Douglas Emmett, QIA JV Shells Out $1.4B for L.A. Office Assets

Douglas Emmett joined forces with the Qatar Investment Authority to acquire a four-building office portfolio in Los Angeles at a very hefty price.
10960 Wilshire, Westwood, Calif.

10960 Wilshire, Westwood, Calif.

Los Angeles—In a joint venture with the Qatar Investment Authority, Douglas Emmett Inc. has acquired a four-building, 1,725,000-square-foot Class A office portfolio in the Westwood submarket of West Los Angeles, Douglas Emmett announced Tuesday. The purchase price reportedly was about $1.34 billion, or $777 per square foot.

Based in Santa Monica, Douglas Emmett focuses on Class A office and multifamily properties in Southern California and Honolulu. The REIT plans to retain 20 to 30 percent of the equity in the joint venture, with the remaining interests being held by institutional partners.

The venture has obtained a $580 million, seven-year, non-recourse, interest-only loan. The interest rate is floating at LIBOR plus 1.40 percent, which has been fixed at 2.37 percent for five years through an interest rate swap.

With this purchase, Douglas Emmett controls 74 percent of the Westwood Wilshire office corridor, where it already owned One Westwood, 10960 Wilshire, The Tower, 10880 Wilshire, Westwood Place and Westwood Center. That exceeds even the company’s usual level of concentration; Douglas Emmett reportedly owns on average about 25 percent of the Class A office space in its target L.A. submarkets.

Douglas Emmett did not respond to Commercial Property Executive’s request for additional information on the transaction, such as the specific buildings in the portfolio.

For its part, QIA noted in a prepared statement that this venture “represents another step in its plans to significantly expand its US investment portfolio” and also reiterated its plans to invest $35 billion in North America over five years.

The sovereign wealth fund has also been busy in Europe, where last March it bought the Porta Nuova mixed-use project in Milan’s city center. The project, to eventually total 28 buildings and more than 2.6 million square feet, is valued at around $2.2 billion.

The Los Angeles office market is a bit schizoid, according to a 2016 office market forecast by Marcus & Millichap, with completions somewhat outrunning demand and vacancies expected to rise about 10 basis points, while average asking rents, at least in the hottest submarkets, nonetheless rise about 3.5 percent.

The Westside Cities submarket is one of two (the other being Greater Downtown) where most of the 2.5 million square feet of new space will open, again according to Marcus & Millichap. Finally, acquisition deal volume is expected to remain high, following last year’s record for the current cycle, as institutions seek established Class A properties in West L.A. and downtown.

Image courtesy of L.A. Realty Partners