Late last year, the biggest deal announcement in the real estate industry for the past 5 years was announced. It was the purchase of Archstone Enterprise from Barclays (formerly Lehman Brothers) by Equity Residential and Avalon Bay Properties for $16 Billion. Interestingly, this was hailed as a huge win for Barclays and a sign that the apartment business has come back. While I agree that times have gotten significantly better for apartment building owners since 2009, it is also important to point out that Lehman purchased Archstone for $22 Billion in 2007. So over the 5-year hold the apartment company lost $6 Billion in value. Or looking at it from a more useful angle, this deal indicates that the market is still off by over 25% since its height in 2007.
I was amazed to see how the industry boldly stated that the value of this portfolio had increased by 50% from its value of $11 Billion in late 2008. This pitch seems to be the method that the real estate industry is using now. Many are boasting that the gains since 2009 are significant, but we are still not back to where we were in 2007 when a huge amount of deals were place into service.
It’s great to see positive momentum, and I hope that the general economy continues to advance so that it is not just low interest rates driving the value proposition.
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