The Lehman Brothers estate is pushing ahead with plans to sell or list Archstone, the apartment company that it took private for $22bn near the zenith of the property boom, even as market ructions complicate discussions about how to proceed with Bank of America and Barclays, owners of sizeable stakes.
People familiar with the matter said the banks were working on documents for an initial public offering, which could be filed by the end of the month. JPMorgan Chase has been retained to assist with a possible float.
The group has also started discussions about a potential sale of Archstone, which could be valued at as much as $20bn including debt, or just a stake, with a select group of potential buyers, those people said.
Possible buyers include EQR and AvalonBay, the publicly listed property companies, as well as Blackstone and Brookfield Asset Management, they said.
Blackstone, EQR, AvalonBay and Brookfield declined to comment, as did Archstone’s owners and JPMorgan.
Lehman led the $22bn leveraged buy-out of Archstone in 2007, as part of the investment bank’s ill-fated foray into commercial property. The estate of the bankrupt bank now holds about 47 per cent, while BofA owns 28 per cent and Barclays 25 per cent.
While the Lehman estate is focused on maximising value regardless of timing, say people familiar with the matter, Barclays and BofA are leaning towards a faster solution, suggesting a sale rather than a lengthy IPO process.
However, the market turmoil has the potential to shift the dynamic, those people said, as it makes the prospect of achieving a full IPO valuation more challenging.
The banks invested about $4.8bn in common equity and provided more than $5bn in financing as part of the original deal, most of which was converted to preferred equity as part of a debt-for-equity restructuring last year.
Archstone has sold assets since 2007, making it hard to put a value on its portfolio.
“Assuming they have taken care of the assets, this is a very high quality portfolio,” said Andy McCulloch, senior analyst at Green Street Advisors. “The rebound in apartment values has been fairly dramatic, with values for some areas back to, or even past, their peak.”
Toronto-based Brookfield is a substantial investor in real estate but has rarely bought residential property. The fund manager prefers distressed situations and tends to avoid auctions, potentially limiting its interest in pursuing Archstone.
Blackstone also has a history of large property transactions. The private equity firm made a string of profitable sales after its $36bn buy-out of Equity Office Properties in 2007.
EQR and Avalon Bay are residential-focused real estate investment trusts, with market values of about $16bn and $10.7bn respectively.
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