Commercial Real Estate Direct Staff Report

The FDIC is said to be rejiggering its structured asset offerings, in which it sells interests in portfolios of loans to investors, by effectively removing an incentive it had built into the transactions.

In its initial offerings, the agency would sell stakes of 20 percent in portfolios to investors. The stakes it sold would be larger in deals where it provided financing. As an incentive, it would boost investors' economic interests in the portfolios to 40 percent if certain performance thresholds were met.

But that incentive structure is being turned on its ear. Now, reaching the performance threshold would trigger a reduction in the investors' economic interest to 15 percent, according to several investors.

The change was greeted with disbelief by investors who described the new structure as having a declining promote.

"This is devolving into a fiasco," said one investor. Another said investors would simply price the disincentive into their valuations, which would result in lower proceeds for the FDIC.

"Unfortunately, the FDIC will still have success," a third investor said, explaining that despite a recent increase in the volume of loans offered by banks and other sellers, the FDIC remains the only truly motivated seller in the market.

Yet another said investors would simply make sure they don't reach the performance thresholds. "If I'm not getting paid, I'll stay below the threshold," he said.

An agency spokesman did not return two phone calls for comment.

The change in incentive plans is said to have been outlined in a portfolio of commercial mortgages that is being offered through Deutsche Bank. The bid deadline for that portfolio has been postponed until Dec. 1.

Two other offerings - involving residential acquisition and development loans and commercial construction loans offered through Keefe, Bruyette & Woods, Deutsche Bank and the team of Pentalpha Capital Group and Midland Loan Services, respectively - will be bid on Dec. 11. But investors say term sheets for those two offerings have yet to be distributed.

Meanwhile, the agency is said to be gearing up three additional structured offerings of assets, which would involve residential and commercial acquisition, development and construction loans as well as hotels.

The offerings, which could total $2.5 billion, will be comprised of loans from roughly a dozen receiverships - that is, banks that have failed.

Details of the three proposed offerings are still being ironed out. Financial advisers have yet to be tapped and the agency is said to be hashing out certain key elements of the ventures it will form with investors.

So far, the agency has completed the sale of stakes in six portfolios and has an agreement in place on a seventh, involving $4.5 billion of assets from the failed Corus Bank. In total, those seven portfolios had a face value of $9.4 billion.

In each case, the agency sold interests of 20 percent to 40 percent and in the case of the Corus sale, it is providing $1.4 billion of financing. The transactions it has structured had a total value of $3.8 billion, including FDIC's stake and its financing.

The success of the Corus sale - the buzz is that the agreement struck with a team led by Starwood Capital Group was about 25 percent higher than the cover bid - is said to have played a role in the FDIC's decision to change the promote structure on its next offering.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.