REIT Executive May Lose
Towers in Los Angeles

LOS ANGELES -- Any time a film pans over this city's downtown skyline, it is like watching a home movie of the last 40 years of Robert Maguire III's life. His towers span its breadth, the iconic U.S. Bank Tower, the tallest building west of the Mississippi, at its center.

Now, at 72, the prolific real-estate developer is fighting to hold on to much of the portfolio of office buildings he's been assembling since 1966. Maguire Properties Inc., the company he took public four years ago, is under attack by a group of hedge funds that bought up its shares on the cheap and has succeeded in pressuring the board to put the company up for sale.

To fight back, Mr. Maguire revealed to The Wall Street Journal, he has lined up investment firm Colony Capital and the Qatar Investment Authority -- the Persian Gulf emirate's main investment vehicle -- as partners for a bid to buy the company and take it private.

Mr. Maguire declined to say what price he would offer but says that it's already "fully financed." Based on the current stock price, the company could be worth at least $6 billion, including debt. Mr. Maguire says he and his partners are putting "substantial" cash into the deal and already have lined up bank financing for the remainder. "We will be aggressive bidders," he says.

Set against a backdrop of straitened credit markets, the Maguire Properties story is one of missed opportunities and unfortunate timing. Just a year ago, when credit was plentiful and office-building prices were soaring, Mr. Maguire quietly put his company on the block, hoping to cash out at a high price. But he wound up getting only one disappointingly low bid. While most of the dour real-estate headlines recently have been about the problems racking the residential market, Maguire Properties' shares have tumbled partly because earlier this year it purchased a group of buildings in nearby Orange County that housed a number of subprime-mortgage lenders -- right before many of them went bust.

At the center of the storm is a developer with a storied family history of risk-taking. Mr. Maguire's great-grandfather, an Ohio school administrator, was an early Darwinist who hobnobbed with radicals, including Eugene V. Debs. His grandfather served as a judge at the Nuremberg trials that tried Nazis for war crimes, and Mr. Maguire's father was a pilot who established an airline to secretly airlift 50,000 Yemeni Jews to the newly founded Israel in the late '40s.

Mr. Maguire, a native of Oregon, has been an aggressive buyer and developer since he began his career in real estate in 1966 in Los Angeles. In the early 1980s, while others gave up downtown Los Angeles for dead, he pioneered a building boom there with the two-tower Wells Fargo Center, known then as Crocker Plaza. Other skyscrapers followed.

Mr. Maguire stays fit rowing in the Pacific Ocean twice a week despite a serious body-surfing accident 30 years ago that left him able to move his neck only a few inches. Business acquaintances say Mr. Maguire isn't cowed by down cycles or high loads of debt the way that most developers would be. "When you think of what his dad did, you have to think that Rob has some of those same qualities in him, to take on such levels of risk," says Tom Bohlinger, executive vice president for CB Richard Ellis, a L.A.-based real-estate brokerage.

Mr. Maguire survived the real-estate crash of the early 1990s although he had to give up one of his prize properties, the Playa Vista development, a huge oceanfront project that would have been his crowning achievement. But lenders foreclosed after numerous problems with the development, including a bitter feud with Dreamworks SKG over a proposed film studio. "That was a huge disappointment to me," he recalls.

Mr. Maguire took his company public in 2003, at an opportune moment. The office market was in a slump but poised for recovery. The company grew, from about six million square feet of space to now more than 35 million.

Nonetheless, analysts say Mr. Maguire has never played by Wall Street's rules for publicly traded real-estate companies. For example, while most real-estate investment trusts have a debt load of about 40%, Maguire Properties has nearly double that. "He's obviously smart enough to build the little empire that he's built, but he's not necessarily cut out for the public markets," Michael Knott, an analyst with Green Street Advisors, an Orange County-based real-estate research and trading firm.

Last November, Maguire Properties began exploring a sale of the company. It would have been the perfect time, when investment banks were eager to provide cheap debt to make real-estate deals happen.

At that time, the company's stock was trading between $35 and $40 a share. But after Mr. Maguire said publicly that he thought the company's assets were worth at least $55, potential suitors got spooked. They surmised that Mr. Maguire's comments were hints that he wanted at least $50 a share for the company. Mr. Maguire insists he never spelled out a specific price to potential bidders.

When the bids were due, a joint venture including Thomas Properties Group Inc. -- a company led by Mr. Maguire's former partner -- made the only offer Maguire received, according to two people familiar with the bidding. The bid was $38.50 a share, below the company's trading price at the time, Mr. Maguire says. The board quickly determined that wasn't enough and decided to continue as a public company. Jim Thomas, Mr. Maguire's former partner and chief executive of Thomas Properties, declined to comment.

But investors were steamed. Many of them believed a report in a trade publication that Maguire had received several offers, one as high as $44 a share. Mr. Maguire didn't comment, fueling the rumors and creating the perception that he missed a great opportunity. He now says no such offer existed.

Compounding investor unhappiness was Maguire Properties' decision in February to pay $2.8 billion to buy 24 properties from Blackstone Group LP that were part of Blackstone's Equity Office Properties Trust acquisition. The buildings gave Maguire Properties an even bigger presence in downtown Los Angeles, as well as 22 additional buildings in Orange County.

Analysts bemoaned the deal. It was soon evident that 10% of the tenants in Maguire's newly acquired buildings in Orange County were subprime lenders, which promptly began to go belly up as more and more risky borrowers defaulted on their mortgages. Mr. Maguire says the acquisition will be a "home run" as the leases that were vacated by the mortgage brokers were far below current market rate and leasing has been strong.

Over the summer, though, Maguire's stock fell -- making the failure to sell the company in better times all the more glaring. In the past three months, hedge funds have bought 32% of the company and started pushing anew for a sale.

"Rob, please understand we are sympathetic to your situation. ... Without your vision, this portfolio would never have been put together," JMB Capital Markets wrote to Mr. Maguire on Nov. 12. " However, when you made the choice to become a public company, you traded the benefits of public ownership for the liquidity and wealth creation of a public vehicle. With this trade comes an implicit pledge to operate for the benefit of all shareholders equally and fairly."

Last week, Maguire Properties' independent directors announced they were willing to take bids.

It isn't clear how much interest the company will attract or whether the final bid will exceed the one the board rejected. (Maguire's stock was at $28.24 in 4 p.m. composite trading on the New York Stock Exchange Friday.) Other possible bidders include Brookfield Properties Corp. and Thomas, which both own downtown Los Angeles buildings. But the number of other bidders and the prices offered will likely be limited by the global credit squeeze and worries about a recession. Office-building values already have begun to slide and will fall further if rents decline and vacancies rise.

"It's a terrible time to sell assets," says Joseph Betlej, portfolio manager of real-estate securities for Advantus Capital Management, based in St. Paul, Minn. "If something is on market today, it's likely that the seller is under some sort of duress."

Maguire directors have little choice but to explore the possibility of a sale. At least one hedge fund is threatening to put up a slate of directors for election at the 2008 shareholders' meeting, which could mean Mr. Maguire would be voted out as chairman. Yet, Mr. Maguire says he's up for the fight. "I don't fold under pressure, and I've been through it," Mr. Maguire says. "Being Irish and Scottish, I don't mind a battle either."

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