The battle over Denver-based Archstone effectively ended Friday, May 25 when Lehman Brothers Holdings paid $1.58 billion for Bank of America Corp. and Barclays Bank’s 26.5 percent stake in the company. The purchase gives Lehman’s estate full ownership of Archstone, which owned more than 50,000 units, putting it 18th on Multifamily Executive’s Top 50 apartment owner list.
Chicago-based REIT Equity Residential (EQR) didn’t make out poorly in the deal, getting $150 million from Lehman, BOA, and Barclays to basically walk away. EQR’s purchase deal remains in effect if Lehman’s deal falls through. Here are three things we think we learned from the half-year struggle over the future of Archstone:
EQR is Formidable: In the 90’s, EQR put together its portfolio through big transactions. In the 2000’s, it whittled that portfolio down to core markets. And according to analyst Alexander Goldfarb, managing director of equity research of REITs for New York–based Sandler O’Neill + Partners, it focused on one-off and small, targeted acquisitions. With the Macklowe deal in New York, EQR proved that it will make bold moves (which maybe shouldn’t be a surprise from a company led by Sam Zell). “The fact EQR could contemplate taking over what is likely an $18 billion entity [Archstone] and maybe only lose one credit rating is pretty impressive,” Goldfarb says.
Lehman, BofA, and Barclay’s couldn’t get along: Analysts believe EQR came out a winner despite not getting what it originally intended—Archstone or parts of its portfolio. Though the company secured $150 million, what many suspected as squabbling among the three owners of Archstone is what kept EQR from securing assets. “Apparently, EQR had little success in getting Lehman, BofA, and Barclays to seriously negotiate the sale of a carved-out portfolio as a group – likely the result of different agendas and potential distrust between the parties,” said Green Street Advisors, a Newport Beach, Calif.-based research and consulting firm in a recent report.
Expect Some Archstone Dispositions… and Then an IPO: This one is last because it’s most obvious. For years there’s been speculation about Lehman taking Archstone public again. Now that Lehman has 100 percent control, Andrew J. McCulloch, a managing director for Green Street Advisors, sees Lehman reducing leverage as an important first step. “Lehman has to right-size this portfolio and its capital structure before they attempt an IPO,” McCulloch said. “We don’t know exactly what that process will look like yet, but short of some big equity partner showing up, significant asset sales are part of that equation.”