As late as September 10, CalPERS announced it was expanding it real estate allocation with $700 million in fresh commitments. The funds in questions went to a JER Partners fund focused on Latin American Investment, and a buyout fund lead by GI Partners. Given the historic federal intervention in markets since September 10, it is an open question how institutional real estate investors such as CalPERS will be impacted. In particular, with real estate being a high profile trigger of the Lehman Brothers blow up, will the sector be tarnished? Real Estate is historically a debt driven vehicle, with a huge amount of capital necessary to make deals. With new financing increasingly scarce since the credit crisis began, it is uncertain how the massive federal bailout will impact the industry. Hopefully the removal of the damaging mortgage portfolios choking balance sheets will allow lenders to turn the page on the credit crisis.
The New York Times | Jenny Anderson & Charles Duhigg | September 20, 2008
Earlier this year, when Lehman’s chief financial officer, Erin Callan, met with some investors at the company’s headquarters in Midtown Manhattan, she exuded confidence. During the meeting an investor challenged Ms. Callan, according to two participants who requested anonymity because they did not want to jeopardize their relationships with senior executives. With firms like Citigroup and Merrill raising capital, the investor asked, why wasn’t Lehman following suit?
Ms. Callan was brusque, the two participants recalled. Glaring at her questioner, she said that Lehman didn’t need more money at the time - after all, it had yet to post a loss during the credit crisis. The company had industry veterans in the executive suite who had perfected the science of risk management, she said.
According to both investors, she said Lehman’s real estate investments were top-notch. “This company’s leadership has been here so long that they know the strengths and weaknesses,” participants recalled her saying. “We know when we need to be worried, and when we don’t.”
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