Douglas Emmett Goes Shopping
When this fall’s commercial real estate credit crunch suddenly put a damper on sales to voracious real estate investment trusts, privately held Douglas Emmett Realty Advisors snatched up a handful of widely recognized local office buildings with a combined value estimated at well over $425 million. As transactions now underway close in the weeks ahead, the Brentwood-based firm will add landmark office towers in the San Fernando Valley and the Westside of Los Angeles to its hefty portfolio.
Douglas Emmett, which purchases and operates commercial buildings on behalf of institutional investors, is said to be the winning bidder for two high-profile Century City towers expected to fetch around $235 million. Informed sources also confirmed that the firm has inked deals to buy prominent properties in Westwood, Encino and Sherman Oaks.
Officials with the press-shy company headed by Dan Emmett declined to discuss its activities. But other local real estate sources confirmed that Douglas Emmett is indeed in the process of aggressively expanding its holdings through at least the four deals in the works--with more expected to follow.
Presumably the biggest of the pending deals stems from Douglas Emmett’s leading bid in the competition for Shuwa Investments Corp.’s 28- and 20-story towers at 1900 and 1901 Avenue of the Stars in Century City--one of the Southland’s most expensive locations to rent an office.
The real estate professional overseeing the sale, Kevin Dretzka of Eastdil Realty, declined to discuss bidding for the towers, which collectively house more than 1 million square feet of offices. But other sources confirmed that Douglas Emmett topped other suitors with a bid of about $235 million.
Sources also said Douglas Emmett is in the process of acquiring the 15-story Westwood Place in the similarly expensive Westwood market. The building is owned by a partnership including members of the Held real estate family.
Also being acquired are two of the more prominent office buildings along the Ventura Boulevard corridor near the Sherman Oaks Galleria. Douglas Emmett bought the Sherman Oaks Galleria last year. The most visible of the pair is the 21-story tower at the southeast corner of Ventura and Sepulveda boulevards bearing the American Pacific State Bank logo. Insurance giant John Hancock Mutual Life Insurance Co. had offered that landmark tower for sale within a large nationwide office building portfolio, but--like Shuwa--has opted to sell many assets individually rather than in bulk now that investment activity has subsided.
The other property near the Galleria is the 393,000-square-foot mid-rise development known as Encino Terrace Center, owned by an affiliate of Fujita Corp.
Douglas Emmett is estimated to be paying more than $75 million for the American Pacific State Bank tower, $69 million for Encino Terrace and $55 million for Westwood Place. Their respective owners or representatives declined to discuss pending transactions.
One active office building investment broker not involved in any of those transactions said that Douglas Emmett has once again taken advantage of volatility in the real estate capital markets. Commercial real estate prices had been driven skyward by publicly traded real estate investment trusts, until Wall Street earlier this year stopped investing so heavily in the high-flying REITs, said office investment broker Bob Safai of Madison Partners.
Wall Street pulled back amid concerns over future REIT earnings due to the high prices being paid, competition from new developments and anticipated slower tenant demand, said Safai. Then late last summer, the commercial mortgage-backed securities (CMBS) marketplace that had funded a large chunk of income-property investment over the last three years also hit the skids as investors shifted to the relative safety of U.S. Treasuries.
While stability has been returning to the CMBS market, financing for a lot of pending deals had already fallen through--and new deals are typically closing at lower prices than had been seen earlier.
