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CIM Commercial Puts $1.3 Billion of Office Properties on the Market

Sales in Oakland, California, and Washington, D.C., Area Aimed at Boosting Access to Public Markets
October 8, 2018
CIM Commercial Trust plans to take advantage of heavy leasing demand in the office market in Oakland, California, in its recapitalization plan.

CIM Commercial Trust, 95 percent-owned by a group of institutional investors, said it is taking advantage of heavy demand in Oakland, California, and Washington, D.C., by putting as much as $1.3 billion of top-rated offices up for sale.

The real estate investment trust is preparing for a potential recapitalization in an effort to open up more ownership to a broader public market. The plan is designed to unlock what the company considers embedded value while enhancing its growth prospects and trading liquidity.

The plan includes selling stabilized Class A offices in Oakland as well as nearby San Francisco, and in Washington, D.C., to unlock embedded value that has been created since 2005. CIM Commercial Trust owns 10 assets totaling 2.7 million square feet in those markets.

More than 1.75 million square feet of the properties are being targeted for sale in downtown Oakland, a market where Class A office properties are in heavy leasing demand that's pushing up property values. The vacancy rate has fallen to 6.5 percent and is tightening further, while office sales prices per square foot on average have risen 6.7 percent in the past year to $464, according to CoStar data.

Building on that demand, CIM would use the net proceeds from those asset sales after repaying all senior corporate debt to return about $23 per share to common stockholders.

The two primary markets where CIM is looking to sell have been strong performers.

Market rents for Class A properties in downtown Oakland have risen about 1.6 percent in the past year to $54 per square foot on average. CIM Commercial lists the current annualized rentals for the properties it is targeting for sale in Oakland, ranging from about $41 per square foot to $45, amounts substantially lower than the going rate.

In Washington, CIM will be marketing three properties totaling about 878,000 square feet in Capitol Hill. The vacancy rate in the CIM properties is hovering around 95 percent but they are in an area where the vacancy rate is 20 percent overall and there's more empty space coming on the market than being filled, according to CoStar data.

One of the properties targeted for sale at 999 N. Capitol St. NE in Washington, D.C.

As a result, sales prices in that area have remained relatively flat over the past two years, leveling out at about $574 per square foot.

Certain officers and directors of the REIT plan to reinvest about $11 million of the proceeds from the sales into newly issued common shares. That group would then own about 6 percent of the REIT following the recapitalization.

CIM also intends to dissolve CIM REIT, which holds 95 percent of CIM Commercial Trust's outstanding common stock. The shares of CIM REIT’s 27 institutional partners would be offered publicly.

The public would then own the remaining portion, about 94 percent, of its shares in a move that would increase its trading liquidity and access to capital, the company said.

Following a recapitalization, the REIT's debt-to-total capitalization would decline to 4 percent from 32 percent, opening new opportunities for borrowing to regrow its portfolio.

CIM owns and operates office assets in urban markets across the country, including downtown areas and suburban main streets with high population density. Los Angeles-based CIM Group sponsors and manages the REIT with holdings in Los Angeles, Oakland, Washington, New York, Chicago, Austin, Texas; and Phoenix.

As of June 30, its real estate portfolio consisted of 19 office properties totaling 3.4 million rentable square feet, two development sites and one 503-room hotel.

The office properties were 94 percent occupied as of June 30 and contributed 73 percent of the REIT's revenue, while the hotel contributed 21 percent. Its lending segment contributed the remaining 6 percent.

After a recapitalization CIM Commercial Trust would remain principally focused on Class A and creative office assets. However, in a presentation to shareholders filed with the Securities & Exchange Commission, the REIT said it also might participate more actively in other urban real estate strategies and product types.

Following a potential recapitalization, CIM Commercial Trust would have total net assets at fair value of about $607 million with operating properties in Los Angeles, San Francisco, Sacramento, California; and Austin. Its aggregate in-place rents on remaining office properties would be well below market, the company said. It would also still own development sites in Oakland, Austin, Washington and Sacramento.

Properties Targeted For Sale

Address -- Market -- Square Footage

  • 1 Kaiser Plaza -- Oakland -- 534,423

  • 2101 Webster St. -- Oakland -- 471,337

  • 1901 Harrison St. -- Oakland -- 280,610

  • 1333 Broadway -- Oakland -- 251,155

  • 2100 Franklin St. -- Oakland -- 216,828

  • 2353 Webster St. Parking Garage -- Oakland

  • 260 Townsend St. -- San Francisco -- 66,682

  • 999 N. Capitol St. -- Washington, D.C. -- 315,983

  • 899 N. Capitol St. -- Washington, D.C. -- 314,667

  • 830 1st St. -- Washington, D.C. -- 247,337

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