Once the ink dried on the second-largest leveraged buyout in U.S. history, it didn't take long for The Blackstone Group to chop up its newly acquired portfolio from Equity Office Properties (EOP). Within two weeks, it had sold off 107 properties for more than $19 billion — recouping nearly half of the $39 billion in cash and assumed debt Blackstone paid for EOP on Feb. 7.

“This is really the heavy lifting,” says Barry Vinocur, editor of REIT Zone Publications. “They still have assets to sell, but a lot of the big stuff now is out of the way.”

Blackstone beat out a group led by Vornado Realty Trust in a bidding war that ended Feb. 7 at $55.50 cash per share, or $23.2 billion, and roughly $16 billion in debt. Blackstone initially offered $48.50 per share, but raised that amount to top Vornado's bid of $52 per share.

According to Vinocur, when EOP was already under an acquisition agreement with Blackstone, the private equity firm provided a waiver that allowed EOP to investigate Vornado's offer. In exchange, EOP allowed Blackstone to negotiate tentative sales of some properties. With specific offers in hand, Blackstone was then able to raise its bid and in the process prepare to flip pieces of the portfolio after the acquisition.

“It's like pre-selling your house,” Vinocur says. “If you've pre-sold your house, you know exactly how much money you're going to get for it. Then you could go out and say now I know exactly what I can afford, and that's what Blackstone did.”

Blackstone purchased slightly less than 100 million sq. ft. of EOP space in 524 office buildings in 16 states and the District of Columbia. Blackstone declined to comment on its plans for the portfolio, but deals publicized since the acquisition include more than $19 billion of sales in Manhattan, Seattle, Portland, San Diego, Denver, Los Angeles and Washington, D.C.

Under its initial bid, Blackstone had planned to sell about one-third of the portfolio in terms of value, and keep two-thirds. Vinocur predicts that ratio will be reversed as the company uses sales to help cover the higher purchase price.

Portions of the portfolio may have been undervalued prior to the acquisition, says Jay Hartzell, associate director of the Real Estate Finance & Investment Center at the University of Texas. “You would expect to see them sell off stuff they thought was especially mispriced, and hold onto ones they thought had long-term growth potential that the market might not yet appreciate,” he says.

The question remains whether the former EOP will continue to own, develop and acquire office space as a freestanding firm, which CarrAmerica Realty Corp. has done since its merger with Blackstone affiliates last July. In September, CarrAmerica even kicked off a new 400,000 sq. ft. office development in Dallas.

Alternatively, EOP could wind up much like Trizec Properties, which was acquired by Blackstone and Brookfield Properties in October last year. Brookfield absorbed some former Trizec assets and employees in its markets, and many other properties were sold. Trizec offices that complemented Blackstone's platform in Los Angeles and San Diego were rolled into CarrAmerica.

If Blackstone takes a similar approach to Equity, then EOP's management structure is unlikely to remain an independent operating unit. Employees associated with buildings that aren't sold will likely be absorbed into CarrAmerica or other Blackstone businesses.