Real estate bargain hunters, or vultures (not meant in a negative way), like Barry Sternlicht are moving into hard hit markets like Miami, Las Vegas and Los Angeles. His biggest move was the $4.5 billion acquisition of Corus Bankshares’ real estate loan portfolio. At the peak of the market, Corus was the largest construction lender in the US. So the strategy is simple: buy distressed debt and then foreclose on the properties.
“…Mr. Sternlicht and a group of investors — including TPG Capital, WLR LeFrak and Perry Capital — won the loans in an auction run by the Federal Deposit Insurance Corporation, paying $554 million for 40 percent of the package, valuing the debt at 60 cents on the dollar. The F.D.I.C. holds the remaining 60 percent.
Mr. Sternlicht hopes to foreclose on many of Corus’s errant borrowers, restyle their buildings and sell units for a significant profit once the real estate market recovers. He says he and his investors can afford to wait until then because the F.D.I.C. has provided them with $1.4 billion in zero-coupon financing and an additional $1 billion in low-cost loans that can be used to complete unfinished projects.”
This gives Sternlicht access — though not always easily– to the properties of exhausted borrowers (ie. developers). But, according to the New York Times, some developers are asking:
“Why is the federal government offering low-interest financing to Mr. Sternlicht and his private equity partners when it could be helping struggling condo builders finish their projects, which are keeping hundreds of people employed?”
Image: Flickr
