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CHICAGO-When Equity Residential acquired Lexford Residential Trust's portfolio in 1999, some observers were scratching their heads, recalled president and chief executive officer David J. Neithercut. However, the multifamily REIT could see a $1-billion-plus payday, he suggested Monday at Citigroup's 2006 REIT CEO conference.

"This has been a terrific investment for the company," said Neithercut, noting Equity Residential bought the entry-level housing portfolio at a 10.5% capitalization rate. "During the recession, this portfolio outperformed the rest of Equity Residential's portfolio."

Nonetheless, the REIT is exploring the sale of the remaining 27,390 units of the 36,609 it acquired for $733 million seven years ago, hiring JPMorgan last week to advise on a possible sale. "I'm seeing a really strong bid for income-producing property," Neithercut said. "We think this is a terrific time to monetize that portfolio."

The properties are primarily ranch style apartment units, with rents averaging $525 a month, Neithercut said. "It is entry-level housing," he added.

Proceeds would be used for acquisitions and developments in core markets, Neithercut said, with New York City, New Jersey, Florida, Seattle and Southern California among the targets. He adds the REIT could elect to buy back its own stock.

Sales of the nearly 9,000 units so far have ranged from $20,000 per unit to $40,000 per unit, Neithercut said. Equity Residential spent "a reasonable amount of capex" in roofing, siding and interior renovations. Meanwhile, Equity Residential has paid down most of the debt on the property. "We're going to be able to sell it fairly clean," he added.

The portfolio sale would remove Equity Residential from the Columbus, OH and Indianapolis markets, he said, as well as Southeast Michigan. Although bids from condominium converters have begun to drop closer to those offered by investors, Neithercut sees potential for converting some Lexford units in Florida.

Instant Insights /

UPDATE: Lexford Portfolio Could Net Equity Residential $1B

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