Tishman Speyer, Lehman to acquire Archstone-Smith for $22bn

Tishman Speyer and Lehman Brothers have agreed to buy multi-family REIT Archstone-Smith in a transaction valued at $22.2 billion (€17 billion), one of the largest REIT privatizations ever.

Under the terms of the deal, Tishman and Lehman will pay $60.75 per share in cash for the Englewood, Colorado-based company, a 23 percent premium to its share price on May 24, the day an industry publication, REIT Wrap, reported that the company was the subject of a possible takeover.

Archstone-Smith is the second largest multi-family REIT in the US after Sam Zell’s Equity Residential. As of March 31, 2007, the company owned or had an ownership position in 344 apartment communities comprising more than 86,000 units. In recent years, the company has looked to focus its portfolio in key markets such as Washington DC, Southern California, San Francisco, New York, Seattle and Boston. The company has also been expanding its presence in Germany, where it purchased a portfolio of approximately 6,400 apartments last summer. According to a statement released by Archstone, chief executive officer Scot Sellers has signed a new employment agreement with Tishman and Lehman, effective upon the completion of the acquisition.

Tishman, the owner of such landmarks as Rockefeller Center and the Chrysler Building, has also been active in the multi-family sector recently. Last year, the firm acquired Peter Cooper and Stuyvesant Town in New York City, the largest apartment community in Manhattan, for more than $5 billion. In the Archstone deal, Tishman will supply the bulk of the equity financing, with additional equity coming from Lehman Brothers. The investment bank, along with Bank of America, will also provide debt financing for the transaction.

A spokesperson for Lehman Brothers declined to comment on the transaction or where the equity capital would come from. Lehman’s private equity real estate team is headed by Raymond Mikulich, who is retiring at the end of this year, and Mark Walsh. The firm raised a $2.4 billion equity fund in 2005 and is currently raising another vehicle, Lehman Brothers Real Estate Partners III, which is targeting at least $3 billion.

Since early 2006, the majority of high-profile REIT privatizations have been in the office sector, including the acquisitions of Equity Office, Trizec and CarrAmerica by The Blackstone Group. Yet the multi-family sector has also been generating interest among investors: Last year, Morgan Stanley acquired both Town & Country and AMLI Residential for $1.3 billion and $2.1 billion, respectively.

On the morning of Friday, May 25, UBS analyst Alexander Goldfarb, citing the REIT Wrap report, wrote that Archstone-Smith “is one of the most likely privatization candidates given its high-quality assets, presence in key markets, low leverage and its high-rise properties that can be viewed as call options on the next condo wave.”