Lehman to Spin Off Commercial RE Assets

Lehman Brothers Holdings Inc., after posting its largest quarterly loss in its 158-year company history–some $3.9 billion, or $5.92 a share–has unveiled plans to spin most of its commercial real estate assets off into a new and separate public company. The move is part of a larger effort by the

Lehman Brothers Holdings Inc., after posting its largest quarterly loss in its 158-year company history–some $3.9 billion, or $5.92 a share–has unveiled plans to spin most of its commercial real estate assets off into a new and separate public company. The move is part of a larger effort by the beleaguered investment bank to turn its fortunes around that also includes selling most of the firm’s asset-management unit and cutting its dividend to five cents a share from 68 cents a share. The plan to spin off commercial real estate to Lehman shareholders will involve roughly $25 billion to $30 billion worth of properties. The new company, which is expected to be operational by the first quarter of 2009, will be called Real Estate Investments Global (REI Global). According to Lehman, the spinoff will have a number of objectives, but the overarching goal is less exposure for Lehman to real estate market risk. The firm has already been pursuing that goal: in its third fiscal quarter, the firm reduced its commercial real estate exposure by 18 percent, from $39.8 billion to $32.6 billion. The new entity will not be a standard real estate company in the sense that it will not seek new acquisitions. Rather, REI Global will either sell its assets or hold them until maturity. At the time of formation, it will be “appropriately capitalized” through the transfer of common equity and provision of debt financing, which “the firm may syndicate as markets normalize,” the company noted in its third-quarter report. The bulk of Lehman’s losses this quarter related to writedowns of commercial and residential mortgage and real estate assets. During the quarter, it wrote down $5.3 billion in residential positions and $1.7 billion in commercial real estate positions.