Maguire Sells Property...& Surges?

On Monday, Maguire Properties (MPG - Snapshot Report) announced the sale of 3161 Park Place in Irvine, CA. The 530,000 square foot office building was completed in 2007 and was only about 60% leased. The sale eliminated the company’s approximate $165 million construction loan on the property in addition to the elimination of other master lease obligations.

The property cost nearly $245 million to construct, including about $70 million for two parking garages; as such, Maguire sold the property at a large discount to construction costs.

Over the past year or so, Maguire has been trying to reduce debt. The company loaded up on debt at the wrong time and is now trying to unload properties at sometimes fire-sale pricing.

Also on Monday, MPG announced the government had rejected a 250k square foot former Washington Mutual lease at another building, Quintana Campus, in Irvine that the company owns in a joint venture. The building is now only 40% occupied and the lease rejection will force MPG to try to renegotiate the $106 million CMBS loan on the property.

Shares of Maguire shot up nearly 47% on Monday on an overall down day for REITs. The MSCI REIT index lost 5.25%. The surge in shares is puzzling as both events are negative. The sale price of Park Place is more evidence that office property values are plummeting, and the lease rejection could force a sale or lender seizure of the Quintana Campus.

We suspect that investors applaud any successful effort by MPG to pay down debt. Shares of MPG have dropped nearly 90% over the past year, and the shares could represent a bargain if the company can continue to pay down debt and stay afloat.

Maguire has eliminated it common and preferred dividends, and if the Southern CA office market does not improve -- that is sales and leasing -- MPG could become another casualty of the current CRE meltdown.

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