There have been long-standing rumors that the L.A. Times newspaper has been sought by several high-profile local investors with substantial real estate interests, including most recently Charles and David Koch, David Geffen and Eli Broad. Given the precipitous and ongoing drop in newspaper valuations, they undoubtedly realize that the real money to be made – and potentially the key to any purchase - may be to obtain the property owned by the company, including Times Mirror Square and the Tribune Tower in Chicago.

In a recent email to employees, Tribune chairman/CEO Sam Zell confirmed that he is taking a look at the properties. He called the real estate of the publishing side “iconic structures.” But, he added “they are also under-utilized, and as employee-owners, it's in our best interest to maximize the value of all of our assets.”

Times Mirror Square is in the heart of the downtown L.A. area, which has recently undergone a renaissance of new residential and retail development. The Times Mirror property has an estimated 750,000 square feet of space spread among five buildings located on one city block. The L.A. Times holdings include a parking garage and an adjacent vacant land parcel estimated at two acres.

Ken Doctor, a media analyst for Newsonomics, a web site devoted to the transformation of consumer media in the digital age, tells GlobeSt.com that the value of news companies “have gone down by about 90% over the last ten years. Newspaper brokers say that in the deals of the last three, four years, on average, real estate made up half of the value of the transaction.”

Facing that declining market, Doctor says many newspaper companies have sold their office buildings and moved to more distant, cheaper suburban locations. But even while holding valuable real estate, newspapers may have trouble finding eager buyers, even among developers. “Newspaper companies as entities are troubled assets, so they tend to throw off profit of 5% to 10% with constant cutting. So they're not stable enterprises for cash flow. And while you're getting the real estate, you're getting the headache along with it. The decline in these companies has really paralleled the wider economy.”

He estimated that the Tribune Co. probably faces roughly a year-long process as it prepares to spin off its publishing. “It's not clear the exact scale of tax benefits,” he says. “They are open to (selling), but they're not clear on the odds of it.”

Mark Tarczynski, an EVP at Colliers International, cited Zell's ownership of the media properties as a key to understanding what's going on. “Sam Zell is a real estate magnate, so he's not stupid. I don't think he bought the company for the papers' value. I think he bought it for the real estate. The market didn't go his way when he bought it, but the market, at least in L.A., has come back significantly.”

Tarczynski says the Chandler family, whose trust owned the L.A. Times for many years, may still retain a significant interest in the real estate. “I haven't torn through the filings to figure it out, so I'm not sure that Zell will be realizing much out of that particular piece.”

The Times Mirror Square buildings are also potentially encumbered by their historical value, which would require buyers to make careful evaluations and review maintenance on the features inside and outside the building, Tarczynski says. One positive, he notes, is that L.A. has a readaptive use ordinance, which says that any building built prior to 1974 has a right to be redeveloped into anything without going into zoning variances, making it profitable to take an existing structure and redevelop it into hotels or other uses.

Michael Soto, a research manager with Transwestern in L.A., says there may be a market for the Times Mirror properties as an office building. He notes that two big leases were recently signed for vacant space within the Times Mirror Square properties by the L.A. City Employees Retirement System (LACERS) and VXI Global Solutions. “It shows you that there are tenants looking around downtown L.A. that aren't looking for class-A skyscrapers,” Soto says. On the other hand, he notes, “the downtown office market is still a little challenged. It's still a government and financial services market.”

Still, Soto says there have been several high-priced sales downtown recently, including the US Bank Tower. “There's opportunity there. Interest is high.”

Nancy Sullivan, VP of communications at the L.A. Times, tells GlobeSt.com that the company has “a longstanding practice of declining comment on speculation, which is what this is.”

As previously reported by GlobeSt.com, the tallest building in the West, the US Bank Tower, was sold for $376.5 million. The deal closed last month.