updated 6/5/2006 6:42:04 PM ET 2006-06-05T22:42:04

Brookfield Properties Corp. said Monday it will acquire Trizec Properties and its Canadian arm for $4.8 billion in a commercial property deal creating one of North America’s largest landlords.

Investment firm The Blackstone Group joined Brookfield in the purchase, which is expected to close in the third or fourth quarter. In addition to what is being paid for Trizec shares, Brookfield will assume $4.1 billion in Trizec debt.

The deal highlights just how hot the U.S. office market remains even as residential real estate loses some of its sizzle.

It will nearly double the size of Brookfield, which already included the World Financial Center in Manhattan and other former holdings of Toronto’s Reichmann family, whose Olympia & York real estate empire stumbled after developing the massive Canary Wharf project in London.

The transaction also ends the successful run of Trizec as an independent company, which is controlled by flamboyant Canadian Chairman Peter Munk, who also chairs the world’s leading gold producer in Barrick Gold Corp. After moving its headquarters from Canada to New York because of tax issues, and then Chicago, Trizec grew to become the second-largest office real estate investment trust in the United States behind Equity Office Properties Trust.

Toronto-based Brookfield, part of Canada’s Brascan mining conglomerate, has 67 office buildings totaling 48 million square feet in downtown New York City, Boston and Washington, D.C., as well as cities in Canada. Chicago-based Trizec is nearly as large, with 61 office properties totaling 40 million square feet in seven U.S. markets.

Under the agreement, Brookfield will buy all outstanding shares of Trizec not owned by Trizec Canada for $29.01 per share in cash, an 18 percent premium over the stock’s closing price this past Friday.

Brookfield will acquire all outstanding voting shares and multiple voting shares of Trizec Canada for $30.97 in cash, a 30 percent premium over the closing price of Trizec Canada’s subordinate voting shares price on Friday.

Trizec Canada shareholders may be given the option to receive part of the payment in preferred shares of Brookfield properties. Holders of common units of Trizec Holdings Operating LLC, a Trizec subsidiary, will receive $29.01 per share in cash or can receive a common or preferred unit in the surviving limited liability company subsidiary.

The boards of Trizec and its Canadian arm each approved the agreement.

Tim Callahan, president and CEO of Trizec Properties, said the deal was made because the company, while successful, continued to be undervalued by stock markets.

“In recognizing the underlying value of the company’s office portfolio, and especially its operating platform, the transaction announced today accomplishes Trizec’s ultimate objective as a public company, which is to maximize stockholder value,” he said.

The purchase will give Brookfield a bigger property portfolio in Manhattan. Trizec’s top buildings include the Grace Building and One New York Plaza in Manhattan, the Victor Building and 1200 K Street NW in Washington and Bank of America Plaza and Figueroa at Wilshire in Los Angeles.

Jonathan Gray, senior managing director of The Blackstone Group, said Trizec represents a tremendous opportunity to further our investment in the U.S. office market recovery.”

Banc of America Securities analyst John Kim said he initially thought the purchase price was too high but concluded that the company’s direct contribution in the joint venture will be just $450 million, which it can fund with cash and a line of credit.

“We believe Brookfield’s acquisition fits well strategically,” he said in a note to investors. “Our concerns with Trizec’s unattractive markets and Brookfield’s ability to fund the acquisition ... appear to have been alleviated through structuring.”

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