Lehman selling puts on FL real estate.

also known as a "texas hedge"...

In a move that speaks volumes about the glut in the condominium market, Lehman Brothers Holdings Inc. is promising some luxury-condo buyers their money back after three years of ownership.

The offer applies to some 200 condo units, priced between $480,000 and $2 million, in West Bay Club, a Lehman-owned resort community in Estero, Fla., near Naples on the Gulf of Mexico.

In an effort to jump-start sales in a skittish market, Lehman says that for every buyer until June 1, it will guarantee that the resort will either sell or buy back the residence at the "full cost of the purchase price three years after closing."

The gamble is that prices will recover during that time, and buyers will hold on to their condos.

crazeeee.

Comments

[RichL]

Not necessarily. If the properties are competitively priced, the market could stabilize. A buyer could actually like the place, and keep it even if they are down a bit 3 years out. They also have use of the cash, and vacant properties do not improve and do eat cash. I carry no brief for this project, but I can say that you can get decent Florida property cheaply now, and for those who want to go there buying is an obvious good trade.

[jkas]

ah, I meant crazy for Lehman... I'd agree that FL isn't necessarily a bad deal - for a start, there's definitely "blood on the street" there.

[RichL]

Sorry about the lack of clarity. From the perspective of Lehman, it makes sense. There is risk in holding a vacant house - wear and tear, vandalism, and the distressed look that a neighborhood gets when the neighbor's pool is filled with green slime.
If you're Lehman and you own it anyway, it is preferable to take the risk, get cash to invest for 3 years, and hope for the best. Not what they planned, I'm sure, but it is likely preferable to inaction. For the buyer, a free put doesn't suck.

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