Lehman, How Much Is Your Headquarters Worth?

It is never a good sign when your company is in financial trouble to find out that reporters, analysts, and private equity investors are suddenly interested in the value of the building that houses your headquarters. As reported in a Here Is The City News article, apparently this is exactly what some at the Financial Times and elsewhere are doing.

The Lehman Brothers (LEH) Times Square headquarters building is estimated to be worth $1.3 billion, or about twice what Lehman paid for the building in 2001. When you add its worth to that of asset manager Neuberger Berman, which may be valued anywhere from $6.5 to $13 billion, the sum of the two could dwarf the current market cap of Lehman, currently around $9 billion. This of course opens up the possibility of value for investors, or more likely, private equity investment (see a recent Bloomberg article on the private equity companies interested in Neuberger Berman).

This week it was also reported in a MarketWatch article and elsewhere that Lehman is planning to cut 1,500 jobs, and is also developing plans to off-load some of its real-estate loans (see the WSJ article). The company has $40 billion in commercial real estate assets and another $24.9 billion in residential assets. Lehman is desperately looking for ways to unload the mortgage-related assets for more than the 22 cents on the dollar that Merrill Lynch (MER) received (which was even worse when you considering the financing deal Merrill offered Long Star).

The sale of these toxic assets may eventually make it easier to value Lehman Brothers, moving them from a "bad bank" to a "good bank" (see an interesting article by Roger Ehrenberg on the importance of separating such assets). By getting the hard to value assets off the balance sheet, Lehman should go a long way towards allowing investors to see the real value in the company, and in the process hopefully reverse the trend of its decreasing market cap. Unfortunately, it may take a fire sale of its good assets to keep it afloat long enough to see it happen. Another reason why a quick and sensible sale of its mortgage-related assets is so critical.

Disclosure: None

Comments

[williambanzai7:]

Be that as it may, Lehman is an investment bank and that business is seriously over built and lacking in long term prospects. If all you have to show is a building an asset management business and a bunch of over paid pitch book hawkers, its time to sell or liquidate.

2008 Sep 01 09:05 AM

[rkbruck:]

Regardless of the value of Neuberger and the headquarters (maybe 15 Billion) the fact is the assets on the balance sheet are over stated by about 40 to 50 Billion Dollars (75% of 65 Billion).
The fact is that LEH has a net worth of about
Negative 25 Billion Dollars...How big a piece of that would you like?

2008 Sep 01 09:55 AM

[investor88:]

rkbruck may have hit the nail on the head when he gives his reasons why LEH=minus 25bn dollars even after taking into account the value of its HQ and Neuberger. Not everyone would agree with the minus 25bn dollars valuation but you cannot just ignore this remote possibility. This is an alarming state of affairs for investors.

2008 Sep 01 10:41 AM

[hownow:]

CitiGroup will again upgrade LEH soon and Asians/Arabs will again rediscover fresh value and all will be well again.

2008 Sep 01 03:29 PM

[1worldcurrency:]

No, you have to add the value of all that brilliant investing talent. You know, the ones that bought all those ingenious "mortgage related assets" that are losing so much money.

2008 Sep 01 09:13 PM

[Just The Facts:]

What is "anything" worth? At what value should assets be carried on a balance sheet?


Someone posed the question a day or two ago (on another site I believe):


"If you live in a home that you paid $250,000 for and your neighbor defaults and his home is sold in a foreclosure auction for $20,000, does that then mean that your home is worth only $20,000?" (or words to that effect)


I said "yes".


If I'm right, then our real estate correction still has a long ways to go. And quite a few of our major banks are worth zero or less.


Would you be interested in buying Goldman shares for $3.00 or $4.00 apiece, if all credit on the planet were dissolved and everything is only worth what someone holding gold or silver is willing to pay for it?

2008 Sep 10 02:12 AM