03/01/2013 | By Allen Kenney
Neithercut discussed the completion of his company’s purchase of 60 percent of the Archstone apartment portfolio from Lehman Brothers Holdings Inc. The deal, which was announced in late 2012, closed on Feb. 27, with AvalonBay Communities Inc. (NYSE: AVB) acquiring the remaining 40 percent of the portfolio. Neithercut said the deal was part of a larger effort to adjust Equity Residential’s focus.
“Several years ago, we embarked on a new strategy with a focus for our investments in high-density, urban assets,” he said. “We thought about the future and where this echo boom generation was going to want to live, work and play. As we thought about where the jobs would be that our economy would create going forward, we did look at the large, coastal cities. Over the past half-dozen years, we’ve worked very hard to sell out of our non-core assets and invest that capital in these more urban gateway cities and more high-density areas.”
Neithercut said his company has made strides towards achieving its goals by acquiring the Archstone properties.
“Coming out of the recession, we bought an awful lot of assets,” he said. “Early in the recovery, we spent several billion dollars of capital acquiring assets during that timeframe. Yet, after the recovery, there became a significant amount of demand for those assets, and it became very difficult to invest capital in those markets. Archstone represented for us about 21,000 units of high-quality assets in these gateway cities of New York and Boston and Washington and Southern California and San Francisco and Seattle, which fit hand in glove with our investment strategy.”
The Archstone deal will finish the “total transformation” of Equity Residential’s property portfolio, according to Neithercut. Since the firm began selling off assets, it has cut its holdings by nearly half.
“By buying Archstone, it has created an opportunity for us to sell assets in Jacksonville and Orlando and Phoenix—markets that we had looked at long ago as markets that are more commodity-type markets and ones that we did not think our investors the highest risk-adjusted total returns.”