Maguire Properties Inc., the largest office landlord in downtown Los Angeles, may relinquish control of seven Southern California buildings with $1.06 billion of debt and said it does not plan to file for bankruptcy.
The Los Angeles company said Monday that it told lenders "it will no longer continue to fund the cash shortfall" on the mortgages for six buildings.
Two properties are in default and Maguire said it already surrendered one building to a lender.
"We are not considering bankruptcy," Chief Executive Officer Nelson Rising said Monday on a conference call. "And we feel the course we're on is a far better course of action."
Maguire's decision is a sign that landlords in Southern California's overleveraged office market can no longer make payments and may be forced to abandon properties.
Maguire has been trying to sell buildings to pay debt incurred in 2007 when it purchased properties from Blackstone Group LP.
Loans against six properties were split up into commercial mortgage-backed securities and resold to investors.
"It does highlight the credit problems associated with recent vintage CMBS loans and a trend in borrower behavior to increasingly walk away," said Barclays Capital Research analysts Aaron Bryson and Tee Yong Chu in a research note Monday.
Maguire paid $2.88 billion in 2007 for 24 office properties and 11 development sites. The subsequent credit market freeze blocked Maguire's plans to refinance.