The headquarters of Archstone-Smith is a six-story building, shared with other tenants, and tucked into a nondescript suburban office park in Englewood, Colo. For all intents and purposes, the home office of the firm—considered the fourth-largest owner of multifamily real estate—is in the middle of nowhere. There aren't even any key Archstone-Smith assets in the Denver metro area. Its only strategic benefit as a location: equidistance from the company's 10 core markets in the Sunbelt and on the East and West coasts. If need be, CEO Scot Sellers or any other employee stationed at corporate can hop on a plane and be on site at virtually any Archstone-Smith property within three or four hours.
Since a $22.2 billion buyout of the real estate investment trust by a partnership between Tishman Speyer and Lehman Bros. Holdings completed last Oct. 5, the centrality of headquarters has continued to streamline the travel docket for Sellers and the Archstone-Smith executive team, who have been on the road introducing the company to private equity investors in the pension fund, endowment, and sovereign wealth spaces. Their message: removed from the hassles and glare of Wall Street, Archstone-Smith—which considers itself the No. 1 U.S. multifamily real estate firm—is about to get bigger, better, and stronger.
Just how much better and stronger, however, is a bit nebulous. Sellers says one of Archstone-Smith's liabilities as a REIT—a corporate irreverence and maverick sensibility—will be a key asset in the private arena. “We are willing to stand up and do what we think is right, even in the face of criticism,” Sellers says. “We felt it was right to build the development infrastructure we have, and we didn't think it was right to focus on funds from operations [aka FFOs], so we didn't. There were people who did not like that about us.”
But when asked what enterprises Archstone-Smith might engage in during 2008, Sellers is more demure. “We would much rather do things and then talk about them, as opposed to talking about them and then hopefully executing,” Sellers says. “As a public company, [we] had to announce to the market when [we] rolled out a new initiative because it was a material event. Moving forward, we will be slower to talk about things we are doing.” IN THE PIPELINE Of the initiatives already a matter of public record, Archstone-Smith executives quickly key in on leveraging the company's behemoth development pipeline of $5 billion, approximately $1 billion of which has come online in the four months since the Tishman Speyer/Lehman Bros. transaction. Sellers says the company expects to add an additional $2 billion to $3 billion to the pipeline but will not commit to that amount being added in 2008. Also unclear is how private equity investors—whoever they may be—will play into the firm's development initiatives.
“We are getting out and telling our story to a lot of private investors whom we have not met before,” Sellers says. “I can say that we intend to be an important player in the private real estate investment community and over time, deal with a number of investors there, but I cannot say in what capacity. We do mezzanine lending, acquisitions, development, redevelopment, [and] value-add.”
While Sellers won't identify any of those possible investors specifically by name, organizations he mentions in an explanation of the type of partners Archstone-Smith may be courting include the IBM pension fund, the Harvard University Endowment, European pension funds, and “large pools of investable capital in Asia.” Still, the company is operating in a private equity arena it has not fully competed in since 1997, when it first listed its shares as a REIT on the New York Stock Exchange. And no firm would be wont to publicly allocate investment dollars it has yet to receive.
However, Archstone-Smith executives are verbose on at least one subject: their summation of the company's development capabilities, especially inasmuch as they lament their past inability to go full throttle on the development front—or at least get recognition for it—while under the unappreciative eye of FFO-hungry public equity investors and analysts.