Lehman May Accelerate Mortgage Asset Sales

Lehman Brothers Holdings Inc., in an effort to both staunch its massive losses and tap into a burgeoning market for commercial real estate debt, is reportedly exploring a strategy that would have it set up a company to acquire some of its mortgage assets. The company would be capitalized by other investors. The plan, which Lehman has not confirmed for CPN or any other media outlet, comes in the wake of a $2.8 billion loss for the company ($5.14 per share) in its second fiscal quarter of 2008, compared with net income of $1.3 billion for the second quarter of 2007 ($4.17 per share). Most of that loss was in the company’s capital markets business segment. Lehman has already been selling real estate and mortgage assets. According to Ian Lowitt, Lehman CFO, the company sold an aggregate of about $8 billion of commercial mortgage and real estate held for sale assets in the second quarter 2008 to over 170 different buyers. That total included $4.2 billion of loans, about 45 percent of which were mezzanine loans and 55 percent were senior loans. “During the quarter, we sold a variety of assets, and not just the most liquid,” Lowitt said during the company’s second quarter conference call in June. “We plan to continue reducing our exposure to commercial mortgage assets and real estate held for sale substantially. However, our intention is to pursue these sales in a measured way.” As CPN reported last week, Lehman’s losses are hardly its only troubles. Default loomed for a $225 million mortgage included in a CMBS pool owned by Lehman. The mortgage was made on a Harlem-area apartment redevelopment which isn’t going as planned, with Fitch pitting the property on a negative ratings watch last week.