Newest real estate trend: REITs buying other REITs.

Saying the supply of bargain office buildings is dwindling, some local real estate leaders are predicting that the next trend among real estate investment trusts will be to buy other REITs, or private portfolios of office space.

"The building acquisition game" will soon be over because most bargain office buildings have already been purchased, Richard Zimon, chairman and chief executive of Arden Realty Corp., said at a recent real estate forum.

"And that leaves three avenues of growth, foremost being growth through acquisition of other portfolios and REITs," said Zimon, whose Beverly Hills-based REIT is the largest office property owner in Southern California, with more than 2.7 million square feet of office space and 2.5 million of industrial space.

"Hopefully, we're not on anyone's list," he said later. "But either way, it's not going to change our strategy."

The trend is already happening elsewhere. In one of the largest real-estate transactions of the year, Chicago-based Equity Office Properties Trusts offered to buy Boston-based Beacon Properties Corp. earlier this month.

From a transaction standpoint, the Equity Office acquisition has a small impact on the L.A. office market. If Equity Office's purchase of Beacon is approved by shareholders, the Chicago-based REIT will add two more L.A. office buildings to its portfolio: Saban Plaza at 10960 Wilshire Blvd. in Westwood and the Wilshire at Westwood Building at 10880 Wilshire.

The two properties in Equity's office portfolio are Two California Plaza in downtown and the 800 Colorado Building in Pasadena. Equity Office is also in negotiations to purchase 550 Hope Tower in the downtown highrise core.

But the deal might influence the future of L.A.'s office market, from Equity Office's investments in the county to strategic decisions by local real estate owners.

Financier Sam Zell, chief executive of Equity Office, suggested in a speech last Wednesday that he will continue to have an interest in L.A.'s downtown office market.

"People ask me why I made investments in L.A., and I tell them that someone invested $20 million to $30 million (decades ago) in an expressway system that goes to L.A.," he said. But the days of unlimited infrastructure construction are over, he said, so now central geographic locations will become increasingly important.

"The reality of sourcing employees is going to become more important than locating the office near where the boss lives," he said.

The Equity Office deal further assured owners of premium office space that they can make a handsome profit by selling now. Equity Office bought Beacon at an astounding price - a 22 percent premium over Beacon's closing price on Sept. 12, the day before the offer was made.

As prices for commercial property reach their near-term highs, Richard Klein, a partner at E&Y/Kenneth Leventhal, said he increasingly urges his clients to consider merging into a REIT or becoming a REIT.

"Any company that has a large portfolio of real estate either has or should be evaluating the possibility of selling their property or becoming a REIT," Klein said. "And they should continue to revisit their decision.

Earlier this summer, Transpacific Development Corp. had been exploring the possibility of forming its own real estate investment trust. Now the Torrance-based development and property management company is rumored to be considering becoming acquired by another REIT.

Menlo Park-based Speiker Properties, Washington D.C.-based CarrAmerica Realty Corp. and Arden are among the bidders for TDC's portfolio of 3 million square feet of office buildings in California, Arizona and Hawaii.

TDC owns the 950,000-square-foot Santa Monica Business Park, the 300,000-square-foot Marina Business Center in Marina del Rey and the 385,000-square-foot Cerritos Towne Center, as well as a 50,000-square-foot speculative office project currently under construction in Cerritos.

Although some private owners of office portfolios say the Equity Office deal made it clear that they could sell their buildings at a tidy profit, they say there's money to be made by holding onto their buildings, too.

The California Teacher's Retirement System, a pension fund that manages about 1 million square feet of offices on the Westside, insists that its properties aren't for sale - although that doesn't stop real estate brokers from calling to inquire at least once each week, said Gary Newmeier, portfolio manager for CalSTERS with Westmark Realty Advisers.

Newmeier noted that CalSTERS's investments will continue to generate revenue because there's little office development planned for the Westside, rents are projected to rise and CalSTERS's buildings are up-to-date in their tenant improvements.