Starwood sees Forestar deal collapse

An unsolicited bidder overtook Starwood with a ‘superior proposal’ to purchase the residential REIT.

Starwood Capital Group has lost a bidding war for a residential real estate investment trust, but will walk away with a $20 million breakup fee.

In April, the Greenwich, Connecticut-based private real estate giant announced that it planned to buy Austin, Texas-based Forestar Group for $605 million, in an agreement that had been approved by the REIT’s board of directors. However, a challenger emerged in the form of homebuilder D.R. Horton, a Fort Worth, Texas-based homebuilding REIT, which on June 5 made an unsolicited bid to buy 75 percent of Forestar’s outstanding stock for cash in a deal valued at $680 million.

Starwood countered with two revised offers last week, increasing its original bid of $14.25 per share to $15.50 per share and then raised it further to $16 per share. In response, rival bidder D.R. Horton sweetened its own proposal – originally to buy 75 percent of Forestar’s outstanding stock for $16.25 per share – to $17.75 a share, in what would be a $565 million deal. The homebuilder’s amended proposal also included a master supply agreement for the supply of developed lots.

Forestar said on Friday that D.R. Horton’s bid is a “superior proposal” and accepted the offer on Thursday, terminating its original agreement with Starwood.

Under its new owners, the REIT will continue to trade publicly, according to the proposal. Forestar will also have a new executive chairman, Donald Tomnitz, who was the chief executive of D.R. Horton from 1998 to 2014 before he retired.

Forestar, which develops for-sale housing communities, owned 49 residential and mixed-use assets in 10 states, along with non-core holdings it is planning to sell, according to its first-quarter earnings report.

Neither Forestar nor D.R. Horton could be reached for comment, and a spokesman for Starwood declined to comment.

Starwood manages $52 billion, according to its website. The firm is currently raising capital for both a new core-plus platform and its latest opportunistic fund, Starwood Opportunity Fund XI Global.