Will Maguire Disengage
As REIT Executive?
Robert F. Maguire III is many things -- real-estate mogul, financial whiz, daredevil mountain biker, oarsman, tenacious negotiator, salesman extraordinaire, not to mention the high-rolling visionary who built much of downtown Los Angeles's skyline in the 1980s and early '90s.
But REIT executive? Many have their doubts.
In late June, Mr. Maguire sold most of his empire in an initial public offering of stock that analysts criticized as too secretive. Now, with the IPO out of the way, investors worry they will see too little "Maguire" in Maguire Properties Inc., a real-estate investment trust that owns important buildings in Los Angeles, including the tallest building west of the Mississippi, the Library Tower, now the U.S. Bank Tower.
Investors, however, wonder if the IPO was a capital infusion that will allow a renown deal maker to create value for the REIT -- or Mr. Maguire's way of salvaging $200 million in personal wealth to go off and do his own thing?
An engaged Mr. Maguire, investors say, brings political clout, financial acumen and a ferocious appetite for deals. A detached Mr. Maguire, however, would give investors a more-sober take on the company: A solid REIT with less risk, but little spare cash and cloudier growth prospects.
Investors' doubts stem from Mr. Maguire's reputation as a free spirit -- and from some frank warnings from the company. He won't lead Maguire Properties himself, but hired a former partner to act as "co-chief executive."
While his employment contract requires him to devote himself "substantially" full time to the REIT, it also allows him to continue to develop his "substantial outside business interests," including a controlling interest in Solana, a 1.4-million-square-foot office, hotel and retail complex in Dallas, and other Southern California holdings, including passive ones in Playa Vista, a longtime development battleground in west Los Angeles. Indeed, the prospectus warns that the company has "no assurance" that Mr. Maguire and the other co-CEO, Richard I. Gilchrist, who also holds the title of president and has his own big outside interests, "will continue to devote any specific portion of their time to us."
In addition, investors found Mr. Maguire singularly unconvincing in pre-IPO "road show" discussions with investors about why he wanted to go public in the first place. "You never get a satisfying answer," gripes David Fick, a real-estate analyst for Legg Mason Wood Walker. Adding to doubts about Mr. Maguire's intentions, Mr. Gilchrist, 57 years old, is expected to be the public face of the newly public REIT.
Investors also noticed that a big chunk of the $730 million IPO went to repay lenders, including Citigroup Inc. and the Credit Suisse First Boston unit of Credit Suisse Group, who were also the deal's lead underwriters, leaving little capital to invest in future deals. The deal priced at the low end of its $19-to-$21 range; the stock closed at $19.73, up 43 cents, as of 4 p.m. Wednesday in New York Stock Exchange composite trading.
Mr. Maguire insists he is committed to making the company grow, principally through his specialty of cutting corporations' real-estate costs by restructuring leases or giving them equity stakes in new developments. He says his five-year employment contract forbids him to compete with Maguire Properties -- and he isn't interested in any case, given that his 21% stake with the REIT represents the bulk of his personal wealth. And, according to the offering prospectus, Mr. Maguire has agreed to a one-year lockup on his holding in the REIT.
"I want the growth to be in the REIT," says Mr. Maguire. "Practically speaking, that's what I intend. It should be pretty clear where my self-interest lies."
He got into real estate and with a partner, Jim Thomas, started developing residential property around Los Angeles, including an early conversion of a downtown office building into lofts.
They took a "big bite," Mr. Thomas says, with the 54-story Wells Fargo Tower in 1982, mitigating the risk by giving the bank a stake in return for anchoring the project as a tenant.
Even friends acknowledge that Mr. Maguire can be undiplomatic and dislikes red tape, taking gambles that don't always work. "He's a total mad scientist," says an admirer, Jerry Porter, managing director of brokerage Cresa Partners, who negotiates against him on behalf of tenants.
Mr. Maguire says he has a following of delighted partners, institutional and otherwise. A big goal now, he says, will be dispelling an impression that being public will cramp his style. Still, he says, he won't be meddling much in the day-to-day operations of, say, the company's human-resources department. "And they wouldn't want me to," he says, smiling.
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