U.S. News

Equity Office Properties May Attract Several Rival Bidders


Speculation heated up about whether a bidding war was in the works for Equity Office Properties Trust , which agreed in November to be acquired by Blackstone Group for $48.50 a share in cash.

While investment groups including Cerberus Capital Management, Starwood Capital, and Walton Street Capital were initially named as potential rival bidders, CNBC's David Faber heard that Vornado Realty Trust may also present a competing offer.

"It shows that it's a very competitive investment environment," David Rubenstein, co-founder of the Carlyle Group, told CNBC's "Closing Bell." "Private equity people even exceed professional athletes in their willingness and desire to be a winner. The competition we see in this market is extraordinary."

Equity Office agreed in November to be bought by Blackstone for $20 billion in the largest-ever acquisition of a real estate investment trust (REIT). Including debt, Blackstone's deal is
worth about $36 billion.

Competing Bid Expected

Some had expected a competing bid from the very beginning. Blackstone's offer was viewed as being a bit low given Equity Office's size and the huge amount of capital and interest in commerical real estate, CNBC's Diana Olick told "Power Lunch."

Equity Office May be in Play

"The bottom line is size (and) what we are seeing globally is a pool of capital that we estimate at about $1.5 trillion earmarked for direct investment into real estate," James Feldman, a UBS  analyst, told CNBC. "If you have that much capital, a $36 billion transaction really doesn't make that much of a dent."

Cerberus could be a key funding source for an investment team lead by real-estate maven Barry Sternlicht of Starwood Capital Group Global LLC and Neil Bluhm of Walton Street Capital, The Wall Street Journal reported late Wednesday, citing an unidentified person familiar with the matter. The group could make an offer within days, the Journal said.

A spokeswoman for Cerberus said the firm did not respond to market speculation. Equity Office, the largest owner of U.S. office buildings outside the federal government, declined to comment. Officials at Starwood and Walton Street were not immediately available for comment.

Overbidding a Signed Deal

"What will be most interesting is if it actually happens because it would mark the first actual overbid of a signed (private equity) deal," said CNBC's Faber. "This would be a first."

Founded by real estate magnate Sam Zell in 1976, Equity Office in 2001 became the first REIT to join the Standard & Poor's 500 index.

Citigroup analyst Jonathan Litt said in a note on Tuesday that a bid for Equity Office that topped Blackstone's was increasingly likely and that an offer of between $50 and $52 per
share could emerge.

Litt wrote: "A consortium of private equity firms and possibly a public REIT is the most likely source of a topping bid given the size of the transaction."


Shares of several REITs were trading higher.

"If Equity Office does go private, there is a lot of money, about $7 billion, that needs to get reinvested into the rest of the REIT stocks," Louis Taylor, senior REIT analyst Deutsche Bank Securities, told CNBC's "Morning Call." "That's more than all of the money that came into all real estate mutual funds in 2006. (REITs) are benefiting from that (potential) fund flow impact."