The sale of Arden Realty Inc. has sparked renewed speculation about the pending initial public offering of Douglas Emmett & Co., one of the largest remaining private owners of high-quality office properties in Southern California.

Though Santa Monica-based Douglas Emmett has said it plans to come public, the company hasn't provided any details of its much-anticipated offering, which has been pushed back to mid-February.

Jordan Kaplan, principal and chief financial officer at Douglas Emmett, said the company is "not even close" to filing a registration statement with the Securities and Exchange Commission. Though he has interviewed lawyers and investment bankers, Kaplan said he has not hired an underwriter.

"We're just not there yet," he added, and declined further comment.

But Barry Vinocur, editor of Realty Stock Review, an investment newsletter that covers REITs, said the Douglas Emmett IPO has been percolating for at least a year and that Douglas Emmett has hired Merrill Lynch & Co., Citigroup and Lehman Brothers as its investment bankers.

"I think the issue is that they have a lot of institutional investors and when you're going to take something public that involves a lot of investors, it takes a very long time," he said. "Clearly they don't want to overemphasize how long this has taken."

Big smiles
The sale of Arden Realty to General Electric Co.'s real estate unit in December has given further impetus to a Douglas Emmett IPO. Arden, which sold for $4.8 billion, including the assumption of $1.6 billion of debt, represented a 25 percent premium to Arden's shares.

"I suspect when the Arden deal was announced, the executives had fairly big smiles on their faces," Vinocur said. "Given the pricing of similarly situated assets, this is a good time for Emmett to come public."

Analysts speculate that the Douglas Emmett IPO has been held up by complex accounting issues. Other large real estate companies faced similar problems because they had to transform themselves from private partnerships to real estate investment trusts, or REITs.

In addition, a Douglas Emmett IPO would be a fairly large offering, of between $750 million to $1 billion and the firm's 20 to 30 institutional investors must sign off on the deal. Since those investors have enjoyed compounded annual growth rates of 20 percent to 30 percent, many may not want to sell their shares.

Another wrinkle is that Douglas Emmett is reportedly going out with a mix of both office and residential properties, which creates problems for investors interested in only one type of property group. REITs almost always tend to be single property types, either all office buildings or all residential, but rarely both.

Jim Sullivan, an analyst at Green Street Advisors Inc. in Newport Beach, said it may be taking extra time to get so many large shareholders on the same page. In the interim, other factors are coming together to make Douglas Emmett even more attractive to investors.

"With Arden going private, lots of investors want to get reinvested back into Southern California," Sullivan said. "Plus, they have a high-quality portfolio and Southern California is perceived to be one of the strongest office markets in the country."

Double-edged sword
Douglas Emmett, which was formed in 1971, controls several real estate partnerships that own nearly 100 high-rises and luxury apartment buildings in Brentwood, Encino and Sherman Oaks. Its star properties include Warner Center Towers in Woodland Hills, the Sherman Oaks Galleria, and 100 Wilshire Boulevard in Santa Monica, which overlooks the Pacific Ocean. It also owns a few properties in Hawaii.

Bill Boyd, executive vice president and managing director of Grubb & Ellis, said the process of coming public for a private company can be fraught with problems.

"Sometimes it's a double-edged sword in that the excess capital raised is sometimes not worth the reporting requirements and regulations," he said. "But there is such an appetite for product in the institutional markets that it's almost something they can't pass up."

Douglas Emmett plans to issue shares and raise additional capital, which can be used to buy more buildings, repay existing debt or buy out some of its investors who do not want to be part of a REIT.

The company serves as the general partner for a group of institutional investors. It also provides property management, in-house leasing and, through an affiliated company, PLE Builders, construction services.

"There's a huge desire for West Coast office properties," Vinocur said. "The issue, of course, will be valuation."

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