Sunday, August 17, 2008

A big OUCH - Lehman looks to dump dirt

Reports are that LBHI is looking to dump its $40 billion portfolio of real estate and securities. Given that some friends of mine are "swamped" with work, I guess I am not shocked but I am nonetheless surprised.

The fact that Lehman is willing to absorb the first $5 billion in losses from its portfolio (yes, 1/8 of the price) is telling. Call me naive or ignorant, but to me that smacks of desperation if it is true.

Of course, the PE types stand to do well here IF they get the assets at a fire sale price or can do flips like EOP. But lending is tight right now which makes those kinds of flips difficult. I think you might see some single asset sales of no brainer properties to funds that are flush in cash but not larger Macklowe-style deals. (We all know where THAT went.)

I've never been a huge fan of mega portfolio deals from the legal side. There's a lot of risk that something could go wrong. And I'm one of those darned risk-adverse lawyers. But there's definitely upside to be seen on the deal on the business side, and to paraphrase an old mentor, "Sometimes, if the price is right, you've just gotta close ugly." When the cash rolls in, suddenly the ugly duckling looks like a swan.