Midwest grain firm wants piece of L.A.

Cargill Inc.'s run at the $125 million purchase of the MCI Center downtown may appear out of step with the food and grain producer's core business, but the pending deal fits with both its investment strategy and its relationship with the property's management firm.

The $60 billion agribusiness conglomerate's Financial Markets Group has invested more than $5 billion in real estate, loans and other assets since 1988. It specializes in acquiring underperforming assets through foreclosure, buying non-institutional quality properties and those with low occupancy and rents levels.

It also has ties to Beverly Hills-based Kennedy-Wilson Inc., which represents MCI Center seller Girec Corp. and manages the project.

The companies struck a deal in 1999 to acquire distressed loans on Japanese real estate, according to Kennedy-Wilson filings with the Securities and Exchange Commission. Cargill's wholly-owned subsidiary, Cargill International Trading Pte Ltd., has a 6 percent stake in Kennedy-Wilson Japan. Once its Japanese real estate investment arm, Kennedy-Wilson has divested its interests in the business.

As it nears a deal to buy MCI Center, a 2.5 million-square-foot downtown complex that includes a 678,000-square-foot office building, the Macy's Plaza retail center and the 485-room Hyatt Regency Los Angeles, a source familiar with the deal said Kennedy-Wilson will stay on as asset manager and may be an equity participant.

The companies made an unsuccessful joint run at Arco Plaza earlier in the year, according to a source familiar with the marketing of that property.

Tim Clark, executive vice president at Minnetonka, Minn.-based Cargill, declined comment, while Kennedy-Wilson officials did not return calls.

Matching the checklist

While its retail component is nearly full, MCI appears to fit Cargill's criteria in other areas. The 30-year-old office building's 20 percent vacancy rate matches the level of downtown's Class-A market and another 2 percent of the building is available for sublease, according to CB Richard Ellis.

Average rents for the office building are $1.94 a foot, about 15 percent less than the $2.27 a foot asking rate for comparable space downtown. The hotel is in the midst of a downtown market where year-to-date occupancy is just 49 percent, versus 70 percent countywide.

Though not distressed, owner Girec Corp. is a subsidiary of Mizuho Financial Group, the world's largest bank. With more than $1 trillion in assets, Mizuho claimed $7.4 billion in losses for the year ended March 31, and has been cutting employment and divesting branches and real estate holdings worldwide.

During the past few years, Cargill has been quietly amassing properties around the world, many with Kennedy-Wilson as an operating partner.

Last year, it became partners with publicly traded Kennedy-Wilson in the purchase of a 590-unit apartment building in Dallas and a 164,000-square-foot building in San Antonio. In 2000, Cargill teamed with Lighthouse Real Estate Ventures to buy a 373,000-square-foot office building in New York for about $50 million.

The deal for the purchase of MCI Center cleared a hurdle last week when Cargill reached an agreement with Local 11 of the Hotel Employees and Restaurant Employees International Union to keep its 200 union employees, according to Councilwoman Jan Perry, who helped broker the deal.

"My purpose was to make sure the workers were protected," said Perry, who said she did not know the status of purchase negotiations.

Cargill is the latest investor to make a run at MCI Center since it was put on the market in June. In August, CIM Group Inc., which broke ground on its $247 million South Village mixed-use project across the street from MCI Center in May, was near an agreement with Girec and engaged in preliminary discussions with HERE, according to Perry, but the deal fell through.

Known as Broadway Plaza when opened in 1973, the mixed-use complex was renamed MCI Center when the telecommunications giant signed a long-term lease in the office tower in 1993. The retail component was renamed Macy's Plaza in 1996, the year after Federated Department Stores Inc. acquired the chain.

Girec bought MCI Center in 1987 for a reported $210 million.

Staff Reporter Andy Firmer contributed to this story.