Maguire Properties Sets
$1.51 Billion Acquisition

Maguire Properties Inc., a real-estate investment trust that focuses on office properties in Southern California, said it agreed to acquire 10 office properties and land for development for $1.51 billion from a partnership consisting of the California Public Employees' Retirement System, CommonWealth Partners LLC and Rockefeller Group International Inc.

The deal, one of the largest in the past year, will expand Maguire's office portfolio by 50% and boost its presence in Southern California's Los Angeles and Orange counties. Maguire also will gain a presence in San Diego, which has one of the lowest office vacancy rates in the country. Los Angeles-based Maguire, which will finance the deal with debt, is betting that office rents in these markets will rise. The nearly five-million-square-foot portfolio is about 14% vacant.

Prices for office properties have been soaring, even in markets with high vacancy rates, largely because of low interest rates. Some of the properties Maguire is acquiring are in Southern California markets that have low vacancy rates of less than 10%. The development land, all in Southern California, could accommodate as much as 1.5 million square feet of office space.

This acquisition "is a huge commentary on the deep pockets and insatiable appetite among investors [for real estate] right now," said Robert White Jr., president of Real Capital Analytics Inc., a New York real-estate research firm. Last year, 140 trophy office properties, defined as those that sell for $100 million or more, traded hands, according to Real Capital. In just the first month of this year, 32 trophy office properties have sold or are under contract to be sold.

"It was a good time for us to realize returns for our partners and ourselves," says Mike Croft, co-manager of the selling partnership and chief executive of CommonWealth Partners, a closely held real-estate investment firm. The deal includes a downtown Los Angeles high-rise that the partnership acquired last year for $250 million and agreed to sell to Maguire for more than $300 million. Mr. Croft said the portfolio was appraised last fall; he declined to specify the appraisal value, but said the portfolio was expected to sell for at least 10% more than the appraisal value.

The deal isn't expected to close until March, but Maguire said it plans to sell three properties in Phoenix, Denver and Austin, Texas, totaling roughly two million square feet. The Phoenix and Austin properties are expected to generate $75 million in net proceeds, said Chairman and co-Chief Executive Robert F. Maguire III. He said less than 20% of the 1.2-million-square-foot tower in Denver is vacant, and the company would seek tenants for about 80,000-square-feet of space before putting the building up for sale.

Mr. Maguire said the company also plans to include several other buildings from the purchase in a fund that it hopes to create later this year. It plans to raise some $500 million by selling off 75% to 80% interest in the fund.

The acquisition "really expands their operating platform enormously," but "bigger is not always better," said Jim Sullivan, an analyst at Green Street Advisors Inc., a real-estate stock research firm in Newport Beach, Calif. "They have a lot on their plate."

In 4 p.m. composite trading Friday on the New York Stock Exchange, Maguire shares fell 22 cents to $23.72.

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