The Mensch & Schlemiel of the Week | Commercial Real Estate ...

Mensch:

Noun, informal. A decent, upright, mature and responsible person.

Schlemiel:

Noun, slang. An awkward, clumsy, or unlucky person whose endeavors tend to fail; a loser.

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Mensch of the Week:

Sam Zell, Equity Residential

This week?s Mensch is Sam Zell.

I can?t quote Mr. Zell directly. His language is frequently described as ?colorful? and ?salty??and I?m trying to keep this blog family friendly.

Head of Equity Residential (NYSE: EQR) and one of America?s richest people, Mr. Zell has emerged as a surprising victor in an ongoing tug-of-war between his residential REIT and Lehman Brothers Holdings.

In the most recent chapter of a corporate and legal battle with more twists than an?M. Night Shyamalan movie, Mr. Zell?s REIT and fellow multifamily investor AvalonBay Communities (NYSE: AVB) are acquiring Denver-based apartment firm Archstone.?Bloomberg explains:

Their surprise $16 billion deal last week to acquire Archstone Inc. from Lehman Brothers Holdings Inc. ended a plan by the defunct investment bank for an initial public offering of its biggest asset and halted a 13 percent slide in apartment stocks since their July peak. The slump was driven by concern that rising homeownership and new construction would weaken landlords? power to raise rents as a mammoth share sale flooded the market.

Like the rest of the commercial real estate community, I?ve been captivated by the longstanding Lehman/Equity soap opera and the uncertain future of Archstone Apartments. Over the summer, I hailed Lehman Brothers the winner, since they succeeded (after a protracted legal battle) in wresting the coveted multifamily operator from Equity Residential?s grasp. Just a few months ago, I discussed Lehman?s planned IPO of Archstone, which was meant to capitalize on the well-publicized strength of the multifamily real estate market.

And still, despite Lehman?s former ?victory,? Equity Residential and it?s occasionally foul-mouthed leader have gotten the upper hand, thanks?oddly enough?to declining interest in the multifamily sector. Multifamily has been a top-performing real estate asset for a while now, and a busy development pipeline and already-high rents suggest the sector will soon plateau. Not the best time for an IPO.

Now, Archstone and its nearly 60,000 units are leaving Lehman Brothers? control. Another embarrassment for the Wall Street giant, and a major @#&%ing?win for Sam Zell.

Schlemiel of the Week:

Lehman Brothers

In fairness, though, an IPO is a tricky proposition. More than anything, an IPO requires perfect timing.

While Lehman Brothers was absolutely right to want Archstone, and wasn?t crazy for focusing on the bustling multifamily sector, the bank apparently showed a little too much optimism for Archstone. Buying and operating an enormous apartment portfolio is one thing; taking that portfolio to the New York Stock Exchange and telling everyone to hold high expectations is another.

This isn?t to say an Archstone IPO under Lehman Brothers? direction would have failed. But in today?s investment climate, where multifamily is like so 2011?,?it?s not advisable to open a public firm under high expectations if it will merely perform adequately. When the public is looking for a blockbuster IPO, adequate isn?t too far removed from ?failed.??With such high stakes, it looks like Lehman Brothers did the right thing by erring on the side of caution.

And who knows? This ongoing saga has had so many surprises already, I?m sure this isn?t the end of the story when it comes to Lehman/Equity/Archstone.

Maybe next week we?ll have the same Mensch and Schlemiel, only reversed.

Source: http://llenrock.com/blog/the-mensch-schlemiel-of-the-week-25/

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