Lehman Brothers Private Equity Real Estate division has received more than 100 expressions of interests for its fund positions and group operations, sources familiar with the situation have told PERE.
A sale or spin-out of the private equity real estate arm of bankrupt parent Lehman Brothers Holding is expected to be announced in the first quarter of this year – although a deal will not likely be closed until later in 2009.
Lehman Brothers Holdings has already reached agreement on the sale of its $4.8 billion buyout private equity arm, Lehman Brothers Merchant Banking, and is close to reaching a deal on its $800 million venture funds group.
The $9.7 billion private equity real estate shop has $2.7 billion in uncommitted capital from its two latest equity and mezzanine funds.
Lehman Brothers Real Estate Partners III, which closed on $3.2 billion in August 2008, is believed to have committed $900 million to date while Lehman Brothers Real Estate Mezzanine Partners II, had invested around $300 million of the $700 million committed capital at the time of the parent bank’s bankruptcy on 15 September 2008.
Lehman is exploring all “avenues” relating to the future of the private equity real estate unit, sources said. “That could include a sale, a spin-out, the involvement of secondary players or a management deal. There is no preset structure at this point. Lehman Brothers is considering all options.”
More than 100 “expressions of interest” have emerged post bankruptcy, the source continued. “Clearly many of the firms were just searching for discounted assets, but a select number of the parties have real strategic interest in this sizable platform”
The source said Lehman Brothers was “focused on balancing the needs of the limited partners with maximizing the value of the private equity real estate interests for the estate”, and that “everyone involved in the process was mindful that expectations have to be realistic given current market conditions and declining real estate valuations.”
Lehman has also retained independent financial and legal counsel for the benefit of the third party limited partners invested or committed to the real estate funds. “There are a lot of different viewpoints regarding the needs and wishes of limited partners,” the source added.
Lehman Brothers Real Estate Private Equity is separate from Lehman Brothers Holdings’ on-balance sheet real estate portfolio, which includes the $22 billion acquisition of apartment REIT Archstone-Smith with Tishman Speyer in 2007.
Lehman Brothers Merchant Banking agreed earlier this month to spinout as an independent firm, with Lehman Brothers Holding keeping a significant stake in the buyout unit, retaining ownership of its funded interests across two funds.
As part of the deal, South African billionaire Johann Rupert’s investment vehicle, Reinet Investments SCA agreed to assume approximately $250 million of unfunded commitments in the current fund. 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.