Sule Aygoren Carranza is managing editor of Real Estate Forum and editor of Multi Housing forum, from which this article is excerpted.

Denver—One of the largest public players in the apartment business is going private in what's believed to be the largest such merger in the multifamily industry. For $22.2 billion, a partnership of Tishman Speyer and Lehman Brothers acquired Archstone-Smith, an S&P 500 company. The purchase price, which excludes transaction costs, includes the assumption and refinancing of the locally based REIT's debt. The transaction is expected to close in the third quarter.

Officials at Archstone declined comment when contacted by MHF, and those at Tishman did not return calls for comment. However, when announcing the merger, Archstone chairman and chief executive officer R. Scot Sellers said, "We have always been committed to maximizing value for our shareholders and we believe this merger accomplishes that objective, offering a significant premium over the unaffected share price."

As part of the deal, Tishman and Lehman will pay $60.75 per share in cash, a 22.7% premium over the price the REIT's stock traded for on May 24, the day before the merger was announced. Tishman Speyer is providing equity for the deal, while Lehman Brothers and Bank of America are providing and arranging the balance of the debt and equity. If the merger does not go through, Archstone will have to pay a termination fee of $235 million to the joint venture or reimburse up to $10 million of its out-of-pocket expenses. In certain instances, the JV may have to pay Archstone up to $10 million.

Due to the players involved and the size of the deal, the transaction came as a surprise to some observers. However, Jahn Brodwin, partner in the Schonbraun McCann Group in New York City, says it wasn't entirely unexpected. "This is a very smart deal for Tishman," he says. "These are true, quality assets in quality markets. Many of the properties that are coming with the portfolio are somewhat irreplaceable. And it's a great long-term play. Tishman has a long history of recognizing value and having the balance sheet, operating platform and the patience to realize that value. I haven't seen Tishman make too many missteps in its history. In the long run, I think this will prove to be a great acquisition."

Tishman indicated that it was attracted to Archstone's portfolio, along with its management team. In fact, the REIT, which for the past several years has been paring down its holdings to focus on a few core markets, recently became the largest public owner of apartment properties in Tishman's home base of New York City with 3,745 units worth some $1.8 billion.

Whether that repositioning was in anticipation of a potential sale is hard to say, notes Brodwin. "Most public REITs, particularly in the past 57 years, have been trying to get focused and decide who and what they are," he says. "After they figure that out, they go about the task of executing their business strategy."

After the merger, Archstone will maintain its headquarters here. Tishman hasn't announced any plans in terms of what it will do with the REIT's portfolio or its German operations, which are expected to continue. Archstone brings to the table a portfolio of 344 communities with 86,014 units concentrated primarily in the Washington, DC metropolitan area, Southern California, the San Francisco Bay area, the New York City metropolitan area, Seattle and Boston. It is expected that the REIT will operate as a separate business from Tishman, and Sellers will continue to run Archstone.

Morgan Stanley is Archstone's financial advisor in the deal, while Hogan & Hartson LLP is legal advisor. Lehman Brothers Inc. and Bank of America are the partnership's financial advisors. Wachtell, Lipton, Rosen & Katz, DLA Piper LLP and Schulte Roth and Zabel LLP provide legal counsel to Tishman Speyer. Weil Gotshal & Manges LLP and Cadwalader, Wickersham & Taft LLP provides legal advice to Lehman Brothers Inc. Kirkland & Ellis LLP provides legal advice to Bank of America. Cadwalader, Wickersham & Taft LLP act for Lehman Brothers Inc. and Bank of America as joint lead arrangers of the credit facilities.

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