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WASHINGTON, DC-A subsidiary of JPMorgan Asset Management’s Special Situation Property Fund (SSPF) is buying out all of Columbia Equity Trust Inc.’s outstanding shares as it takes the Washington REIT private in an all cash transaction. According to an announcement the two firms made this morning, SSPF will pay $19 per share. The acquisition is valued at approximately $502 million, including the assumption of Columbia’s debt of approximately $213 million.

Columbia principals Oliver Carr, chairman, president and CEO, and John Schissel, executive vice president and CFO, will reinvest 25% or more of their current equity in the company into the new entity when the transaction is complete. The two will also enter into new employment agreements with the JPMorgan Asset Management subsidiary that will replace their current agreements. The deal is expected to close during the first quarter 2007. Columbia’s stockholders still need to approve the transaction.

It is likely they will, given the value the transaction is expected to deliver. Stakeholders that bought into Columbia’s IPO last year will reap a return north of 31%, Mark Decker, vice president with investment banking firm RW Baird in Northern Virginia, notes. “That is exceptional for a 16 month investment,” he tells GlobeSt.com.

Columbia and SSPF said in a statement that the per share purchase price would give shareholders a 12.4% premium over its closing share price on November 3, which was $16.91. The purchase price also reflected a 12.6% premium to the volume weighted average closing price over the past 30 days, the statement said. Columbia’s Board of Directors unanimously approved the transaction.

“As we have indicated to our shareholders since our IPO last year, our sole focus at Columbia is on creating value for our investors, and we believe that the proposed merger with SSPF achieves that objective,” Carr said in a statement.

Columbia has worked with SSPF in the past, investing in four office properties encompassing 800,000 sf, according to the release. It has invested in a fifth office asset through a joint venture with another JPMorgan Asset Management-Real Estate fund.

This deal illustrates a theory many hold that public real estate companies are undervalued in the capital markets. These valuations have been viewed as a prime opportunity for private equity and have fueled a rash of public-to-private transactions over the last two years. “It is unfortunate that small public companies aren’t viewed in the public markets as a great alternative today, because of Sarbanes-Oxley and various other new regulations,” Decker says. “Oliver [Carr], John [Schissel] and the rest of Columbia’s team are great operators that understand this market. JPMorgan Asset Management recognized that. The rest of the market didn’t.”It is unclear how, or if, this acquisition will change Columbia’s investment strategy. Columbia and JPMorgan Asset Management were unable to return calls in time for publication. In a statement, Nathaniel Daly, vice president at JPMorgan Asset Management, said the company would work with Columbia’s senior management team to pursue future value-added transactions in the metro D.C. region. Decker speculates that the acquisition will allow Columbia, which currently owns some 3 million sf of office properties in the metro area, to pursue more value-add investments than it has in the past.

Wachovia Securities was Columbia’s financial advisor, and Hunton & Williams LLP its company counsel. Goldman Sachs was financial advisor to JPMorgan. Its legal counsel was Stroock & Stroock & Lavan LLP.

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