Lehman matches Equity Residential’s Archstone bid

The estate of the former Wall Street banking giant has exercised its right of first offer and matched the bid made by the Sam Zell-led REIT. Lehman also is suing co-owners Bank of America and Barclays for breach of contract.

Lehman Brothers Holdings has exercised its right of first offer and matched Equity Residential’s offer to buy half of Bank of America’s and Barclays’ stakes in Archstone for $1.33 billion. In addition, the former Wall Street banking giant is suing Bank of America and Barclays for breach of contract.

Lehman, which currently owns 47 percent of the Denver-based apartment REIT, mailed its offer to the two banks on Wednesday night, meeting the deadline to exercise its right to buy the stake. The purchase of 26.5 percent of Archstone is a bid by Lehman to control 73.5 percent of the investment. Equity Residential now has the option to buy the other 26.5 percent of Archstone held by Bank of America and Barclays.

According to documents filed with US bankruptcy court in New York, by agreeing to sell half of their ownership shares in Archstone to Equity Residential, Lehman’s lawyers allege that Bank of America and Barclays “have breached the Archstone agreements and the covenant of good faith and fair dealing” and “should not be allowed to benefit from the terms of those agreements”. In addition, the documents allege that the banks “deprived [Lehman] of its contractual right to information required to make an informed choice concerning Lehman’s largest real estate investment”.

The lawsuit comes on the heels of Lehman filing a document with the US Securities and Exchange Commission challenging the validity of Equity Residential’s offer. Sources familiar with the matter told PERE that Lehman is in talks with such private equity firms as The Blackstone Group and Brookfield Asset Management to arrange financing to buy the stake Equity Residential has bid on.

A spokesman for Equity Residential told Bloomberg that the Chicago REIT hasn't decided whether to exercise its option for the second piece and won't make a determination until Lehman completes its purchase of the first interest. Bank of America and Barclays declined to comment.

As of 30 September, Archstone owned or had an ownership position in 428 communities in the US and Europe, representing 74,000 units. It currently is the largest real estate asset on Lehman’s books. Earlier this month, a judge approved Lehman’s reorganisation plan to exit Chapter 11 protection in bankruptcy court in New York.

For further news analysis on the battle for Archstone, click here.