The Markit Group Says "Bienvenido!"

by REIT Wrecks on August 4, 2008

“When Citi is cheaper than Colombia, which is on the verge of a war, it wakes you up,” Andrew Phillips, managing director and co-head of U.S. fixed income at BlackRock (BLK), in the March 2008 edition of Pensions & Investments, referring to the historically wide spreads on Citi’s (C) corporate debt.

Or to put it another way, when Liberty Plaza is on the verge of becoming cheaper than Plaza de Bolivar, maybe it really is time time to throw in the towel on U.S. commercial real estate:

Let’s take the donkeys and head to Bogota, shall we?

Throwing in the towel is exactly what Lehman Brothers ass whooping! (LEH) may be doing. The New York Post reported on Friday that Lehman is exploring the sale of about $30 billion of commercial mortgage loans, including CMBS. Insiders say Friday’s NY Post report was the result of an intentional leak designed to test the market’s reaction to Lehman’s capitulation potential deal.

However, given that the CMBX was climbing relentlessly throughout July, would it be naive to suggest but we planned the leak! that they still can’t figure out their hedges and simply got squeezed by a pack of ravenously short hyenas?


In what could be one of the biggest strategic blunders since the French built the Maginot Line ein, zwie,…drie!! Lehman decided to partner with Tishman Speyer Properties in early 2007 to buy Archstone-Smith, an apartment REIT. They paid $22 billion, which is the largest deal for apartment-buildings ever. The $22 billion price tag reportedly produced a “3 cap” on current income, which means that it essentially had an unlevered yield of 3%. Assuming that this makes sense for even a moment, it doesn’t when you consider that the majority of the deal was financed with debt (leverage) at an average cost that far exceeded the 3% unleveraged yield, it’s really not that hard to figure out what happens next.

That deal was soon underwater, as was the first-loss junior debt that Lehman underwrote to help finance it (and can no longer sell at par). Now, people outside the firm if you’re not inside, you’re outside! say Archstone is quietly shopping every single property outside of those located in New York the new Buenos Aires and San Francisco.

“We’re not going to move curious absence of more precise verb noted [commercial real-estate assets] at fire-sale prices,” said former Lehman Brothers Holdings Inc.’s finance chief, Erin Callan, during a conference earlier this year, adding, “We’re going to move them curious absence of more precise verb noted yet again at prices that make sense to us.” an attempt to revive central planning??

Remind me, what was that old joke about Wall Street beginning at a river and ending in a graveyard?

REIT Investment

Disclosure: Despair

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