Impact of Lehman Sale Indirect: Real Capital’s Fasulo

As a sale looms for Lehman Brothers Inc., the effect of the bank’s possible demise on commercial real estate finance remains hazy, according to some veteran market-watchers. “I’m not sure how much of a direct impact that’s going to have,” commented Dan Fasulo, managing director for Real Capital Analytics Inc. Lehman’s disappearance would have little effect on the securitization market, which has been almost nonexistent this year, he noted. Instead, the impact on the real estate capital markets would probably be indirect; Fasulo speculated that Lehman’s impending fate could increase worries about the capital market’s stability that could nudge up the cost of debt. To be sure, much of Lehman’s troubles stem from overexposure to subprime residential mortgages, and the bank is stuck with a considerable amount of paper it has been unable to get off its balance sheet through securitization. Ironically, however, Lehman’s portfolio undoubtedly also includes “a lot of good stuff,” since commercial real estate fundamentals remain sound, Fasulo noted.  If large-scale layoffs follow a Lehman sale, those job losses might echo through the office market in New York City and other financial centers. Contraction in the financial services industry is expected to add inventory to the market. But industry veterans have noted that those job cuts can take several quarters or more to influence vacancy while tenants plan for downsizing.Whatever impact does occur will take some time to unfold after the bank is the subject of a widely expected sale. According to widely published reports, a suitor may agree to buy the bank as early as this weekend. A team including Bank of America Inc. and Barclays Plc is being frequently mentioned as the front-runner, but rumors are also swirling that big hedge funds might also be in the market for a piece of Lehman.Though the company has resisted putting itself on the market through more than a year of worsening financial results, this week brought what may turn out to be the final blows. Lehman reported $5.6 billion in writedowns, and a hoped-for infusion of capital from a South Korean bank failed to materialize. The company’s share price, which has been slipping for months, crashed below $4 this morning. To make matters more challenging for the investment bank, it seems improbable that the federal government will step in to underwrite some of Lehman’s problem assets, as it did to expedite the sale of Bear, Stearns & Co. earlier this year.