The $5B Commercial Fire Sale
Today’s Wall Street Journal reports on a government run auction of $5B in Commercial Property Loans seized from the failed Corus Bank.
This is an all-or-none sale of the loans behind over 100 Commercial Development Projects including a number of failed Condo Projects in states like CA, NV and FL. The FDIC is not allowing the developers to buy back their own loans … the only way to buy is to take the whole portfolio and the big sharks are lining up to make their bids. It is a sweetheart deal as well since the FDIC will hold a 60% stake after the sale AND provide financing.
WHY IS THIS SALE IMPORTANT ?
There has been so little deal flow in Commercial Property this year that valuations are very hard to come buy … we are in uncharted territory with no Comps to give us a ballpark for valuation. This sale will set a benchmark the whole Commercial Property Industry will watch closely. Here’s what the pundits are expecting.
30 cents on the dollar for non-performing loans and 80 cents on the dollar for loans where payments are current. AND the winning bidder is widely expected to sell the delinquent loans back to the borrower for a handsome profit (in the neighborhood of 80 cents/$1)
DEJA VU
Remember the Resolution Trust Corporation? Back in the 80’s savings-and-loan collapse the RTC did 70 deals just like this. Seems like another great time to make a killing buying massive amounts of inventory at HUGE discounts with government backing and waiting for the economic rebound that is sure to follow.
I will be watching the news on this sale and we will all see what “comparable sale” values come out after the dust has settled.
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