Massachusetts Forces Apartment Sales as Condition of $69 Billion Landlord Merger

AvalonBay Communities Inc. and Equity Residential agreed to sell Equity’s Emerson Place apartment properties in Boston’s West End under a settlement with Massachusetts Attorney General Andrea Campbell, according to a MassLive report on the agreement and information released by Campbell’s office. The properties comprise roughly 440 apartments.

The divestiture represents a significant state-level antitrust intervention in the companies’ proposed merger, which was announced in May and would create a rental-housing giant with more than 180,000 apartments nationwide. AvalonBay and Equity said when unveiling the transaction that the combined company would have an enterprise value of about $69 billion.

According to MassLive’s Aug. 18 report, Campbell’s office concluded that allowing the companies to combine their Boston portfolios without a sale could diminish competition in the market for upscale multifamily housing. The attorney general said the transaction, absent the divestiture, would leave the merged landlord controlling more than half of the relevant market for mid- and high-rise apartments covering the West End, North End, Beacon Hill and northern parts of downtown Boston.

The settlement reflects regulators’ view that those buildings constitute a distinct rental market. Court documents cited in reporting on the agreement point to amenities such as concierges, leasing offices, package rooms, lounges, swimming pools, fitness facilities and on-site maintenance as features differentiating such properties from other housing.

Equity will have six months to find a buyer for the two Emerson Place buildings, according to reporting by MassLive and Universal Hub. An additional six months may be available if the company can demonstrate difficulty completing an acceptable sale. The properties have a combined assessed value of about $183 million, Universal Hub reported.

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The agreement also includes protections intended to limit disruption for existing tenants. Equity must preserve 36 income-restricted apartments at the properties and maintain existing services and facilities while pursuing a sale, according to Universal Hub’s account of the court filing. The landlord also agreed not to impede existing building employees from remaining at the properties after a transfer to a new owner.

Where residents currently rely on amenities located in nearby buildings that aren’t being divested, the settlement requires continued access for at least two years, according to the same report.

The remedy allows the broader transaction to move ahead without Massachusetts seeking to block it, while requiring the companies to reduce their concentration in a tightly defined Boston rental market.

AvalonBay, based in Arlington, Virginia, and Chicago-based Equity Residential described their transaction in May as a merger of equals. At announcement, the companies said the combination would create a business with an equity market capitalization of roughly $52 billion, more than 180,000 existing apartments and another 10,800 units under construction. They projected $175 million in gross synergies from the deal.

The Massachusetts action comes amid heightened antitrust scrutiny of large residential landlords and the forces influencing apartment rents. Campbell’s office has previously participated in enforcement efforts involving alleged anticompetitive practices in rental housing, including algorithmic pricing.

For Boston renters, the Emerson Place divestiture illustrates how regulators are applying traditional merger analysis to increasingly concentrated housing markets. Rather than assessing the companies’ national portfolios alone, Massachusetts focused on whether tenants seeking a particular type of apartment in a relatively narrow section of Boston would have sufficient alternatives after the combination.

Source: Masslive