Judge denies Lehman's bid to block Archstone sale

After a two-day trial, Bank of America and Barclays have been given permission by US Bankruptcy Judge James Peck to move forward with the sale of half their shares in the Denver-based apartment REIT to Equity Residential.

Lehman Brothers Holdings has lost its bid to block Bank of America and Barclays from selling half of their shares in Archstone to Sam Zell’s Equity Residential, according to various media reports. 

After a two-day mini-trial that began in US Bankruptcy Court in New York on Thursday, Judge James Peck said today that Equity Residential is entitled to acquire a 26.5 percent stake in Archstone. Peck added that Lehman wouldn’t be harmed if the deal went forward, but Equity Residential would be harmed if the deal were to be blocked, as the Chicago-based REIT would wind up spending time and money on an investment that ultimately would not exist.

“The court's decision was explicitly not a ruling on the merits of our case,” said Jeff Fitts, co-head of Lehman’s real estate division. “We continue to maintain that BofA and Barclays breached their obligations to the [Lehman] estate and are pleased that the court noted that both BofA and Barclays have affirmatively waived any limitation on monetary damages the estate may seek as a result of their actions.”

Lehman, which currently owns 47 percent of Archstone, has filed a motion with the court to execute its right of first offer and hopes to move forward with its plan to buy the remaining 26.5 percent from Bank of America and Barclays for roughly $1.45 billion. However, as Lehman is soon expecting to emerge from bankruptcy protection, Judge Peck would need to approve Lehman’s right of first offer to buy the remaining shares at that price.

Fitts added: “Our motion to allow the estate to exercise its right of first offer is unopposed by any of the estate's constituents and is on the court's calendar for Wednesday.”

A spokesman for Equity Residential said, since Lehman has expressed its intention to exercise its right of first offer, Zell's firm will “wait to see if they execute on this intent” before moving forward with any acquisition plan.  

In December, Equity Residential agreed to purchase a 26.5 percent stake in Archstone for $1.33 billion, representing half of Barclays and Bank of America’s shares. Shortly thereafter, Lehman filed suit against Barclays and Bank of America for selling the shares to the Sam Zell-led REIT, citing breach of contract. 

Judge Peck also presided over Lehman’s recapitalisation hearing in December, where he approved of the former Wall Street banking giant’s plan to exit Chapter 11 bankruptcy protection.  

Barclays and Bank of America, which together own a combined 53 percent stake in Archstone, have been wanting to sell off their shares in the multifamily landlord since failing to come to an agreement with co-owner Lehman over how to proceed with the troubled platform. Archstone is the largest remaining real estate asset on Lehman’s books.