Lehman Brothers Holdings Inc. has said it plans to be patient in selling real estate holdings four years after filing the largest U.S. bankruptcy in history. In Detroit, it’s willing to accept less than 10 cents on the dollar to get out while it can.
Lehman is selling a 251,000-square-foot office property in suburban Farmington Hills.
In June, the bank offered it at auction for $10 a square foot, which would have recovered less than 10 percent of the $27.5 million mortgage it extended in 2007. It’s also selling One Woodward Ave., a tower overlooking the city’s riverfront and border with Canada that’s 44 percent vacant.
Metro Detroit’s office market is missing out on Michigan’s revival three years after the government rescued General Motors Co. and Chrysler Group LLC amid the worst financial crisis since the 1930s.
Borrowers 30 days late or more on Detroit-area office loans packaged into commercial mortgage-backed securities rose to 24 percent from 15 percent in August 2011, according to data compiled by Bloomberg, compared with 9.9 percent nationally.
“This is probably not a market where you’re going to see much growth and, for that reason, it might make sense to just move on,” said Shaw Lupton, a senior real estate economist at data provider CoStar Group Inc.
Lehman said in July it’s attempting to recover as much as $12.9 billion for creditors by selling real estate holdings that range from condos in Hawaii to Archstone Inc., the eighth-largest apartment manager in the United States.
Lehman has said it plans to hold some assets as long as 2015, waiting for opportune times to dispose of properties as the commercial and residential markets recover. It moved to take Archstone public last month.
Kimberly Macleod, a Lehman spokeswoman, declined to comment on the firm’s Detroit holdings.
Lehman had $260 million in outstanding senior loans secured by Detroit-area property at the time of its September 2008 demise in addition to $13.2 million in mezzanine or junior loans, according to court documents.
The bank had extended some of the loans as part of a joint venture with affiliates of developer Kojaian Management Co. The partnership, which had dated to 1995, was dissolved a year after the bankruptcy and Lehman took title to 15 properties in lieu of foreclosure.
Michael Kojaian, executive vice president of Kojaian Management, declined to comment.
Lehman had provided $27.5 million of debt against the three-story Farmington Hills property by 2007, an increase over the original mortgage it made in 2001 for $19.5 million, according to records filed with the assessor’s office.
The Farmington Hills site has an occupancy rate of 30 percent that will fall below 6 percent when mortgage company Quicken Loans Inc. leaves, said Larry Emmons, a senior managing director at broker Newmark Grubb Knight Frank in Southfield.
“It’s a good time to sell,” Emmons said. “The peak tenancy has kind of run its course, and it’s going to take some major repositioning, some marketing and a general increase in market velocity for Class-B buildings before this one fills up again,” said Emmons, who isn’t involved in the deal.
Detroit’s decline isn’t uniform. Quicken Loans’ founder Dan Gilbert has moved employees to the city’s Campus Martius Park area, the center of its tech industry. That’s less than three blocks from One Woodward Ave., the downtown Detroit office building with 333,000 square feet, according to CoStar.
“There’s been a general upgrading of space,” Emmons said. “A lot of the A and B buildings have been at 10-year lows so people will consolidate and upgrade their digs.”
There were 3,037 Class-B buildings totaling more than 100 million square feet in the Detroit area at the end of the second quarter, according to CoStar. The vacancy rate for Class-B buildings in the region was 21.2 percent.
Asking rent for office space in the Detroit region was $17.81 per square foot in the second quarter, the lowest on record, according to data from CoStar going back to 2000. The U.S. average was $22.70 in the period. Vacancies were 18.4 percent in Detroit, and 12.7 percent nationally.
Oshrat Caramel, Detroit News