Lehman's CRE Spin-off, Not a New Game

NEW YORK CITY-Only days after management of troubled investment bank Lehman Brothers revealed plans to spin off the $25 billion to $30 billion of the firm’s commercial real estate into its own public company, the firm’s ratings were placed with negative implications and continue to remain on close watch. However, insiders say the news of this new entity, called Real Estate Investments Global [REI Global], which will debut during next year’s first quarter, is not a new concept, and will be a favorable move, if it can be pulled off.

In the late 1980s, and early 1990s, the CRE spin off concept was used quite extensively, says Hugh Finnegan, an attorney in the real estate group at Sullivan & Worcester LLP. He tells GlobeSt.com that in those days, it was not always successful. “I am skeptical of its chances for success now, because it is a timing issue,” he says. “It is too late to do any good.”

Finnegan explains that the name of the game today, is capital adequacy. “Will this help Lehman address that issue?” he wonders. The other “name of the game,” he says, is market perception. Finnegan questions whether confidence in Lehman in the marketplace is shaken–for whatever reason–how will creating this spin-off help them restore that?”