Lehman Real Estate nears management buyout

One of the largest private equity real estate platforms in the world will become independent of its bankrupt parent company, PERE has learned. The spin-out will include Mark Walsh, instrumental in steering Lehman’s overall real estate strategy for more than 20 years.

Lehman Brothers Real Estate will be spun out in a management buyout led by the group’s global heads, Brett Bossung and Mark Newman, PERE has learned.

Mark Walsh, the former head of Lehman’s global real estate group and a voting partner in all of Lehman’s private equity real estate funds, is also expected to play a role in the independent firm. During his 20-year career at Lehman Brothers, Walsh oversaw the origination of more than $300 billion of commercial real estate debt and equity transactions.

The buyout will involve the management entity of Lehman Brothers Real Estate, and will see the management of the opportunity real estate vehicles transfer to the newly independent GPs.

The spin-out will not include Lehman’s real estate mezzanine funds, which, according to industry sources, are being eyed by Los Angeles debt investment firm Pacific Coast Capital Partners (PCCP). PCCP was unavailable for comment at press time.

The bankrupt parent company, Lehman Brothers Holdings, will continue to hold a stake in the funds, but, along with the existing limited partners, it will be allowed to reduce its unfunded commitments “significantly”, people familiar with the matter said.

A spokeswoman for Lehman confirmed the deal was in the process of being finalised. “The Lehman estate believes deeply in the management team and the LPs do as well,” she said.

Lehman Brothers Real Estate is among the largest private equity real estate operations in the world. Over the past five years, Lehman Brothers has raised $9.35 billion in equity commitments for its three opportunistic funds, including $2.4 billion for Lehman Brothers Real Estate Partners II, which closed in 2005, and $3.2 billion for the follow-on Fund III, which closed in 2008 – just before the bank filed for bankruptcy in September. 

According to a subsequent report in the Wall Street Journal, the size of fund III will be “shrinked” by forgoing around $1.6 billion of uninvested capital. The same report said dozens of prospective buyers expressed interest in acquiring the platform including AREA Property Partners and a group led by Raymond Mikulich, the former co-head of the group who left the firm in early 2007. It said the buyout team was paying $10 million.

This year, the firm ranked sixth in PERE magazine’s annual ranking of private equity real estate firms, called the PERE 30.

The group had also raised $3.75 billion in various co-investment deals between 2005 and 2008, according to PERE research.