One of the keys to making the massive Archstone deal work out this year was timing. Equity Residential and AvalonBay officials worked countless hours to make sure all of the pieces to the puzzle would fit creating one of the largest deals in history.
However, in the shadows of the massive transaction, other companies were making waves with big deals by taking part in the Archstone frenzy. Several of the transactions included on this year's Top 10 Deals of the Year, compiled by the New York City market-research firm Real Capital Analytics, were the result of companies buying assets from Chicago-based Equity Residential and Arlington, Va.-based AvalonBay.
Dweck Properties got a piece of the Archstone pie in acquiring an Arlington, Va., property for a hefty $322.3 million (roughly $352,344 per unit). That deal put Washington, D.C.–based Dweck at No. 9 on the biggest-transactions list. The community it purchased from Equity Residential, called the Crystal Towers Apartments, includes two buildings comprising 914 luxury units.
The Archstone deal’s massive impact on the industry is reflected elsewhere on the list, too, as other assets changed hands in a chain reaction. George says the deal was a once-in-a-lifetime opportunity that Equity just couldn’t overlook, so it decided to sell about $4 billion in assets to acquire about $9 billion, he says.
Once the Archstone deal was announced, officials at Charleston, S.C.–based Greystar knew that Equity would have to consider selling some properties, creating a unique purchasing opportunity, says Wes Fuller, executive director of investments at Greystar.
“When the Archstone transaction was announced, I sent our team out and we underwrote about 77 Equity assets,” Fuller says, “because we knew they were going to have to get rid of something. So, we basically underwrote 77 to approach EQR with a proposal.”
From that list of 77, the firm zeroed in on the most coveted assets, though the high quality of the portfolio made the choices difficult.
“We selected specific assets,” Fuller says. “Typically, in a portfolio, when you buy it, there are some cats and dogs that you really don’t care about. But that wasn’t the case here.”
The Greystar team hand-selected 27 assets that fit its business strategy and proposed to buy them from Equity as the latter firm prepared to make space for the Archstone deal.
“We were able to buy the assets we wanted in the markets we wanted,” Fuller says.
Ivanhoe Cambridge also got into the game by buying in as an institutional investor with Greystar and Goldman Sachs on the Equity portfolio transaction. The Canadian company was already discussing business strategies with Greystar at the time and decided the Equity deal was the best bet, says Sylvain Fortier, the company’s executive vice president of residential and hotels.
Making a move into the deal fit Ivanhoe Cambridge’s strategic plan to gain ground in core markets such as Los Angeles, Washington, D.C., and the Bay Area.
Together, the three companies purchased more than 7,700 units at 27 properties from Equity for a price of about $1.5 billion, making that transaction the No. 4 deal of the year, according to Real Capital Analytics.
Six months into ownership, Greystar officials say they couldn’t be more pleased with how it all worked out.
By the end of 2013, the company was working to reposition the assets without any unexpected surprises, Fuller says. But the biggest challenge in acquiring so much property is folding each into the company’s business model and implementing national practices across each staff.
“We used different systems and different training than EQR,” Fuller says. “So, you’re training new people on different systems and new philosophies all at one time across 27 properties.”
And although the team at Greystar has been burning the midnight oil for most of the year, it’s been well worth it.
“It’s like having a baby, in a lot of ways,” Fuller says. “You love the opportunity but you know you’re not going to get a lot of sleep in the first six months.”
SEIZE THE DEAL
In addition to the Archstone-related transactions, this year also offered unique opportunities for other firms.
Highlands Ranch, Colo.–based UDR extended a partnership with MetLife in the No. 7 deal of the year, while Newport Beach, Calif.–based Irvine Co.’s purchase of a San Diego community wound up in the No. 8 spot. The massive property, La Mirage, features about 1,400 units, with rents ranging from $1,490 to $2,535, according to the company’s website.
Irvine Co., a privately owned investment firm, bought the property from Equity Residential for about $360 million, according to Real Capital Analytics.
And while the La Mirage deal included only rental housing, the No. 6 deal of the year wasn’t a purely for-rent asset. The Aldyn and Ashley buildings transaction was different for Boston-based GID Investment Advisers because Aldyn included individually owned condos as well as rental housing.
Andrew Scandalios, a senior managing director at commercial real estate capital intermediary HFF, headquartered in Pittsburgh, helped broker the $401 million deal on the 345 newly constructed units, located in Manhattan. The deal included massive California pension fund CalPERS as an equity partner.
“Not all the investors were enthusiastic about buying the remaining condos, because it’s not a pure rental building,” Scandalios says. “A lot of these core investors want to buy just rentals.”
But despite the fact that the new owners would have to agree to work with a condo board and a homeowners association, there was a lot of interest in the deal.
More than 130 investors were interested, and more than 30 tours of the property were given to evaluate it. Scandalios says it was rare to see new product on the market at that time, making the deal more competitive.
“Coming out of this last cycle, there wasn’t a lot of development in ’09 and 2010,” Scandalios says. “This was some of the newest product—it was started in ’07, ’08, and it was completed. It was one of the first properties to be marketed and sold. Carlyle always wanted to sell it.”
Top Ten Deals of 2013
1. Archstone Portfolio, Equity Residential from Lehman Bros.
2. AvalonBay Archstone Portfolio, AvalonBay Communities from Lehman Bros.
3. GE Capital U.S. Apartments Portfolio, Blackstone from GE Capital
4. Equity Residential Portfolio, Goldman Sachs, Greystar, and Ivanhoe Cambridge
from Equity Residential
5. Lone Star Funds Apartment Portfolio, Lone Star Funds from ORIX Capital Markets
6. Aldyn & Ashley Portfolio, GID OBO CalPERS from Carlyle Group
7. UDR Portfolio, MetLife from UDR
8. La Mirage (San Diego), Irvine Co. from Equity Residential
9. Archstone Crystal Towers (Arlington, Va.) Dweck Properties from Equity Residential $322.3 million
10. Bravern Signature Residences (Bellevue, Wash.), Invesco RE from Schnitzer West
List provided by Real Capital Analytics.
This is the second installment of the Top Ten Deals of the Year. The first story can be read here.
Lindsay Machak is an Associate Editor for Multifamily Executive. Connect with her on Twitter @LMachak.