Douglas Emmett Commits More Deeply to CRE Fund

In a deal worth $95 million, the REIT brought its ownership stake in an existing unconsolidated real estate entity to nearly 90 percent.
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Douglas Emmett Inc. has acquired 17 percent of additional equity in one of its existing unconsolidated real estate funds, in exchange for about $95 million in cash and operating partnership units. The acquisition brought DEI’s total ownership of that fund to approximately 89 percent. The REIT and one remaining institutional investor have agreed to extend the fund term to 2049.

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The fund owns six Class A office properties totaling about 1.5 million square feet in the Los Angeles submarkets of Beverly Hills, Santa Monica, Sherman Oaks/Encino and Warner Center. The fund also owns an interest in another DEI unconsolidated real estate entity, which owns two further Class A office properties in Beverly Hills and Brentwood, totaling 386,000 square feet.

Douglas Emmett, of Santa Monica, Calif., expects that the fund will be treated as a consolidated entity under generally accepted accounting principles following the acquisition, and that the transition to a consolidated entity will be treated as a purchase of the underlying assets and liabilities of the fund.

Douglas Emmett did not reply to Commercial Property Executive’s request for additional information. The company is one of the largest owners of high-quality office and multifamily properties in the coastal submarkets of Los Angeles and Honolulu.  

Rising rents in La-La Land

The overall office market in Greater Los Angeles saw positive net absorption for the 10th straight quarter, though at 90,746 square feet, the total was lower than recent historical averages, according to a third-quarter report from CBRE.

Average rents metro-wide seem to have hit a plateau around $3.44 per square foot, full service gross, but this oversimplifies a situation in which hot submarkets—like Beverly Hills and Santa Monica—are attracting media companies and content creators. There, asking rents have surged to $5.0, and in a few cases even $6.0 per square foot per month, also according to CBRE.

In late December 2017, true to its stated mission, DEI bought a 146,000-square-foot Class A office building at 9401 Wilshire Blvd., in Beverly Hills, Calif., for $143.6 million. The acquisition reportedly brought DEI’s ownership share of the Beverly Hills Class A office market to more than 27 percent.