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Tishman, Lehman agree to buy Archstone

$13.5b deal comes as apartment rents rise

The Archstone deal would give Tishman and Lehman over 86,000 apartments from New York to San Francisco as rental demand increases. The Archstone deal would give Tishman and Lehman over 86,000 apartments from New York to San Francisco as rental demand increases. (JB Reed/ Bloomberg News)

NEW YORK --Tishman Speyer Properties LP and Lehman Brothers Holdings Inc. agreed to buy US apartment developer Archstone-Smith Trust for $13.5 billion, expanding their residential assets as rents rise.

Tishman, the New York real estate investor, and Lehman will pay $60.75 a share, 19 percent more than the May 24 closing price. The total value of the transaction including debt is $22.2 billion, the companies said yesterday. Archstone is the second-largest US apartment real estate investment trust.

"I would say that $60.75 looks like a pretty good deal for the buyer," said James Corl, who oversees real estate investments in New York for Cohen & Steers Capital Management Inc., Archstone's sixth-largest investor with 8.25 million shares, according to Bloomberg data.

The acquisition would give Tishman and Lehman more than 86,000 apartments from New York to San Francisco as rental demand increases and home prices fall, according to forecasts from the National Association of Realtors. Rents may rise 6 percent to 6.5 percent this year in the urban markets where Denver-based Archstone operates, UBS AG estimates.

Corl said more bids "are fairly likely," possibly from buyout firms.

Shares of Archstone jumped $4.92, or 9 percent, to $60.15 in New York Stock Exchange composite trading. The shares jumped 10 percent in the year through May 24, before news of a possible deal emerged. The company had a market value of $12.3 billion before the transaction was disclosed.

Archstone has "the highest quality portfolio in apartment REITs," UBS analyst Alexander Goldfarb said in an interview. "This is a company that repositioned itself from Albuquerque and El Paso 10 years ago to New York and D.C. and California today."

Archstone ranks as the number two publicly traded owner of apartments in the United States after Sam Zell's Chicago-based Equity Residential. The deal follows the acquisition of Zell's Equity Office Properties Trust in February by New York leveraged buyout firm Blackstone Group LP for about $39 billion, including debt, after a partnership led by Vornado Realty Trust made a counteroffer.

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