Tuesday, August 19, 2008

More on Lehman: your bad news is my good news?

Here's a little more expert opinion on the possible Lehman sale. As I said, for people with cash in their pockets this could be a great opportunity.

But here's a confirmation, at least for me, of what's really going to happen:

“Lehman has an awful lot of real estate that is clogging up their balance sheet, and they have to get rid of it,” said Lawrence Longua, clinical associate professor at New York University’s Schack Institute of Real Estate. “It’s impeding their ability to do business.” Longua said a good part of the sale will include both debt and equity deals that Lehman has kept on its books, and not just loans intended for securitization. He said Merrill Lynch’s sale of approximately $30 billion of collateralized debt obligations to Lone Star Funds in late July “broke the ice” on this type of fire sale, noting that Lone Star Funds purchased the paper for $6.7 billion, or about 22 cents on the dollar.

Today’s scenario is similar to that of the early 1990s, when many opportunity funds were formed to buy distressed assets. “They know this is a cyclical industry, and that asset values will rise once capital re-enters the market,” he said. Longua said that is likely when the loan securitization market, which he characterized as “anesthetized,” kicks back into gear.
It'll be a classic Golden Rule situation: those who have the gold will make the rules. And the people flush with cash who can ride out the storm will make money in a mid to long term play. There may be some EOP-style flipping if a Blackstone or BlackRock buys major portions of the portfolio because of debt issues. But whether you will see the miraculous returns from unlocking single assets might be less likely.

The flips from the legal side can be interesting, particularly from a due diligence and legal standpoint. Unless there are multiple bidders you may find it harder to have cramdowns where there is no diligence to speak of, meaning you may some lag between the portfolio closing and the flips. But we'll see. Heck, we don't even have any buyers yet!

1 comments:

Brian French said...

I was lucky enough to enter the biz back when the market went haywire in the early 90's (and wrote my own piece a month or two ago about cash again being king - isn't it always to some degree?)
I'm sure that C suites across the nation are going through the same debates as Lehman.
Great piece (I posted on oru site with a link).
Cheers from Toronto

 
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