Pacific Gulf Properties Sells 12% Stake

Newport Beach-based real estate investment trust Pacific Gulf Properties Inc. has agreed to issue 1.35 million shares of preferred stock to private investment fund Five Arrows Realty Securities L.L.C for $18.50 a share, $24.15 million after fees, which it can exchange for shares of Pacific Gulf stock. The private placement will give the fund about a 12% stake in Pacific Gulf once the preferred stock is converted to common shares.

James E. Quigley, a senior vice president for Five Arrows’ advisor, Rothschild Realty, also will join Pacific Gulf’s board of directors. Pacific Gulf officials say they will use the proceeds from the sale to pay off debt and purchase more industrial and apartment properties along the West Coast.

Indeed, the company has been on a buying spree, scooping up about 1.3 million square feet of warehouse properties across California after its secondary offering last May. Its portfolio now includes 22 industrial properties totaling 4.9 million square feet and 22 apartment complexes with 4,110 apartment units.

This rapid growth and how the company has financed it has concerned some analysts. Analyst Craig Silvers of Sutro & Co. in Los Angeles said the deal is an excellent investment for Five Arrows, but not necessarily a good deal for Pacific Gulf shareholders. The price per share is less than the recent trading price of $19. Plus, the deal pays Five Arrows a higher dividend than current shareholders. Silvers said traditionally in a private placement the shares would command more than the trading price.

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Melinda Fulmer covers real estate for The Times. She can be reached at (714) 966-7832.