or Nothing

A person close to the sales process tells

that discussions inside Brookfield Properties have been heating up of late about whether the hiring of Rising as Maguire's new CEO would immediately shut down the sale process of the company and rule out Brookfield's bid for the Los Angeles properties.

This source confirmed that Brookfield has submitted a bid and said the company believes a deal would be immediately accretive for itself. If Brookfield managed to purchase Maguire's L.A. assets, it would become the largest owner of office buildings in the city's downtown.

Spokespersons for Brookfield and Maguire did not return calls seeking comment. Rising could not be reached for comment.

One Wall Street analyst, who was not authorized to speak on the record, said Rising is the "ace in the hole" for Maguire Properties if the sale to Robert Maguire doesn't happen.

The analyst says Maguire Properties will not sell part of the company -- it's either all or nothing. Thus if the Robert Maguire deal to buy the company falls through, Brookfield will not be able to separately buy the trophy L.A. assets, and Rising will take over as Maguire's CEO, the analyst says.

"Maguire can't sell all the best assets and still have a viable company," the analyst says.

Rising: A Return of Sorts

Rising is a veteran of the commercial real estate industry and was previously CEO of Catellus Development, which was purchased by industrial REIT


(PLD) - Get Prologis, Inc. Report

in 2005. He still sits on ProLogis' board of directors.

In the early '90s, Rising worked as senior partner of Maguire Thomas Partners, the predecessor to Maguire Properties, where he was instrumental in the development of some of the firm's highest-profile buildings, such as the Gas Company Tower in downtown Los Angeles.

Absent a sale of the company, investors in Maguire Properties are left with some difficult problems.

Maguire's office portfolio in Southern California is facing significant headwinds, particularly the properties in Orange County. Maguire's overall office occupancy rate fell 210 basis points to 81% in its most recent quarter. Orange County, which is facing more job losses from the mortgage finance industry, saw occupancy decline 470 basis points to 66.9%.

"After another disappointing quarter, we believe the company's best and most viable option is to pursue the Chairman/CEO's $21 offer to restructure the company as fundamentals continue to erode in Orange County, MPG's balance sheet remains over levered and investors have lost confidence in the management team," Bank of America analyst Mitchell Germain wrote in a research report last week.