(Reuters) – Equity Commonwealth (EQC.N), a U.S. real estate investment trust (REIT) focused on office space and chaired by property mogul Sam Zell, has approached Forest City Realty Trust Inc (FCEa.N) to discuss a possible merger, people familiar with the matter said.
Combining the two companies would create an office- and apartments-focused REIT worth more than $10 billion, making it one of the biggest mergers in the sector this year.
Forest City Realty is considering the proposal for an all-stock merger with Equity Commonwealth as part of a process it has been running to explore its options, including selling itself, the sources said this week. There is no certainty that any deal will occur, the sources added.
Forest City declined to comment, while Equity Commonwealth did not respond to a request for comment.
Based in Cleveland, Ohio, Forest City is primarily focused on office and apartment buildings in core urban markets, such as New York and San Francisco, as well as mixed-use urban developments. It has market capitalization of $6.6 billion.
Forest City has been reviewing its strategic alternatives in recent months following pressure from activist shareholders Scopia Capital Management and Land & Buildings. It has scrapped its dual-class share structure, shaken up its board and sought to shed some non-core assets.
In recent years, Forest City has also been unwinding what was once a sprawling corporate structure that included hotels, military housing, retail centers, and a stake in the Brooklyn Nets.
Meanwhile, Equity Commonwealth, which has a market capitalization of $3.8 billion, has also transformed itself in response to activist pressure, changing its name, hiring new management, and selling off billions of dollars of properties.
Chicago-based Equity Commonwealth changed its name from Commonwealth REIT in 2014 after activist investors Corvex Management and Related Fund Management LLC shook up the company’s board, adding Zell as chairman, and replaced its management team.
Commonwealth REIT had previously been managed by an outside company, Reit Management & Research, an arrangement that the activists blamed for incentivizing asset growth at the expense of shareholder returns.
Since then, Equity Commonwealth has sold nearly $5 billion in assets, streamlining its once sprawling portfolio and sharpening its focus on U.S. office spaces.
Zell, whose net worth is pegged by Forbes at $5 billion, is the founder of Equity International, a private investment firm spanning sectors including homebuilding, warehousing, office, self-storage, senior living and specialty finance sectors.