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Tuesday, January 23, 2007


A COMMERCIAL LANDLORD'S BIGGEST SALE MAY BE ITSELF - New York Times 

A Commercial Landlord’s Biggest Sale May Be Itself - New York Times

Equity Office Properties is the object of a fierce bidding war.

The battle over Equity Office pits a group of investors led by Vornado Realty Trust, the owner of more than 100 million square feet of property and one of the nation’s most successful publicly traded real estate companies, against Blackstone Group, a private equity fund that has been acquiring real estate at a breathtaking pace over the last five years. In November, Equity Office accepted an all-cash offer of $48.50 a share from Blackstone, in a $36 billion deal, including debt, that would represent the largest leveraged buyout ever.

Last week, however, Vornado and its partners sought to top that bid by offering $52 a share in stock and cash. Equity Office, which had appeared to welcome a competing bid, according to analysts, agreed on Monday to give the Vornado team access to nonpublic information and said the challenger had until Jan. 31 to make a formal offer, which is just six days before Equity Office shareholders are scheduled to vote on the Blackstone bid. None of the parties would agree to be interviewed.

The frenzy over Equity Office is only the latest indication of how much capital is flowing into commercial real estate, especially office buildings, the last sector to recover from the recession that began with the dot-com bust in 2000. Many investors, including Steven Roth, the chairman of Vornado, say they believe that vacancy rates will continue to decline in the next couple of years, with a corresponding rise in rents.

In Vornado’s latest annual report, Mr. Roth described the transactions in which private companies have paid large premiums for publicly traded real estate companies as an “epidemic,” and said this trend “seems to support the conclusion, with which we agree, that public market trading prices are cheap to private values.”

Yet Mr. Roth, who parlayed a stake in a discount appliance chain in New Jersey into a diversified real estate empire that includes premier office buildings in New York and Washington, the Merchandise Mart in Chicago, and some of the costliest retail space on Madison Avenue in Manhattan, has stayed on the sidelines while other REITs like Trizec Properties, CarrAmerica Realty and Reckson Associates Realty were acquired.

Last summer, according to a document filed by Equity Office with the Securities and Exchange Commission, top executives of an unidentified company met with Mr. Zell to discuss a possible merger, and was given access to the company’s books. But nothing came of those discussions. (Analysts said the company was Vornado.)

A deal with Equity Office would give Mr. Roth the chance to acquire quality buildings in desirable markets where his company is not currently represented while avoiding the rich prices that individual buildings are commanding.

Last month, Vornado paid $542 million, or about $1,009 a square foot, for 350 Park Avenue, a 30-story office building between 51st Street and 52nd Street in Manhattan. Earlier this month, it bought the 1-million-square-foot Manhattan Mall in Herald Square for $689 million, augmenting the 6 million square feet of space it owns in the rapidly appreciating neighborhood around Penn Station.

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