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Market Meltdown: Lehman Background, Rumors of An Interest Rate Cut

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Another morning, another look at how the market meltdown is affecting/could affect our local real estate markets.

1) Lehman's ties to California: New York Times: Lehman is described as “the real estate A.T.M." in terms of its lending practices. "Significant losses that Lehman Brothers suffered from its part of the acquisition of Archstone-Smith, a national apartment portfolio, helped to bring down the investment bank, one of the most venerable firms on Wall Street." And later: "In July 2007, just as the credit squeeze began, Lehman teamed up with Prologis, a publicly traded logistics company, to buy a national portfolio of warehouses for $1.85 billion from Dermody Properties and the California State Teachers Retirement System. To get the deal done quickly, Lehman not only supplied the debt financing but also provided 80 percent of the equity."

2). More selling? WSJ: "Apartment-building investors also are likely to feel significant pressure to sell as Lehman unloads its debt and equity pieces of the $22 billion purchase of Archstone, the large multifamily company with buildings concentrated in Washington, D.C., California and New York City. For months, Archstone had tried to sell assets to reduce debt, but met mixed success. It resisted for months lowering its prices, even as buyers balked. It has sold some complexes but not as many as it hoped, according to a person familiar with Archstone.."

3). Why no interest rate cut yesterday? LA Times' analysis: "In their post-meeting statement, Fed Chairman Ben S. Bernanke and peers let us know that they feel the pain of the financial system and the economy -- but they plainly don't see this as a crisis in need of lower interest rates. And they have a point: The credit crisis is largely an issue of access to money, not the price -- despite a surge in some short-term bank-to-bank interest rates (such as the so-called Libor rate) on Tuesday."

4). Wait! Rumors, rumors! Dealbreaker: "Rumors are circulating that the Fed might be considering an emergency 50 bps rate cut. We are skeptical because any cut the day after the meeting would be admitting that they were, what's the word, totally fucking wrong yesterday. However, with the shit hitting the fan today, it has to have at least crossed the Beard's mind once."

5). Poor and afraid and maybe coming down with a cold, too: Sacramento Bee: "The three-headed monster gripping the financial markets Monday will put more economic pressure on the Sacramento area. Credit markets will tighten, which could hurt the fragile recovery in the housing market. Businesses will find it harder to expand. Pension plans might suffer. A lot of people will feel poorer and more afraid."