Lehman real estate sale expected in Q1

The sale of Lehman Brothers Real Estate, which controls $9.7bn of funds, is expected in the first quarter of 2009, sources say. It comes as the private equity arm of the failed bank, Lehman Brothers Merchant Banking, is partially spun out as an independent firm. LPs are being allowed to reduce their unfunded commitments by 25%.

Lehman Brothers Private Equity Real Estate is expected to be sold off in the next few months as the failed bank looks to dispose of the property group's $9.7 billion of funds.

Sources told PERE that the company expects to close a sale of the private equity real estate group, and the bank's $800 million venture funds group, in the first quarter of 2009. The venture funds are in the “late stage” of the sales process, the source added.

In October, it was reported that the real estate group could be spun out as a management buy-out, led by the global heads of the firm, Mark Newman and Brett Bossung, along with the firm’s European head Gerald Parkes. The source declined to make further comments.

The news comes as Lehman Brothers Merchant Banking, the $4.8 billion buyout private equity arm of bankrupt Lehman Brothers Holding, reached an agreement with its bankrupt parent to spin out as an independent firm.

Lehman Brothers Holding will keep a significant stake in the buyout unit, retaining ownership of $1.2 billion of investments across two funds and holding on to about $230 million of its limited partner stakes.

Lehman Brothers’ most recent buyout fund, the $3.3 billion Merchant Banking IV, which closed in 2007, will emerge as an independent entity owned by management, which is led by chief Charlie Ayers.

As part of the deal, South African billionaire Johann Rupert’s investment vehicle, Reinet Investments SCA will assume $250 million of unfunded commitments in the funds. Lehman also will offer some of its LPs the option to reduce unfunded commitments to the $3.3 billion fund by up to 25 percent. Lehman’s investors include the Pennsylvania Public School Employees Retirement System. 

“We wanted to accommodate the needs of the LPs,” the source at Lehman said. “There are some LPs that want to stay in for 100 percent of their commitments and others that would like to see reductions of their unfunded commitments due to their own situations.”

Lehman has been in the process of selling its private equity, venture capital and real estate funds since the former investment bank filed the largest bankruptcy in history in September. A Lehman management group won a bankruptcy auction in December for the bank's investment management division, including Neuberger Berman, beating a $2.15 billion bid from private equity firms Bain Capital and Hellman & Friedman.

Lehman Brothers Real Estate closed its third fund, Lehman Brothers Real Estate Partners III, on $3.2 billion in August last year, just days before the bank filed for bankruptcy.