Lehman bets on real estate to repay debt

August 14, 2012 01:30PM

Over-leveraged real estate assets caused its demise, but in an ironic twist, Lehman Brothers is now leveraging its property holdings into repaying many of those debts. Following its acquisition of Archstone, the failed bank was the largest buyer of U.S. commercial property by value last year. Since its collapse, Lehman has acquired an additional $5 billion worth of real estate assets.

Now, as the real estate market improves and these assets recoup some value, Lehman Brothers Holdings is attempting to recover nearly $13 billion from mortgages and properties. It’s part of a plan to raise $53 billion through 2016 and pay its creditors an average of 18 cents on the dollar for its approximately $300 billion worth of debt, Bloomberg News reported. Lehman already paid $22.5 billion — 53 percent more than was previously expected — to creditors in April.

The firm recently announced Archstone’s initial public offering, an event the company hopes will kick start its recovery. However, Lehman’s strategy isn’t purely based on sales; they plan to keep select, high-revenue generating properties within their portfolio. For instance, in New York, Lehman plans to retain ownership of the Upper West Side’s On the Avenue Hotel and a 21-story office building 237 Park Avenue.  “On the Avenue would obviously generate a lot of interest if we offer it for sale, but there are also some improvements that can be made that could translate into meaningfully better recoveries for Lehman creditors,” Jeffrey Fitts, Lehman’s New York-based head of real estate, said. [Bloomberg News] – Christopher Cameron