Equity Residential plans to bring in investors to buy more of rival Archstone if it is successful in acquiring a 26.5 percent stake from Bank of America Corp. and Barclays Plc, Chief Executive Officer David Neithercut said.
Equity Residential, the largest publicly traded U.S. apartment landlord, expects to start talking to third parties about pursuing the banks’ remaining interests “shortly,” Neithercut said in a telephone interview today. The Chicago-based company last week reached a deal to pay $1.33 billion for half the Archstone stake held by Bank of America and Barclays, contingent on minority holder Lehman Brothers Holdings Inc. declining to exercise a right to match the bid.
“We’ve structured this so that we’ve got the smallest piece necessary to get us the approval rights that we want, an amount of capital that we can handily manage on our own,” Neithercut said. “It doesn’t add anything to us to put another billion-plus into the transaction.”
Equity Residential, founded by its billionaire chairman, Sam Zell, would like to own all of Archstone to gain access to “high-quality” apartment buildings in its main markets, Neithercut said. Bank of America and Barclays have granted the company a 30-day option to purchase their remaining 26.5 percent stake if Lehman exercises its right on the first piece.
The estate of Lehman Brothers, which owns 47 percent of Archstone, is trying to raise money for a possible counterbid to Equity Residential’s deal, according to a person with knowledge of the situation. The defunct securities firm is in discussions with investors including Blackstone Group LP and Brookfield Asset Management Inc. to arrange financing, said the person, who asked not to be identified because the negotiations are private.
Archstone owns more than 400 apartment complexes across the U.S., concentrated in major coastal markets such as New York, southern California, San Francisco and Washington. Equity Residential owns or has investments in 417 properties in 15 states and the District of Columbia.
“Archstone has got a great deal of high-quality assets in our core markets that are very consistent with the types of assets that we’ve been acquiring over the last half a dozen years,” Neithercut said. “We’d love an opportunity to put a lot of those on our balance sheet, if they can be done at the right price and with the right capital.”
Pursuing the initial 26.5 percent stake means Equity Residential’s commitment is small enough that it won’t require a partner for equity financing, yet large enough to give the company approval rights over Archstone’s major financing and growth decisions, according to Andrew McCulloch, senior analyst at Green Street Advisors Inc. in Newport Beach, California.
The company’s option to buy the other 26.5 percent could discourage investors to partner with Lehman, McCulloch said in a research note yesterday.