September 10th, 2011

Archstone negotiations continue, sort of

I'm much more likely to post about AvalonBay than I am about Archstone altho I have no mortal clue why. They are both residential REITs of roughly comparable size (<-- very roughly), who do similar kinds of developments in terms of location within a given metropolitan region and in terms of the metropolitan regions they select. Equity Residential seems to be moving in the direction these two share, and other REITs/property owner manager organizations occupy slightly different niches.

Here's a bit of not-really-news from a few months ago, on the subject of Archstone's current and possible future owners.

"Rumors of a sale of the Archstone portfolio—via portfolio disposition, IPO, or a combination of both—have been circulating for some time as the Lehman Bros., Bank of America, and Barclays ownership group look to recoup some of the $22 billion investment made in privatizing the former REIT back in 2007, before the market collapsed."

I'm not sure, but I think Archstone has been shrinking since then (that is, net-sellers of their portfolio). It's hard to know how much Barclays/Lehman/BofA overpaid without doing a lot more research, but I suspect somewhere between 50-100% (and I'm very bullish on multifamily).

More recently, WSJ and NYT have had coverage of offers made that the owners are having some trouble deciding what to do with. Here is Reuters describing the contents of the WSJ coverage:

"Equity Residential, AvalonBay, and Brookfield put in bids for the whole of Archstone, though none of the offers were all-cash, the report said. It said Blackstone had made bids only for parts of the company."

It'll be interesting to see what happens, particularly since the Lehman decision process is presumably going through a court-appointed trustee who probably is a very, very busy person or persons. They seem to be doing smart things, at least:

Getting out of Crystal City, given the near future departure of big military lessors of office space, makes sense.

As a person with zero credentials and little knowledge, taking Archstone public makes the most sense. But I'm the peanut gallery.

Fogelson, _Rise and Fall_: "taxpayers", depreciating the fully depreciated

_Rise and Fall of Downtown_, location 3100 or so, Fogelson describes building owners in downtowns around the country during the 1930s tearing down what I would call midrises (9 stories, give or take, but sometimes up to 20, which I would call a high-rise) and replacing them with parking lots or low-rise (1-2 level) parking garages. Vacancy rates for office space were running 30% or more and the late 1920s bust meant there was a ton of new overbuilt inventory competing with older buildings from the turn of the century or before. "institutional investors had "blacked out" (or, as we now say, redlined) chunks of the central business district, refusing to make loans there because of what Business Week called "progressively declining values"." Tear down the building and the tax bill is reduced. Rent the space out for parking and make enough to pay the land tax and thus hang onto the property in hopes of eventually rebuilding. I'm pretty sure I know of one garage and a couple of lots in Belltown where "eventually" didn't happen until after I was an adult (and one of those garages at least is still a garage).

Here's a weird bit from a few screens further on (3200 ish): "What Los Angeles city planner Gordon Whitnall called "the spectacular shrinkage of values in the commercial centers of American cities" would probably have been even worse were it not for a provision of the U.S. tax code that permitted new owners of old buildings, even buildings that were fully depreciated, to depreciate them anew on the basis of their purchase price -- a provision that generated tax-free income and thus increased property values."

Words fail.