Following months of speculation, Arden Realty Inc. is up for sale and senior executives of the Los Angeles-based REIT want a deal in place by January, according to several sources close to the transaction.

Bidding on Arden's portfolio of mostly high-caliber Westside properties has been highly competitive, these sources said. First-round bids were due at the beginning of the month and second-round bids are expected next month.

Arden's investment bankers at Wachovia Corp. and Lehman Bros. Holdings Inc. have whittled down the suitors to Morgan Stanley, General Electric Co. and Starwood Capital Group LLC, according to sources working on the respective bids.

Two sources said Arden is seeking around $50 a share, which would value the company at about $3.4 billion. A final price could be closer to $5 billion because the buyer would also have to assume Arden's debt.

That number represents roughly a 11 percent premium to the $45 a share the company was trading for last week.

Some potential buyers complained that Arden's price would result in margins too thin for most banks to finance. But others said the price reflected the difficulty of putting together a similar-sized portfolio.

"Arden's portfolio is the result of 14 years of acquisitions," said one bidder. "That has a certain value because of the time involved amassing that big of a portfolio. How do you price that? Because you can't figure that out on the straight financing market."

Executive profits
The $50 price would net Arden Chief Executive Richard S. Ziman nearly $47.8 million and Arden President Victor J. Coleman about $24.3 million. Both executives have sold more than half their stock since last spring.

Brooke Lauter, an Arden spokeswoman, said the company wouldn't comment on what it deems to be market rumors.

Officials at Secured Capital Corp., who have been hired to advise Arden, declined comment. Messages seeking comment from Scott Schaevitz, the Wachovia investment banker running the sale, weren't returned.

Some bidders are recruiting strategic partners with whom they would split Arden's portfolio, according to several sources. Under that scenario, Arden's office buildings would likely be sold off piecemeal.

Some of the companies that showed early interest but are said to no longer be in the hunt include Equity Office Properties Trust, Maguire Properties Inc., Trizec Properties Inc., Beacon Capital Partners LLC, Blackstone Group Inc., and insurance giant ING Groep NV.

With interest rates on the rise, real estate investment trusts are cautious about taking on more debt, especially at Arden's thin margins.

Private market
"The general sense is that it will be a private buyer or a two- or three-way deal," said Barry Vinocur, editor of industry newsletters REIT Wrap and REIT Newshound. "The private market values the portfolio higher than the public market."

Recent sales of REITS resulted in per-share premiums ranging between 5 percent and 15 percent.

In a Sept. 8 report, Legg Mason analysts noted Arden's market capitalization worked out to $223 per square foot of its buildings, while the replacement cost of the portfolio was valued at $323 a foot.

Arden has gone through the motions of selling itself before, only to back out. However, there's a growing belief that this time a sale is likely to go through.

"If they don't sell, then you now have a bunch of guys running the company who have made it clear they no longer want to be in the real estate business," said a real estate attorney. The company would likely have a difficult time retaining employees, he added.

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