Commercial Real Estate Blog

Lehman Brothers (LEH: 0.00 N/A), in a move to raise capital and reduce its real estate exposure, is said to be in talks to liquidate about $14B in commercial real estate assets. Lehman is said to be in talks with BlackRock for the assets. Lehamn currently owns about $10B worth of real estate, and an additional $29.4B in commercial mortgages.

Last month, Shorenstein acquired a piece of mezzanine debt on McCandless Towers from Lehman Brothers. For the past few years, Lehman Brothers had been extremely prolific in mortgage backed securities, and in 2007 had underwrote more than any other firm. In addition, Lehman Brothers is selling apartments it acquired through the Archstone-Smith acquisition (which it partnered with Tishman Speyer on). In the past few months it has sold Archstone assets in Santa Clara and Dublin, and will be looking to liquidate others through the end of the year.

I’m not quite sure how the $14B number surfaced, but it seems that Lehman’s financial condition might just have it bailing out of nearly everything, stabilizing itself, and then when the bond issuance market returns, Lehman gets slowly back on the horse.

A Bloomberg article today predicted a 15% drop in commercial real estate prices as a result of the increased costs of debt. The article cites the delayed Archstone-Smith transaction and the failed Mission West transaction as evidence that deals are beginning to fall apart. Of course this is true and a lot of money in the form of deposits has surely been lost as the markets saw a tightening of credit.

The article continues on to give an example of the repriced debt:

About six months ago, a 30-year commercial loan with 5 to 10 years of interest-only payments would have cost the borrower about 120 basis points more than the yield of the 10-year Treasury note. A similar loan would now cost about 160 to 200 basis points more than the 10-year Treasury’s yield of 4.6 percent, data compiled by New York-based Cushman & Wakefield Sonnenblick Goldman show.