Last month, Clarion Partners won an auction to buy Gables Residential, an Atlanta-based real estate investment trust, with a group of institutional investors. The acquisition, which carried a price tag of more than $3 billion, is one of the largest US residential real estate deals since the financial crisis.
The trade, which is expected to complete in weeks, is also one of the more complicated transactions in recent memory. Clarion, after all, already owned part of Gables, which currently manages approximately 35,000 apartment homes and 400,000 square feet of retail space across the US, according to its website. In June 2005, the firm, then part of Dutch banking corporation ING Groep and known as ING Clarion Partners, announced its intention to purchase Gables, which at the time was a publicly-traded real estate investment trust, for about $2.8 billion.
The deal was the largest public-to-private REIT takeover in the multifamily sector at the time. The transaction involved the ING Clarion partnership buying all of Gables’ common stock for $43.50 per share in cash, representing a 14 percent premium over the previous day’s closing price. Lehman Brothers, which helped to finance the purchase with a combination of debt and equity capital, also had a stake in the REIT, with the interest transferred to Silverpeak Real Estate after Lehman’s collapse.
Clarion declined to speak with PERE for the article, but according to market sources, Gables essentially has operated as a closed-end fund since its privatization. With the new transaction, the REIT will now be converted into an open-end vehicle and retain roughly half of its existing investors. The Clarion-led investor group reportedly will include Allianz Real Estate of America, TIAA-CREF and several sovereign wealth funds and pay for the acquisition with about $1.6 billion in cash and the assumption of $1.5 billion in debt.
Clarion already operates two open-end real estate funds, including Clarion Lion Properties Fund, which invests in a variety of commercial real estate properties, and Clarion Lion Industrial Trust Fund, which targets industrial assets.