how will the subprime mortgage crisis and collapse of lehman and others affect private equities?

specifically, private equity funds that invest in hard assets in new york city real estate? i have a very basic understanding of pe’s so please explain in lamest language possible! thanks 🙂

By | 2013-08-24T01:19:06+00:00 August 24th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. Theo August 24, 2013 at 2:07 AM - Reply

    Hi (libra)lynn,

    This is a very good question, because the mortgage crisis is affecting all areas of the economy and private equity is overlooked often. The Lehman Brothers had a pretty significant chunk of the private equity industry through their private equity division holding $30 billion in assets under management, according to their website. So, as you can imagine, the collapse of Lehman Brothers is potentially very dangerous to the private equity industry. There is hope that the private equity branch will be sold to a suitable buyer for a good price, but that’s all speculation.

    As for your specific interest in New York City real estate:

    I live in NYC and the whole mortgage mess does not spell good news for anyone really, especially the high volume of investors located in the city. I’m not sure how any specific private equity funds will fare but most major real estate funds have invested in real estate with the presumption that the housing market would continue to boom with the economy. However, around 2006 the housing market stopped climbing so dramatically, not exactly what the real estate investors hoped for. They expected prices to continue to rise so that they could get profit from their real estate investments, and when this did not occur–and still has not occurred–many funds lost considerable amounts of money.

    New York City is special, in that it is an island, so the housing prices haven’t declined as much as far as I know. While there are lots of issues with NYC housing, the attraction of the major city and it’s geographic inability to expand for new development insulates it from collapsing to the degree of other areas and allows real estate prices to continue to climb.

    I hope this was of some help to you,
    Theo O’Brien

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