Bloomberg News

Zell Archstone Stake Would ‘Impair’ Asset Value, Lehman Says

January 03, 2012

(Updates with excerpt from filing in fourth paragraph.)

Dec. 30 (Bloomberg) -- Lehman Brothers Holdings Inc. said Sam Zell’s Equity Residential would be a “contentious” partner in Archstone and impair the value of bankrupt Lehman’s biggest real-estate asset, according to a court filing.

Lehman, which is trying to gain control of Archstone, made the statement today in support of its plan to pay about $1.3 billion for 26.5 percent of Archstone held by Bank of America Corp. and Barclays Plc. Equity Residential had offered to buy the stake and retains an option on the banks’ remaining 26.5 percent stake.

Lehman aims to sell or liquidate Archstone for $6 billion to help pay creditors with claims of about $370 billion, and to do that must gain control of the company, according to a person familiar with the plan. Zell, with a 26.5 percent stake, could thwart all of Lehman’s plans for Archstone, Jeffrey Fitts, Lehman’s co-head of real estate, said in the court filing.

Equity Residential could “single-handedly drive down the value of Archstone and hinder the debtors’ ability to exit their investment in Archstone,” he said. It would even have “power to veto major financing and external growth decisions, formation and approval of budgets.”

Zell didn’t immediately respond to e-mails seeking comment on Lehman’s filing. Yesterday, Equity Residential, Archstone’s biggest rival in the apartment business, told a judge it urgently needed to intervene in court proceedings over Archstone to protect its rights in the deal, including a so-called breakup free if Lehman buys the bank’s whole 53 percent stake.

Liquidation Plan

Lehman, which is trying to carry out a $65 billion liquidation plan to pay creditors, expects to get back within 12 months and distribute to creditors “whatever estate funds are used” to pay the banks for their Archstone stake, Fitts said. Lehman will use equity partnerships, asset sales, joint ventures and other means to “repatriate” the money, he said.

Archstone, which Lehman acquired in a $22 billion leveraged buyout with Tishman Speyer Properties LP, has ownership interests in hundreds of apartment developments from Washington and New York to San Francisco.

The main case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan). Lehman’s lawsuit is Archstone LB Syndication Partner LLC v. Banc of America Strategic Venture Inc. (In re Lehman Brothers Holdings Inc.), 11-02928, U.S. Bankruptcy Court, Southern District New York (Manhattan).

--Editors: Peter Blumberg, Mary Romano

To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net.

To contact the editors responsible for this story: Stephen Farr at sfarr@bloomberg.net.


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