WILL LEHMAN'S $40 BN PORTFOLIO FIND A BUYER?

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Close on the heels of Merrill Lynch's July sale of $31billion in CDOs, Lehman Brothers has put a $40 billion real estateand mortgage portfolio on the market where, according to a majorityof this week's poll respondents, it can expect to remain for sometime. A huge majority of 68% were of the opinion that the portfoliowill languish on the market, while only 32% say it will quicklyfind a buyer. Dan Fasulo, managing director of Real CapitalAnalytics, thinks this deal could be attractive to certain buyers.Here are his thoughts:

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"From the macro level, this is the type of deal that the largeequity funds love to sink their teeth into. The trick in this casewill be trying to figure out how to finance a deal this large inthis type of environment. But some of these equity funds, likeBlackstone and Carlyle, have raised tens of billions of dollars incapital, and they like to put that capital out all at once in justa few transactions as opposed to going deal by deal. It's moreefficient, because you spend the same amount of time analyzing alarge deal as you would a small deal. In this type of situation,where there's an element of distress, if this works out right,there's a chance to make a significant amount of money.

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"This might fall under the trend of banks looking to raisefinancing. Some of them are getting very creative. Besides theselarge corporate type deals, we've definitely seen an uptick insale-leaseback transactions. Bank of America, Washington Mutual andCitigroup have been selling real estate assets all over the worldand leasing them back, They've sold buildings in Tokyo, New York,London—major office towers to raise capital.

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"I think many of these large financial institutions would loveto get some of their real estate debt off their books, the problemis, there are not enough of these assets trading right now tocreate a market. Not everybody wants to sell their assets for 20cents on the dollar like Merrill did. I know that a lot of theseassets aren't bad, and a lot of them are worth a lot more than 20cents on the dollar, but it's like if you own a used car. If nobodywants to buy it, what's the value of the car? Zero. It's a toughsituation for everyone right now until the market gets jump startedagain.

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"From what I understand, Lehman's selling the part of theirbusiness that's generated a good amount of revenue. It's one ofthose groups within Lehman that's very attractive to outsideplayers like the major private equity firms. I heard that Lehman'sselling not only the assets, but also part of the operation, sothere's certainly more of a strategic opportunity here for one ofthose large private equity funds to not only buy the assets but tobuy these operating units and all the talented employees there androll them into their existing business. That's a significantopportunity for one of those equity shops looking to increase theirstrategic capabilities."

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