Charles E. Smith Commercial Realty of Arlington, the Washington region's largest commercial landlord, is being acquired by one of New York's biggest property owners for $1.58 billion in stock and assumed debt.

Vornado Realty Trust, which already has a minority stake in Smith Commercial, said yesterday that it has reached an agreement to purchase the remaining 66 percent of the privately held Arlington firm for $599 million in stock plus the assumption of $985 million in debt.

The acquisition would make Vornado, of Paramus, N.J., the country's fourth-largest real estate investment trust. Equity Office Properties Trust of Chicago is the largest.

Smith Commercial owns and manages 18.2 million square feet of office and retail space in the Washington region, including 24 buildings in Crystal City. It employs 225 people. The company's roots go back 55 years, to when now-deceased founder Charles E. Smith constructed his first Washington area apartment building.

Under terms of the transaction, the Arlington company would become a division of Vornado, which would expand its board of trustees to include Smith Commercial co-chairmen Robert H. Smith and Robert P. Kogod. Smith, 72, would become chairman of the new division, and Kogod, 69, would remain involved as an adviser. The two brothers-in-law have worked for the company for decades. None of their heirs is in top management there, and insiders said the plan has long been for the portfolio to go public to realize its value.

"This merger means business as usual for Charles E. Smith Commercial tenants and employees," Paul F. Larner, Smith Commercial's chief operating officer and chief financial officer, said in a statement. "With this new platform, we expect to become an even greater presence."

Larner declined through a spokesman to respond to questions about the acquisition.

Vornado said in a statement that it expects the office market in the Washington area to tighten from an increase in government demand for space, particularly from defense-related operations.

Rent from government tenants accounts for 43 percent of Smith Commercial's revenue, according to a Lehman Brothers Inc. report. Another 29 percent comes from government consultants, particularly in aerospace and defense.

"It's a good move for Vornado," said Gregory J. Whyte, managing director of Morgan Stanley Dean Witter & Co.

"These guys are known in the investment community for making smart strategic decisions," he said. "They are becoming the largest landlord in that market." Vornado owns 22 office buildings in the New York metropolitan area and 55 shopping centers in six states and Puerto Rico. The company also owns a 60 percent interest in 88 freezer warehouse facilities operated by AmeriCold Logistics.

Since January 1997, Vornado has completed more than $5.2 billion of real estate acquisitions or investments, much of that in the office sector.

"They have a reputation for being shrewd investors," said Stuart Axelrod, a Lehman Brothers analyst. "Obviously they're looking for shareholder return. They are very much focused on that."

With its purchase of Smith Commercial, Vornado would become the prominent office landlord in two of the tightest office markets in the country. Although vacancy rates in both markets have risen since Jan. 1, they have remained healthy compared with other parts of the country.

New York City has a total office vacancy rate of about 6 percent, according to CoStar Group Inc., a commercial real estate information service. The Washington region's rate is just above 8 percent.

The other half of the Smith family empire is a public company, Charles E. Smith Residential Realty, which owns and runs apartment buildings.

Smith Residential is being acquired by rival apartment developer Archstone Communities Trust for about $3.5 billion in stock and assumed debt. That deal, announced in May, is expected to close at the end of the month.

Smith Commercial was formed in 1997 through the consolidation of office properties that had been owned by the Smith family and its partners. Smith Residential was established in 1994.

The Vornado transaction is expected to close in the first quarter of 2002.

Vornado officials declined to comment beyond the announcement. But at a Urban Land Institute conference in Boston earlier this month, Vornado President Michael D. Fascitelli said the company had benefited from the slowing economy, which enabled it to save on interest payments.

Vornado stock closed yesterday at $39.30 a share, up $1.16. Trading volume was high, with 658,700 shares exchanged.