[IMGCAP(1)]NEW YORK CITY-Following on the heals of Archstone-Smith Trust’s recent closing on the acquisition by a partnership by Tishman Speyer Real Estate Venture VII L.P. and Lehman Brothers Holdings Inc., multifamily insiders and REIT analysts say there could be more deals this size to come. Insiders note that although it seems potential multifamily borrowers are sitting on the sidelines for now, some say the market is so unpredictable, nothing should be ruled out.

[IMGCAP(2)]While such deals are still a good bet, not for the near-term, and Richard Anderson, a REIT analyst at BMO Capital Markets, tells GlobeSt.com not to expect to see a hand-shake of this size for a while. “There is too much uncertainty in the market right now for this type of large scale activity,” he says. “When things settle down, potential multifamily borrowers will start thinking about making deals this size, but I project they will be in pause mode well into 2008.”

The $22 billion transaction he is referring to was “all about timing,” he noted. It is the largest public-to-private M&A transaction in the multifamily REIT sector as of yet and “buyers had to really go to the earth to get it done.”

Anthony Paolone, an analyst with JP Morgan Securities, agrees with Anderson and explains that it doesn’t seem likely that a deal this size would happen again in the near future, however things could change. “All indications are that the debt availability is a lot harder to get,” he says, which is causing a shift in valuation. “In multifamily as well as other property types, the pace of deals has slowed.”

Steven Marks, an analyst at Fitch Ratings, explains that the multifamily sector has demonstrated strong fundamentals over the past two-and-a-half years, as measured by same unit net operating income growth. “The potential for future strong operating performance, combined with weaker stock prices that may not fully price in continued growth, make multifamily REITs more attractive acquisition targets than REITs in other property sectors,” he notes. The ability for an acquirer to buy a high quality portfolio of assets in one large transaction, Marks explains, instead of trying to aggregate a portfolio piecemeal, was one of the attractive attributes of the Archstone-Smith Trust deal. “Many REITs have this attribute and it is what makes so many of them potential acquisition targets.”

Louis Taylor, a senior real estate analyst with Deutsche Banc Securities Inc. says he would never rule anything out in regards to another multifamily deal happening this large. “Given what’s transpired, this is a $4 trillion market, and it is unpredictable.”

Marks does believe that M&A mega deals are over in the near term. “Most secured debt lenders are not in a position to provide financing on terms that were available six months ago,” he explains, referring to high leverage and low spread. “In addition, many lenders do not have the capacity to originate and hold for securitization large mortgages.” However, he notes that as buyers adjust their return expectations downward, and as more secured lenders re-enter the market, large transactions will be possible.

Commercial real estate debt is still a viable form of financing according to Marks. “The CMBS market in many ways has been unfairly tainted by residential MBS,” he says, adding that CMBS continues to perform well, despite recent spread widening.

“Despite a liquidity crisis in the CMBS market, the Archstone-Smith transaction was consummated,” Marks notes, “demonstrating that buyers are willing to pursue alternative forms of debt financing, albeit at a higher price than what was likely originally contemplated.”

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Dig Deeper

GlobeSt Net Lease Spring 2024Event

This conference brings together the industry's most influential & knowledgeable real estate executives from the net lease sector.

Get More Information


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2024 ALM Global, LLC. All Rights Reserved.