April 17 (Bloomberg) -- Farallon Capital Management LLC, a U.S. hedge-fund manager that invests in cash-strapped companies, agreed to buy the manufactured-home unit of Affordable Residential Communities Inc. for $1.8 billion.

Shares of Affordable Residential fell 5.2 percent, the biggest drop since November 2005. Affordable Residential will see a gain of about $540 million to $545 million from the sale, after taxes and expenses, and may make acquisitions with the proceeds, the Englewood, Colorado-based company said today in a statement.

Farallon, based in San Francisco, is the second-largest investor in Affordable Residential, with a 10 percent stake. It specializes in real estate investments. Analyst Paul Adornato, of BMO Capital Markets in New York said Farallon may profit from the crisis in subprime lending, which has reduced the ability of low-income Americans to buy their own homes.

``The subprime fallout could positively impact this business -- more folks will have to downsize their housing aspirations and mobile home parks offer a more affordable alternative,'' Adornato said in an interview.

Adornato today cut the stock to market perform from outperform, ``based on the significant transaction costs I believe this transaction would entail.'' He said he expects Affordable Residential to invest the proceeds in financial services for low-income customers, in keeping with its January acquisition of NLASCO Inc., which insures mobile homes.

No Better Deal

``With the announcement of a potential deal last week, there may have been some hope which I shared that the company might have been able to get a better deal for shareholders,'' said Adornato.

Affordable Residential's manufactured homes operation lost $17.4 million last year on revenue of $207 million. In 2005, it lost $184.5 million.

Shares of Affordable Residential slid 65 cents to $11.75 at 4:15 p.m. in New York Stock Exchange composite trading. The stock rose 44 percent over 12 months through yesterday, compared with a 14 percent gain in the 28-company Bloomberg Real Estate Operating Company Index, of which Affordable Residential is a member.

The shares are down 34 percent since the company's initial offering on Feb. 11, 2004.

The purchase price being paid by Farallon includes debt. Founded in 1986 by Thomas Steyer, the firm manages about $26 billion, mainly for pension funds, university endowments and foundations.

Earlier this month, Farallon and Simon Property Group Inc., the largest U.S. mall owner, completed the $1.64 billion acquisition of mall operator Mills Corp.

Merrill Lynch & Co. and Paul, Weiss, Rifkind, Wharton & Garrison LLP advised Farallon. Sandler O'Neill & Partners LP and Skadden, Arps, Slate, Meagher & Flom LLP advised Affordable Residential.

Affordable Residential owns and operates about 57,264 home sites in 275 communities in 23 states.

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net.

Last Updated: April 17, 2007 16:42 EDT