Talk has deal coming for 50% interest in Century City Towers.

A JMB Realty affiliate may soon transfer its 50 percent interest in Century City's signature landmark -- the Century Plaza Towers -- to a lender consortium led by Citicorp Real Estate, sources have told the Business Journal.

The half-interest in the 2.25 million-square foot, twin 44-story office towers -- and the land under the adjacent ABC Entertainment Center retail plaza and office complex -- represents a portion of the collateral securing a loan Citicorp and other lenders extended to a partnership known as AP Properties, of which Chicago-based JMB Realty is general partner.

JMB Realty Corp. Executive Vice President Stuart C. Nathan confirmed that the borrowers have been negotiating to restructure their debt to the banking group for months, and that giving up the interest in Century Plaza Towers is one of "several alternatives" under consideration. A new arrangement should be finalized "within 30 to 60 days," Nathan added.

However, at least two other sources close to the negotiations have indicated that Citicorp's acquisition of AP Properties' interest in the property is imminent if AP doesn't refinance and pay off the outstanding debt by Feb. 12. The sources also stated that the new arrangement will include a new line of credit for the AP group.

Citicorp Real Estate officials couldn't be reached for comment.

Spokespeople for Prudential Real Estate Group, the other partner in the Towers property, wouldn't comment on the ownership-change talk, but didn't deny that Prudential is preparing to assume the management and leasing functions that a JMB management subsidiary has been performing.

AP Properties is purely a "corporate entity" and involves no "institutional" investors such as the many public and private pension funds for which JMB acts as fiduciary in other real estate investments, Nathan stressed. Other knowledgeable sources noted that AP's initial equity contribution was in the $50 million to $60 million range, and that the loan exceeded $200 million.

AP Properties used funds from the Citicorp-led creditor group to acquire a portfolio of properties from Aluminum Co. of America in 1986. Among them were the partnership interest in the Towers property, the Century Plaza Hotel, the site on which the new 1999 Avenue of The Stars highrise was developed, smaller Century City properties and parking structures, and hotels in Alabama and North Carolina.

An Alcoa subsidiary, Century City Inc., had developed the twin towers in a joint venture with a Prudential Insurance Co. affiliate in the mid-1970s. The acquisition did not include other Century City highrises JMB affiliates control, such as 1801 and 1888 Century Park East and 10100 Santa Monica.

Nathan noted that JMB's plan entailed refinancing portions of the debt through other sources well before the balance would become due. This happened with the Century Plaza Hotel and the 1999 Avenue of The Stars site, and AP consequently has been able to reduce the original loan balance by "more than 40 percent," Nathan explained.

But following this course has become difficult because capital markets have abandoned investing in commercial real estate assets as regulators have mandated that lenders reduce exposure to office properties in particular.

"The plan would have worked, but liquidity has evaporated," Nathan lamented.

Also, rental revenues and occupancy levels -- and hence property values -- have fallen substantially even at the portfolio's best positioned properties, such as the Towers.

Nathan also noted that the "non-recourse debt" is secured only by the real estate assets AP Properties acquired with the funding. The partnership interest in the Century Plaza Towers property is the only developed property involved in the restructuring negotiations, he added.

Prudential has retained its half interest in the Century Plaza Towers at 2029 and 2049 Century Park East and the adjacent land, including the six-level parking facility below the ABC Entertainment Center, since the property was developed. The towers are 79 percent occupied and include at least one contiguous block of empty office space exceeding 100,000 square feet.

While Prudential and Citicorp as co-owners would constitute strange bedfellows, it wouldn't be the first time Citicorp has taken back properties from distressed loans to a JMB affiliate.

JMB led a group of institutional investors in the late 1980s acquisition of London-based developer Randsworth PLC and its United Kingdom property portfolio. Citicorp was the lead lender on this acquisition as well.

After London property values plummeted -- eroding the investors' equity in the portfolio -- negotiations to restructure the loan fell through and Citicorp foreclosed on the collateral assets.