So 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 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 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 their decreasing market cap. Unfortunately, it may take a fire sale of their good assets to keep them afloat long enough to see it happen. Another reason why a quick and sensible sale of their mortgage-related assets is so critical.