Wednesday, September 10, 2008

If you can't sell it, spin it, and spin it some more

It seems like all talks have broken down regarding Lehman's sale of its real estate assets. So the game plan now? Among other things: Spin the real estate arm off to raise cash. This will be a separate publicly traded company that will supposedly reduce risk and maximize gain (huh?). Oh, and let's not forget the $5.3 billion writedown on residential and $1.7 billion on commercial dirt. According to Lehman:


Through the creation of REI Global, Lehman Brothers achieves an enterprise solution that removes the vast majority of commercial real estate exposure from the Firm’s balance sheet and realizes a true sale of its commercial real estate assets while maximizing their value. Further, it enables shareholders to benefit from the anticipated financial upside of the portfolio of assets.
The good thing about this is that the spinoff does prevent a fire sale. It think this will be interesting legal work for the corporate folks, with the dirt lawyers doing -- literally -- the dirty work.

But the other reality is that these assets are hard to sell in this market. And perhaps more important to the struggling company, it gets all these assets (and losses) off the books. So call it "a shrewd move," if you will.

As you can read elsewhere, there are other non-dirt deals going on to help save the company. Will it be enough? Beats me. I was always impressed by the ability of the Lehman real estate guys on deals where I had some involvement and they had been good partners for some clients in the past. Assuming the spinoff closes, an orderly sale (no new acquisitions are planned) will bring a slower flow of deals for us, but will also stop some crazy, wacky fire drill of a portfolio transaction that would keep lawyers up all night for weeks on end.

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