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Commercial Real Estate Direct Staff Report
The FDIC recovered $497.3 million, or 29.6 percent of the face value of commercial real estate loans it sold during the third quarter.
That's the lowest recovery rate the agency has had since its whole-loan sales program got into high gear late last year and could be explained in part by the types of assets that it is funneling through the whole-loan sales channel.
In contrast, the agency's recovery rate was 54.7 percent for the 2,487 loans sold in the second quarter, according to FDIC data.
The agency, which is charged with liquidating failed banking institutions, follows a three-pronged asset disposition strategy.
When a bank fails, it tries to get an acquiring institution to take as many assets as possible and is willing to enter into loss-sharing agreements to entice them to take assets. Whatever's left gets sent to advisers that handle whole-loan sales and structured transactions.
Until late summer, it was funneling commercial mortgage assets from failed banks primarily through the whole-loan sales channel. It has sold 8,665 loans with a balance of $4.4 billion, recovering $1.8 billion, or 41.1 percent of par.
As the volume of commercial mortgages has fallen, so has the agency's recovery rate.
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# Loans Sold
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Face Value
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Sales Price
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% of Face
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4Q 2008
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448
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$366.25
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$144.89
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39.56
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1Q 2009
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1,945
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$1,049.09
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$465.71
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44.39
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2Q 2009
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2,487
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$1,187.30
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$649.93
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54.74
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3Q 2009
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3,331
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$1,683.03
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$497.31
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29.55
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TOTAL
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8,665
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$4,358.16
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$1,792.37
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41.13
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In recent months, the agency decided to sell primarily consumer credits and business loans, many of which might have a commercial real estate component through its whole-loan sales channel. Mortgages are now primarily sold through structured offerings, where the agency sells an interest in a portfolio, while keeping the remainder.
The agency has so far structured seven structured offerings involving $9.4 billion of assets. In each of the deals, the FDIC has sold a 20 percent to 40 percent stake in a portfolio and in one case has provided financing. The earlier structured offerings had involved primarily acquisition and development loans as well as construction loans.
The latest such sale involved $4.5 billion of condominium loans and other assets from the failed Corus Bank. The agency had initially sought to sell the assets when it resolved the Chicago bank, but because of a lengthy due diligence process, ended up selling a 40 percent stake in the portfolio separately to a venture led by Starwood Capital Group.
To make its structured offerings more palatable to investors, the agency has offered to include elements of the federal government's proposed public-private investment partnership, or PPIP program, in that it might offer seller financing.
But the program has had its hiccups. The agency last June had started quietly promoting a series of structured offerings that would allow it to dispose of some $5 billion of assets quickly. Offering materials were distributed in September, with an expectation that bids would be accepted this month. But the latest word is that those bid deadlines have been postponed.
The largest of the offerings involves $2.7 billion of residential acquisition and development loans marketed through Keefe, Bruyette & Woods. Its bid date is now Dec. 11.
The other portfolios will each involve roughly $1 billion. Deutsche Bank will take offers on Dec. 1 for a stake of 20-50 percent of a portfolio comprised of 1,184 commercial mortgages with a balance of $1.1 billion. And a venture of Pentalpha Capital Group and Midland Loan Services will take offers on Dec. 11 for a stake in an $860 million portfolio of commercial construction loans.
Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.
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