We’ve come to bury Lehman Bros., not to praise it.
Six years ago this month, Archstone-Smith (as it was known) owned more than 82,000 units, placing fourth on our Top 50 Owners list.
At the time, Lehman was the fourth-largest investment bank in the country. It was also the third-largest CMBS underwriter in the nation as the CMBS industry marched toward a record-breaking, $230 billion year.
Those were heady times, and Lehman’s head of real estate, Mark Walsh, was flying high. A 19-year vet of the firm, Walsh was considered one of the sharpest investors in the nation, known for complex transactions with huge upside.
And when Archstone became available in 2007, at the very height of the bubble, Walsh teamed up with Tishman Speyer to win the bidding, at more than $20.8 billion. It was easily the largest multifamily price tag in history (see “Top 10 Biggest Deals of the Decade”) and, ironically, was in part financed with Lehman-originated CMBS.
As Walsh celebrated his latest triumph, the economy was quickly collapsing. So quickly, in fact, that not long after the ink had dried on Lehman’s big coup, Equity Residential started its relentless pursuit of Archstone.
“We had been bird-dogging this thing since 2007,” says Equity chief executive David Neithercut. “We certainly knew that when Lehman had problems, there would need to be some kind of endgame.”
Neithercut’s prescience is remarkable, and the anatomy of this mega-deal, Les Shaver’s “The Finish Line,” is a fascinating read.
One could easily be tempted to declare Equity and AvalonBay the big winners in the deal, the second-largest transaction in multifamily history.
Mark Walsh certainly wasn’t—the deal remains an albatross around his neck, something for which he’ll forever be known, rightly or wrongly. But Walsh landed on his feet—he’s now a partner in a private equity firm that, among other ventures, owns a stake in Gables Residential.
Even Greystar could be dubbed the winner, given its $1.5 billion ricochet deal with Equity.
Yet, I found it fascinating that Dan Fasulo, a savvy market researcher from Real Capital Analytics, calls Lehman Bros. the big winner. Think about it: Lehman avoided the risks of going public, returned a significant amount of capital to its creditors, sold its largest remaining asset, and, in the process, now owns about 13 percent of AvalonBay’s stock and about 10 percent of Equity’s. Not too shabby.
It’s difficult to find any moral to this story, though. What would Aesop say?
For Equity, he’d probably say, “Perseverance is surer than swiftness.” For AvalonBay, it would be, “In union, there is strength.” For Lehman,“That which we are anxious to find, we are sometimes even more anxious from which to escape.”
It’s also difficult to guess what the deal’s impact will be on the broader industry, though some of multifamily’s top CEOs take a stab at that very question.
But one thing is certain: This is the last Top 50 list on which Archstone will appear. And for such a venerable company—the first national apartment brand, developer of revenue management software, a lineage stretching back to 1963, a brain trust as accomplished as any in the industry—we’ve come to both bury and praise you.
As Aesop wrote, “We should remember that life is uncertain.”