Where were you when Lehman Brothers collapsed? Ask most private real estate senior executives and they will tell you. On September 15, 2008 – 10 years to the day tomorrow – the Wall Street stalwart, assumed by many to be too big to fail, filed for Chapter 11 bankruptcy.

The Dow Jones index lost 4.5 percent immediately on the news. A year-and-a-half later, it would halve in value. Global real estate plunged some $600 billion in the same timeframe, according to global broker CBRE. The loss was approximately equal to the value of all the property transactions worldwide last year, as calculated by its rival JLL. It was a bloodbath.

The impact of the global financial crisis for the real estate sector was first shocking, then painful and, finally, educational. You can hear from some of private real estate’s most senior executives to understand just what an education the period provided in a special report compiled by PERE this month.

Over the course of the report – essentially an aggregation of experiences from the time of Lehman’s collapse – you will read about managers defaulting on their debts, writing down swathes of equity, even handing back keys in some cases. One called Lehman’s collapse a “a day of reckoning,” another a time for “hard choices.” A third described how “the tide went out” exposing all the flaws, individual and systemic, in the private real estate sector.

Then came the recovery. Within six months of the Wall Street bank’s demise, half of the lost value in commercial property markets was restored. Those investors and managers fortunate to have capital and the wherewithal to deploy it first would become today’s sector champions. PERE’s report demonstrates how leading managers and investors capitalized on recovering markets using their capital heft to secure strategic investments in assets and operators that had been rendered vulnerable by the crisis.

Discernible to each story of post-crisis success were three factors. Organizations to benefit most were: unencumbered by their pre-crisis dealings; able to recognize when the worst was over; and, critically, had access to capital to benefit from the recovery. Sector heavyweight Blackstone was the obvious case in point. The firm had to reposition two mega outlays: office property company EOP and hotel operator Hilton. But thanks to flexible financing agreed prior to the crisis, it was able to ensure those transactions were the launchpad for a decade of dominance, not anchors that grounded the ship.

Free from peril, Blackstone then kicked the tyres of its existing assets for clues of a recovery. From this education, it knew where to place its first bets and sooner than its rivals. An investing hiatus as markets burned also meant it had meaningful dry powder to deploy once fires were out. Since then, the firm has stolen private real estate’s pole position, acquiring some $178 billion of real estate and raising more than $77 billion, comfortably ahead of its peers on both fronts.

Blackstone was not alone in benefiting from the post-crisis recovery. Brookfield, second in PERE’s latest ranking of 50 biggest managers, was another manager that used the recovering market to build its own mega-funds platform. On the investor side, institutions including China’s CIC, APG from the Netherlands and CPPIB from Canada, used their copious capital to participate in numerous strategic transactions which, but for capital structures rendered unworkable by the crisis, would have been unavailable. PERE hears from all these organizations in the report.

The period was the making of those organizations. For many others, however, it was a time best consigned to the history books. For both, the events surrounding the crash of Lehman Brothers have left marks that are still visible today.

Write to the author at jonathan.b@peimedia.com.

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