173
By Erika Morphy
Lehman, Merrill Distress Could Bring Buying Frenzy NEW YORK CITY- By now the shock and dismay stemming from the events of the last fortyeight hours is wearing off, replaced--at least in some quarters-–by calculated opportunism. These events, of course, are Lehman Bros.’ Chapter 11 bankruptcy filing and Bank of America’s sudden acquisition of Merrill Lynch for $50 billion. To be sure, the impact will be a severe one by many measures: there will be a significant toll on employees of these firms, as well as the local economies in many financial-center cities besides New York. The national economy is also certain to suffer as banks continue to scale back lending in all sectors, from credit cards, to business loans to auto loans. That said, for some well-positioned firms, the implosion of these investment banks represents new buying opportunities. Indeed, if the discounted assets and securities are priced appropriately, their influx onto the market could finally launch that much-awaited buying spree by the equity that has been sitting on the sidelines for the last 18 months. “If these loans are priced to market and there is a cram down, that could help precipitate a quicker movement through this downturn,” Steve Pumper, executive managing director in Transwestern’s Investment Services Group, tells GlobeSt.com. And if that happens, speculates Anthony LaMalfa, a senior manager at the real estate practice at BDO Seidman, the securitization market is bound to follow. “There is a lot of cash out there, and sooner or later it will have to be deployed,” he tells GlobeSt.com. For people that have capital, this will provide an excellent opportunity over the next 12 to 24 months for them to make investments and earn above-market returns, Pumper says. But there are a number of moving parts to this theory that could go wrong, the Transwestern executive readily admits. First, investors are not at all convinced that we've hit bottom, which means they will hold off on acquisitions and purchases of distressed debt. Also, he says, many investors are likely to wait for loans that are coming due in 2009 and 2010--assets that will sustain a double hit with a drop in value plus a much lower LTV available from banks. Making market-wide prognostications is also difficult because investors are still trying to assess the quality and quantity of these assets. “One number we have been able to verify today [Monday] is that Bank of America has been involved in an estimated $28 billion of commercial real estate transactions since 2001,” Hessam Nadji, managing director of research services with
Villanova School of Business 2008 Media Report