After initially bidding for the majority ownership stake in apartment giant Archstone, Equity Residential instead has agreed to acquire half of the previously proposed ownership shares in the troubled Denver-based REIT.
Equity Residential has entered into a contract to acquire a 26.5 percent ownership interest in Archstone from Bank of America and Barclays for $1.33 billion in cash. The ownership interests under contract represent half of the banks' collective interests. The estate of Lehman Brothers Holdings owns the remaining 47 percent.
The deal represents approximately half of Equity Residential's initial bid in November to buy a 53 percent ownership stake in the platform for $2.5 billion. After the deal closes, which is expected to occur late in the first quarter of 2012, the Sam Zell-led REIT will hold a minority interest in Archstone, with no obligation to acquire additional shares.
Although the Chicago-based REIT will not be able to cause any decisions or actions with respect to Archstone, Equity Residential said in a statement that it “will still have approval rights over certain major decisions,” which includes “annual budgets and certain financings, refinancings, acquisitions and dispositions”.
Equity Residential president and chief executive officer David Neithercut said in a statement: “The Archstone and Equity Residential portfolios are highly complementary, with concentrations in the same markets and assets of similar quality. Since we believe that none of the current owners of Archstone is likely to be a long-term owner, acquiring this position allows us a role in determining, and perhaps even expediting, the ultimate outcome regarding Archstone.”
In October, it was revealed that Bank of America and Barclays were looking to sell their stakes in Archstone after failing to come to an agreement with Lehman as to how to exit their collective investment.
Prior to the global financial crisis, Lehman led a buyout of Archstone for $22 billion in one of the largest real estate investments in history. The acquisition helped contribute to the banking giant’s bankruptcy the following year. Archstone remains the single largest real estate investment still on Lehman’s books. Separately, the Lehman estate will begin court proceedings on 5 December to emerge out of bankruptcy protection.
As of 30 September, the Archstone portfolio includes 48,922 wholly owned and stabilised apartment units, as well as 1,332 under construction, land sites for the potential development of 5,279 units and 9,423 units owned in unconsolidated joint ventures. The portfolio also has about 14,000 apartments in Germany. All told, Archstone owns nearly 79,000 multifamily units.