New corporate landscape

Amy Scott Nov 20, 2006

KAI RYSSDAL: Today was a wild day for mergers and acquisitions. There were multibillion-dollar deals in mining, steel and banking too. And office buildings. The Blackstone Group announced today it’s buying the country’s largest owner and manager of corporate real estate. Marketplace’s Amy Scott reports.

AMY SCOTT: Blackstone will pay nearly $20 billion for Equity Office Properties Trust. Add the $16 billion in debt it takes on, and the deal trumps all previous private-equity buyouts. Equity Office is what’s known as a real estate investment trust, or REIT. It owns or part-owns close to 600 office buildings around the country and makes a steady income collecting rent.

Rich Anderson follows REITs for BMO Capital Markets. He says even as the residential real estate market softens, REITs continue to thrive.

RICH ANDERSON: Owning hard assets appeals to many private investors and their constituents, because of the predictability of income.

Office rents are up 8 percent this year and analysts expect them to keep rising. That makes the commercial REIT an attractive buyout target. And private equity groups are in a buying mood. They’ve done an estimated $600 billion in deals so far this year.

Robert Teitleman edits The Deal, a weekly business magazine. He says at the same time groups like Blackstone are raising more money, more public companies are looking to go private to escape regulatory burdens and activist shareholders.

ROBERT TEITLEMAN: You have many CEOs of public companies saying, “You know, maybe the public model isn’t the best model for us. Maybe we should try the buyout thing.” Whether this is good or bad, I don’t know. But it is a major transformation of the corporate landscape.

As for Sam Zell, who founded Equity Office 30 years ago, it might just be time to cash in on his investment.

In New York, I’m Amy Scott for Marketplace.

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