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Countrywide Offices Sold

The expansive complex of offices that served Countrywide Financial Services during the housing boom has turned into a big real estate play by veteran L.A. developer Nelson Rising. His company, Rising Realty Partners, has spent $200 million to acquire a vast 1.75 million-square-foot portfolio of 10 office buildings from the Conejo to Antelope valleys. The portfolio includes the former headquarters of Countrywide in Calabasas and was acquired from Bank of America Corp., which inherited the space when it bought the mortgage lender in 2008. The Charlotte, N.C. bank, which is traditionally not an office owner, still occupies some of the buildings in a lease-back arrangement but has vacated others. Real estate industry insiders believe that Rising, a 72-year-old resident of La Cañada Flintridge, has little intent to keep the space long-term given that he paid roughly $114 a square foot for the portfolio – and several buildings could be sold off for more on a piecemeal basis. “This is a really gutsy play,” said Fred Córdova, executive vice president at the brokerage group of Kennedy Wilson Holdings Inc. in Beverly Hills. “But I expect they’ll get in, upgrade and get out. There’s zero chance this is a long-term move.” The deal, which closed Nov. 15 but has remained under the radar, set Rising back $200 million, and was financed with a 34 percent down payment and a more than $131 million loan from the New York office of Deutsche Bank AG, according to real estate data firm CoStar Group Inc. The portfolio consists of three buildings in Simi Valley; two in Lancaster, which were telephone call centers before the bank exited; two in Agoura Hills; and one each in Thousand Oaks, Calabasas and Westlake Village. Bank of America said all the buildings include mortgage servicing operations, but would not otherwise provide details. Office properties in the most desirable of the markets, the greater Conejo Valley area, range in costs. Either way, the portfolio average price of $114 a square foot that Rising paid is well below average. The highest price per square foot deal on large properties in the area in the last 18 months was the $98 million purchase of the Westlake Park Place at 3011 Townsgate Road in January, according to data from the L.A. office of Colliers International. That deal, which included buildings about five years old, sold at about $410 a square foot. On the lower end, a 65,000-square-foot office in Westlake Village sold in late 2012 at about $129 a square foot. Six of the buildings in the Rising portfolio were built in the ’80s, with most of the other buildings in the last 15 years or so, which may have contributed to the lower price. Rising, who founded his company two years ago after a stint as chief executive of defunct downtown high-rise landlord MPG Office Trust Inc., declined to comment. Past failures Countrywide built up its office space as it experienced huge growth during the housing boom – it originated or bought about $1.4 trillion in mortgages between 2005 and 2007 – before its acquisition by Bank of America. The bank has maintained a presence in the buildings through the recession, using them as everything from back office space to call centers. The bank wouldn’t discuss the acquisition costs or future tenancy at most of the properties. “We’re no longer in the Lancaster buildings, but we still have a presence in the others,” said Jennifer Darwin, communications manager for the bank. The gems of the deal are in Calabasas and the greater Conejo Valley, including a 167,742-square-foot Class A building at 225 W. Hillcrest Drive in Thousand Oaks and a 228,700-square-foot building at 4500 Park Granada in Calabasas – the former headquarters of Countrywide. The largest chunk of the portfolio is in Simi Valley, where the three properties add up to about 775,000 square feet. Two buildings have six-year leasebacks in place with the bank since the sale, but a 280,000-square-foot building at 2800 N. Madera Road has no lease back, according to Brian Gabler, director of economic development for the city. He said the city has already spoken with the bank and that it could vacate the structure by the end of the year. “Does it raise our concern? You bet,” Gabler said. “But these are not troubled assets. Rising wouldn’t buy this without some sort of plan.” Still, Simi Valley’s office market has been in decline for years, sustaining a big hit in 2010 when Farmers Insurance Group put 240,000 square feet back onto the market to consolidate in Woodland Hills. The building remains empty. The vacancy rate in the Simi Valley/Moorpark office market was the highest in the greater Valley region at 21.9 percent in the fourth quarter, according to the L.A. office of Colliers. In Lancaster, the two Class B properties total about 185,000 square feet and were corporate call centers built about 12 years ago. Rising is already open to lease or sale options, according to the city. “A major accounting firm could cut overhead 30 percent if they moved to Lancaster,” said Mayor R. Rex Parris. “That’s the type of employee we are looking for to move in – white collar office workers.” Scott Silverstein, principal at the Calabasas office of Lee & Associates, isn’t quite as bullish on the Antelope Valley. Still, he said Rising doesn’t need to break the bank in each market to make the acquisition an overall success. “It’s very common in this business that the parts are worth more than the whole,” he said. “Thousand Oaks, Westlake and Agoura will make up for smaller wins in Lancaster and Simi. Certain people have a Midas touch and he’s going to need that out there.” Veteran developer Silverstein noted, however, that Rising’s purchase is “high-risk, high-reward,” and added that his past experience makes it difficult to question. “He obviously has a pedigree of dealing with Class A properties. He has the history of a successful bet placer. He knows where to place his money at the window,” he said. Rising spent more than 10 years as chief executive of Catellus Development Corp., an L.A. real estate developer spun off from the Santa Fe Pacific Corp. railroad to develop its land holdings. He engineered its 2005 merger with ProLogis Inc. of San Francisco. He is most recently known for his attempt to turn around MPG, previously known as a Maguire Properties Inc., the company founded by Robert Maguire, the developer of the U.S. Bank Tower, the tallest high-rise in the West. Rising, who had worked with Maguire at his privately held Maguire Thomas Partners prior to his Catellus tenure, was brought in to MPG as chief executive in 2008. Maguire had been ousted after making the critical mistake of acquiring a $3 billion office portfolio at the height of the market in 2007, saddling the company with a huge debt load. But Rising too left MPG in November 2010 after a disagreement with the company’s board, reportedly over his desire to sell the firm, which last April was finally sold off for about $2 billion. Since starting his own firm, Rising has focused on acquisition and renovation, with three purchases in the company’s short history. Rising’s first acquisition was in April 2012, when it paid $60 million for the 460,000 square-foot PacMutual Campus overlooking Pershing Square in downtown. The purchase was a joint venture with New York investment firm Mount Kellett Capital Management LP and was financed mostly by a $52 million loan from Bank of America, according to CoStar. The company has since put about $25 million into the 115-year-old building, and last month it was certified LEED Platinum. In December, Rising picked up a three-property mixed-use office and restaurant portfolio in Pasadena totaling more than 60,000 square feet. The $10.9 million purchase was a joint venture with Internet entrepreneur David Sacks and financed in part with a more than $7.5 million loan from Bank of America, according to CoStar. Rising and Sacks announced plans to convert the Pasadena buildings into creative office space. Córdova from Kennedy Wilson believes Rising may consider a similar renovation with some of the Bank of America buildings. “If he puts some dough into these things and goes creative, he could definitely see some upside,” he said. “But some of those markets don’t have any demand.” He said the buildings don’t chop up easily for leasing to multiple smaller tenants and selling the properties one-by-one to institutional investors is the most likely outcome. From there, Córdova said the best potential tenants would be financial users or state agencies. “The kinds of users that take space this big are government and banks. Ideally, they’d get Chase or Wells Fargo to take right over,” he said. “I don’t know if I’d want to own some of these things, but I expect they’ll be taking offers to get out as soon as they come in.”

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