It would have been easy for Green Street Advisors to take a pass on publishing its list of REITs most likely to be sold in its Real Estate Securities Monthly. Companies such as AMLI Residential, Gables Residential, and Archstone-Smith had recently left the public sphere and the credit market was reeling from its crash last summer.
But the Newport Beach, Calif.-based REIT research and consulting firm, recently tabbed Post Properties, the Atlanta-based apartment owner, as the REIT most likely to be sold. “We knew a number of folks had expressed interest in Post along the way,” says Craig Leupold, president of Green Street.
It actually came as little surprise that Post went on the market on Jan. 23. The revelation was Post's timing. After the credit markets fell apart late last summer, deals large and small grew increasingly difficult to close. Just look at Tishman Speyer and Lehman Bros., which both limped to the finish line in the much-ballyhooed purchase of Archstone-Smith. They weren't alone: $23 billion of deals failed to close since July 2007, according to global research and development firm Real Capital Analytics.
“The best names in that business are having problems with some of the transactions that only six months ago looked like a slam dunk,” says Christopher Wimmer, a vice president and senior analyst for Moody's Investors Service in New York City.
But there is still a pool of buyers out there who can close deals. And that should be enough to make the long-rumored Post transaction a reality in 2008.
THE CONTENDER Buyers, namely Inland American Real Estate Trust, based in Oak Brook, Ill., and former CEO John Williams, have approached Post with offers, according to Leupold. In both cases, Post didn't sell. Inland made its bid in early 2007, but Leupold speculates that falling stock prices and the threat of losing control to Williams in the early part of the year convinced Post's board that it's now time to start formally accepting bids from other suitors.
Williams, of course, is the only known public bidder. Along with his partner Cadim, a Montreal real-estate advisory arm of a Canadian pension fund, offered an unsolicited bid of $44 to $47 per share, a premium of more than two-and-a-half dollars over the Jan. 23 closing share price $41.45. The bid comes as no surprise, considering Williams started the company in 1971. Since stepping down as CEO to recuperate from surgery in 2002, Williams has continued to make headlines: He battled with Post's leaders over strategy, was ousted as board chairman, launched a proxy battle, attempted to cut chairman Robert Goddard III's compensation in 2004, and tried to buy the company once before in 2006. “Who knows the assets better than him?” asks Dan Fasulo, managing director of Real Capital Analytics.
THE CHALLENGERS Although Williams knows Post's assets, it doesn't mean that others won't be interested. True, with the credit market shake-out, the pool of potential buyers may be a little thinner than in previous years.
This time, highly leveraged buyers will probably sit on the sidelines. The reason is simple: They can't tap into the almost limitless cache of credit that used to be available. “From an absolute standpoint, the amount of leverage per transaction is reduced,” says David Fitch, president and CEO of Gables Residential, an Atlanta-based multifamily company that went private a couple of years ago.
Often those higher-leverage buyers weren't really the ones looking to stay in the multifamily business for long. “The people who are in the market now are in it because they want to be in real estate,” says Brad Case, the vice president of research and industry information for NAREIT, the Washington, D.C.-based trade association.