Partnership buys Woodland Hills Blue Cross building.

Industry talk puts purchase price at some $77 million

A partnership headed by a local real estate entrepreneur and a well-known "distressed asset" investor -- both with substantial ties to fallen investment house Drexel Burnham Lambert Inc. -- quietly purchased Blue Cross of California's Woodland Hills headquarters building last month from an affiliate of Chicago-based JMB Realty Corp., according to informed real estate sources.

The deal ranks among the biggest L.A. commercial property purchases this year.

The primary players said to be behind the acquisition are Westwood-based developer Abraham I. "Avi" Lerner and New York investment whiz Leon Black.

Officials at the Lerner and Black organizations didn't return calls last week seeking confirmation of their respective roles in the purchase. Nor could the purchase price specified by two reliable sources -- about $77 million -- be independently confirmed.

Title records show that a California limited partnership called TA/Warner Center Associates L.P. acquired the 427,000-square-foot office tower in the heart of the Warner Center commercial district on Nov. 2.

Several knowledgeable sources identified Lerner as the leading figure behind the deal -- and his Trident Group Inc. operating entity as the "T" in TA. Lerner has developed such high-profile retail properties as the original Century City Shopping Center and the Beverly Connection.

Lerner and partners -- reportedly including Drexel "junk bond king" Michael Milken -- also owned Drexel's former local headquarters complex at Wilshire Boulevard and Rodeo Drive in Beverly Hills. After Drexel's collapse, the Lerner-led partnerships that owned the property sought bankruptcy protection before relinquishing ownership to chief creditor Citicorp Real Estate in October.

Black, who headed Drexel's mergers and acquisitions department, now heads the Purchase, N.Y.-based Apollo Advisors institutional investment management organization, which is reportedly backed by big European bank Credit Lyonnais. Sources said Apollo is the "A" in the TA partnership.

Known as an aggressive buyer of distressed assets in a diverse range of industries, Black represented the French investment team which in September bought failed West L.A. insurer Executive Life Co.'s huge junk bond portfolio. Executive Life reportedly purchased much of that portfolio through Drexel and Milken.

Just last month, the Black-led Apollo Real Estate Investments fund reportedly invested $160 million into mortgage bonds secured by three New York office towers owned by the U.S. affiliate of troubled Toronto mega-developer Olympia & York Developments Ltd.

Even more recently, an Apollo affiliate made local news by agreeing to spend about $169 million -- in partnership with the Blue Cross building's seller - to acquire a debt-strapped property portfolio from a publicly traded real estate partnership affiliated with California Federal Bank.

While the Blue Cross headquarters isn't considered a distressed asset, its seller's recent financial problems have been documented in many published reports. Real estate partnerships managed by JMB Realty Corp. - and funded primarily by its extensive roster of institutional partners - were among the most aggressive players during the 1980s.

After acquiring a significant stake in the Century City office market during the mid-1980s, JMB's local operatives targeted the Warner Center district and negotiated a high-profile "sale-leaseback" deal with Blue Cross in December 1987 - when the big health insurer was teetering on insolvency. JMB Realty Corp. is general partner of the two investment funds, collectively dubbed JMB/Warner Center Associates, that bought the building from Blue Cross for $90 million and leased it back to the insurer for 15 years.

Two years later, JMB's development affiliate established a partnership with Blue Cross to jointly develop the balance of the 25-acre site surrounding the insurer's home office. After demand for new Warner Center office space dwindled amid the snowballing local real estate recession, the JMB affiliate sold that joint venture interest back to the suddenly prosperous health insurer in September 1992. Last December, a Blue Cross spokesman told the Business Journal that the insurer was also discussing a re-purchase of the office tower.

The Business Journal has also reported that a JMB-led partnership -- unable to repay the past-due loan funding its Century City entree -- will soon relinquish its interest in the signature Century Plaza Towers complex to a lender consortium headed by Citicorp Real Estate.

To some extent, problems akin to the Century City situation probably influenced the JMB/Warner partners' sale of the Blue Cross building in a "down market" despite the insurer's long-term lease, sources suggested. Executives apparently opted to take an immediate cash infusion, perhaps in the $20 million range, but record a substantial loss on the investment, some sources concluded.

Several also noted that a former senior executive with JMB's local operations -- Tucson-based independent consultant Neal Gumbin -- brokered the sale. Gumbin wasn't available for comment.

Officials at Blue Cross and Prudential Realty Group -- which helped finance JMB/Warner's purchase -- noted that the Prudential mortgage and the Blue Cross lease weren't affected by the recent sale. Blue Cross' lease of the entire building -- which presumably supported the $90 million 1987 purchase price -- runs through the year 2003, said John Simone, the health insurer's top corporate real estate executive.