EOP - Buy Low and Sell High

The big news in real estate this week was the purchase of Equity Office Properties (NYSE: EOP) by Blackstone Group for $39 billion dollars. It was an LBO reminiscent of the RJR Nabisco LBO made famous by the book Barbarians at the Gate. Although this story did not have as much intrigue, the numbers were astounding.

For 16 years Sam Zell has been purchasing office properties across the country. Picking up some very nice parcels in Manhattan along the way. He created the country’s biggest publicly traded office building portfolio. 500 buildings totaling over 100 million square feet.

The company went into play and Blackstone offered a nice price and mostly cash, roughly $55.00 a share. But then Vornado (NYSE: VNO) entered they picture. They upped the ante, but they would have to pay in a combination of cash and stock. Their offer was for a bit more at $56.00 a share.

Normally a seller takes the higher offer, but in this case - cash became king. Blackstone won the war because EOP shareholders preferred the cash. Now, they’ll turn around and begin to unload many properties and probably for more than what they paid. Vornado really only wanted the New York properties, and there is speculation that possibly Blackstone may sell them a few parcels.

Either way money continues to chase the real estate market. Is EOP the smart one? Have they called the “high” of the market? Is that a signal when the biggest commercial real estate company decides the time is right to sell out and leave? If the market does pull back and softens then yes, EOP will look very smart indeed.