New York-based Clarion Partners will be keeping Gables Residential for $3.2 billion, a sub 5% cap rate, according to multiple sources.
Other finalists in the bidding process have been informed that Clarion is retaining control of the Atlanta-based apartment owner, manager, and developer. The closing should occur this week.
The cover bid on the deal, which was reportedly made by Boston-based GID Investments backed by pension fund CalPERS, was $500,000. That means the second bid was only $0.5 million less than the winning bid, which is a remarkably small spread on a multi-billion dollar deal. If GID had secured the bid, Houston-based Hanover Cos. would have gotten the development pipeline, the corporate housing division would have been shut down, and Gables property management operations would have been sold.
It has long been rumored that Clarion—which took Gables public as ING Clarion Partners, a wholly-owned subsidiary of ING Groep in 2005—was the lead suitor for Gables. Clarion, which is led by CEO Stephen J. Furnary, bought ING Group’s private market real estate investment management business in the Americas from ING in June 2011.
Clarion refused comment for this story. Sources indicate that Gables was as much as 40% of the fee income for Clarion in the U.S.
“Clarion has a huge incentive to pay for Gables because they would lose their fee income stream, which was a substantial part of their business,” said one observer.
The original Gables transaction was financed by $400 million of equity provided by ING with the balance of the debt and equity capital arranged by Lehman Brothers. Silverpeak Real Estate Partners ended with Lehman’s asset management business, which included a $100 million equity position in Gables. Silverpeak wanted to sell the company, but they were consistently rebuffed by Clarion, who extended the joint venture relationship. Ultimately, the extensions ran out and Silver Peak forced the sale of Gables last year.
The Gables portfolio includes a mix of assets—60% A and 40% B—and a development pipeline and management business. A decent portion of Gable’s assets are in Texas, which some investors are shying away from since energy prices tanked. Another 12% were in D.C., which also has spooked many investors. Some industry watchers have wondered if the pricing for Gables would have been as strong if the extent of the energy sector’s softness had been known last year.
By keeping Gables, Clarion keeps Gables management team intact, a core group that’s piloted by 2010 Multifamily Executive of the Year Sue Ansel. Gables was 35th on the 2014 NMHC 50 Managers List with 36,081 units and 22nd on the MFE Top 25 Developers List with 982 units.
Last year, Real Estate Alert identified a group of finalists, including Clarion Partners; Denver-based REIT Aimco; a joint venture between Charleston, S.C.-based Greystar and Newport Beach, Calif.-based Pimco; CalPERS and GID Investments; and a team of DRA Advisors of New York and the Abu Dhabi Investment Authority.