Maguire Faces Default, Sells Office Tower

Maguire owns a 20% interest in the joint venture with Australia's Macquarie Office Trust that owns the Quintana campus, which has fallen on hard times with the departure of Washington Mutual Bank as a major tenant. Maguire and Macquarie have entered negotiations with the special servicer "in anticipation of a possible payment default," according to a statement by the REIT.

[IMGCAP(2)]The Federal Deposit Insurance Corp., as receiver for Washington Mutual Bank, relinquished the majority of its Quintana lease effective in March and was not obligated to pay any rent or other compensation in connection with the lease termination. The unexpected relinquishment of the leases reduced the occupancy of Quintana by approximately 250,000 square feet to 40% occupancy, "resulting in a significant reduction in the cash flows of the property," Maguire says. The $106 million CMBS financing covering the property is not cross-collateralized or cross-defaulted with any other debt held by Macquarie Office Trust or Maguire.

Nelson C. Rising, president and CEO of Maguire, calls the FDIC's rejection of the leases at Quintana "a highly unusual and unfortunate event." He says that Maguire and Macquarie agreed that the best course of action was to start discussions with the CMBS special servicer "in lieu of continuing further capital funding at the Quintana Campus."

Maguire has had all of its Orange County properties for sale for some time now, and has sold a number of them. In the latest sale, the buyer of the 3161 Michelson Dr. building at the Park Place campus was an affiliate of the Emmes Group of Cos. The sale was a direct deal between buyer and seller.

The 3161 Michelson building is approximately 60% occupied with such tenants as automaker Hyundai and law firms including Gibson, Dunn & Crutcher and Jones, Day. Maguire says that the sale enabled the company to eliminate the project-level debt that was scheduled to mature in September 2009; eliminate a New Century master lease obligation with a potential exposure of up to approximately $16 million; eliminate a $24 million principal repayment guaranty; eliminate a master lease parking obligation with a potential exposure of up to approximately $50 million; release a 1,380 space parking structure from the encumbrance of the existing mortgage; and increase the REIT's cash flow by eliminating the project's negative cash flow.

The sale of the 3161 Michelson property follows the recent sale to the Long Beach-based Abbey Co. of the 460,000-square-foot City Parkway property at 500-600 City Parkway West, a three-building complex that consists of twin 10-story glass office buildings and a four–story office building in a campus setting. In that case, too, Maguire said that the sale would get it out from under debt obligations at the property, which has fallen to 26% occupancy. Terms of the 3161 Michelson and City Parkway sales were not disclosed.