Two former Arden Realty executives have launched a company that plans on qualifying as a real estate investment trust and will focus on managing and acquiring commercial real estate assets in Southern and Northern California. Victor J. Coleman, co-founder and former president and COO of Arden Realty, and Howard Stern, formerly senior VP and chief investment officer of Arden, formed Hudson Pacific Properties, Inc. On Feb. 16, Hudson Pacific registered with the Securities and Exchange Commission to do an initial public offering worth up to $264.5 million. Underwriters of the deal are BofA Merrill Lynch, Barclays Capital, Morgan Stanley and Wells Fargo Securities. Victor Coleman said he cannot comment on the proposed IPO because Hudson Pacific is in a “quiet period.” But the filing says the company plans on having its common stock listed on the New York Stock Exchange under the symbol “HPP.” The SEC form S-11 says Hudson Pacific is a full-service, vertically integrated real estate firm focused on owning, operating and acquiring high-quality office properties in select growth markets primarily in Northern and Southern California. Its investment strategy is focused on high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics. These markets include Los Angeles, Orange County, San Diego, San Francisco, Silicon Valley and the East Bay. Strategic locations Upon the consummation of the public offering and the formation transactions, Hudson Pacific will own eight properties totaling approximately two million square feet, strategically located in many of its target markets. The company said it has access to an extensive pipeline of investment and leasing opportunities. Coleman and Stern also have experience in acquiring entertainment properties. Hudson Pacific Properties was formed as a Maryland corporation in 2009 to succeed the business of Hudson Capital, LLC, a Los Angeles-based real estate investment firm founded by Coleman and Stern. The company said it believes current events in the financial markets, the credit crisis and the scarcity of available capital for commercial real estate have created significant market dislocation, thereby fostering a favorable acquisition environment. Hudson Pacific’s initial portfolio will consist of: City Plaza in Orange; First Financial in Encino; Del Amo Office in Torrance; Technicolor Building in Hollywood; Tierrasanta in San Diego; 875 Howard Street in San Francisco; and the Sunset Gower Studios and Sunset Bronson Studios properties in Hollywood. A portion of the IPO proceeds will be used to pay off existing mortgage debt and acquire interests in the First Financial, Del Almo and Tierrasanta properties, according to the SEC filing. The company’s proposed IPO is what’s known as a REIT rollup. A rollup transaction combines or reorganizes one or more limited partnerships into an entity (a master limited partnership or REIT) that can be publicly traded, according to Ernst & Young. Partners contribute properties from existing partnerships and the REIT contributes cash proceeds from its public offering. Hudson Pacific Properties’ SEC filing said the company’s initial portfolio consists of assets contributed by entities owned by Hudson Capital, LLC; investment funds affiliated with Farallon Capital Management, LLC; an investment vehicle whose general partner is owned by investment funds managed by Morgan Stanley; and third parties. Ernst & Young said real estate owners are considering REIT rollups as an avenue to gain access to public markets, reduce maturing debt holdings and take advantage of distressed real estate pricing. Many real estate owners utilized rollup transactions in the 1990s to spawn entities that have become key players in the REIT sector today. While working together at Arden Realty – at one point a major office REIT in the U.S., Coleman and Stern helped grow the company from an enterprise value of approximately $600 million at its initial public offering in 1996 to approximately $4.8 billion in 2006. GE then purchased Arden near the peak of the real estate market. “As an office market matures, institutional players become a major participant,” said Jeff Albee of Colliers International. “REITs raised more than $20 billion in 2009, according to Fitch Ratings. There’s room in the San Fernando Valley for new active REITs that come in with strong management teams and are creative deal makers.” Arden Realty had a major presence in the San Fernando Valley when it was a REIT, Albee added. And Douglas Emmet, an office REIT, is now the dominant Class A office building owner in the Valley.
