Lehman in talks to sell $40bn in real estate

People who have been in the discussions said the troubled investment bank wants to sell the assets either as a whole or in pieces but added there was a gap between Lehman’s perception of the value of the portfolio and that of buyers, the report published on FT's website on Saturday.

In a move to lure buyers, Lehman has offered to shoulder the first $5bn of any losses suffered on the portfolio’s assets following a sale, the sources told FT.

If the sale talks fail, Lehman is believed to be considering spinning off the entire commercial property division and listing it separately, people close to the discussions said, the report added.

Such a move might not raise much fresh capital but could help Lehman to dispel the concerns over its balance sheet and financial health that have dogged it for the past few months.

Since May 15 its shares have fallen by about 63 per cent while the S&P 500 index of financial stocks has dropped about 20 per cent.

Lehman, which has raised more than $13 billion in capital after suffering credit-related write-downs and losses of more than $8 billion, is expected to make a decision by the time it reports third-quarter results next month.

Those who have held talks with Lehman on the fate of the troubled division include BlackRock, Blackstone, Colony Capital, and J.E. Robert Companies – all of which have large real estate portfolios.

Lehman has been slow to deal with its commercial real estate portfolio, which the company valued at almost $52bn at the end of November and was worth $40bn at the end of May.

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.

The scale of the operations is huge when compared with either Lehman’s market capitalization of about $12 billion or its balance sheet, FT suggested.