Emerging from the 90s

Maybe it’s just me, but the 1990s feel much too recent to be “retro.” Then again, the 90s’ Internet expansion, unprecedented economic growth, and pre-9/11 confidence make it feel in many ways like another lifetime (though I still take offense to hearing 90s bands on classic rock stations…).

Much has changed between the 90s and post-recession 2000s. In America, one of these shifts has been in population trends: while the 90s were part of an ongoing period of sprawl, more recent years have seen a return to high-density development and urbanization. In 2003, for instance, the ULI published this article [pdf] entitled “The Case for Multifamily Housing.” Considering the more robust single-family market at the time, the ULI’s argument for multifamily might have been less convincing then it is in hindsight.

Yet the multifamily sector is still adjusting to its new position in commercial real estate’s limelight. After all, there was a time not too long ago when apartment ownership and operations was not the most profitable real estate strategy.  Take, for instance, Archstone, the giant multifamily REIT that has been the object of prolonged legal wrangling among banks and CRE investors, particularly Chicago-based Equity Residential (NYSE: EQR) and Lehman Brothers (which eventually took control).

 

Archstone began as the East Coast-based Charles E. Smith Companies before merging with Denver’s Archstone Communities in 2001. The firm has had a very colorful history, going public in the 90s, going private again, and passing from one major stakeholder to another as a result of some major debt obligations.

So what’s next? Another IPO, apparently. PERE News reports,

The Denver-based apartment REIT has filed plans with the US Securities and Exchange Commission on Friday for an initial public offering of up to $100 million in common stock. Proceeds from the IPO will be used to pay down debt…

Controlling almost 60,000 units throughout the country, Archstone is an enormous holding for Lehman Brothers–but a potential liability. As I discussed in last week’s post about appraisals, the value of a firm or its holdings is merely its present value. Right now, Archstone is such a promising REIT that two large firms were willing to spend incredible amounts of time and money on a seemingly endless legal battle.  But what about next year, and the year after that? How much will the multifamily sector need to grow to make all the wrangling worth Lehman Brothers’ while?

I’m not sure, but Wall Street’s response to Archstone’s IPO (under stock symbol ASN) might give us an idea of what’s to come.

We’ll see what the future holds. Renewed growth in suburban communities and the single-family market–which is to say, a return to the 90s–could devastate this REIT, but this would only occur with a serious economic turn-around. It looks like Archstone and Lehman Brothers don’t expect a return to the 90s anytime soon.