Several upscale condominium projects went into foreclosure in Phoenix. They have since been picked up by an investment group, renovated and put on the market. The investment group is ST Residential, led by the FDIC: [Thanks L!]
ST Residential is an investment and debt-resolution firm that is 60 percent owned by the Federal Deposit Insurance Corp.
Unlike the Resolution Trust Corp., which the federal government formed to dispose of failed lender-owned assets two decades ago following the savings-and-loan crisis, ST Residential also involves a group of private-equity firms, led by Starwood Capital Group.
All three properties had been owned by Corus Bankshares Inc., the holding company whose bank was taken over by regulators in September 2009.
Corus, based in Chicago, sought protection from creditors in June, filing for Chapter 11 reorganization in U.S. Bankruptcy Court.
Like other deals the FDIC has done, ST Residential is limited in its scope:
ST Residential was formed for the sole purpose of buying $4.5 billion worth of residential real-estate assets that Corus had repossessed, ST Residential CEO Wade Hundley said in an interview Thursday.
Hundley said about 30 percent of the assets are owned outright by ST Residential, and the rest are being financed with “favorable lending terms” by the FDIC.
The result is that ST Residential has cash and time, something Hundley said that most condo project owners lack.
Perhaps cash and time are in shorter supply these days, or perhaps it’s just the volume of property involved, but as Lingling Wei reports, the FDIC is getting in the CMBS business:
With more banks collapsing because of commercial real-estate lending, the Federal Deposit Insurance Corp. is working on a new way to sell failed banks’ hard-to-value real-estate assets back to the private sector, according to people familiar with the matter.
Up until now, the FDIC has mostly sold soured property loans to investors in partnerships with the agency. These arrangements enticed private investors to buy distressed real-estate assets while giving taxpayers the opportunity to make money should the assets rise in value.
But as the volume of real-estate loans mount, the FDIC now is looking to bundle and sell some of them as commercial mortgage-backed securities, or CMBS. The agency is expected to launch its first CMBS deal, expected to be backed by at least $500 million of performing commercial mortgages, by the end of this year or in January, the people said.
The claim is that this would be better for taxpayers:
The FDIC’s coming CMBS deal would be different than those sold by Wall Street firms in that it would feature smaller-sized loans, the people said. CMBS deals carry less risk for taxpayers than public-private partnerships, because in partnerships the FDIC takes a big chunk of the equity and provides financing, potentially standing to lose more if the markets decline.
Certainly deals like renovating the Corus projects in Phoenix are risky- the condo market remains glutted and the market is slow. The question is, will the CMBS prove popular with investors and what sort of guarantees will taxpayers be on the hook for to make them work?