naked capitalism

Bloomberg reports that Lehman is in talks with BlackRock to spruce up its balance sheet by disposing of a big chunk of its commercial real estate portfolio. The article indicates that the firm intends to sell slightly less than half of its $40 billion holdings. Ladenburg Thalmann’s analyst Richard Bove anticipates the losses (presumably from already written-down levels) will be less than 10%.

The story is silent on whether Lehman’s big white elephant, the notorious SunCal deal, is included. As the Wall Street Journal noted in June:

Lehman’s other troubled deal was with SunCal to sell house lots to builders in California, including in the so-called Inland Empire east of Los Angeles, where land values have plummeted as much as 60% in some areas. Land tends to be the riskiest real-estate investment because its value can evaporate quickly and Lehman’s exposure to SunCal land deals is $1.6 billion.

Our understanding is that Lehman has SunCal on its books at 70 cents on the dollar. Given the size of the supposed asset sale ($14 billion) it is possible that Lehman is selling SunCal at a realistic price and bundling it with better assets that will trade at not much of a haircut.

It is also possible that SunCal is not included, or only a portion of the land is being sold, which would suggest that Lehman is parting with the better assets to raise equity. Or, in keeping with an an earlier post, this “sale” may be heavily financed.

Note that the Bloomberg piece suggests some uncertainty as to how much will be sold:

Lehman is seeking to sell about $14 billion of its $40 billion in commercial property and related securities by the end of the year, according to two potential buyers approached by the New York- based firm…..

Bove expects Lehman to sell its entire $29.4 billion commercial mortgage portfolio. The firm also owns $10.4 billion of property. It may record a loss of $4.9 billion on the sale of the commercial mortgages, Sanford C. Bernstein & Co. analyst Brad Hintz estimated in a report last week.

A failure to mention the status of SunCal if a deal is announced would be a red flag. It would signal that Lehman is deferring discussion until it comes up in questions on its next analyst conference call.