07/23/2010

Eurohypo Group Backs Douglas Emmett Deal

Douglas Emmett Inc. has lined up a commitment from a Eurohypo syndicate for a $400 million floating-rate loan backed partly by a large Hawaiian office complex that it acquired last month.

The Santa Monica, Calif., REIT bought the 960,000-square-foot Bishop Square complex in Honolulu from a partnership between Northwestern Mutual Life and Calpers for $232 million.

Douglas Emmett funded the acquisition with cash and money drawn down from its $350 million secured credit facility from a Bank of America syndicate. It will now replace that financing with the Eurohypo loan, for which it has also pledged some California office properties.

The Eurohypo syndicate also includes Wells Fargo and PB Capital. The size of each lender's participation is unclear, but Eurohypo committed to fund half of the total, according to market players. But the German bank isn't expected to retain all of that amount on its own books. The buzz is that the syndication was oversubscribed.

Eurohypo's lending relationship with Douglas Emmett goes back at least several years. The REIT has a conservative profile as a borrower, relying mostly on low-leverage loans for its well-leased properties. The company owns 57 office properties encompassing 14.3 million sf and nine apartment buildings with 2,868 units. The properties are concentrated in Southern California and Hawaii.

The two-building Bishop Square complex is the largest office property in Hawaii. It is 91% occupied by about 200 tenants. With the acquisition, Douglas Emmett said it now controls 36% of the Class-A office space in Honolulu, up from 15%.

In the company's June 29 announcement of the acquisition, chief executive Jordan Kaplan said Bishop Square was "a primary focus of our Hawaii acquisition strategy since we purchased our first property in Honolulu in 2004." The property includes a garage and a one-acre park.

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