Real Estate Investors Pushing New Construction

In a new article from the Wall Street Journal titled For Real-Estate Investors, It's Out With the Old, Eliot Brown explores how the global hunt for yield is rippling through the U.S. property market. With foreign investors and pension funds push up prices for top-quality, low-vacancy office buildings, several publicly traded real-estate investment trusts such as Boston Properties are piling into new projects offering better growth potential, even if it means more risk. An excerpt follows:

"Most of the REITs are pivoting to development or heavy redevelopment as an investment strategy," said Jed Reagan, an analyst at Green Street Advisors Inc. who follows office landlords. "There's so much aggressive capital out there that's looking for a home," he said.

Boston Properties' latest deal, for the buildings at 601 Lexington Ave. in Manhattan and 100 Federal St. and Atlantic Wharf in Boston, puts the company on track for more than $2 billion in property sales this year, up from $1.3 billion in 2013. At the same time, it had $3.5 billion of projects under development in the second quarter, including a San Francisco site that is to be the second-tallest tower west of the Mississippi River.

A year earlier the company developed $2.5 billion of projects, its highest level in at least a decade.

"We're certainly more bullish on development than buying buildings," Mr. Zuckerman said in an interview in his Midtown Manhattan office.

"Older buildings are trading at higher prices per square foot than where we can build," added Owen Thomas, the former Morgan Stanley executive who became Boston Properties' chief executive last year.

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Lehman Estate Selling Archstone Property Firm for $6.5B

Lehman Brothers Holdings Inc.'s estate agreed on Monday to sell apartment-building owner Archstone Enterprise LP to Equity Residential, a company run by the investor Samuel Zell, and AvalonBay Communities for about $6.5 billion in cash and stock. According to a New York Times article, the sale will dispose of the Lehman estate's single biggest asset as it continues efforts to wind itself down and pay off the firm's legions of creditors; it will also end the estate's plans to take Archstone public, which had been expected to raise $3.45 billion in an offering on the New York Stock Exchange.

Englewood, CO-based Archstone operates apartment communities across the country with a stake in 181 developments covering 57,948 apartment units, as of Sept. 30. Equity Residential will acquire about 60% of Archstone's assets and liabilities while AvalonBay will acquire about 40%. In return, the Lehman estate will become the single biggest shareholder in each company, holding a 9.8% stake in Equity Residential and a 13.2% stake in AvalonBay.

"Archstone is a highly sophisticated and very well thought-of manager of apartment assets," said Craig Leupold, the president of Green Street Advisors, a research firm. "If it's not the highest-quality portfolio around, it's certainly up there."

"The sale of Archstone to Equity Residential and Avalon Bay is a very positive outcome for our creditors," Owen Thomas, the chairman of Lehman's board of directors, said in a statement.

For more news and information visit Blumberg Capital Partners.