Nearly two years ago, Nelson Rising came on board as the CEO of Maguire Properties (MPG), replacing the founder Robert F. Maguire III. Since then, the stock price has gone from $17 to $3.25.
As one of the largest commercial property owners in southern California, Maguire Properties has certainly felt the pain of the recession. To address this, the company has undergone a massive restructuring.
But this has not been enough for Robert Maguire, who has made an unsolicited bid for three office buildings owned by the company in Los Angeles, according to a report in The Wall Street Journal. Maguire is offering to assume the mortgages for the buildings, which he fears may end up in default.
Boom and Bust
Maguire got his start as a banker at Security Pacific National Bank, where he built a strong base of contacts and learned the real estate business. Then in the mid 1960s he founded the Maguire Organization. It was spot-on timing, as he benefited from the California real estate boom.
Maguire had a talent for snagging top-notch tenants as well as an eye for design. Some of his buildings include the KPMG Tower, the U.S. Bank Tower and Commerce Square in Philadelphia.
By 2003, Maguire took his company public and continued his aggressive ways. Unfortunately, he struck a $2.88 billion deal at the top of the market in early 2007, purchasing a group of 24 office buildings from the Blackstone Group (BX). The valuation came to roughly $355 per square foot.
The problem: 6.1 million square feet of the space was in Orange County, where many of the clients were subprime mortgage operators. Needless to say, rents quickly became a problem.
Remaking Maguire Properties
During Rising's tenure as CEO, he has sold off a variety of buildings and found ways to cut costs. Since the end of 2007, he has reduced the debt load from $5 billion to $3.4 billion. And in the most recent quarter, cash reserves increased 10% to $219 million. In fact, there are hopeful signs of a pick-up in new tenants.
Despite all this, Maguire Properties still faces significant challenges. Keep in mind that the company defaulted on more than $1 billion on loans for six properties in August.
So an offer by Maguire to take over the properties would be attractive, right? After all, he thinks they could wind-up in default. And as should be no surprise, he wants to get the choice properties: the KPMG Tower, U.S. Bank Tower and Plaza Las Fuentes.
Rising has said that he has no intent to sell these properties but he might consider unloading Plaza Las Fuentes. So despite the fact that there appears to be some bad blood in this deal, Maguire Properties still needs to find ways to reduce its deb. Ultimately, this may mean dealing with the company's persistent founder.
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