Updated feature: Lehman invests in another legacy asset

In seeking to maximise the value of its portfolio, the estate of Lehman Brothers has made another investment in its legacy assets – this time through its partnership with Monday Properties

When Lehman Brothers filed for Chapter 11 bankruptcy protection in September 2008, sharks throughout the real estate and investment banking worlds could smell blood in the water. After all, the investment bank’s stock had lost nearly 95 percent of its value due largely to risky bets on a host of investments and financial instruments, including real estate, and was facing roughly $1.2 trillion in claims.

To satisfy those obligations, at least in part, Lehman’s estate needed to liquidate assets, many of which were highly attractive (at the right price). Potential buyers were hoping for a fire sale of epic portions. But with the exception of a few quick division sales, the deep discounts on hard assets that the market had been anticipating never materialised.

The killer of these fire-sale dreams was largely Bryan Marsal, who has taken a methodical approach to working through Lehman’s various assets in a way that emphasises maximising value, sometimes through strategic investment. “We needed to be willing to re-invest in the business,” Marsal said, adding that the estate has spent between $1.4 billion and $1.5 billion so far to enhance existing real estate assets.

1812 North Moore
St in Rosslyn, VA

One of the latest examples of this commitment to re-investment came just last month, when Monday Properties announced that it had broken ground on a 35-story, 580,000-square-foot office tower in Rosslyn, Virginia. The initial phase of the development, located at 1812 North Moore Street, is being funded by a partnership between Monday Properties and Lehman, which jointly own the underlying land and are putting up an additional $30 million in cash to get the roughly $325 million project started. That equity will be used to build infrastructure and a four-story, underground parking garage over the next 12 to 14 months.

Given the current climate in the real estate market, developing a new office building – yet alone the largest in the Washington, DC metro area – would seem to be a risky proposition. However, according to Monday Properties CEO Anthony Westreich, it is a calculated risk given the firm’s familiarity with the market and supply/demand metrics that are clearly in its favor. Indeed, the Washington, DC central business district, which includes the Rosslyn submarket, has a vacancy rate of just 5 percent, and it is the only market in the US that has experienced a net increase in jobs since the start of the recession, thanks largely to the dominance and growth of the federal government as a tenant.

Monday Properties is hoping its commitment to the project and the market’s fundamentals will allow it to attract a few large anchor tenants during the initial phase, which in turn will convince lenders to provide it with a roughly $200 million construction loan for the second phase of construction. To help ensure that outcome, the developer has tapped Cushman & Wakefield Sonnenblick-Goldman to assist it on both fronts.

The new development project is not the only investment the Lehman estate has made this year in its joint venture with Monday Properties. In July, it spent roughly $260 million to pay down a mortgage on six office buildings in Rosslyn that it purchased with the developer for $1.3 billion.


To read more about Marsal’s strategy for the Lehman estate, check out the November issue of PERE, out now, or click here for subscription details.