EQR has also announced plans to sell an additional 26 assets located in various submarkets in 2016, and expects to realize proceeds of approximately $700 million. “Through its asset sale program, EQR is focusing its portfolio on dense, urban cities with strong growth characteristics, and higher-entry-barrier markets with good supply/demand dynamics,” according to S&P's report. At the same time, "EQR is exiting older assets in weaker markets and opportunistically reallocating capital.”

Similarly, Fitch notes that following its dispositions, EQR will have 98% of its pro forma portfolio in the Boston, Los Angeles, New York City, San Diego, San Francisco, Seattle and Washington, DC markets, which the ratings agency views as having “above-average growth and liquidity through the cycle.” The sale to Starwood, and plans to sell to individual investors next year, “reflect positively on management strategy,” according to Fitch.

The disposition strategy illustrates that EQR is willing to shrink its portfolio “by selling assets at strong valuations and returning capital to shareholders, and also willing to maneuver to hold headline credit metrics at current levels,” says Fitch, which like S&P is maintaining its current rating on EQR. “Further, Fitch views positively the higher concentration of the portfolio in primary coastal, higher barrier-to-entry markets.”

S&P says it expects demand for multifamily assets in gateway cities and attractive urban markets to remain strong, “given the still relatively low interest rates and demand from private equity buyers. We also see potential for more REITs to go private as buyers capitalize on companies that are undervalued and are trading at a discount to net asset value.” It cites the recent sales of Home Properties Inc. to Lone Star Funds and Associated Estates Realty Corp. to Brookfield Asset Management as examples.

On the other hand, S&P notes that asset values in suburban markets—where most of the EQR portfolio trading to Starwood Capital is located—“may begin to stall as new supply gets added. Furthermore, if the economy weakens or if employment opportunities dry up, we would expect the suburban markets to be the more susceptible to value decline.”

Yet the ratings agency's summary of the apartment market's continuing viability appears to favor the $5.365-billion bet that Sternlicht is making. “We believe the underlying trends in the multifamily sector continue to be favorable and the long-term fundamentals are attractive,” according to S&P. “We believe the demand drivers for the multifamily sector are strong and sustainable over the near to intermediate term.”