Tribune Co. Chief Executive Sam Zell told employees he wants to "maximize value" of the company's "underutilized" real estate in Los Angeles and Chicago, paving the way for a potential sale of the office complexes in those cities as Tribune struggles under a heavy debt load.Tribune, owner of a host of television stations and newspapers, is consulting with real-estate companies to find ways to squeeze more value from its landmark Tribune Tower in Chicago and its Times Mirror Square complex in Los Angeles.
While it is no surprise that Mr. Zell, a real-estate magnate, would introduce such an idea, there is a symbolic aspect to these edifices, which represent once-powerful newspaper empires. Mr. Zell himself called them "iconic." This, therefore, provides Zell with a unique opportunity to benefit from these historic landmarks
The business is struggling, but Mr. Zell is partially dismantling it. He has agreed to sell Newsday, a suburban New York daily, and he is cutting staff, among other money-saving steps, at his other newspapers.
The Hartford Courant and Baltimore Sun disclosed deep newsroom cuts Wednesday, and all Tribune papers will slash page counts in coming months. The Courant will cut about 57 newsroom jobs, or 25% of the staff, through buyouts and layoffs, according to a memo to employees. The Sun will eliminate about 100 positions through buyouts, layoffs and attrition.
Tribune could fetch hundreds of millions of dollars from a sale of the buildings that house the Chicago Tribune and Los Angeles Times newsrooms. But a more likely outcome are moves that would allow Tribune to wring revenue out of the properties without selling them. Tribune said it wants to maintain a stake in the buildings and be able to occupy them for at least five years. Similar things have happened across the country. Many Philadelphia apartments and Minneapolis apartments have historic significance.
To generate cash short of outright sales, real-estate experts said, Tribune could move staffers to less-expensive locations and find tenants for the resulting free space. Or the company could reap a windfall by selling the buildings and then leasing office space from the new owners.
Mr. Zell led an $8.2 billion deal in December to take the company private, leaving it with $13 billion in debt as advertising revenue deteriorates. Last month, Tribune agreed to sell almost all of Newsday for $650 million. It also is auctioning its Chicago Cubs baseball team and related assets, which are expected to fetch as much as $1 billion.
Analysts say the asset sales should help Tribune clear roughly $1 billion in debt and interest obligations this year. Next year and beyond, however, the margin for error will be thinner. Mr. Zell already has made staff cuts at Tribune, and more are expected as the company's papers pare page counts to equalize news content with advertising.
Revenue from real-estate deals is likely to be relatively small. Mr. Zell said in an employee memo that the Chicago and Los Angeles office buildings are an important part of the company's history, but they need to be put to better use. "As employee-owners, it's in our best interests to maximize the value of all our assets," Mr. Zell said.
A sale now would seem inopportune, as prices for commercial real estate sour. And the prewar buildings, particularly the hulking, low-rise Los Angeles complex, may have limited value to commercial-office tenants accustomed to modern high-rises. Even so, real-estate experts said, the Tribune assets likely would command premium prices.
Tribune could fetch at least $150 million for the Tribune Tower and at least $ 235 million for the Los Angeles complex, estimates Sam Chandan, chief economist for real-estate research company Reis Inc.
By: Shira Ovide
The Wall Street Journal; June 26, 2008
