Younan Properties in Acquisition Mode

Zaya Younan is convinced many office real estate markets in the U.S. have hit bottom. And he’s wasting no time shifting Woodland Hills-based Younan Properties back into acquisition mode, which may involve tapping public markets. “There’s evidence the recession is leveling and deterioration slowing down,” said Younan. “The economy is still weak and fragile. But now it’s like a patient in a hospital being able to move around again. And I expect positive trends in office.” Younan said the company has spent the past two years strengthening its infrastructure. It increased its head count by 10 percent, including hiring many former Arden Realty executives. Most recently he brought on Robert Peddicord, Arden’s former COO. The company is currently studying market opportunities in Dallas, Houston, Chicago, San Fernando Valley, West Los Angeles, San Francisco, and Seattle. And Younan anticipates announcing a significant pipeline of acquisitions in the third quarter of 2010. “We have strengthened our infrastructure to prepare us for the next stage of growth, which we believe is a once in a lifetime opportunity,” said Younan. “It’s a good market for companies that are well capitalized to acquire assets.” Younan Properties, which he founded in 2002, is a privately held real estate investment and asset management company that acquires and manages Class A office properties in top office markets nationwide. Its portfolio includes more than 11 million square feet of space valued at more than a billion dollars. And the company employs 150. From 2002 to 2006, Younan focused largely on acquiring and managing assets in Southern California, including the San Fernando Valley. But the market heated up and cap rates compressed, so the company sold its local assets and focused on markets such as Texas. Younan Properties now has office buildings in Dallas, Houston, Chicago, Phoenix and the Valley. Two prominent properties in Dallas are the 50-story Thanksgiving Tower and 34-story KPMG Center. “Texas is a very powerful state, and more importantly it’s located in the center of the country where companies can ship product,” said Younan, adding in a short period of time, the company became one of the largest office owners in Dallas and beyond. Focusing on Texas and elsewhere allowed it to continue growing while the bottom fell out of California’s commercial real estate market, he said. But California’s strained commercial real estate market is precisely why the company is back to acquiring locally. In the past two years it slowed acquisition activity nationally. But two deals were done right here in the Valley. One was the WarnerView Corporate Center located at 5959 Topanga Canyon Blvd. in Woodland Hills. The Valley is not a big office market for the types of properties the company typically acquires – Class A office with 100,000 square feet or more, he said. But there are a few assets the company is interested in, primarily in Encino and Woodland Hills. “We feel the Valley, Southern California and parts of Northern California were severely impacted and the industry has bottomed,” said Younan. Many investors are waiting for a fire sale to happen, he added, but frankly, the latter is not likely. If current macro-economic indicators continue in a positive direction, Younan predicts a significant shift in demand for office and retail in Q2 2010. Historically, Younan funded growth from internal sources and a small percentage of outside investments. And loose credit markets made it possible to leverage that money. But that strategy is no longer viable, he said, given today’s tight credit markets. So the company is pursuing a lower cost source of capital for expansion: public market financing, he said. All options are on the table such as doing an initial public offering, becoming a real estate investment trust (REIT), merger and/or acquisition, and others, he said. Younan is convinced the company is well positioned for such a move, because of all of the work it has done beefing up its executive team and infrastructure, acquiring and managing assets nationally, and showing a track record of results. Some of the former Arden Realty executives now working for Younan include: Robert Peddicord, chief operating officer; Andres Gavinet, chief financial officer; and Terry Smolich, VP of Human Resources. At one point, Arden was a publicly-traded REIT and one of the largest office owners and operators in Southern California. General Electric acquired the company in 2006. “In order to qualify for public financing, you need to be a great operator,” said Younan. “We’re in some of the top 10 office markets, a national company, and we can gauge the best time to invest in certain markets.”