Essex Signs Deal to Buy BRE in $15.4B Transaction

Bay Area Council, San Francisco, Bay Area, East Bay

San Francisco Panorama 3

By Jon Peterson

Palo Alto-based Essex Property Trust has signed a definitive agreement to buy San Francisco-based BRE Properties to create the only publicly traded West Coast pure play apartment REIT. The closing of this transaction is set to happen late in the first quarter of next year. The breakup fee for this deal has been set at $170 million.

[contextly_sidebar id=”1a8ff2c15a8b742c9ed52c786ca4ef7d”]Both companies already have a major presence in the San Francisco Bay Area. Essex has 31 percent of its portfolio based in the region totaling 10,214 units, according to its 2013 third quarter earnings report. The vast of its portfolio is located in the counties of Santa Clara, Alameda, Contra Costa, San Mateo, San Francisco and Marin. It also owns one property each in Tracy, Santa Rosa and Santa Cruz.

BRE has a Bay Area portfolio of 4,197 units with a net book value of $609.6 million, as reported in its September 2013 earnings report. These assets are located in a variety of markets in the region. These include San Jose, Oakland, Santa Clara, Emeryville, Foster City, San Mateo, Fremont, Hayward, Menlo Park and Union City.

Both of these companies have known each other as they compete in many of the same markets. The recent activity in the marketplace has been for Essex to have more of an interest in buying properties and BRE more in development.

Essex is looking at setting up a joint venture to fund the cash needs of the potential acquisition of BRE. “We have not talked with our institutional partners on this yet,” says Michael Schall, president and chief executive officer of Essex in a conference call to discuss the deal with BRE.

The REIT has not decided what properties might be placed in the JV. It’s aware that the performance of its portfolio in Northern California has been very strong. “There has been a 55 percent rental rate growth with our assets in Northern California from the bottom of the market. The performance in Southern California has been less than that,” said Schall in the conference call.

One of Essex’s more prominent institutional partners has been the State of Wisconsin Investment Board. Since 2011, the pension fund has invested $297.5 million of equity into three joint ventures. This capital has been used by the REIT to buy additional properties or to make equity investments in properties that the REIT already owns.

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