A Delay Call for Buyout
Of Archstone-Smith Trust

Wall Street's deal-making machine hit a bump when a joint venture of Tishman Speyer Properties and Lehman Brothers Holdings Inc. said it would delay the completion of its $15.2 billion acquisition of apartment-owning titan Archstone-Smith Trust from later this month to early October.

Archstone-Smith, a real-estate investment trust based in Englewood, Colo., issued the date change in a news release, but it didn't say exactly why the closing is being delayed. The merger is now scheduled to close Oct. 5.

The change is one of the first hard indicators of the problems hitting Wall Street, which is trying to cope with more than $200 billion in financing commitments extended for a wave of private-equity deals. While analysts said they expected a deal to go through, the delay brings its own risks. And it also suggests that the financiers of this deal, including Lehman, are looking for fresh financing sources to minimize their own risk.

Archstone shares were up 42 cents to $56.91 at 4 p.m. on the New York Stock Exchange, after falling as much as 89 cents during the trading day.

"If you allow time to pass, it is never a good thing when you have uncertainty to deal with," says Richard Anderson, an analyst at BMO Capital Markets. Still, Mr. Anderson is optimistic that the deal will occur. "They established a closing date, reaffirmed the purchase price, and the shareholder meeting has not been moved."

The $60.75 a share deal, which was announced in May, is seen as a bellwether in the real-estate market. "It will be very interesting to see how it pans out because it's so large, and it was priced before all this debt-markets turmoil," says James Corl, chief investment officer at Cohen & Steers, a New York investment firm specializing in REITs.

All parties to the deal declined to comment. A shareholder vote is still expected to take place Aug. 21, as originally envisioned.

The announcement also said the merger agreement would be altered to change the tax liability for shareholders of certain special Archstone-Smith units. It also said that Barclays PLC's Barclays Capital will provide financing on the transaction, in addition to Lehman and a unit of Bank of America Corp., both of which had already committed to the deal. The purchasers also will assume $6.5 billion in Archstone-Smith debt.

Among other things, the delay gives Lehman and the other banks more time to find buyers for the $17.1 billion in debt that the buying group needs to complete the transaction. The delay also gives Tishman Speyer and Lehman more time to line up bidders for buildings they plan to sell quickly to reduce the deal's overall risk. A person familiar with the buying group says it initially aims to sell less than $2 billion of assets.

Since the Archstone-Smith deal was made public in May, real-estate stocks have dropped, and sales volumes and prices of individual buildings in the private market have shown signs of weakness.

Even before the May announcement, Tishman Speyer and Lehman had offered as much as $64 a share, later lowering the price to $60.75, citing "adverse changes in the debt markets" and other tax-related issues, according to a June 14 regulatory filing. Blackstone Group LP, an aggressive real-estate player, withdrew from the bidding completely, a sign that the frenzied market for real estate had peaked.

If the deal fails, analysts expect the stock to fall below $50 share. Shares of its chief competitor to which it is often compared, AvalonBay Communities Inc., are off 14% year-to-date. Archstone-Smith's shares are down just 2.2%, but had been trading several dollars below the purchase price in recent weeks because of fears the deal might fail to get done.

Archstone-Smith owns almost 350 apartment complexes in the U.S. and Germany, consisting of 86,000 individual units. In the past several years, it has built a significant presence in high-priced, hard-to-build markets such as California and New York. It has paid $1.7 billion over the past five years for a dozen apartment towers in the New York area, for instance, according to New York research firm Real Capital Analytics.

Email your comments to rjeditor@dowjones.com.