Lehman, Other Owners May Take Archstone Public

Lehman Brothers looks to be going ahead with a plan to either sell the massive apartment landlord and developer Archstone, or take the company public again.

August 11, 2011
By Dees Stribling, Contributing Editor

Citing “people familiar with the matter,” the Financial Times reported this week that the Lehman Brothers estate is going ahead with a plan to either sell the massive apartment landlord and developer Archstone, or take the company public again. Currently Lehman owns about 47 percent of Archstone, but to do such a deal, it would need the cooperation of Bank of America, which owns about 28 percent of Archstone, and Barclays, which owns 25 percent.

Lehman Brothers’ acquisition of Archstone for $22 billion in a leveraged buyout in 2007, just before the credit freeze and downturn in CRE, is often cited as a key element in the bank’s failure in the fall of 2008, which touched off the Great Recession. Lehman and the other owners have reportedly discussed the disposition of the apartment specialist for some time now without reaching an agreement, but whatever happens Archstone is clearly a prize. The company currently has an ownership interest in 428 properties in the United States and Europe, representing about 79,890 units, including those under construction.

“I think it’s likely that Archstone will be taken public,” Jack Kern, managing director of Germantown, Md.-based Kern Investment Research L.L.C. tells Commercial Property Executive. “Archstone has a lot of properties, and it would be difficult for one buyer to take them all on at once.”

According to Kern, Barclays is taking the lead in disposing of Archstone because the bank doesn’t believe the company is going to be worth much more in the near future than it is now. He also says that if the owners do opt for a public offering, it probably wouldn’t happen until the first quarter of 2012. “Because of current market conditions, most of the companies that had been planning IPOs have pulled the plug for now,” he notes. “The market for taking Archstone public will probably be much better in six months.”

In any case, Kern adds, it’s going to take JPMorgan Chase, who has been hired to assist Lehman in dealing with Archstone, about that long to figure out how an offering will be structured anyway.

Though he believes an outright sale of Archstone is less likely than a public offering, Kern told CPE that if it the company were sold, it probably would fetch between $16 billion and $17 billion–considerably less than the bubble-price in 2007. He also discounts the possibility that a buyer would do a Blackstone on Archstone–that is, immediately sell its portfolio off in pieces, as investing giant Blackstone did to Equity Office Properties Trust after its purchase of the vast office landlord in early 2007.

“Such a breakup is possible, but there’s a recognition that Archstone’s development platform is very valuable,” Kern says. “Also, to make that kind of breakup work, the buyer would have to acquire Archstone at such an advantageous price that it would amount to a distressed situation, and there’s nothing distressed about Archstone.”