BLACKSTONE FLIPS DENVER PORTFOLIO TO CALLAHAN,
-RECORD SHATTERING $770M SALE INCLUDES TABOR CENTER, FUTURE TOWER SITE
THE BOULDER DAILY CAMERA

By RANDYL DRUMMER
Published March 27, 2007

Coming out on top in a hotly contested acquisition, Chicago-based Callahan Capital Partners has snapped up The Blackstone Group's portfolio of former Equity Office Properties Trust buildings in downtown Denver.

Callahan, which is buying the portfolio through a joint venture with Morgan Stanley's Special Situations Fund III, picked up the 2.8 million-square-foot, five-building portfolio for $770 million, or $275 a square foot. The transaction, which includes Tabor Center, U.S. Bank Tower, 1560 Broadway, 410 17th Street and Dominion Plaza, is expected to close Thursday.

Morgan Stanley will also provide debt financing for the acquisition, at a level of about 70%, said William Tresham, chief operating officer for Callahan.

Callahan has tapped CB Richard Ellis to lease and manage the portfolio, he added.

"It's the largest deal in Denver's commercial real estate history, by a factor of almost three," said Tim Swan, executive vice president of CB Richard Ellis, part of the selling team along with Mary Sullivan and Ron Urgitus. "It really reflects the long-term belief of capital in the direction of the downtown marketplace. The demand for capital to be here was strong."

Although the field narrowed, "we had half a dozen highly qualified national investment groups all competing for this deal," Swan said.

Blackstone spokesman John Ford was not immediately available for comment.

CBRE was marketing three of the five assets for EOP -- Dominion Plaza, 410 17th St. and 1560 Broadway -- when a deal essentially fell apart the week it was scheduled to close in December, Swan said. Blackstone then announced the $39 million acquisition of Equity's assets and debt.

"At that point, Blackstone decided to complete their acquisition of EOP, then decide how to best offer the remaining assets to the marketplace," he said. "We completed a variety of analyses for Blackstone, and in the end, decided to offer (all the property) as a portfolio." CBRE had sold a sixth Equity asset in the middle of last year in a one-off deal.

Blackstone, which announced last week it looks to raise $4 billion through an IPO, has exited the majority of the markets where it acquired property in the huge Equity buyout. With the Denver deal, the private equity behemoth has now flipped or reached agreement to sell more than $22 billion in former EOP assets, including portfolios in New York, Boston, Washington, D.C., Seattle, Portland, San Francisco, San Diego, Los Angeles and Orange County.

Having acquired all five EOP assets, Callahan assumes Equity's position as the largest landlord in downtown Denver. In no small irony, Callahan CEO Tim Callahan was a former president and CEO of EOP.

Swan said the portfolio is "an outstanding mix of product" capable of addressing most any tenant's needs in the CBD. The 557,047-square-foot Tabor Center I is arguably one of the top three buildings in downtown Denver -- and some would say the best as measured by a combination of location, quality and amenities -- he said, noting that the project includes retail and is attached to a Westin hotel, which was not part of the transaction.

The acquisition also includes a significant development play. At the time Tabor Center was built, developers poured the foundation for a second tower, which Callahan has said it intends to build, Swan said. Tabor Center II could reportedly range from 500,000 to 700,000 square feet of office space and be delivered in 2009.

Callahan and Morgan Stanley plan to do more deals together in other markets, but the Denver opportunity was too hot to pass up. "What's exciting about Denver is this represents 12% of the downtown core of all the available space. It doesn't get any better than this one," Tresham said. "This is great real estate, super-located, you get the presence in the marketplace automatically by doing business of this size and everyone wants to do business with you. It's a nice feeling."