Summary Risk Factors

        An investment in our common stock involves various risks, and prospective investors should carefully consider the matters discussed under "Risk Factors" prior to making an investment in our common stock. Such risks include, but are not limited to:

•

All of our properties are located in Los Angeles County, California and Honolulu, Hawaii, and we are dependent on the Southern California and Honolulu economies and susceptible to adverse local regulations and natural disasters in those areas.



•

The price we will pay for the assets to be acquired by us in the formation transactions may exceed their aggregate fair market value.



•

We have no experience operating as a publicly traded REIT.



•

Our operating performance is subject to risks associated with the real estate industry.



•

We will have a substantial amount of indebtedness outstanding following this offering, which may affect our ability to pay dividends, may expose us to interest rate fluctuation risk and may expose us to the risk of default under our debt obligations.



•

Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance.



•

We may pursue less vigorous enforcement of terms of merger and other agreements because of conflicts of interest with certain of our officers.

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•

Our board of directors may change significant corporate policies without stockholder approval.



•

Our failure to qualify as a REIT would result in higher taxes and reduce cash available for dividends.



•

Our predecessor principals exercised significant influence with respect to the terms of the formation transactions.



•

The historical internal rates of return attributable to the institutional funds may not be indicative of our future results or an investment in our common stock.



•

The number of shares of our common stock available for future sale, including by our affiliates and other continuing investors, could adversely affect the market price of our common stock, and future sales by us of shares of our common stock may be dilutive to existing stockholders.



•

Our charter, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay, defer, or prevent a change of control transaction.



•

We face intense competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.



•

We may be unable to renew leases or lease vacant space.



•

We may incur significant costs complying with laws, regulations and covenants that are applicable to our properties.

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(1)

Each of the properties in our portfolio has been measured or remeasured in accordance with Building Owners and Managers Association (BOMA) 1996 measurement guidelines, which we refer to as the "BOMA 1996 remeasurement," and the square footages in the charts in this prospectus are shown on this basis. Total consists of 10,594,463 leased square feet (includes 318,849 square feet with respect to signed leases not commenced), 800,923 available square feet, 66,774 building management use square feet, and 92,137 square feet of BOMA 1996 adjustment for leases that do not reflect BOMA 1996 remeasurement.

(2)

Based on leases signed as of June 30, 2006 and calculated as rentable square feet less available square feet divided by rentable square feet.

(3)

Represents annualized monthly cash rent under leases commenced as of June 30, 2006. This amount reflects total cash rent before abatements. Abatements committed to as of June 30, 2006 for the twelve months ending June 30, 2007 were $3,848,680. For our Burbank and Honolulu office properties, annualized rent is converted from triple net to gross by adding expense reimbursements to base rent.

(4)

Represents annualized rent divided by leased square feet (excluding 318,849 square feet with respect to signed leases not commenced) as set forth in note (1) above for the total, and as set forth in the tables under "Business and Properties—Douglas Emmett Submarket Overview" for each submarket.

(5)

Includes $947,760 of annualized rent attributable to our corporate headquarters at our Lincoln/Wilshire property.

(6)

Our One Westwood property is subject to a ground lease, in which we hold a one-sixth interest as tenant-in-common in the fee parcel. Excludes $225,937 of annualized rent as of June 30, 2006 generated by our interest in such ground lease.

(7)

Excludes the ownership of fee parcels at Owensmouth and at the Hilton Hotel adjacent to our Trillium property, which are leased to third parties and generated $1,142,193 and $240,000 of annualized rent, respectively, as of June 30, 2006.

(8)

A portion of our Bishop Place property is subject to a ground lease, and our Harbor Court property is subject to a long-term lease.

(9)

Represents June 2006 multifamily rental income annualized.

(10)

Excludes 10,013 square feet of ancillary retail space, which generated $305,412 of annualized rent as of June 30, 2006. As of June 30, 2006, 355 units, or approximately 43% of our Santa Monica multifamily units, were under leases signed prior to a 1999 change in California state law that allows landlords to reset rents in rent-controlled units to market rates when a tenant moves out. The average monthly rent per leased unit for these units was $922 as of June 30, 2006. The remaining 57%, or 465 units, had an average monthly rent per leased unit of $2,514 as of June 30, 2006.

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Structure and Formation of Our Company

        Prior to completion of the formation transactions, our predecessor principals owned all of the outstanding interests in Douglas Emmett Realty Advisors, or DERA, Douglas Emmett and Company, or DECO, and P.L.E. Builders, Inc., or PLE, which we refer to as our historical operating companies. These entities provide asset management, property management, leasing, tenant improvement construction, acquisition, repositioning, redevelopment and financing services primarily to the properties owned, directly or indirectly, by the nine institutional funds and eight single-asset entities that we will acquire in the formation transactions. The institutional funds are owned by our predecessor principals, certain of their related parties and a number of unaffiliated private investors, consisting of endowments, foundations, pension plans, banks, other institutional investors and high net worth individuals. DERA is the general partner of each institutional fund. In addition, DERA is the general partner of three investment funds that own interests in certain of the institutional funds. Our predecessor principals, certain of our executive officers and unaffiliated third parties own the three investment funds. Our predecessor principals, together with their related parties, own a significant portion of the interests in the single-asset entities, and unaffiliated third parties own the remaining interests in the single-asset entities. Owners of the interests in the entities that we will acquire in the formation transactions, including our predecessor principals and certain of our executive officers, are referred to herein as the prior investors. Prior investors that will own units in our operating partnership or shares of our common stock following the consummation of the formation transactions are referred to in this prospectus as our continuing investors.

        Prior to or concurrently with the completion of this offering, we will engage in formation transactions that are designed to:

•

consolidate our asset management, property management, leasing, tenant improvement construction, acquisition, repositioning, redevelopment and financing businesses into our operating partnership;



•

consolidate the ownership of our property portfolio under our operating partnership;



•

facilitate this offering;



•

enable us to qualify as a REIT for federal income tax purposes commencing with the taxable year ending December 31, 2006;



•

defer the recognition of taxable gain by certain continuing investors; and



•

enable prior investors to obtain liquidity for their investments.

        We structured the formation transactions to minimize potential conflicts of interest. None of the predecessor principals or our executive officers elected to receive any cash in the formation transactions, and instead will receive only shares of our common stock and/or operating partnership units. They will, however, receive an estimated $5.8 million in cash in respect of a final distribution payable to all holders of interests in the pre-formation transaction entities in connection with the closing of the formation transactions. The predecessor principals also recently contributed an additional $60.0 million to DERA, the stock of which will be exchanged for shares of our common stock, valued at the initial public offering price to the public, in the formation transactions. In addition, we will not enter into any tax protection agreements in connection with the formation transactions.

        Pursuant to the formation transactions, the following have occurred or will occur on or prior to the completion of this offering. All amounts are based on the mid-point of the range set forth on the cover page of this prospectus:

•

We were formed as a Maryland corporation on June 28, 2005.



•

Douglas Emmett Properties, LP, our operating partnership, was formed as a Delaware limited partnership on July 25, 2005. Douglas Emmett Management, Inc., a wholly owned subsidiary that we formed as a Delaware limited liability company under the name Douglas Emmett, LLC on July 25, 2005 and will convert to a Delaware corporation, owns the general partnership interest in our operating partnership.

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•

In accordance with the formation transaction documents relating to the acquisitions of the institutional funds and the single-asset entities, each such entity will distribute to its equity interest holders, including our predecessor principals and certain of our executive officers, a good faith estimate of its net operating income, less a capital expense allowance, for the period commencing July 1, 2005 and ending on the closing date, which is expected to be approximately $25.0 million (including an estimated $5.3 million to be paid to our predecessor principals and executive officers) in the aggregate for all such entities. The payments will be made in cash concurrently with the closing of the formation transactions. "Net operating income" is defined in the applicable merger or contribution agreement as net income before unrealized appreciation (depreciation) in real estate investments and the fair value of derivatives, as set forth in each such entity's financial statements. We refer to these final operating distributions as the "pre-closing property distributions." The pre-closing property distributions are not subject to any post-closing adjustment.



•

In accordance with the formation transaction documents relating to the acquisitions of DERA, DECO and PLE, each such entity will distribute to our predecessor principals, the sole stockholders of each, its cash (other than the $60.0 million DERA contribution) and its other current assets in excess of current its liabilities (excluding accrued employee benefits and future lease obligations) so that, upon our acquisition of them, current assets and current liabilities will be netted to zero. In the event that the current liabilities of DERA, DECO and PLE exceed current assets, our predecessor principals will make a contribution in the amount of the difference. We currently expect our predecessor principals will receive a distribution of $0.5 million in the aggregate in respect of such assets. The payments will be made in cash by the respective operating company immediately prior to the closing of the formation transactions. We refer to these final operating distributions as the "pre-closing operating company distributions." The pre-closing operating company distributions are not subject to any post-closing adjustment.



•

We will acquire DERA and DECO pursuant to a series of merger transactions. Each of DERA and DECO will be merged into a newly formed merger subsidiary of ours. Thereafter, we will contribute the assets of such predecessor operating company to our operating partnership in exchange for units in our operating partnership. Our predecessor principals recently contributed $60.0 million to DERA, the stock of which will be exchanged for common stock in the formation transactions at the initial public offering price. In addition, our operating partnership will acquire PLE pursuant to a contribution transaction, in which the outstanding interests in PLE will be contributed to our operating partnership in exchange for units in our operating partnership.



•

We and our operating partnership will then acquire the remaining interests in the institutional funds, the investment funds and the single-asset entities through a series of merger and contribution transactions. In addition, we will redeem the preferred minority interests in two of the institutional funds for cash. Our operating partnership will also acquire outstanding minority interests in certain subsidiaries of the institutional funds through a contribution transaction. In these acquisitions, our prior investors will receive as consideration, pursuant to their prior irrevocable election, cash and/or units in our operating partnership or shares of our common stock. Each of our predecessor principals elected to receive units in our operating partnership and shares of our common stock in the formation transactions for their interests in the various entities being acquired. None of

our predecessor principals elected to receive cash in the formation transactions. The formation transaction consideration does not include the pre-closing property distributions or the pre-closing operating company distributions described above, which are also payable at closing.

•

As a closing condition to the formation transactions, the aggregate amount of cash paid in the formation transactions must equal at least 90% of the difference between the net proceeds from this offering (excluding the exercise of the underwriters' over-allotment option) and the aggregate amount of payments to preferred equity holders in certain of the institutional funds.

9

This requirement reflects our agreement with the prior investors that the proceeds from this offering should be used primarily to pay cash consideration in the formation transactions. In addition, the value of the total cash and equity consideration payable to prior investors must be at least $1.0 billion. Assuming an offering price based on the mid-point of the range of prices set forth on the cover page of this prospectus, we currently expect to pay to the prior investors $1.38 billion in cash and issue to the prior investors 50,512,427 operating partnership units and 58,617,573 shares of common stock in the aggregate in these merger and contribution transactions. The aggregate value of this consideration will be $3.57 billion. If the underwriters' over-allotment option is exercised in full, we expect to pay to the prior investors $1.55 billion in cash and issue to the prior investors 49,574,538 operating partnership units and 51,305,462 shares of common stock, with an aggregate consideration value of $3.57 billion. The aggregate consideration value does not include the pre-closing property distributions or the pre-closing operating company distributions described above.

•

We will sell 55,000,000 shares of our common stock in this offering and an additional 8,250,000 shares if the underwriters exercise their over-allotment option in full, and we will contribute the net proceeds from this offering to our operating partnership in exchange for 55,000,000 units in our operating partnership (or 63,250,000 units if the underwriters' over-allotment option is exercised in full).



•

Effective upon completion of this offering, we will grant to our predecessor principals and executive officers a total of 1,044,000 long-term incentive units in our operating partnership, or LTIP units, and options to purchase a total of 5,742,221 shares of our common stock at the initial public offering price, of which 870,000 LTIP units and 5,155,556 options will be fully vested upon issuance.



•

In connection with the foregoing transactions, we will assume approximately $2.36 billion of debt. In addition, as a result of the financing transactions described in the next bullet, including the use of proceeds therefrom, we expect to have approximately $2.75 billion of total debt outstanding, excluding loan premium, upon consummation of this offering, the formation transactions and the financing transactions.



•

In connection with this offering and the formation transactions, we have entered into agreements with Eurohypo AG and Barclays Capital to amend our existing $1.76 billion secured financing to increase the term loans by $545.0 million, which we refer to herein as the modified term loan. The closing of the modified term loan is contingent on satisfaction of customary conditions and the consummation of this offering. We expect to use the full amount of the increase upon consummation of this offering, together with the net proceeds from this offering, cash on hand and the $60.0 million DERA contribution, to pay cash consideration in the formation transactions, to repay certain outstanding indebtedness, to redeem outstanding preferred minority interests in certain entities to be acquired in the formation transactions, to pay related fees and expenses and to pay the pre-closing property distributions. We have also entered into an agreement with Bank of America, N.A. and Banc of America Securities, LLC to provide a $250.0 million senior secured revolving credit facility, which we expect will be in place and undrawn at the closing of this offering, assuming a price per share in this offering at the mid-point of the range of prices set forth on the cover page of this prospectus. The senior secured revolving credit facility will contain an accordion feature that would allow us to increase the availability thereunder by $250.0 million, to $500.0 million, under specified circumstances. In this prospectus, we refer to our modified term loan and our new senior secured revolving credit facility as our financing transactions. For more information see "Business and Properties—Description of Certain Debt."

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Consequences of this Offering, the Formation Transactions and the Financing Transactions

        The completion of this offering, the formation transactions and the financing transactions will have the following consequences. All amounts are based on the mid-point of the range set forth on the cover page of this prospectus:

•

Our operating partnership will directly or indirectly own the assets of our historical operating companies and the fee simple or other interests in all of our properties that were previously owned by the institutional funds and the single-asset entities.



•

Purchasers of our common stock in this offering will own 48.4% of our outstanding common stock, or 32.3% on a fully diluted basis. If the underwriters' over-allotment option is exercised in full, purchasers of our common stock in this offering will own 55.2% of our outstanding common stock, or 37.2% on a fully diluted basis.



•

The continuing investors, including our predecessor principals and our executive officers, that elected to receive common stock in the formation transactions will own 51.6% of our outstanding common stock, or 67.7% on a fully diluted basis. If the underwriters' over-allotment option is exercised in full, the continuing investors, including our predecessor principals and our executive officers, will own 44.8% of our outstanding common stock, or 62.8% on a fully diluted basis.



•

A wholly owned subsidiary of ours will be the sole general partner of our operating partnership. We will own 68.9% of the operating partnership units and the continuing investors, including our predecessor principals and our executive officers, that elected to receive units in the formation transactions will own 31.1%. If the underwriters' over-allotment option is exercised in full, we will own 69.4% of the operating partnership units and the continuing investors, including our predecessor principals and our executive officers, will own 30.6%.



•

We will jointly elect with PLE to treat PLE as a taxable REIT subsidiary, or TRS. PLE will continue to provide construction services in connection with certain improvements to tenant suites and common areas in our properties. In addition, PLE will undertake certain activities that we (and our pass-through subsidiaries) might otherwise be precluded from undertaking under the REIT rules. As a TRS, PLE is generally subject to corporate income tax on its earnings, which will have the effect of reducing the cash flow available to make distributions to our stockholders. PLE also is not obligated to make distributions to our operating partnership, which may reduce our cash flow and our ability to make distributions to our stockholders.



•

The employees of our historical operating companies will become our employees.



•

We expect to have total consolidated indebtedness of approximately $2.75 billion, excluding loan premium.

        The aggregate historical net tangible book value of the assets we will acquire in the formation transactions was approximately $478.0 million as of June 30, 2006. In exchange for these assets, we will assume or discharge $2.54 billion in indebtedness and preferred equity, and we will pay $1.38 billion in cash, and we will issue 50,512,427 operating partnership units and 58,617,573 shares of our common stock with a combined aggregate value for such cash, operating partnership units and common stock of $3.57 billion. If the underwriters' over-allotment option is exercised in full, we will assume or discharge $2.54 billion in indebtedness and preferred equity, and we will pay $1.55 billion in cash, and we will issue 49,574,538 operating partnership units and 51,305,462 shares of our common stock with a combined aggregate value for such cash, operating partnership units and common stock of $3.57 billion. The value of the operating partnership units and the common stock that we will issue for the assets to be acquired in the formation transactions will increase or decrease if our common stock price increases or decreases. The initial public offering price does not necessarily bear any relationship to the book value or the fair market value of our assets.

11

        For an analysis of how this information would change if the share price in the offering is not equal to the mid-point of the range of prices set forth on the cover page of this prospectus, please refer to "Pricing Sensitivity Analysis" included elsewhere in this prospectus.

Our Structure

        The following diagram depicts our ownership structure upon completion of this offering and the formation transactions, based on the mid-point of the range of prices set forth on the cover page of this prospectus. The diagram reflects outstanding vested LTIP units, but not stock options. ⁽¹⁾

(1)

If the underwriters exercise their over-allotment option in full, our public stockholders, predecessor principals and executive officers and other continuing investors will own 55.2%, 12.2% and 32.6%, respectively, of our outstanding common stock, and we, our predecessor principals and executive officers and other continuing investors will own 69.4%, 17.6% and 13.0% of the outstanding units in our operating partnership, respectively.

(2)

On a fully diluted basis, our public stockholders will own 32.3% of our outstanding common stock, our predecessor principals and executive officers will own 28.3% of our outstanding common stock, and all other continuing investors as a group will own 39.4% of our outstanding common stock.

(3)

If the underwriters exercise their over-allotment option in full, on a fully diluted basis, our public stockholders will own 37.2% of our common stock, our predecessor principals and executive officers will own 28.3% of our outstanding common stock, and all other continuing investors as a group will own 34.5% of our outstanding common stock.

(4)

PLE is our taxable REIT subsidiary. See "—Consequences of this Offering, the Formation Transactions and the Financing Transactions."

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Benefits to Related Parties

        In connection with this offering, employment arrangements, the formation transactions and the financing transactions, our predecessor principals and certain of our executive officers will receive material benefits, including the following. All amounts are based on the mid-point of the range set forth on the cover page of this prospectus:

•

Mr. Emmett will own 4.9% of our outstanding common stock, or 11.3% on a fully diluted basis, or 11.3% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $381.1 million, net of option exercise price, represented by 5,567,452 shares, 13,457,837 units, 30,000 vested LTIP units and 177,778 vested stock options.



•

Mr. Kaplan will own 2.5% of our outstanding common stock, or 6.2% on a fully diluted basis, or 6.2% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $159.9 million, net of option exercise price, represented by 2,801,467 shares, 4,774,210 units, 420,000 vested LTIP units and 2,488,889 vested stock options.



•

Mr. Panzer will own 2.5% of our outstanding common stock, or 6.2% on a fully diluted basis, or 6.2% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $161.2 million, net of option exercise price, represented by 2,801,467 shares, 4,839,466 units, 420,000 vested LTIP units and 2,488,889 vested stock options.



•

Mr. Anderson will own 2.5% of our outstanding common stock, or 4.6% on a fully diluted basis, or 4.6% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $155.2 million, represented by 2,783,726 shares and 4,976,414 units.



•

Mr. William Kamer, our Chief Financial Officer, will own 0.0% of our outstanding common stock, or 0.02% on a fully diluted basis, or 0.02% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $0.8 million, represented by 40,749 units.



•

Ms. Barbara J. Orr, our Chief Accounting Officer, will own 0.0% of our outstanding common stock, or 0.01% on a fully diluted basis, or 0.01% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $0.4 million, represented by 20,374 units.



•

Mr. Allan B. Golad, our Senior Vice President, Property Management, will own 0.0% of our outstanding common stock, or 0.01% on a fully diluted basis, or 0.01% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $0.5 million, represented by 23,212 units.



•

Mr. Michael J. Means, our Senior Vice President, Commercial Leasing, will own 0.0% of our outstanding common stock, or 0.01% on a fully diluted basis, or 0.01% on a fully diluted basis if the underwriters' over-allotment option is exercised in full, in each case with a total value of $0.4 million, represented by 20,374 units.



•

Mr. Andres R. Gavinet, our Executive Vice President of Finance, will not receive any common stock, operating partnership units, vested LTIP units or vested stock options.



•

In accordance with the formation transaction documents relating to the acquisitions of the historical operating companies, our predecessor principals, as the sole stockholders of DERA, DECO and PLE, will receive the pre-closing operating company distributions. We currently expect our predecessor principals to receive the following estimated distributions: $200,000 for Mr. Emmett, $100,000 for Mr. Kaplan, $100,000 for Mr. Panzer and $100,000 for Mr. Anderson.

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•

In accordance with the formation transaction documents relating to the acquisitions of the institutional funds and the single-asset entities, our predecessor principals and certain of our executive officers, as prior investors in those entities, will receive the pre-closing property distributions, the value of which is expected to be approximately as follows: $2,582,224 for Mr. Emmett, $872,564 for Mr. Kaplan, $884,652 for Mr. Panzer, $919,969 for Mr. Anderson, $2,932 for Mr. Kamer, $1,466 for Ms. Orr, $2,029 for Mr. Golad, $1,466 for Mr. Means.



•

An immediate increase in the net tangible book value of their investment in us of $21.29 per share, representing an aggregate increase of approximately $896.5 million.



•

Employment agreements for Mr. Kaplan, our Chief Executive Officer and President, Mr. Panzer, our Chief Operating Officer, and Mr. Kamer, our Chief Financial Officer, providing for salary, bonus and other benefits, including severance upon a termination of employment under certain circumstances.



•

Indemnification by us for certain liabilities and expenses incurred as a result of actions brought, or threatened to be brought, against our continuing investors who will become our officers and/or directors, in their capacities as such.



•

Repayment of $15 million of indebtedness secured by the Owensmouth land and guaranteed by Mr. Emmett's limited personal guarantee. See "Certain Relationships and Related Transactions."



•

Repayment to Mr. Emmett of an aggregate of $281,841, plus accrued interest of $2,162 as of June 30, 2006, loaned by Mr. Emmett to the single-asset entity that owns the Brentwood Court property. See "Certain Relationships and Related Transactions."



•

Effective upon completion of this offering, we will grant 30,000, 420,000 and 420,000 fully vested LTIP units, respectively, to each of Messrs. Emmett, Kaplan and Panzer, and 101,500, 15,000, 15,000, 15,000 and 15,000 unvested LTIP units, respectively, to each of Mr. Kamer, Mr. Gavinet, Ms. Orr, Mr. Golad and Mr. Means.



•

Effective upon completion of this offering, we will grant fully vested options to purchase 177,778, 2,488,889 and 2,488,889 shares of our common stock respectively, at the initial public offering price, to each of Messrs. Emmett, Kaplan and Panzer, and unvested options to purchase 386,667, 44,444, 44,444, 44,444 and 44,444 shares of our common stock respectively, at the initial public offering price, to each of Mr. Kamer, Mr. Gavinet, Ms. Orr, Mr. Golad and Mr. Means.

        Continuing investors, including our predecessor principals, holding shares of our common stock or units in our operating partnership as a result of the formation transactions will have rights beginning 14 months after the completion of this offering:

•

to cause our operating partnership to redeem any or all of their units in our operating partnership for cash equal to the then-current market value of one share of common stock, or, at our election, to exchange each of such units for which a redemption notice has been received for shares of our common stock on a one-for-one basis;



•

to cause us to register shares of our common stock that may be issued in exchange for such units in our operating partnership upon issuance or for resale under the Securities Act; and



•

to cause us to register such shares of common stock for resale under the Securities Act.

        We have not obtained any third-party appraisals of the properties and other assets to be acquired by us in connection with this offering or the formation transactions. The consideration to be given by us for our properties and other assets in the formation transactions may exceed the fair market value of these properties and assets. See "Risk Factors—Risks Related to Our Properties and Our Business—The price we will pay for the assets to be acquired by us in the formation transactions may exceed their aggregate fair market value."

14

        For an analysis of how this information would change if the share price in the offering is not equal to the mid-point of the range of prices set forth on the cover page of this prospectus, please refer to "Pricing Sensitivity Analysis" included elsewhere in this prospectus.

Restrictions on Transfer

        Under the agreement governing our operating partnership, holders of units in our operating partnership do not have redemption or exchange rights and may not otherwise transfer their units, except under certain limited circumstances, for a period of 14 months after consummation of this offering. In addition, the predecessor principals and our executive officers and directors have agreed with the underwriters, subject to certain exceptions, not to sell or otherwise transfer or encumber any shares of our common stock or securities convertible or exchangeable into common stock (including units in our operating partnership) owned by them at the completion of this offering or thereafter acquired by them for a period of 360 days after the completion of this offering. All other continuing investors have agreed with the underwriters, subject to certain exceptions, not to sell or otherwise transfer or encumber any such securities owned by them at the completion of this offering for a period of 180 days after the completion of this offering. Such transfer restrictions may be lifted with the consent of each of Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Citigroup Global Markets Inc.

Restrictions on Ownership of Our Capital Stock

        Our charter documents generally prohibit any person from actually or constructively owning more than 5.0% of the outstanding shares of our common stock, subject to certain exceptions. Our charter documents, however, permit exceptions to be made for stockholders with the approval of our board of directors.

RISK FACTORS

         Investment in our common stock involves risks. In addition to other information contained in this prospectus, you should carefully consider the following factors before acquiring shares of common stock offered by this prospectus. The occurrence of any of the following risks might cause you to lose all or part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled "Forward-Looking Statements."

Risks Related to Our Properties and Our Business

        All of our properties are located in Los Angeles County, California and Honolulu, Hawaii, and we are dependent on the Southern California and Honolulu economies and are susceptible to adverse local regulations and natural disasters in those areas.

        Because all of our properties are concentrated in Los Angeles County, California and Honolulu, Hawaii, we are exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within Los Angeles County, our properties are concentrated in certain submarkets, exposing us to risks associated with those specific areas. We are susceptible to adverse developments in the Los Angeles County, Southern California and Honolulu economic and regulatory environment (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation and other factors) as well as natural disasters that occur in these areas (such as earthquakes, floods and other events). In addition, the State of California is also regarded as more litigious and more highly regulated and taxed than many states, which may reduce demand for office space in California. Any adverse developments in the economy or real estate market in Los Angeles County, Southern California in general, or Honolulu, or any decrease in demand for office space resulting from the California or Honolulu regulatory or business environment, could adversely impact our financial condition, results of operations, cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to you. We cannot assure you of the continued growth of the Los Angeles County, Southern California or Honolulu economies or of our future growth rate.

        The price we will pay for the assets to be acquired by us in the formation transactions may exceed their aggregate fair market value.

        We have not obtained any third-party appraisals of the properties and other assets to be acquired by us from certain of our affiliates and from unaffiliated third parties in connection with this offering or the formation transactions. The value of the cash, units in our operating partnership and shares of our common stock that we will pay or issue as consideration for the assets that we will acquire will increase or decrease if our common stock is priced above or below the mid-point of the range shown on the front cover of this prospectus. The initial public offering price of our common stock will be determined in consultation with the underwriters based on the history and prospects for the industry in which we compete, our financial information, the ability of our management and our business potential and earning prospects, the prevailing securities markets at the time of this offering, and the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. The initial public offering price does not necessarily bear any relationship to the book value or the fair market value of such assets. As a result, the price to be paid by us to these affiliates and third parties for the acquisition of the assets in the formation transactions may exceed the fair market value of those assets. The aggregate historical combined net tangible book value of the assets to be acquired by us in the formation transactions was approximately $478.0 million as of June 30, 2006.

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        Our operating performance is subject to risks associated with the real estate industry.

        Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for dividends, as well as the value of our properties. These events include, but are not limited to:

•

adverse changes in international, national or local economic and demographic conditions;



•

vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights or below-market renewal options;



•

adverse changes in financial conditions of buyers, sellers and tenants of properties;



•

inability to collect rent from tenants;



•

competition from other real estate investors with significant capital, including other real estate operating companies, publicly traded REITs and institutional investment funds;



•

reductions in the level of demand for commercial space and residential units, and changes in the relative popularity of properties;



•

increases in the supply of office space and multifamily units;



•

fluctuations in interest rates, which could adversely effect our ability, or the ability of buyers and tenants of properties, to obtain financing on favorable terms or at all;



•

increases in expenses, including, without limitation, insurance costs, labor costs, energy prices, real estate assessments and other taxes and costs of compliance with laws, regulations and governmental policies, and we may be restricted in passing on these increases to our tenants;



•

the effects of rent controls, stabilization laws and other laws or covenants regulating rental rates; and



•

changes in, and changes in enforcement of, laws, regulations and governmental policies, including, without limitation, health, safety, environmental, zoning and tax laws, governmental fiscal policies and the Americans with Disabilities Act of 1990, or ADA.

        In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties to meet our financial expectations, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected. There can be no assurance that we can achieve our return objectives.

        We will have a substantial amount of indebtedness outstanding following this offering, which may affect our ability to pay dividends, may expose us to interest rate fluctuation risk and may expose us to the risk of default under our debt obligations.

        As of June 30, 2006, on a pro forma basis, our total consolidated indebtedness would have been approximately $2.75 billion, excluding loan premium, and we may incur significant additional debt for various purposes, including, without limitation, to fund future acquisition and development activities and operational needs. Upon completion of this offering, we expect to have an additional $250.0 million available for use under our senior secured revolving credit facility, assuming a pricing at the mid-point of the range set forth on the cover page of this prospectus. Our senior secured revolving credit facility will also contain an accordion feature that will allow us to increase the availability thereunder by $250.0 million upon specified circumstances.

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        Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to maintain our REIT qualification. Our substantial outstanding indebtedness, and the limitations imposed on us by our debt agreements, could have significant other adverse consequences, including the following:

•

our cash flow may be insufficient to meet our required principal and interest payments;



•

we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to capitalize upon emerging acquisition opportunities or meet operational needs;



•

we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;



•

we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms;



•

we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations;



•

we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under our hedge agreements, these agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we do have, we will be exposed to then-existing market rates of interest and future interest rate volatility with respect to indebtedness that is currently hedged;



•

we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases; and



•

our default under any of our indebtedness with cross default provisions could result in a default on other indebtedness.

        If any one of these events were to occur, our financial condition, results of operations, cash flow, per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected. In addition, any foreclosure on our properties could create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the REIT distribution requirements imposed by the Code.

        The actual rents we receive for the properties in our portfolio may be less than our asking rents, and we may experience lease roll down from time to time.

        Throughout this prospectus, we make certain comparisons between our asking rents and our in-place rents, and between our asking rents and average asking rents in our submarkets. As a result of various factors, including competitive pricing pressure in our submarkets, adverse conditions in the Los Angeles County or Honolulu real estate market, a general economic downturn and the desirability of our properties compared to other properties in our submarkets, we may be unable to realize such asking rents across the properties in our portfolio. In addition, the degree of discrepancy between our asking rents and the actual rents we are able to obtain may vary both from property to property and among different leased spaces within a single property. If we are unable to obtain rental rates that are on average comparable to our asking rents across our portfolio, then our ability to generate cash flow growth will be negatively impacted. In addition, depending on asking rental rates at any given time as compared to expiring leases in our portfolio, from time to time rental rates for expiring leases may be higher than starting rental rates for new leases.

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        Potential losses, including from adverse weather conditions, natural disasters and title claims, may not be covered by insurance.

        Our business operations in Southern California and Honolulu, Hawaii are susceptible to, and could be significantly affected by, adverse weather conditions and natural disasters such as earthquakes, tsunamis, hurricanes, volcanoes, wind, floods, landslides and fires. These adverse weather conditions and natural disasters could cause significant damage to the properties in our portfolio, the risk of which is enhanced by the concentration of our properties' locations. Our insurance may not be adequate to cover business interruption or losses resulting from adverse weather or natural disasters. In addition, our insurance policies include substantial self insurance portions and significant deductibles and co-payments for such events, and recent hurricanes in the United States have affected the availability and price of such insurance. As a result, we may be required to incur significant costs in the event of adverse weather conditions and natural disasters. We may discontinue earthquake or any other insurance coverage on some or all of our properties in the future if the cost of premiums for any of these policies in our judgment exceeds the value of the coverage discounted for the risk of loss.

        Furthermore, we do not carry insurance for certain losses, including, but not limited to, losses caused by certain environmental conditions, such as mold or asbestos, riots or war. In addition, our title insurance policies may not insure for the current aggregate market value of our portfolio, and we do not intend to increase our title insurance coverage as the market value of our portfolio increases. As a result, we may not have sufficient coverage against all losses that we may experience, including from adverse title claims.

        If we experience a loss that is uninsured or which exceeds policy limits, we could incur significant costs, lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

        In addition, many of our properties could not be rebuilt to their existing height or size at their existing location under current land-use laws and policies. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications and otherwise may have to upgrade such property to meet current code requirements.

        Terrorism and other factors affecting demand for our properties could harm our operating results.

        The strength and profitability of our business depends on demand for and the value of our properties. Future terrorist attacks in the United States, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, and other acts of terrorism or war may have a negative impact on our operations. Such terrorist attacks could have an adverse impact on our business even if they are not directed at our properties. In addition, the terrorist attacks of September 11, 2001 have substantially affected the availability and price of insurance coverage for certain types of damages or occurrences, and our insurance policies for terrorism include large deductibles and co-payments. The lack of sufficient insurance for these types of acts could expose us to significant losses and could have a negative impact on our operations.

        We face intense competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.

        We compete with a number of developers, owners and operators of office and multifamily real estate, many of which own properties similar to ours in the same markets in which our properties are located. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose existing or potential tenants and we may be pressured to reduce our rental rates below those we currently charge or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to

26

retain tenants when our tenants' leases expire. In that case, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you may be adversely affected.

        In addition, all of our multifamily properties are located in developed areas that include a significant number of other multifamily properties, as well as single-family homes, condominiums and other residential properties. The number of competitive multifamily and other residential properties in a particular area could have a material adverse effect on our ability to lease units and on our rental rates.

        We may be unable to renew leases or lease vacant space .

        As of June 30, 2006, leases representing approximately 5.9% of the square footage of the properties in our office portfolio will expire in the remainder of 2006, and an additional approximately 6.9% of the square footage of the properties in our office portfolio was available for lease. In addition, as of June 30, 2006, approximately 0.4% of the units in our multifamily portfolio was available for lease, and substantially all of the leases in our multifamily portfolio are renewable on an annual basis at the tenant's option and, if not renewed or terminated, automatically convert to month-to-month. We cannot assure you that leases will be renewed or that our properties will be re-leased at rental rates equal to or above our existing rental rates or that substantial rent abatements, tenant improvements, early termination rights or below-market renewal options will not be offered to attract new tenants or retain existing tenants. Accordingly, portions of our office and multifamily properties may remain vacant for extended periods of time. In addition, some existing leases currently provide tenants with options to renew the terms of their leases at rates that are less than the current market rate or to terminate their leases prior to the expiration date thereof.

        Furthermore, as part of our business strategy, we have focused and intend to continue to focus on securing smaller-sized companies as tenants for our office portfolios. Smaller tenants may present greater credit risks and be more susceptible to economic downturns than larger tenants, and may be more likely to cancel or elect not to renew their leases. In addition, we intend to actively pursue opportunities for what we believe to be well-located and high quality buildings that may be in a transitional phase due to current or impending vacancies. We cannot assure you that any such vacancies will be filled following a property acquisition, or that any new tenancies will be established at or above-market rates. If the rental rates for our properties decrease or other tenant incentives increase, our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space, our financial condition, results of operations, cash flow, per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to you would be adversely affected.

        Real estate investments are generally illiquid.

        The real estate investments made, and to be made, by us are relatively difficult to sell quickly. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinance of the underlying property. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. Furthermore, the value of our Studio Plaza and One Westwood properties may be adversely affected by the contractual rights of first offer that exist with respect to such properties. We may give similar contractual rights in the future, which could affect the value of the subject property.

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        Because we own real property, we are subject to extensive environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

        Environmental laws regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various provisions of these laws, an owner or operator of real estate is or may be liable for costs related to soil or groundwater contamination on, in, or migrating to or from its property. In addition, persons who arrange for the disposal or treatment of hazardous or toxic substances may be liable for the costs of cleaning up contamination at the disposal site. Such laws often impose liability regardless of whether the person knew of, or was responsible for, the presence of the hazardous or toxic substances that caused the contamination. The presence of, or contamination resulting from, any of these substances, or the failure to properly remediate them, may adversely affect our ability to sell or rent our property or to borrow using such property as collateral. In addition, persons exposed to hazardous or toxic substances may sue for personal injury damages. For example, some laws impose liability for release of or exposure to asbestos-containing materials, a substance known to be present in a number of our buildings. In other cases, some of our properties have been (or may have been) impacted by contamination from past operations or from off-site sources. As a result, in connection with our current or former ownership, operation, management and development of real properties, we may be potentially liable for investigation and cleanup costs, penalties, and damages under environmental laws.

        Although most of our properties have been subjected to preliminary environmental assessments, known as Phase I assessments, by independent environmental consultants that identify certain liabilities, Phase I assessments are limited in scope, and may not include or identify all potential environmental liabilities or risks associated with the property. Unless required by applicable laws or regulations, we may not further investigate, remedy or ameliorate the liabilities disclosed in the Phase I assessments.

        We cannot assure you that these or other environmental studies identified all potential environmental liabilities, or that we will not incur material environmental liabilities in the future. If we do incur material environmental liabilities in the future, we may face significant remediation costs, and we may find it difficult to sell any affected properties.

        We may incur significant costs complying with laws, regulations and covenants that are applicable to our properties.

        The properties in our portfolio are subject to various covenants and local laws and regulatory requirements, including permitting and licensing requirements. Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers may restrict our use of our properties and may require us to obtain approval from local officials or community standards organizations at any time with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. Among other things, these restrictions may relate to fire and safety, seismic, asbestos-cleanup or hazardous material abatement requirements. There can be no assurance that existing regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Our growth strategy may be affected by our ability to obtain permits, licenses and zoning relief. Our failure to obtain such permits, licenses and zoning relief could have a material adverse effect on our business, financial condition and results of operations.

        In addition, federal and state laws and regulations, including laws such as the ADA, impose further restrictions on our operations. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Some of our properties may currently be in non-compliance with the ADA. If one or more of the properties in our portfolio is not in compliance with the ADA or any other regulatory requirements, we may be required to incur additional costs to bring the property into compliance and we might incur governmental fines. In addition, we do not

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know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely impact our financial condition, results of operations, cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to you.

        Rent control or rent stabilization legislation and other regulatory restrictions may limit our ability to increase rents and pass through new or increased operating costs to our tenants.

        Certain states and municipalities have adopted laws and regulations imposing restrictions on the timing or amount of rent increases or have imposed regulations relating to low- and moderate-income housing. Currently, neither California nor Hawaii have state mandated rent control, but various municipalities within Southern California, such as the City of Los Angeles and Santa Monica, have enacted rent control legislation. All but one of the properties in our Los Angeles County multifamily portfolio are affected by these laws and regulations. In addition, we have agreed to provide low- and moderate-income housing in many of the units in our Honolulu multifamily portfolio in exchange for certain tax benefits. We presently expect to continue operating and acquiring properties in areas that either are subject to these types of laws or regulations or where legislation with respect to such laws or regulations may be enacted in the future. Such laws, regulations and contracts limit our ability to charge market rents, increase rents, evict tenants or recover increases in our operating expenses and could make it more difficult for us to dispose of properties in certain circumstances. Similarly, compliance procedures associated with rent control statutes and low- and moderate-income housing regulations could have a negative impact on our operating costs, and any failure to comply with low- and moderate-income housing regulations could result in the loss of certain tax benefits and the forfeiture of rent payments. In addition, such low- and moderate-income housing regulations require us to rent a certain number of units at below-market rents, which has a negative impact on our ability to increase cash flow from our properties subject to such regulations. Furthermore, such regulations may negatively impact our ability to attract higher-paying tenants to such properties.

        We may be unable to complete acquisitions that would grow our business, and even if consummated, we may fail to successfully integrate and operate acquired properties.

        Our planned growth strategy includes the disciplined acquisition of properties as opportunities arise. Our ability to acquire properties on favorable terms and successfully integrate and operate them is subject to the following significant risks:

•

we may be unable to acquire desired properties because of competition from other real estate investors with more capital, including other real estate operating companies, publicly traded REITs and investment funds;



•

we may acquire properties that are not accretive to our results upon acquisition, and we may not successfully manage and lease those properties to meet our expectations;



•

competition from other potential acquirers may significantly increase the purchase price of a desired property;



•

we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity financing to consummate an acquisition or, if obtainable, financing may not be on favorable terms;



•

we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;



•

agreements for the acquisition of office properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate;

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•

the process of acquiring or pursuing the acquisition of a new property may divert the attention of our senior management team from our existing business operations;



•

we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;



•

market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and



•

we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, such as clean-up of environmental contamination, claims by tenants, vendors or other persons against the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

        If we cannot complete property acquisitions on favorable terms, or operate acquired properties to meet our goals or expectations, our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected.

        We may be unable to successfully expand our operations into new markets.

        If the opportunity arises, we may explore acquisitions of properties in new markets. Each of the risks applicable to our ability to acquire and successfully integrate and operate properties in our current markets are also applicable to our ability to acquire and successfully integrate and operate properties in new markets. In addition to these risks, we will not possess the same level of familiarity with the dynamics and market conditions of any new markets that we may enter, which could adversely affect our ability to expand into those markets. We may be unable to build a significant market share or achieve a desired return on our investments in new markets. If we are unsuccessful in expanding into new markets, it could adversely affect our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you.

        We are exposed to risks associated with property development.

        We may engage in development and redevelopment activities with respect to certain of our properties. To the extent that we do so, we will be subject to certain risks, including, without limitation:

•

the availability and pricing of financing on favorable terms or at all;



•

the availability and timely receipt of zoning and other regulatory approvals; and



•

the cost and timely completion of construction (including risks beyond our control, such as weather or labor conditions, or material shortages).

        These risks could result in substantial unanticipated delays or expenses and, under certain circumstances, could prevent completion of development activities once undertaken, any of which could have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you.

        We are assuming liabilities in connection with the formation transactions, including unknown liabilities.

        As part of the formation transactions, we will assume existing liabilities of our historical operating companies, the institutional funds, the investment funds and the single-asset entities, including, but not

30

limited to, liabilities in connection with our properties, some of which may be unknown or unquantifiable at the time this offering is consummated. Unknown liabilities might include liabilities for cleanup or remediation of undisclosed environmental conditions, claims of tenants, vendors or other persons dealing with the entities prior to this offering, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. In connection with the formation transactions, we entered into a representation, warranty and indemnity agreement with our predecessor principals pursuant to which they made limited representations and warranties to us regarding potential material adverse impacts on the properties and entities to be acquired by us in the formation transactions and agreed to indemnify us with respect to claims for breaches of those representations and warranties brought by us within one year of the consummation of this offering. However, such indemnification is limited to $20.0 million in shares of our common stock and/or operating partnership units to be deposited into an escrow fund at the closing of the formation transactions (or, if less, the fair market value of such shares and units) and is subject to a $1.0 million deductible. Our predecessor principals are not required to add shares of our common stock or operating partnership units to the escrow in the event that the value of our common stock (and therefore, the units) decreases. Accordingly, such indemnification may not be sufficient to cover all liabilities assumed, and we are not entitled to indemnification from any other sources in connection with the formation transactions. In addition, because many liabilities, including tax liabilities, may not be identified within such period, we may have no recourse against our predecessor principals for these liabilities. See "Tax Risks Related to Ownership of REIT Shares—We and the operating partnership may inherit tax liabilities from the entities to be acquired in the formation transactions."

        If we default on the leases to which some of our properties are subject, our business could be adversely affected.

        Upon consummation of the formation transactions, we will have leasehold interests in certain of our properties. If we default under the terms of these leases, we may be liable for damages and could lose our leasehold interest in the property or our options to purchase the fee interest in such properties. If any of these events were to occur, our business and results of operations would be adversely affected.

         The cash available for distribution to stockholders may not be sufficient to pay dividends at expected levels, nor can we assure you of our ability to make distributions in the future. We may use borrowed funds to make distributions.

        Our expected annual distributions for the 12 months following the consummation of this offering of $0.70 per share are expected to be approximately 109.1% of estimated cash available for distribution. If cash available for distribution generated by our assets for such twelve month period is less than our estimate, or if such cash available for distribution decreases in future periods from expected levels, our ability to make the expected distributions could result in a decrease in the market price of our common stock. See "Dividend Policy."

        All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We may not be able to make distributions in the future. In addition, some of our distributions may include a return of capital. To the extent that we decide to make distributions in excess of our current and accumulated earnings and profits, such distributions would generally be considered a return of capital for federal income tax purposes to the extent of the holder's adjusted tax basis in their shares. A return of capital is not taxable, but it has the effect of reducing the holder's adjusted tax basis in its investment. To the extent that distributions exceed the adjusted tax basis of a holder's shares, they will be treated as gain from the sale or exchange of such stock. See "Federal Income Tax Considerations—Taxation of Stockholders." If we

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borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been.

         Our property taxes could increase due to property tax rate changes or reassessment, which would impact our cash flows.

        Even if we qualify as a REIT for federal income tax purposes, we will be required to pay some state and local taxes on our properties. The real property taxes on our properties may increase as property tax rates change or as our properties are assessed or reassessed by taxing authorities. In particular, our portfolio of properties may be reassessed as a result of this offering. Therefore, the amount of property taxes we pay in the future may increase substantially from what we have paid in the past. If the property taxes we pay increase, our cash flow would be impacted, and our ability to pay expected dividends to our stockholders could be adversely affected.

Risks Related to Our Organization and Structure

        We may pursue less vigorous enforcement of terms of merger and other agreements because of conflicts of interest with certain of our officers.

        Our predecessor principals and certain of our executive officers have ownership interests in the other entities to be acquired in the formation transactions. Following the completion of this offering and the formation transactions, under the representation, warranty and indemnification agreement with our predecessor principals, we will be entitled to indemnification in the event of breaches of the limited representations and warranties made by our predecessor principals with respect to potential material adverse impacts on the entities and properties to be acquired by us. Such indemnification is limited and we are not entitled to any other indemnification in connection with the formation transactions. See "—We are assuming liabilities in connection with the formation transaction, including unknown liabilities" above. In addition, we expect that certain members of our senior management team, including some of our predecessor principals, will enter into employment agreements with us pursuant to which they will agree, among other things, not to engage in certain business activities in competition with us and pursuant to which they will devote substantially full-time attention to our affairs. See "Management—Employment Agreements." We may choose not to enforce, or to enforce less vigorously, our rights under these agreements due to our ongoing relationship with our predecessor principals and our executive officers.

        Our predecessor principals exercised significant influence with respect to the terms of the formation transactions.

        We did not conduct arm's-length negotiations with our predecessor principals with respect to all of the terms of the formation transactions. In the course of structuring the formation transactions, our predecessor principals had the ability to influence the type and level of benefits that they and our other officers will receive from us. In addition, our predecessor principals had substantial pre-existing ownership interests in our historical operating companies, the institutional funds, the investment funds and the single-asset entities and will receive substantial economic benefits as a result of the formation transactions. The formation transaction documents provide that the individual allocations of the total formation transaction value to each prior investor will be determined by the provisions of the applicable partnership agreement or organizational document of the relevant institutional fund(s), investment fund(s) and/or single-asset entit(y/ies) relating to distributions of distributable net proceeds from sales of properties. Under these provisions, the amount allocated to our predecessor principals vis-a-vis the other prior investors increases as the total formation transaction value increases. Also, certain of our predecessor principals have assumed management and/or director positions with us, for which they will obtain certain other benefits such as employment agreements, stock option or LTIP unit grants and other compensation.

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        Tax consequences to holders of operating partnership units upon a sale or refinancing of our properties may cause the interests of our senior management to differ from your own.

        As a result of the unrealized built-in gain attributable to the contributed property at the time of contribution, some holders of operating partnership units, including our principals, may suffer different and more adverse tax consequences than holders of our common stock upon the sale or refinancing of the properties owned by our operating partnership, including disproportionately greater allocations of items of taxable income and gain upon a realization event. As those holders will not receive a correspondingly greater distribution of cash proceeds, they may have different objectives regarding the appropriate pricing, timing and other material terms of any sale or refinancing of certain properties, or whether to sell or refinance such properties at all.

        Our senior management team will have significant influence over our affairs.

        Upon completion of this offering, our senior management team will own approximately 9.8% of our outstanding common stock, or 23.7% on a fully diluted basis. As a result, our senior management team, to the extent they vote their shares in a similar manner, will have influence over our affairs and could exercise such influence in a manner that is not in the best interests of our other stockholders, including by attempting to delay, defer or prevent a change of control transaction that might otherwise be in the best interests of our stockholders. If our senior management team exercises their redemption rights with respect to their operating partnership units and we issue common stock in exchange therefor, our senior management team's influence over our affairs would increase substantially.

        Our growth depends on external sources of capital which are outside of our control.

        In order to maintain our qualification as a REIT, we are required under the Code to annually distribute at least 90% of our net taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income, including any net capital gains. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we rely on third-party sources to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Our access to third-party sources of capital depends, in part, on:

•

general market conditions;



•

the market's perception of our growth potential;



•

our current debt levels;



•

our current and expected future earnings;



•

our cash flow and cash dividends; and



•

the market price per share of our common stock.

        If we cannot obtain capital from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or pay dividends to you necessary to maintain our qualification as a REIT.

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        Our charter, the partnership agreement of our operating partnership and Maryland law contain provisions that may delay or prevent a change of control transaction.

        Our charter contains a 5.0% ownership limit.     Our charter, subject to certain exceptions, authorizes our directors to take such actions as are necessary and desirable to limit any person to actual or constructive ownership of no more than 5.0% in value of the outstanding shares of our stock and no more than 5.0% of the value or number, whichever is more restrictive, of the outstanding shares of our common stock. Our board of directors, in its sole discretion, may exempt a proposed transferee from the ownership limit. However, our board of directors may not grant an exemption from the ownership limit to any proposed transferee whose ownership, direct or indirect, of more than 5.0% of the value or number of our outstanding shares of our common stock could jeopardize our status as a REIT. The ownership limit contained in our charter and the restrictions on ownership of our common stock may delay or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. See "Description of Securities—Restrictions on Transfer."

        Our board of directors may create and issue a class or series of preferred stock without stockholder approval.     Our board of directors is empowered under our charter to amend our charter to increase or decrease the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue, to designate and issue from time to time one or more classes or series of preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock without stockholder approval. Our board of directors may determine the relative rights, preferences and privileges of any class or series of preferred stock issued. As a result, we may issue series or classes of preferred stock with preferences, dividends, powers and rights, voting or otherwise, senior to the rights of holders of our common stock. The issuance of preferred stock could also have the effect of delaying or preventing a change of control transaction that might otherwise be in the best interests of our stockholders.

        Certain provisions in the partnership agreement for our operating partnership may delay or prevent unsolicited acquisitions of us.     Provisions in the partnership agreement for our operating partnership may delay or make more difficult unsolicited acquisitions of us or changes in our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some stockholders might consider such proposals, if made, desirable. These provisions include, among others:

•

redemption rights of qualifying parties;



•

transfer restrictions on our operating partnership units;



•

the ability of the general partner in some cases to amend the partnership agreement without the consent of the limited partners; and



•

the right of the limited partners to consent to transfers of the general partnership interest and mergers under specified circumstances.

        Any potential change of control transaction may be further limited as a result of provisions of the partnership unit designation for the LTIP units, which require us to preserve the rights of LTIP unit holders and may restrict us from amending the partnership agreement for our operating partnership in a manner that would have an adverse effect on the rights of LTIP unit holders.

        Certain provisions of Maryland law could inhibit changes in control.     Certain provisions of the Maryland General Corporation Law, or MGCL, may have the effect of inhibiting a third party from making a proposal to acquire us or impeding a change of control under circumstances that otherwise

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could provide our stockholders with the opportunity to realize a premium over the then-prevailing market price of our common stock, including:

•

"business combination" provisions that, subject to limitations, prohibit certain business combinations between us and an "interested stockholder" (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter impose special appraisal rights and special stockholder voting requirements on these combinations; and



•

"control share" provisions that provide that "control shares" of our company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a "control share acquisition" (defined as the direct or indirect acquisition of ownership or control of "control shares") have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

        We have elected to opt out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL, by resolution of our board of directors, and in the case of the control share provisions of the MGCL, pursuant to a provision in our bylaws. However, our board of directors may by resolution elect to repeal the foregoing opt-outs from the business combination provisions of the MGCL and we may, by amendment to our bylaws, opt in to the control share provisions of the MGCL in the future.

        Our charter, bylaws, the partnership agreement for our operating partnership and Maryland law also contain other provisions that may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. See "Material Provisions of Maryland Law and of Our Charter and Bylaws—Removal of Directors," "—Consideration of Non-Stockholder Constituencies," "—Control Share Acquisitions," "—Advance Notice of Director Nominations and New Business" and "Description of the Partnership Agreement of Douglas Emmett Properties, LP."

        Under their employment agreements, certain of our executive officers will have the right to terminate their employment and receive severance if there is a change of control.

        In connection with this offering, we are entering into employment agreements with Messrs. Kaplan, Panzer and Kamer. These employment agreements provide that each executive may terminate his employment under certain conditions, including after a change of control, and receive severance based on two or three times (depending on the officer) his annual total of salary, bonus and incentive compensation such as LTIP units, options or outperformance grants plus a "gross up" for any excise taxes under Section 280G of the Code. Because of the effects of averaging equity grants under the agreements, and assuming a constant number of fully diluted shares outstanding after the offering and no compensation or grants beyond that contractually committed, the aggregate severance payments for these executive officers (before any gross up) will decline from approximately $0.62 per fully diluted share in 2006 and 2007 to approximately $0.35 per fully diluted share in 2008 and to $0.27 per fully diluted share in 2009. In addition, these executive officers would not be restricted from competing with us after their departure. See "Management—Employment Agreements" for further details about the terms of these employment agreements.

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        Our fiduciary duties as sole stockholder of the general partner of our operating partnership could create conflicts of interest.

        After the consummation of this offering, we, as the sole stockholder of the general partner of our operating partnership, will have fiduciary duties to the other limited partners in the operating partnership, the discharge of which may conflict with the interests of our stockholders. The limited partners of our operating partnership have agreed that, in the event of a conflict in the fiduciary duties owed by us to our stockholders and, in our capacity as general partner of our operating partnership, to such limited partners, we are under no obligation to give priority to the interests of such limited partners. In addition, those persons holding operating partnership units will have the right to vote on certain amendments to the operating partnership agreement (which require approval by a majority in interest of the limited partners, including us) and individually to approve certain amendments that would adversely affect their rights. These voting rights may be exercised in a manner that conflicts with the interests of our stockholders. For example, we are unable to modify the rights of limited partners to receive distributions as set forth in the operating partnership agreement in a manner that adversely affects their rights without their consent, even though such modification might be in the best interest of our stockholders.

        The loss of any member of our senior management or certain other key executives could significantly harm our business.

        Our ability to maintain our competitive position is dependent to a large degree on the efforts and skills of our senior management team, including Dan A. Emmett, Jordan Kaplan, Kenneth M. Panzer and William Kamer. If we lose the services of any member of our senior management, our business may be significantly impaired. In addition, many of our senior executives have strong industry reputations, which aid us in identifying acquisition and borrowing opportunities, having such opportunities brought to us, and negotiating with tenants and sellers of properties. The loss of the services of these key personnel could materially and adversely affect our operations because of diminished relationships with lenders, existing and prospective tenants, property sellers and industry personnel.

        We have no experience operating as a publicly traded REIT.

        We have no experience operating as a publicly traded REIT. In addition, certain members of our board of directors and all but one of our executive officers have no experience in operating a publicly traded REIT. We cannot assure you that our past experience will be sufficient to successfully operate our company as a REIT or a publicly traded company, including the requirements to timely meet disclosure requirements and comply with the Sarbanes-Oxley Act of 2002. Failure to maintain REIT status would have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you.

        If we fail to establish and maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results.

        In the past, we have reported our results to the investors in the institutional funds on a fund-by-fund basis, and we have not separately reported audited results for DECO, PLE or the single-asset entities. We have generally maintained separate systems and procedures for each institutional fund, as well as our non-predecessor entities, which makes it more difficult for us to evaluate and integrate their systems and procedures on a reliable company-wide basis. In addition, we were not required to report our results on a GAAP basis. In connection with our operation as a public company, we will be required to report our operations on a consolidated basis under GAAP and, in some cases, on a property by property basis. We are in the process of implementing an internal audit function and

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modifying our company-wide systems and procedures in a number of areas to enable us to report on a consolidated basis under GAAP as we continue the process of integrating the financial reporting of our predecessor, DECO, PLE and the single-asset entities. If we fail to implement proper overall business controls, including as required to integrate our diverse predecessor and non-predecessor entities and support our growth, our results of operations could be harmed or we could fail to meet our reporting obligations.

        Our board of directors may change significant corporate policies without stockholder approval.

        Our investment, financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of the board of directors without a vote of our stockholders. In addition, the board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our financial condition, results of operations, cash flow, per share trading price of our common stock and ability to satisfy our debt service obligations and to pay dividends to you.

         Compensation awards to our management may not be tied to or correspond with our improved financial results or share price.

        The compensation committee of our board of directors is responsible for overseeing our compensation and employee benefit plans and practices, including our executive compensation plans and our incentive compensation and equity-based compensation plans. Our compensation committee has significant discretion in structuring compensation packages and may make compensation decisions based on any number of factors. As a result, compensation awards may not be tied to or correspond with improved financial results at our company or the share price of our common stock.

Risks Related to This Offering

        The historical internal rates of return attributable to the institutional funds may not be indicative of our future results or an investment in our common stock.

        We have presented in this prospectus under "Management's Discussion and Analysis of Financial Condition and Results of Operations" internal rate of return, or IRR, and average annual operating return information relating to the average historical performance of the institutional funds. When considering this information you should bear in mind that the historical results of the institutional funds may not be indicative of the future results that you should expect from us or any investment in our common stock. In particular, our results could vary significantly from the historical results due to the fact that:

•

we are acquiring the properties and other assets in the formation transactions at values in excess of their book value, which may also be in excess of their fair market value;



•

we will not benefit from any value that was created in the properties prior to our acquisition;



•

we purchased many of our properties at a relative low point in the Los Angeles County real estate market;



•

the positive economic and other trends affecting the Los Angeles County real estate market in recent years may not continue at the same level;



•

we will be operating all of the acquired properties and other assets under one on-going company, as opposed to individual investment partnerships with defined terms;

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•

we will be operating as a public company, and, as such, our cost structure will vary from our historical cost structure;



•

we may not incur indebtedness at the same level relative to the value of our properties as was incurred by the institutional funds;



•

our approaches to disposition and refinancing of properties and the use of proceeds of such transactions are likely to differ from those of the institutional funds;



•

our dividend policy will differ from that of the institutional funds;



•

the value realized by our stockholders will depend not only on the cash generated by our properties but also by the market price for our common stock, which may be influenced by a number of other factors;



•

the size and type of investments that we make as a public company, and relative riskiness of those investments, may differ materially from those of the institutional funds, which could significantly impact the rates of return expected from those investments;



•

we may enter into joint ventures that could manage and lease properties differently than we have historically; and



•

as described elsewhere in this prospectus, our future results are subject to many uncertainties and other factors that could cause our returns to be materially lower than the returns previously achieved by the institutional funds.

        Differences between the book value of the assets to be acquired in the formation transactions and the price paid for our common stock will result in an immediate and material dilution of the book value of our common stock.

        As of June 30, 2006, the aggregate historical net tangible book value of the assets to be acquired by us in the formation transactions was approximately $478.0 million, or $4.38 per share of our common stock held by our continuing investors, assuming the exchange of units in our operating partnership for shares of our common stock on a one-for-one basis. As a result, the pro forma net tangible book value per share of our common stock after the consummation of this offering and the formation transactions will be less than the initial public offering price. The purchasers of our common stock offered hereby will experience immediate and substantial dilution of $3.09 per share in the pro forma net tangible book value per share of our common stock.

        The number of shares of our common stock available for future sale, including by our affiliates and other continuing investors, could adversely affect the market price of our common stock, and future sales by us of shares of our common stock may be dilutive to existing stockholders.

        Sales of substantial amounts of shares of our common stock in the public market, or upon exchange of units in our operating partnership or exercise of any options, or the perception that such sales might occur could adversely affect the market price of the shares of our common stock. The exchange of units in our operating partnership for common stock, the exercise of any stock options or the vesting of any restricted stock granted to certain directors, executive officers and other employees under our stock incentive plan, the issuance of our common stock or units in our operating partnership in connection with property, portfolio or business acquisitions and other issuances of our common stock or units in our operating partnership could have an adverse effect on the market price of the shares of our common stock. Also, continuing investors that will hold 58,617,573 shares of our outstanding common stock and 50,512,427 operating partnership units on a pro forma basis, assuming a per share price based on the mid-point of the range set forth on the cover page of this prospectus, are parties to agreements that provide for registration rights. The exercise of these registration rights could depress

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the price of our common stock. In addition, continuing investors that will hold $633.4 million of our common stock and units in our operating partnership in the aggregate, assuming a per share price based on the mid-point of the range set forth on the cover page of this prospectus, elected to receive cash in the formation transactions rather than these shares or units. However, due to limits on available cash, these continuing investors will receive such common stock or operating partnership units in lieu thereof. The existence of this equity held by such continuing investors, as well as units in our operating partnership, options, or shares of our common stock reserved for issuance as restricted shares or upon exchange of units may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities. In addition, future sales by us of shares of our common stock may be dilutive to existing stockholders.

        Increases in market interest rates may result in a decrease of the value of our common stock.

        One of the factors that will influence the price of our common stock will be the dividend yield on our common stock (as a percentage of the price of our common stock) relative to market interest rates. Market interest rates have recently increased and may continue to do so. An increase in market interest rates may lead prospective purchasers of our common stock to expect a higher dividend yield and, if we are unable to pay such yield, the market price of our common stock could decrease.

        The market price of our common stock could be adversely affected by our level of cash dividends.

        The market value of the equity securities of a REIT is based primarily upon the market's perception of the REIT's growth potential and its current and potential future cash distributions, whether from operations, sales or refinancings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. Our failure to meet the market's expectations with regard to future earnings and cash distributions likely would adversely affect the market price of our common stock.

        There has been no public market for our common stock prior to this offering.

        Prior to this offering, there has been no public market for our common stock, and there can be no assurance that an active trading market will develop or be sustained or that shares of our common stock will be resold at or above the initial public offering price. The initial public offering price of our common stock has been determined by agreement among us and the underwriters, but there can be no assurance that our common stock will not trade below the initial public offering price following the completion of this offering. See "Underwriting." The market value of our common stock could be substantially affected by general market conditions, including the extent to which a secondary market develops for our common stock following the completion of this offering, the extent of institutional investor interest in us, the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities (including securities issued by other real estate-based companies), our financial performance and general stock and bond market conditions.

Tax Risks Related to Ownership of REIT Shares

        Our failure to qualify as a REIT would result in higher taxes and reduce cash available for dividends.

        We intend to operate in a manner so as to qualify as a REIT for federal income tax purposes. Although we do not intend to request a ruling from the Internal Revenue Service, or IRS, as to our REIT status, we expect to receive an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, or

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Skadden Arps, with respect to our qualification as a REIT. Stockholders should be aware, however, that opinions of counsel are not binding on the IRS or any court. The opinion of Skadden Arps will, if issued, represent only the view of our counsel based on our counsel's review and analysis of existing law and on certain representations as to factual matters and covenants made by us, including representations relating to the values of our assets, the sources of our income, and the nature, construction, character and intended use of our properties. The opinion of Skadden Arps will, if issued, be expressed as of the date issued, and will not cover subsequent periods. Opinions of counsel impose no obligation to advise us or the holders of our common stock of any subsequent change in the matters stated, represented or assumed, or of any subsequent change in applicable law.

        Furthermore, both the validity of the tax opinions and our continued qualification as a REIT depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis, the results of which will not be monitored by tax counsel. Our ability to satisfy the asset tests depends upon our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to successfully manage the composition of our income and assets on an ongoing basis.

        If we were to fail to qualify as a REIT in any taxable year, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates, and distributions to stockholders would not be deductible by us in computing our taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of, and trading prices for, our common stock. Unless entitled to relief under certain Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT. In addition, if we fail to qualify as a REIT, we will not be required to make distributions to stockholders, and all distributions to stockholders will be subject to tax as dividend income to the extent of our current and accumulated earnings and profits. As a result of all these factors, our failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and would adversely affect the value of our common stock. See "Federal Income Tax Considerations" for a discussion of material federal income tax consequences relating to us and our common stock.

        Dividends payable by REITs generally do not qualify for the reduced tax rates.

        Tax legislation enacted in 2003 and 2006 reduces the maximum tax rate for dividends payable to individuals from 38.6% to 15.0% through 2010. Dividends payable by REITs, however, are generally not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the stock of REITs, including our common stock.

        In addition, the relative attractiveness of real estate in general may be adversely affected by the favorable tax treatment given to corporate dividends, which could affect the value of our real estate assets negatively.

        REIT distribution requirements could adversely affect our liquidity.

        We generally must distribute annually at least 90% of our net taxable income, excluding any net capital gain, in order to qualify as a REIT. In addition, we will be subject to corporate income tax to the extent that we distribute less than 100% of our net taxable income including any net capital gain.

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We intend to make distributions to our stockholders to comply with the requirements of the Code for REITs and to minimize or eliminate our corporate income tax obligation. However, differences between the recognition of taxable income and the actual receipt of cash could require us to sell assets or borrow funds on a short-term or long-term basis to meet the distribution requirements of the Code. Certain types of assets generate substantial mismatches between taxable income and available cash. Such assets include rental real estate that has been financed through financing structures which require some or all of available cash flows to be used to service borrowings. As a result, the requirement to distribute a substantial portion of our taxable income could cause us to: (1) sell assets in adverse market conditions, (2) borrow on unfavorable terms or (3) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt, in order to comply with REIT requirements. Further, amounts distributed will not be available to fund our operations. We also will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.

        We and the operating partnership may inherit tax liabilities from the entities to be acquired in the formation transactions.

        Pursuant to the formation transactions, we will acquire all of the assets and liabilities, including any tax liabilities, of DERA, DECO and other entities, including a REIT, and the operating partnership will acquire all of the assets and liabilities, including any tax liabilities, of the institutional funds, PLE, the investment funds and the single-asset entities. If the other acquired entity that is a REIT failed to qualify as a REIT, or if DERA, DECO or PLE failed to qualify as an S corporation, we could assume a material federal income tax liability in connection with the mergers. In addition, to qualify as a real estate investment trust, under these circumstances we would be required to distribute any earnings and profits acquired from the acquired REIT, DERA or DECO prior to the close of the taxable year in which the mergers occur. Similarly, if any of the institutional funds, the investment funds or the single-asset entities failed to qualify as a partnership for federal income tax purposes, the operating partnership could assume a material federal income tax liability in connection with the mergers. No rulings from the IRS will be requested and no opinions of counsel will be rendered regarding the federal income tax treatment of any of the entities to be acquired in the formation transactions. Accordingly, no assurance can be given that DERA, DECO and PLE have qualified as S corporations, that the acquired REIT has qualified as a REIT or that the institutional funds, the investment funds or the single-asset entities have qualified as partnerships for federal income tax purposes, or that these entities do not have any other tax liabilities.

        We intend to take the position that each of the mergers of DERA and DECO and the acquired REIT qualify as a tax-free reorganization under the Code. If any of these mergers does not so qualify, the merger would be treated as a taxable asset sale in which DERA, DECO or the acquired REIT, as applicable, would be required to recognize taxable gain. In such a case, if DERA or DECO did not qualify as S corporations or the acquired REIT did not qualify as a REIT, then we could assume a material income tax liability in connection with the applicable merger. No rulings from the IRS will be requested and no opinions of counsel will be rendered regarding the federal income tax treatment of the acquisition of the acquired REIT or the mergers of DERA or DECO. Accordingly, no assurance can be given that such mergers will be treated as tax-free reorganizations.

        In connection with the formation transactions, we and the operating partnership will receive representations and warranties that, except as would not have a material adverse effect, the institutional funds, the investment funds, the single-asset entities, the acquired REIT, DERA, DECO and PLE have each paid all taxes due and payable. Although the occurrence of the events described above may constitute a breach of such representations and warranties, in the absence of fraud, recourse will be limited to the $20.0 million (or, if less, the fair market value) in our shares of common stock and/or

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operating partnership units to be deposited by our predecessor principals into the escrow fund at closing for a one-year period and subject to a $1.0 million deductible. As a result, if a breach occurs, but such breach is discovered more than one year after the closing of the formation transaction or exceeds the amount held in escrow, we and/or the operating partnership will not have an effective remedy.

        We may have carryover tax basis on our assets as a result of the formation transactions.

        Although we expect that the contribution of interests to us by certain participants in the formation transactions were fully taxable transactions, thereby resulting in a fair market value tax basis for such assets, no assurance can be given that the IRS would not attempt to recharacterize this part of the formation transactions as a tax-deferred exchange transaction. If the IRS were successful, we would generally take a carryover tax basis in such assets that is lower than the respective fair market values of such assets. This position would give rise to lower depreciation deductions that would have the effect of (1) increasing the distribution requirement imposed on us, and (2) decreasing the extent to which our distributions are treated as tax free "return of capital" distributions. Consequently, if the IRS were successful in such an assertion, it could, among other things, adversely affect our ability to satisfy the REIT distribution requirement.

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