Even in Bankruptcy, Lehman is Still Speculating in Real Estate — No End in Sight for the Housing Bubble in the US

Bullishness and speculation in the real estate sector of the US is showing that the mania is not over, and signals that we are still far from the bottom. Look for yourself:

Chart of the Day:

For some perspective on the all-important US real estate market, today's chart illustrates the inflation-adjusted median price of a single-family home in the United States over the past 42 years. Not only did housing prices increase at a rapid rate from 1991 to 2005, the rate at which housing prices increased -- increased. All those gains were given back during the following 6.5 years. Over the past five months, however, the median price of a single-family home has surged by over 20% -- the biggest five-month gain on record (the data goes back to 1968). The sharp downward trend that began in mid-2005 is now over.

So not only prices have jumped — something that will look like a blip in a few years — but the bullish tone of this report and the overconfidence are gutting.

And now, so staggering I checked my calendar to see if we weren't the first of April: Lehman Brother is still speculating in the real estate market. And the report below gives the tone: not only Lehman is not selling its assets, but they are actually buying more, hoping to sell at a higher price in a couple of years. We all know how good the real-estate forecasters were last time, and how Lehman went down, but they don't seem to remember what happened in 2009, only 3 years ago. How MAD!


(Bloomberg) 2013-08-14 — Hawaiian-condo investors, homebuyers in Montana and travelers seeking a room at Miami Beach’s upscale Setai Hotel all can turn to one company to meet their needs: Lehman Brothers Holdings Inc.

Four years after filing the largest bankruptcy in U.S. history amid soured real estate bets, Lehman is still in the property business, wagering it can recover about $12.9 billion from mortgages and assets around the globe. Its $3 billion purchase this year of the remaining 53 percent of apartment owner Archstone Inc. made it the biggest buyer of U.S. commercial property by value in the last 12 months, according to research firm Real Capital Analytics Inc.

Lehman has invested $5 billion in real estate since its demise, acquiring loans and buying out joint venture partners. Instead of selling to vulture investors, it’s waiting for opportune times to unload properties as the commercial and residential markets recover. The company last week moved to take Archstone public to capitalize on soaring demand for rentals.

“The entire strategy was ‘don’t put yourself in a position of having to sell,”’ said Jeffrey Fitts, Lehman’s New York- based head of real estate and a managing director at Alvarez & Marsal, the advisory firm managing the liquidation. “If you’re selling with a gun to your head and people know it, you’re dead and you will leave hundreds of millions of dollars on the table.”

[...]  It intends to retain some assets at least through 2015, according to a statement last month, in which the firm boosted its forecast for real estate recoveries by $1.6 billion compared with its outlook a year ago.

The bank filed for bankruptcy in September 2008, 158 years after its founding as a cotton brokerage in Alabama, and five months after David Einhorn, president of New York-based Greenlight Capital Inc., said he was betting against Lehman’s stock because he believed it overvalued some real estate assets.

[...] Even as housing prices began to fall in 2006, the bank continued making loans, including for commercial properties. In October 2007, it financed and invested in the $22 billion takeover of Archstone with Tishman Speyer Properties LP, eventually converting the loans to equity after Archstone faltered during the credit crisis.

[...] As of March 31, the firm reported commercial real estate holdings of $9.6 billion, including more than $2 billion of commercial mortgages and mezzanine loans. The tally doesn’t include the final 26.5 percent stake in Archstone that Lehman acquired in the second quarter from Bank of America Corp. and Barclays Plc.

“If I were a creditor and I were not real estate savvy, I would almost look at Lehman as my real estate department,” said Lawrence Longua, director of the REIT Center at New York University’s Schack Institute of Real Estate. “They’re taking an asset and maximizing it. That should be beneficial to me as a creditor.”

[...] Lehman’s largest bet since filing for bankruptcy is on rentals. The Archstone acquisition in May valued the business at $16.5 billion, according to Real Capital, making the bank a bigger buyer than Blackstone Group LP (BX), the world’s largest private-equity firm, and Simon Property Group Inc. (SPG), the No. 1 U.S. mall owner.

It also turned Lehman into the eighth-largest apartment manager in the country, overseeing 78,000 units, according to the National Multi Housing Council, an apartment industry group in Washington.

It announced plans to take Archstone public as rising national rents fuel investor demand to own apartment buildings.

Sales of apartment properties totaled $16.2 billion in the three months ended June 30, the second highest quarterly total since 2007, according to Real Capital. Apartment developers are also hastening their acquisition of land sites, buying $2 billion worth in the first half of the year -- almost double the total for all of 2011.

“The timing makes sense,” Rod Petrik, an analyst with Stifel Nicolaus & Co. in Baltimore, said in a telephone interview. “You have at least a two-year window where fundamentals are going to be strong and you are not going to have the competition of new supply. So the matter of getting it out and public gets Lehman a step closer to liquefying their position.”

Petrik estimates Archstone may raise more than $1 billion in the initial public offering, and that the stock would be sold in several stages “over the next few years.” He expects Lehman to sell assets as a way of paying down Archstone’s debt.

Lehman’s also in the hospitality and homebuilding business. In January it acquired Mooonlight Basin, a ski-and golf resort community in Montana, and plans to begin marketing land to homebuyers while operating a resort there, Fitts said. It’s also planning to sell 73 unsold condo units at the Ritz-Carlton Kapalua in Hawaii that it took over through foreclosure in December after the borrower defaulted on a $260 million mortgage.

[...] In Miami, where hotel revenue per available room climbed 11 percent in the year through June, Lehman isn’t planning to sell the Setai, its luxury hotel on South Beach, Fitts said. Lehman replaced the hotel management in March, bringing in Trevi Luxury Hospitality Group Inc.

Lehman also is keeping the On the Avenue Hotel on Manhattan’s Upper West Side, which it gained control of through a deed in lieu of foreclosure in June 2011, said Fitts. While revenues per available hotel room in Manhattan climbed 5.7 percent in the year through June, Lehman is mulling whether to renovate the 282-room property.

[...] Lehman is holding onto a 21-story Manhattan office building at 237 Park Ave., after buying a $255 million junior note from an investor in 2010 as a way of protecting its claim to the property. The company financed the acquisition in 2007 with about $1.23 billion in loans, according to a July 2011 filing.

[...] Lehman has $8.2 billion of cash available for creditor payments after raising $4.7 billion in the second quarter from real estate sales, derivatives and settlement of a lawsuit, according to a July regulatory filing.

The firm plans semi-annual distributions, including a second payment to creditors in September and is “focused” on maximizing cash for that purpose, according to the filing.

“I can’t tell you how many lunches and dinners and meetings I’ve had with opportunistic guys, all of them very smart and very good,” Fitts said of vulture real estate investors seeking to buy some of Lehman’s assets.

“And I say to them: ‘If I sell to you I haven’t really done my job.’ ”