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ASIA NEWS: Lone Star leads Lehman Salvo

Nearly eight months after Lehman Brothers first called for bids on its Japanese loan units Lehman Brothers Commercial Mortgage KK and Sunrise Finance Company, deals are finally starting to materialise. While the loan units themselves have not tempted the private equity heavy pool of buyers, the loans these units were serving certainly have.

Last month, Fortress said, as it reported its second quarter results, that it had purchased a portfolio of 1,200 home loans from the units for an undisclosed price. In the same month PERE learned that Dallas-based private equity and real estate giant, Lone Star, will put the finishing touches on a three pronged deal to purchase approximately $10 billion of nonperforming and performing loans, also from the units of the stricken Wall Street Bank.

Lone Star's Tokyo HQ

The business between Lone Star Japan, Lone Star’s Japanese arm, which comprises 300 of the firm’s 1,000 global headcount, and Lehman Brothers units Lehman Brothers Commercial Mortgage KK and Sunrise Finance Company, began after the two units were put up for sale in January. The purchase of the first pool of loans completed in April, the second in July and a third and final pool will change hands before the end of the year.

understands that the three pools of loans will cost Lone Star Japan just less than $300 million. Lone Star Japan, which is led by president Takehisa Takamatsu and is based in the Mori Tower in central Tokyo, would not comment on the transaction but the loans are understood to have been for Japanese commercial properties only and comprise a mixture of non-performing loans bought by Lehman Brothers from third parties and performing loans originated by the Japanese units of Lehman Brothers with a view to securitising.

They are being purchased by the Lone Star Fund VI, which closed in December 2007on $7.5 billion. The vehicle was raised to invest in secured and unsecured debt, mortgage related securities, financially-oriented operating companies and operating companies with “significant tangible assets”, to quote the firm’s website. Its closure was part of a wider fundraising effort by the firm which also included the closing of the $2.5 billion Lone Star Real Estate fund, a vehicle aimed at buying real estate and real estate related companies.

The timing of the sale by Lehman Brothers was regarded as contentious

Lone Star’s dominance in this field was reflected in its victory to buy what was, according to a source close to the matter, termed as the biggest sale of the units’ loans, although other Lehman Brothers Japanese loans have been mopped up by rival
firms Carval and Fortress, the latter of which launched its first Asia focused fund in June. The units filed for bankruptcy protection on 16 September last year on the same day Lehman Brothers Japan filed for protection in the wake of the collapse of parent company Lehman Brothers Group.

In January, the first round of bids was called by Lehman Brothers’ sales advisor UBS. Cerberus Capital Management, Blackstone Group, Goldman Sachs, Carval, Fortress and Nomura Holdings’ Unified Capital were among the bidding parties.

The timing of the sale by Lehman Brothers was regarded as contentious, according to a report in The Wall Street Journal,
as real estate prices were plummeting and mortgage loans became harder to value. There were even some detractors who insisted the bank would have recouped more if it had held on for a later date.

Not that Lone Star will care as its Hudson Advisors loan servicing affiliate otherwise known as the “factory” gets to work extracting the value from its latest capture.