The estate of Lehman Brothers Holdings has finalised its purchase of an additional stake in apartment giant Archstone from co-owners Bank of America and Barclays for $1.33 billion. This raises the former Wall Street banking giant’s total ownership in the Denver-based REIT from 47 percent to 73.5 percent.
Lehman purchased the stake “solely with cash proceeds from its estate”, according to documents filed with the US Securities and Exchange Commission. When asked for further comment, a spokeswoman for Lehman deferred to the filing.
This acquisition blocks rival Equity Residential’s bid for the same shares. However, the Sam Zell-led REIT still has the option to bid on the remaining ownership shares from Bank of America and Barclays for the same price. Equity Residential now has until 19 February to decide whether to bid for those shares. A spokesman for Equity Residential said: “we will carefully weigh our options”.
If Equity Residential does opt to acquire the other 26.5 percent stake owned by the banks, Lehman has the right to match — and therefore completely shut out — the Chicago firm, making Lehman the sole owner of Archstone. However, if Lehman goes that route, the banks would be forced to pay up to $80 million in break-up fees to Equity Residential.
Lehman buying half of Bank of America and Barclays' shares in the apartment owner is yet another round in the continuing — and increasingly complicated — battle for Archstone. In December 2011, Bank of America and Barclays agreed to sell half of their shares in Archstone to Equity Residential for $1.33 billion. Lehman tried to block the sale, claiming in court documents that Equity Residential would be a “contentious” partner. After a two-day mini-trial held at bankruptcy court earlier this month, US Bankruptcy Judge James Peck denied Lehman’s request to block the sale. Judge Peck did, however, approve Lehman's right of first offer shortly thereafter on 11 January.
This battle between Equity Residential and Lehman over ownership of Archstone follows the failure of Lehman, Bank of America and Barclays to agree over what to do with the troubled REIT. In June, the three firms could not decide whether to sell their stakes via an IPO, sell the company outright or to infuse some fresh capital into the platform. Following this communication breakdown, Bank of America and Barclays chose to sell their shares to the highest bidder.
In 2007, Lehman led a $22 billion buyout for Archstone-Smith in one of the largest real estate deals in history. The acquisition helped lead to Lehman’s collapse in 2008, which in turn contributed to the global financial crisis. Archstone remains the largest real estate platform on Lehman’s books.
Late last year, Judge Peck approved of Lehman's $65 billion plan to pay back its creditors and emerge out of Chapter 11 bankruptcy protection. The plan should be put into motion sometime in the first quarter of 2012.