Lehman Cranks Up Sales

The estate of Lehman Brothers, the failed investment bank, is ramping up sales of its property portfolio as commercial real-estate prices recover, in a move that could help creditors of the defunct firm.

In its most recent deal, Lehman Brothers Holdings Inc. agreed to sell its majority stake in a portfolio of 10 office buildings in Rosslyn, Va., in a transaction that values the properties at $1.26 billion, Lehman said in a court filing late Tuesday. The sale, to a real-estate private-equity fund run by Goldman Sachs Group Inc., is at a value nearly equal to the $1.29 billion that a venture led by Lehman paid at the market's peak in 2007.

While the sale still represents a slight loss, the price is much higher than the properties would have fetched a year or two earlier, thanks to a surprising recovery in commercial real-estate values in some cities.

Seeking to capitalize on that recovery, Lehman's estate manager, restructuring firm Alvarez & Marsal, is cranking up its effort to sell some of the $13.2 billion-worth of property assets that remained on the books at the start of this year.

The Rosslyn sale "is another example of executing the strategy and pace we set at the beginning of the year to take advantage of the improving real-estate market," Jeff Fitts, a managing director at Alvarez & Marsal, said in an email. Lehman's partner, Monday Properties, is staying in the deal.

The real-estate sales will likely help Lehman's diverse group of creditors, which range from hedge funds that bought debt at steep discounts after the bank's collapse to longtime investors such as pension funds and other money managers trying to limit their losses.

When Lehman filed for bankruptcy-court protection at the height of the financial crisis in September 2008, its real-estate holdings were valued at $23 billion. The amount was written down by billions of dollars after the firm's collapse.

Last month, Lehman raised the amount it expects to recover from its real-estate portfolio between 2011 and 2014 to $13.2 billion, up from $12.1 billion just in January, according to court filings, coming largely from sales. By contrast, Lehman retrieved only $3 billion from its real-estate portfolio between its bankruptcy filing in the fall of 2008 and the end of 2010.

Now, creditors are poised to recover a total of some $65 billion from Lehman's estate—a fraction of what the Wall Street firm was once worth but a far higher number than in the midst of the crisis—in part because the failed bank's properties now boast healthier values. Lehman's estate managers spent time persuading creditors to let them hold onto the real-estate assets and wait for the market to recover rather than sell them off at fire-sale prices during the financial turmoil.

Lehman even made a number of controversial reinvestments in its real-estate portfolio, effectively doubling down on properties that needed more money in 2009 and 2010, when values weren't as high.

Now Lehman is marketing multiple assets to investors, including its majority stake in LCOR Inc., which owns about 5,400 apartments; the vacant 560,000-square-foot former General Re headquarters in Stamford, Conn., and a set of unsold Ritz Carlton condominiums in Hawaii, according to people familiar with the matter.

The firm is also making preparations to sell its largest single real-estate asset, the Archstone-Smith Trust apartment portfolio bought in 2007 for $22 billion, either through an independent public offering or through sales to private buyers. That deal is complicated, though, because Lehman shares ownership with Bank of America Corp. and Barclays PLC, and the three don't see eye-to-eye, according to people familiar with the matter.

To be sure, much of Lehman's portfolio has values still well below what the investment bank put in, and some investments in areas such as land development are likely worth a fraction of the original investment. Lehman is looking for partners for a longer-term hold on many land investments.

For higher-quality assets, prices are down in the 15 to 20 percent range, as opposed to 40 to 60 percent for land, according to Matthew Anderson, a managing director at Trepp LLC, which tracks real-estate lending.

It also isn't clear how long the recovery will last and whether it will extend beyond the most desirable markets like New York City, Boston, Chicago and the Washington, D.C., area. Weak jobs growth continues to put downward pressure on rents and occupancy rates.

At the same time, the debt market, an important factor in the recovery in prices, recently has shown signs of fragility. Just last week, underwriters had to boost yields numerous times to boost investor demand for two issues of commercial mortgage-backed securities.

Lehman's extensive real-estate investments, both debt and equity, played a major role in the undoing of the firm. Its sprawling portfolio ranged from vast tracts of undeveloped California land, to office buildings, to one of the country's largest apartment-building companies.

Lehman's decision to reinvest in some of its properties, rather than sell them at a steep discount, appeared to have paid off. In 2009, for example, it said it would invest as much as another $30 million in 200 Fifth Avenue, in Manhattan, in which Lehman owned a majority stake. At that time, the building's value was underwater, below its $580 million in debt, according to people familiar with the matter.

This spring, it reached a deal to sell its stake in the building to a fund managed by JP Morgan Asset Management, which is a unit of J.P. Morgan Chase & Co., for about $700 million, say people familiar with the matter.

That is still less than the amount that the property was valued at when Lehman made its investment, $820 million. But it is well above what it would have gotten by abandoning the project in 2009.

—Mike Spector contributed to this article.

Write to Eliot Brown at eliot.brown@wsj.com

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