(Reuters) - A bankruptcy judge has denied a request by Lehman Brothers Holdings Inc to block billionaire Sam Zell from acquiring part of apartment company Archstone.

Lehman, which owns 47 percent of Archstone, had sued Bank of America Corp and Barclays Plc , which own the other 53 percent, for trying to sell half of their stake to Zell's Equity Residential .

Lehman argued it would suffer irreparable harm if forced to partner with Equity Residential, a key rival. Archstone is one of the most valuable assets Lehman is trying to liquidate so that it can repay creditors and exit bankruptcy.

But Judge James Peck of U.S. Bankruptcy Court in Manhattan denied Lehman's request, saying Equity Residential has the right to go ahead.

The balance of harms ... together with the lack of irreparable harm (to Lehman), makes this a ruling I am comfortable making today, Peck said in court on Friday.

Lehman will still likely exercise its right to match Zell's $1.325 billion offer for Archstone, which will trigger Zell's right to make an offer for the second half of the banks' stake.

Lehman had argued that it should have the first bite at the second half of that stake, allowing it to offer the same $1.325 billion price considered to be below-market.

Instead, Lehman will have to outbid Zell, who could raise the price for the second stake to nearly $1.45 billion, according to testimony on Thursday from Lehman real estate head Jeffrey Fitts. Lehman would have to overcome not only the price increase but also a hefty break-up fee built into the deal.

I have to assume that as a public company, (Equity Residential) is going to exercise the option if the world doesn't come to a crashing halt for nearly $1.45 billion, Peck said.

The judge did not rule on the issue of damages, potentially opening the door for Lehman to argue later that the deal was structured to hurt its bottom line and should be entitled to damages.

A Lehman spokeswoman declined to comment. Representatives for Equity Residential and Archstone could not immediately be reached.

REAL ESTATE SAGA

The Archstone saga could play a role in determining the recoveries Lehman's creditors receive after bankruptcy. Lehman filed for bankruptcy on September 15, 2008, contributing to the global financial meltdown.

The company hopes to officially emerge from Chapter 11 protection and begin paying back creditors within the next few months. Its $65 billion payback plan involves liquidating assets for the benefit of creditors.

Lehman argued giving Zell's firm an ownership stake would stunt creditor returns because Zell's interest would be large enough to effectively give him veto power over how the real estate company is run.

Lehman accused Bank of America and Barclays of breaching contracts governing how Archstone could be sold, saying the banks colluded to sell their stake to one of Lehman's primary competitors.

Bank of America and Barclays accused Lehman of trying to acquire the banks' full stake on the cheap.

Archstone owns nearly 60,000 apartments in the United States and 14,000 in Germany. Lehman bought Archstone in 2007 in a $22 billion buyout. The banks, which had supplied debt and bridge equity on the deal, subsequently became part owners after the deal was restructured.

Zell's interest comes in the midst of a recovery in the U.S. apartment sector, where values have been on the rise as more Americans shun home ownership in favor of renting.

The case is Archstone LB Syndication Partner LLC et al v. Banc of America Strategic Ventures Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-2928.

Lehman's bankruptcy case is In re Lehman Brothers Holdings Inc, in the same court, No. 08-13555.

(Reporting by Jonathan Stempel and Nick Brown)