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January 7, 2013

Greystar, Goldman Sachs to Buy M-F Portfolio from Equity Residential for $1.5B

By Barbra Murray, Contributing Editor

Bob Faith, Greystar’s CEO

You don’t see this kind of deal every day. In a joint venture endeavor, Greystar Real Estate Partners and the Real Estate Principal Investment Area of Goldman, Sachs & Co. have signed a deal to acquire a 27-property portfolio of apartment communities from Equity Residential. And the price tag is … $1.5 billion.

The deal paves the way for Greystar and Goldman to add 8,010 multi-family units to their holdings in one fell swoop. And it’s not just any portfolio. The collection of high-quality properties boasts locations in such high-performing markets as Phoenix and Denver, which are home to 1,575 and 1,003 of the units, respectively, as well as Washington, D.C., Northern New Jersey, the San Francisco Bay area, Southern California and South Florida.

“We have not seen a comparable portfolio of this scale which included high quality assets located in high quality markets,” Bob Faith, chairman and CEO of Greystar, told Commercial Property Executive. “Since we hand selected the assets, we were able to craft the portfolio composition to match our overarching investment strategy of buying cash flowing assets below replacement cost in markets with high growth prospects. Greystar has a significant operating presence and investment experience in each market represented in this portfolio, so we believe these assets are positioned to benefit both from continued strength in the multi-family industry as well as from Greystar’s operational expertise.”

In terms of the makeup of the group of assets, specifics of the agreement allow for a bit of flexibility. Ultimately, Greystar and Goldman are not obliged to take the entire package; the partners have the right to excise a few assets, but must purchase a minimum of $1.38 billion of properties, all of which are free and clear of debt.  

Regardless of the ultimate configuration of the portfolio, it’s a major deal, no matter how you slice it. “This transaction is an important one for Greystar, as it continues to build our nationwide presence and has allowed us to enhance our ownership presence in markets that we believe will outperform,” Faith added.

When it comes to real estate, it’s nice to make a big enhancement of a portfolio with the stroke of a pen. It’s also nice to pocket a billion-and-a-half dollars just as expeditiously. Disposing of properties that it considers non-core, Equity Residential plans to utilize proceeds from the transaction to finance the acquisition of an even bigger portfolio. As announced in November of last year, Equity Residential and AvalonBay Communities Inc. have entered into an agreement to acquire multi-family company Archstone Enterprise L.P. from Lehman Brothers Holdings Inc. for $16 billion, a price that makes the cost of the Greystar-Goldman deal look like chump change.

If all goes as planned, Greystar and Goldman will complete the acquisition of the Equity Residential assets in two separate closings during the first quarter. And the industry may very well see more mega-sized transactions from Greystar this year.

“Our vertically integrated national platform is well suited to quickly analyze, underwrite and execute on large portfolios,” Faith concluded. “As is always the case, the portfolio will have to be compelling and fit within our stated strategy.”

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