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CUPERTINO, CA-Mission West Properties said Monday that its previously announced $1.8-billion acquisition by an undisclosed private equity firm is unlikely to close because the buyer’s primary and second lenders have withdrawn from the market. The locally based REIT says it has been in touch with three other possible acquirers that have internal sources of financing and had previously expressed an interest in the company.

Mission West owns 7.8 million sf in 110 properties located mostly in the Silicon Valley portion of the San Francisco Bay Area. The company says that based on new lease and higher rents that it believes revenues and earnings will continue to increase for the remainder of this year and 2008.

The company says the initial buyer “had completed substantially all of their due diligence and had agreed to the terms of the definitive merger agreement when they were notified by their lender, one of the top five US banks, that they were withdrawing from the market and would not issue their previously agreed upon financial commitment… .” With regard to the would-be new buyers, Mission West says it is “continuing to have ongoing discussion with these companies and they are in the process of doing financial due diligence to determine if they can meet the pricing conditions set forth by Mission West.”

In July, Mission West announced that an undisclosed real estate private equity firm was in negotiations to take it private for $13.55 per share and limited partnership unit, a cash offer that totaled $1.8 billion. The per-share price was only about $0.15 higher than the company’s share at the time of the announcement, in part because of the state of the company’s portfolio.

In its second quarter report released last week, Mission West said the occupancy rate in its portfolio was 67.8%, down from 69.4% at the end of March. It also said that 375,000 sf of leases were set to expire before the end of the year and that renewal rates will be no higher, and may be lower, than expiring rates.

According to NAI BT Commercial, average R&D occupancy in the Silicon Valley was 82.4% at the end of June, up from 81.7% at the start of the year. Total availability was 27.1 million sf, of which 4.8 million sf was being offered for sublease. Net absorption through the first six months of the year was 1.3 million sf thanks to 1.9 million sf of net absorption in the second quarter. The average asking rate in the second quarter was $1.14 per sf compared to $0.99 in late 2006.

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