Exclusive: Archstone owners kick off sale, IPO process

NEW YORK Tue May 31, 2011 7:00pm EDT

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NEW YORK (Reuters) - Apartment building owner Archstone, whose $22 billion buyout in 2007 exemplified the excesses of the housing boom and helped bankrupt Lehman Brothers, is coming back to the market.

According to sources familiar with the situation, Lehman Brothers Holdings Inc LEHMQ.PK, Bank of America Corp (BAC.N) and Barclays Plc (BARC.L) started recently to consider alternatives for Archstone, including an outright sale, selling it in pieces by buildings or markets, or doing an initial public offering, the sources said.

The move comes at a time when the market for apartment real estate has strengthened. Values have recovered and rents are trending higher, as more people turn away from home buying. Building prices, especially in the areas where many of Archstone's properties are located, are reaching near-peak levels.

The shares of Archstone competitor Equity Residential (EQR.N)closed at a record high on Tuesday of $61.83, up 65 percent this year. AvalonBay Communities Inc (AVB.N) shares are the highest since 2007, having risen 62 percent this year to close at $133.07 on Tuesday.

Bank of America and Barclays converted their debt into $4.8 billion of equity in Archstone last year and together hold a 47 percent stake. Lehman also has a 47 percent stake.

The move to sell or float the apartment owner would enable the banks, which made loans to Lehman and Tishman Speyer in 2007 to buy Archstone, to finally recover some of money.

Lehman, which filed for bankruptcy in September 2008, has always said it intended to "monetize" the assets and will use the funds to help pay back creditors.

Lehman, Barclays and Bank of America declined to comment.

Some of the banks, which got their stakes through bankruptcy court because of financing they provided for Lehman's acquisition of the company, might prefer a sale to an IPO because they could sell their stakes more quickly.

Others may see more value in keeping the company, with its portfolio of apartment towers and garden apartments, intact in an IPO. In addition, Archstone's executive team, headed by Scot Sellers, remains one of the most respected in the industry.

If they pursue an IPO, Archstone might need investors who could validate the price of the very large offering. The owners have approached some private equity firms to gauge their interest in investing in an IPO, perhaps at a discount, the sources said.

Archstone is one of the largest owners of U.S. apartments, with many of its holdings in some of the most expensive metropolitan areas, including New York, Washington D.C., San Francisco, Boston, Southern California and Seattle.

At the end of last year, the Denver-based company owned or had stakes in 436 apartment buildings, or about 78,207 units, in the United States and Europe.

Tishman Speyer, with help from Lehman, bought Denver-based Archstone-Smith for $60.75 per share in a deal that closed in October 2007. Tishman lost almost all of its investment in the company.

At that time, some Archstone shareholders said the price was not high enough, delaying the closing. During those months as Archstone urged shareholders to approve the transaction, the U.S. commercial real estate market was actually faltering.

The credit crisis pulled Lehman into bankruptcy a year later and a bankruptcy examiner identified the Archstone sale as one of the overpriced assets that contributed to the bankruptcy.

(Reporting by Paritosh Bansal, Megan Davies, Caroline Humer and Ilaina Jonas; additional reporting by Clare Baldwin; editing by Robert MacMillan and Andre Grenon)

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