The merger between BRE Properties and Essex Property Trust in 2014 was one of the most high-profile transactions in the multifamily real estate industry and included more than 56,000 housing units across nearly 240 properties on the West Coast.  On May 23rd, Holland & Knight hosted a ULI San Francisco event featuring former CEO of BRE Properties Constance Moore.  Connie provided a look back into the merger between the two giants and described the various dimensions of the transaction such as how it came to be, the key people involved and the unique challenges she faced along the way.  The intimate setting allowed a personal look into Connie’s experience both managing BRE and the process of negotiating a multi-billion-dollar deal.

Connie began by giving some history of BRE and her role there.  BRE began as Bank of America Realty, and went public in 1970 and Connie began at the company in 1977.  At that time, there were no apartment-specific REITs and BRE was diversified, holding multiple real estate asset classes.  The 1980’s saw BRE leave Bank of America, and changes to the rules for REITs which allowed them to manage their own properties and collect non-real estate revenues.  In the 1990’s, REITs began to get more focused and BRE sold all its non-multifamily assets, and merged with REIT of California.  Around the same time, Essex Property Trust went public with the portfolio George Marcus had amassed and became a major West Coast competitor of BRE.  Connie left BRE in the early 80’s but returned in 2002, and was named CEO in 2005.

While BRE and Essex had very similar strategies, the main differences were the specific markets in which each was invested.  BRE was about 50% in California and 50% in other western US markets such as Phoenix, Las Vegas, Denver, and Portland.  Meanwhile Essex was much more heavily invested in key markets with much of its portfolio on the San Francisco Peninsula in the Bay Area.  It was this difference in asset locations that helped Essex to outshine BRE in terms of Funds From Operation growth, and Connie to have to constantly defend the company in comparisons between the two.

In the late 2000’s, the board changed and the new group had a clear understanding of BRE’s value, and how others might value the company.  Rumblings began circulating the industry that Archstone Smith would go public once again, after having gone private just a few years earlier with the sale to Lehman Brothers.  This would of course create a third very large multifamily REIT along with Equity Residential and Avalon Bay.  Competing with these three 800-pound gorillas would be difficult for the smaller REITs such as Essex, BRE, UDR, and others of similar size because the larger companies had a cost of capital advantage.  When Archstone subsequently sold their assets to EQR & AVB, it was clear that BRE would need to grow or merge to compete effectively.

The merger itself made sense because of the relative strengths of the two companies.  BRE was a great developer and operator of properties, while Essex’s strength was investment timing, acquisition, and disposition.  Before the mid- 2010’s, Essex never wanted to ‘pay-up’ for BRE’s top-notch development pipeline but eventually started to see the value creation in development.   By the time of the merger, BRE’s portfolio was valued at around $5 billion and was approximately 85% in California and 15% in Seattle.  In addition, they had a development pipeline of around $1.35 billion.  BRE ran a sales process with Eastdil Secured and when Essex was the obvious best buyer of the company, a deal was announced December 19^th 2013 and closed April 1^st, 2014.  Connie said that one of the challenges was to understand all of the concerns of employees at all levels and be able to address them in an authentic way.   While there was a deal going on and the numbers were important, ultimately there were people behind those numbers and it was important to remember that as well.

When asked what she misses most about running BRE Properties, Connie replied that it is developing her people.  Specifically, she said she enjoyed identifying the strengths of various members of her management team and working with the board of directors to put together development plans to enhance the strength of the company.

By Sage Sudbury