Not many firms have been as aggressive in commercial real estate as Lehman Brothers (LEH). As I recall, it was only ten months ago when the private equity – Tishman Speyer Properties and Lehman Brothers – closed their $22.2 billion acquisition of Archstone-Smith apartment real estate investment trust, where Lehman provided the riskiest part of the financing.
Since the inking of the deal however, real estate market dynamics have changed considerably and disfavorably for many of its participants. According to reports from FT – Lehman Brothers is now in talks for a potential sale of its $40 billion portfolio of commercial real estate and securities.
The investment bank, notes Reuters – has offered to sell the assets either as a whole or in pieces, and is willing to shoulder the first $5 billion of any losses suffered on the portfolio’s assets following a sale. The portfolio includes mortgages and mortgage-backed securities that were valued at $29.4 billion as of May 31. It also contains real estate assets worth $10.4 billion at the end of May.
Many financial institutions and investment banks – have currently become involuntary owners of real estate and non-performing loans due to financial and real estate market trouble. As a result, they are now facing mounting pressure to divest non-strategic assets such as real estate and focus financial resources on core competencies. Lehman, clearly is forced to sell some of its assets, based on the bank’s inability to manage or recapitalize these assets.