Before it declared bankruptcy, Lehman was one of the biggest investors of debt and equity in U.S. commercial real estate estate. But having Lehman as a partner these days is a little like climbing a staircase in an M.C. Escher drawing — you’re bound to end up where you started.
Take ProLogis for example. The world’s largest owner and developer of warehouse and distribution centers set up a property fund in which Lehman in an equity investor as well as the lender.
Before Lehman Brothers Holdings Inc filed for Chapter 11 bankruptcy in September, the two planned to pay off the $166 million loan on the portfolio.
“Subsequent to them going into bankruptcy they were impossible to get hold of. We finally did, and they said they were still in the game for paying this off.”
Lehman said it just needed to get the correct approvals.
“About a week later, we got a call from State Street Bank bank who said, ‘We are the lender on the Lehman portfolio. We now own the loan,’ Chief Financial Officer William Sullivan told investors in New York.
The subsequent chat went well, but there was one problem.
“The fact of the matter is is that we don’t know that they own the loan today,” Sullivan said. “They had told us they own the loan. They have not provided us with documentation that they own the loan, and Lehman thinks they own the loan but are not sure.”
The three are trying to work out an extension while they straighten out the loan’s ownership. Meanwhile, the loan was due Nov. 11.
“We think we’ll wrap this up in the next week,” Sullivan said. “But from our prospective, this loan should be considered extended at this point. If that doesn’t turn out to be the case, in the grand scheme of things, it goes into default, and I’m certain that Lehman and State street will have a merry old time discussing it.”
There likely will be a lot of talk. Mark Edelstein, partner in the firm of Morrison Foerster told a room full of lawyers that extensive negotiations on Lehman deals are par for the course these days. Sounds like a lot billable hours.