Few people in the financial world will forget the week beginning September 15, 2008.
It marked the start of five days that saw two venerable Wall Street firms, Lehman Brothers and Merrill Lynch, cease to exist as independent entities. It saw the US government take control of one of the world’s largest insurance companies, AIG. It was a week during which otherwise confident participants in the financial market wondered, “Is the whole system falling apart?”
A mess headed for more mess benefits no one. But a mess that offers the chance for reordering, benefits the cleanup parties.
September 15 however also was the day that GE Real Estate launched its new advert promoting its commercial lending and third-party funds businesses. A GE Real Estate global marketing executive said at the time that the ad – which showed a door opening out onto an historic city view – was intended to show the firm as staying close to its partners and customers. The ad’s slogan couldn’t have been appropriate of the world as seen through the eyes of private equity real estate fund managers: “Tough Market? We See Opportunity.”
As the world’s financial system lurched from crisis to catastrophe in the space of a few days, real estate investors with cash and experience were bracing themselves for some exciting – if not turbulent – times ahead.
Exhibit A – in the run-up to the bankruptcy of Lehman Brothers, the 158-year-old investment bank had been forced to offer up for sale a 55 percent stake in its highly-prized investment management unit (including the private equity real estate arm, Lehman Brothers Real Estate) as well as promise to spin out up to $30 billion of its commercial real estate assets.
In the end, Lehman’s looks likely to lose both sets of assets. At press time, media reports suggested Bain Capital and Hellman & Friedman were bidding for the bank’s investment management group, while the commercial real estate assets are also expected to be part of the bankruptcy proceedings.
Like any great mess, this one is going to take a long time to sort through, meaning there will be bargains – but not quick ones. As one New York-based real estate lawyer told PERE: “Everyone this week is just intent on putting out the fires.”