Fitch Ratings placed Equity Residential (EQR) on rating watch negative after its proposed acquisition of the privately held multifamily entity Archstone Enterprise.

The agreement will provide Equity Residential with 60% of Archstone’s assets and liabilities. After the transaction is complete in 2013, Fitch expects to resolve the negative rating watch.

The resolution will depend on the company’s abilities including transactions of equity offerings and asset sales transactions and the extension of certain Archstone-related mortgages, improving liquidity and reducing debt.

Fitch is warning that Equity Residential may not have the leverage to absorb the acquisition of Archstone without the risk. To its credit, Fitch notes Equity Residential excels at raising capital through a variety of means.

However, Archstone is expected to strengthen Equity Residential’s market presence in specific coastal areas, where single-family housing affordability tends to drive the demand of multifamily housing. 

"Fitch views this presence and increased market focus positively, as these markets also have limited land to build on and high construction costs, curtailing meaningful supply growth," according to the release.