Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. Print
May 17, 2010 01:00 AM

Managers targeting failed banks

But strategy to boost weak portfolios is hampered by slow FDIC

Arleen Jacobius
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Demanding: Lewis Feldman said real estate managers don't have enough properties to keep their investors happy.

    Real estate investment firms are taking capital off of the back burner and investing in failed banks to gain access to the real estate clogging the banks' balance sheets.

    But the Federal Deposit Insurance Corp., charged with taking over failed banks, is moving at a slow simmer in disposing of those assets, causing a bubble of investment capital to form, industry insiders said.

    Institutional investors had thought the managers' bank strategy might help to rescue their battered real estate portfolios. However, if more capital is raised than can be spent, the fix might end up causing more harm.

    Real estate fund managers are sitting on a total of $188 billion of committed capital and are raising another $174 billion more in funds.

    Their chief play right now is to buy real estate through bank acquisition.

    Earlier this month, Square Mile Capital Management LLC bought a 40% stake in Specialty Finance Group, a subsidiary of Silverton Bank, Atlanta, from the FDIC after the agency took over the bank. The FDIC is keeping the remaining 60%.

    “It is estimated that banks holding commercial real estate loans totaled almost $1.8 trillion, around 25% of the total loans outstanding,” noted Scott Farb, managing principal in real estate consulting and accounting firm Reznick Group PC's Los Angeles office.

    Real estate investment firms worldwide had close to $200 billion in uninvested capital as of May 12, according to Preqin, a London-based research firm. They've been holding huge sums of capital for a while — as of Dec. 31, real estate investment firms had $188 billion.

    On top of the mass of capital in real estate funds, some investment firms are going to institutional investors for direct investments in banks. For example, the Oregon Investment Council, Tigard, recently invested $100 million in Sageview Capital LP, which set up a bank holding company that will go out to buy real estate assets and debt. The council oversees the $51.5 billion Oregon Public Employees' Retirement Fund, Salem.

    Real estate funds have time limits: typically four years to invest the capital and four years to nurture the properties and sell them. Relatively few deals were struck over past couple of years and time is ticking away.

    “If they (real estate investment managers) don't find product, they don't get paid, and it's creating a desire to get more money out. We're seeing more competition for product,” said Lewis Feldman, partner/Los Angeles office chair at law firm Goodwin Procter LLP. “Demand is outstripping supply and prices are quite heady.”

    702 on FDIC's 'problem list'

    The FDIC has 702 institutions on its “problem list” with total assets of $403 billion as of Dec. 31, Andrew Gray, FDIC spokesman, wrote in an e-mailed response to inquiries. He declined to give further information about those assets.

    “We are getting multiple bids and bidding is getting more competitive, generally speaking. As the banking system recovers, we expect this trend in pricing and competitiveness to continue,” Mr. Gray wrote.

    So far this year, 68 banks have failed, compared with 140 bank failures all of last year. Altogether about $500 billion in assets have passed through receivership since 2008. Although the FDIC does not have an exact breakout, Mr. Gray said real estate would represent “a substantial amount” of those assets.

    But some real estate managers think the best time to buy bank portfolios has passed because with more bidders in the pool, prices are too high.

    Recently, homebuilder Lennar Corp. led a group that bought companies holding loans seized from failed banks, Mr. Feldman noted. The consortium paid $132 million for $3 billion of distressed notes in exchange for 40% of the “upside” and a 5% management fee, amounting to $10 million per year, he said.

    “There was a huge amount of money raised to invest in distressed opportunities and many of the opportunities got parked within banks,” Richard LeFrak, chairman, president and chief executive of real estate developer LeFrak Organization, said during a panel discussion at the Milken Institute Global Conference last month in Beverly Hills, Calif.

    In October, LeFrak was in the consortium winning a $2.77 billion bid for a 40% stake in Chicago-based Corus Bank. The winning bidder group also included real estate investment firm Starwood Capital Group, private-equity firm TPG Capital and hedge fund Perry Capital. The consortium ended up with Corus Bank's portfolio of predominantly performing and non-performing construction loans and real estate assets with an unpaid principal balance of about $4.5 billion. The FDIC retained a 60% equity interest.

    Because banks and special servicers on commercial mortgage-backed securities are holding real estate properties and debt instead of foreclosing or selling them, Mr. LeFrak said that real estate investment firms won't see any great commercial opportunities until the “gridlock inside the banks ... and the gridlock inside of CMBS ... starts unhinging.”

    The only opportunities left are buying banks and assets from the FDIC and “bidding is very aggressive,” he said.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    OCIO, Anchor in Rough Seas
    Sponsored Content: OCIO, Anchor in Rough Seas

    Reader Poll

    May 9, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Are Factors a Thing of the Past?
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    Out of the Shadows: The Revolution in Shadow Accounting
    The pivotal role of fixed income markets in the ESG revolution
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 9, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference