Big Landlord Close to Deal for a REIT in India

The real estate company that bought two prominent apartment complexes on Manhattan’s Lower East Side is trying to make another major acquisition in the New York market.

The company, Tishman Speyer Properties, has joined with the investment bank Lehman Brothers and was close to a deal last night to buy Archstone-Smith Trust, the second-largest public apartment owner in terms of market capitalization and asset value, for more than $20 billion, people involved in the talks said.

The deal, which could be announced as early today, would be one of the largest privatizations of a public real estate investment trust.

Still, people involved in the negotiations cautioned that the deal was not completed and it was possible the talks could collapse or be postponed.

Under the terms, Tishman and Lehman would pay more than $14 billion for Archstone-Smith and assume about $6.3 billion in debt, according to people involved in the negotiations. Exact terms could not be learned last night.

For its part, Lehman may create a fund that will allow its clients and high-net worth investors to invest in the real estate market.

At the end of March, Archstone-Smith, which is based in Englewood, Colo., owned or had an ownership position in 344 complexes, representing more than 86,000 apartments, including units under construction.

The REIT calls itself the largest public owner of apartments in Manhattan, including the Key West, a 207-unit, 13-story high-rise on Columbus Avenue near 96th Street, and the 627-unit Archstone Clinton on West 52nd Street between 10th and 11th Avenues.

Some 57 percent of the REIT’s portfolio is in the New York metropolitan area, Southern California, the San Francisco Bay Area and Seattle.

The news of the possibility of an impending deal stunned the industry. Though there had been speculation in recent weeks that private equity firms were about to begin focusing on apartment REITs, most industry analysts did not expect a company the size of Archstone-Smith to be in play.

Archstone-Smith, second only to Equity Residential Properties in size, is regarded as well-managed with prime buildings in cities like New York, Washington and Los Angeles, where it is difficult to add new supply.

The equity firm, the Blackstone Group, paid $23 billion for Equity Office Properties Trust in February, and has sold large pieces of the REIT.

But at least one analyst said that Archstone-Smith had been increasingly seen as a potential buyout target for its high-quality assets and its presence in crucial markets.

Robert M. White, the president of Real Capital Analytics, a New York research company, said that although a few apartment REITs have been taken private, the sector had largely been bypassed during the wave of acquisitions that have swept through the publicly traded office and hotel companies.

One concern, Mr. White said, was that when the condominium conversion trend halted about a year ago, many new apartments would be dumped on the market and the inventory would vastly exceed demand.

“A lot of people thought it might be the beginning of the end,” he said. But those fears proved unfounded, he said.

Barry Vinocur, the editor of REIT Wrap, a daily newsletter, said apartment REITs have been trading at a large discount to what the buildings are actually worth.

In fact, he said, “their earnings growth have been the best of any sector in the REIT space.”

In early May, Archstone-Smith announced earnings of $1.27 a share for the first quarter, up from 58 cents in the quarter a year ago.

Keven S. Lindemann, the director of real estate for SNL Financial, a research company in Charlottesville, Va., said that the deal made sense for a company like Tishman Speyer, which seeks high quality real estate.

“This is such a collection of top-notch assets,” Mr. Lindemann said, “and it would take a lot of time and probably more capital to assemble a portfolio like this on a piece by piece basis.”

The Archstone acqusition would add to Tishman Speyer’s international inventory of commercial properties, which includes Rockefeller Center and the Chrysler Building in Manhattan, the CityPoint building in London and the Lumiére office tower in Paris. It also owns developments in Latin America and has lately begun investing in India and China.

In October, Tishman bought Stuyvesant Town and Peter Cooper Village for $5.4 billion — 80 acres of prime Manhattan land along the East River that included 110 buildings and 11,232 apartments. Less than three weeks after putting the headquarters of The New York Times Company in Times Square on the block, Tishman sold the building for $525 million, three times the $175 million it paid in November 2004.

Analysts say the apartment sector tends to do well during a housing slump. And with the housing market cooling rapidly across the United States, stocks of apartment real estate investment trusts such as Archstone-Smith have performed strongly on the belief among some investors that former homeowners will once again turn to the rental market.

Last year, Archstone-Smith’s stock rose 44 percent. This year, however, rising concern that rental prices may have peaked has caused the stocks of some apartment REITs to stagnate. Before a run-up last Friday on takeover speculation, Archstone-Smith’s stock had fallen nearly 11 percent this year.

The chief executive of Tishman Speyer, Jerry I. Speyer, also plays a leading role in the civic and cultural life of New York. He is vice chairman of the Museum of Modern Art, an owner of the New York Yankees, a member of the Council of Foreign Relations and chairman of the Federal Reserve Bank of New York.

He has been able to raise billions for real estate investment from pension funds, insurance companies and wealthy families like the Crowns of Chicago and the Agnellis of Italy.

http://www.nytimes.com/2007/05/29/business/29deal.html?_r=1&hp&oref=slogin