LOS ANGELES-Downtown's City National Plaza may soon be available. A complicated agreement between its current joint venture owners that contains a lot of "ifs" must decide its fate by the end of this month.
Thomas Properties Group and its longtime investment partner, California State Teachers' Retirement System (CalSTRS), have signed an agreement on several properties they own in a joint venture called TPG/CalSTRS LLC. The properties include City National Plaza in downtown L.A., CityWestPlace and San Felipe Plaza in Houston, and three undisclosed properties in Northern Virginia.
The new agreement gives Thomas Properties two options that they must exercise by the end of this month: (1) They can end this particular joint venture and give City National Plaza to CalSTRS, while retaining the out-of-state properties; or (2) Can acquire all of CalSTRS' interests in the joint venture and its properties. If Thomas does not act on either option before the end of the month, CalSTRS has the right under the agreement to have City National Plaza transferred to its control.
A company spokesperson for the joint venture tells GlobeSt.com that CalSTRS has “reached its value targets for the investments and wants to redeploy” its funds. Although the final decision has not been made by Thomas on which option it will exercise, CalSTRS would sell the City National Plaza building if it acquires it, the spokesperson says.
If Thomas Properties elects to liquidate the joint venture and take a distribution of the Houston and Northern Virginia assets, Thomas Properties will make an equity contribution of approximately $163 million into the joint venture. If Thomas Properties elects to redeem CalSTRS completely out of the joint venture, Thomas Properties will make an equity contribution of approximately $678 million to the joint venture to be distributed to CalSTRS.
Thomas Properties has significant cash on hand as a result of its non-core disposition activity and is also in advanced discussions with potential capital providers to assist in funding these contributions. Thomas would have until Sept. 30 of this year to complete the transaction.
The twin towers of City National Plaza have 2.5 million square feet and were acquired by the joint venture in 2003. At the time of purchase, it had approximately 20% occupancy. Under Thomas Properties' management, the project's infrastructure has been upgraded, and the project has attained LEED gold certification. It also has attracted two top-tier plaza level restaurants and is now close to 90% leased.
“We view this opportunity as transformative, allowing us to make further progress toward achieving our strategic plan of acquiring wholly owned or controlled properties in attractive growth markets,” said Thomas Properties chairman and CEO James A. Thomas in a prepared statement.
“Thomas Properties has achieved great results with these joint venture properties, creating significant value since the venture acquired them,” said Mike DiRe, managing director of real estate for CalSTRS, in a prepared statement. “We determined that now is the time to monetize our investment in this venture, and we look forward to continuing our successful relationship with Thomas Properties.”
Thomas Properties Group and CalSTRS are also partners in a separate joint venture that owns approximately 2.5 million square feet of office space in downtown Austin, TX. Thomas Properties also serves as an investment advisor to CalSTRS on about 930,000 rentable square feet of office space, and was recently selected to continue to be a separate account manager for CalSTRS.
As previously reported by GlobeSt.com, the lagging office market may reflect broader changes in the nature of collaborative working environments, say executives from Newmark Grubb Knight Frank.
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