Century City tower handed over to mortgage lender after default.

An affiliate of mortgage lender Aetna Life Insurance Co. has taken title to one of Century City's biggest office towers - the 605,657-square-foot Century City North at 10100 Santa Monica Blvd. - through a "deed in lieu of foreclosure."

The June 9 transaction is the latest in a long string of "over-financed" local commercial properties taken back by lenders.

Title records indicate Aetna has been pursuing foreclosure proceedings against the 26-story tower's former owner, a partnership affiliated with big Chicago developer/manager JMB Realty Corp.

The "notice of default" recorded on L.A. County title records last Feb. 3 states that JMB Income Properties Ltd. VI failed to make its mortgage payment due Jan. 1. As of Feb. 1, the amount in arrears exceeded $2.8 million. The "notice of trustee's sale" recorded May 8 specifies that the total balance due as of May 4 was just under $109 million.

The trustee's sale notice scheduled the formal foreclosure transaction for May 30. However, that foreclosure sale didn't occur on that date. But on June 9, the JMB partnership deeded the property over to Aetna affiliate Century City North LLC in lieu of the mortgage debt.

Buying into Century City

The JMB partnership purchased Century City North in 1985, with a $92 million Aetna mortgage financing the bulk of the purchase. Other acquisitions later brought JMB and affiliates control of about half the office space in Century City.

And the deeding back of Century City North isn't the first - or the biggest - JMB acquisition to go sour as the local office market softened during the early 1990s.

The biggest purchase by a JMB affiliate was a half-interest in the submarket's signature Century Plaza towers, Century Plaza hotel, adjacent development sites and other assets. But that also faltered when the affiliate deeded back its remaining interest in the portfolio to a lender group headed by Citicorp Real Estate Inc.

JMB Realty's big institutional advisory and property management/leasing divisions were recently sold to another Chicago-based real estate investment/management giant, Heitman Financial Ltd. That firm's Heitman Properties Ltd. affiliate will continue to manage and lease the property under Aetna's ownership, Aetna Real Estate Investments Managing Director Stephan Pilch confirmed.

Abatement program needed

The 1972-vintage Century City North tower is about 90 percent leased, primarily to professional and entertainment firms. Pilch noted that asbestos needs to be contained or removed from the approximately half of the building that hasn't yet seen such an abatement program.

Some sources concluded that Aetna plans to hold onto the property at least for the short term and embark on a lobby/common area renovation program. But Pilch said Aetna hasn't yet finalized any specific plans for the "high-quality asset."

Sources also noted that several well-known local and national investors have discussed potential acquisitions with JMB and Aetna executives, but no deal ever closed.

One source familiar with the property said recent "assistance" leases at "aggressive" rental rates probably reduced the property's long-term investment value by at least $5 million. Pilch said he couldn't comment on that assessment specifically but he did acknowledge that the JMB/Heitman has faced a "tough situation" without access to substantial cash for further office build-out improvements.