Breaking up is hard to do.

Maguire-Thomas split raises questions about financial health

DOWNTOWN L.A. - When the two partners behind L.A.'s most visible commercial real estate firm announced last week their plans to separate, they left out some important details.

Like the firm's viability.

What Maguire Thomas Partners' longtime co-managing partners Rob Maguire and Jim Thomas didn't announce - and have declined to discuss - was the recession-related financial distress that some well-placed sources say is at least partly responsible for the break-up.

The distress wrought by high mortgages and L.A.'s depressed office rents threatens MTP's control over some of the high-profile projects the firm has created over the last two decades.

That includes downtown L.A.'s 72-story First Interstate World Center - the West's tallest tower - and Santa Monica's 1.3 million-square-foot MGM Plaza lowrise campus.

While neither Maguire nor Thomas was available to answer any questions about the "realignment" or other topics, Maguire in the past has vehemently denied negative speculation about the firm's financial fortunes. And he has insisted that no near-term change of ownership is imminent at any MTP property.

However, the firm's finances and other factors - primarily prohibitive "infrastructure" costs - are said to be wreaking havoc with the massive Marina del Rey-adjacent Playa Vista planned community, of which Maguire Thomas is the lead development partner.

Several sources confirmed that if DreamWorks SKG goes ahead with announced plans to locate at Playa Vista, it will likely buy a key portion of the 1,087-acre site and develop its studio project - without MTP's direct participation.

This would run counter to earlier plans that the development firm and the entertainment start-up would team up on a venture to develop the studio complex.

DreamWorks executives declined to comment on the situation.

MTP is arguably L.A.'s highest-profile commercial developer, identified with mega-projects throughout Southern California.

But sources close to MTP stressed that a 2-year string of executive defections reflects financial uncertainty, as well as dissatisfaction with Maguire's refusal to give high-level associates adequate equity in the firm and its ventures.

Last week's long-expected announcement of the Maguire/Thomas realignment only heightened predictions that MTP is bound to lose control of its key assets.

High mortgage debts placed when property values were peaking a few years ago have depleted much of MTP-led partnerships' equity in real estate ventures as rental rates and property values cratered during the recession, sources explained.

And that leaves the partnerships vulnerable to property takeovers by lenders or outside investors cutting deals with the lenders.

Sources have told the Business Journal that MTP's current and would-be construction/mortgage lenders had asked the Maguire-Thomas brass to cut overhead as they restructure existing real estate-secured debt and pursue additional financing for Playa Vista and a new Glendale development project. Maguire has insisted those comments are not true.

But firm founder Maguire has lost nearly all of his previous senior-most executives over the last two years.

Knowledgeable sources confirm that concerns about the MTP portfolio's ominous financial picture were a primary motivation behind many of the top-level executive departures.

Another key factor, they stressed, was Maguire's unwillingness to offer senior people - other than Thomas - significant equity stakes in the firm's ventures.

The defections started about two years ago, when former MTP Senior Partner Nelson Rising - the firm's most visible executive - left to take the helm at Catellus Development Corp.

Sources said Maguire knew nothing about Rising's discussions with Catellus until news of those talks hit the press.

Then last summer, MTP's two other senior partners - Ned Fox and Rick Gilchrist - confirmed that they planned to launch their own real estate venture. Their firm, CommonWealth Partners, includes four other ex-MTP higher-ups Mike Croft, Jim Anderson, Peter Johnston and Brett Munger.

Two months later, the firm laid off 17 employees at its downtown L.A. headquarters as part of what Maguire called a "painful-but-necessary organizational restructuring" in response to the protracted downturn in the commercial real estate field.

As rumors circulated that MTP's biggest lenders had approved a plan through which Thomas would exit their partnership of 20 years, both Maguire and Thomas declined repeated requests for interviews.

Instead, they released a general press statement last week, noting that they have "agreed to change our partnership" because they've "arrived at a time in our careers where we have different goals which we want to pursue."

The statement indicated that Maguire will remain managing partner of MTP, while Thomas - principal owner of the Sacramento Kings basketball franchise - and "several former associates" have established Thomas Development Partners.

That firm will take over MTP's interest in the Commerce Square twin high-rise project in downtown Philadelphia. Its other projects will include: the Arco Arena, where the Sacramento Kings play; the Sacramento Sports & Entertainment Center, planned on 100 arena-adjacent acres; and a 1 million-square-foot development in downtown Sacramento slated to house the state's Environmental Protection Agency.

Maguire and Thomas will remain partners in Playa Vista, while MTP will remain the asset manager of the firm's other projects, primarily here in the L.A. area but also including a large corporate campus development in suburban Dallas.

The statement also noted that MTP is planning to pursue 6 million square feet of new development projects valued at $1.2 billion.

Sources noted that Maguire has found it necessary to seek new capital from various sources as MTP's finances have suffered over the past two years.

Maguire went on an international "road show" in mid-1994, seeking to raise at least $320 million in equity investments from three or four major institutions that would become part owners of most of the big properties MTP developed in joint ventures with IBM Corp. The private real estate investment trust that Maguire was hoping to form, and which he discussed openly upon his return from his fund-seeking trip, never materialized.

Early last year, the MTP-affiliated partnership that owns a senior housing project in downtown L.A. took out a new $17 million mortgagee from Manufacturers Bank. And sources have also confirmed that an MTP Bank of America venture is trying to sell the Glendale office tower that the partnership renovated and filled with high-profile entertainment tenants.