Friday, September 25, 2009

FDIC Unveils 2 Big Troubled-Loan Offerings

Commercial Mortgage Alert 9.25.09

Investors this week got their first detailed look at two large distressed-loan portfolios in which the FDIC is offering minority stakes.

The agency is shopping interests in a $1.1 billion package of commercial mortgages and land loans via Deutsche Bank and an $861.5 million portfolio of construction and land loans via the team of Midland Loan Services and Pentalpha Capital.

The agency distributed marketing materials for the expected offerings this week, enabling investors to begin due diligence. Each portfolio is divided into two pools, based on geography. So up to four winners could be named.

The stakes being offered have not yet been decided, but are expected to be either 20% or 40% for all-cash bids. But the level might rise to as high as 50% if a buyer uses debt financing to support its bid. That is aimed at ensuring a buyer puts up a minimum level of equity.

The winning bidders will work out the loans and share the proceeds with the FDIC. The loans came from some two dozen banks that failed over the past two years.

The Deutsche pool contains 1,232 loans. Loans representing about 70% of the total balance are backed by a mix of property types. The other 30% are land loans. The average balance is $887,000. Only 10 notes exceed $10 million. The loans are concentrated in Georgia (30.7% of total balance), California (14.7%), Nevada (14.4%) and Florida (13.5%). Two-thirds of the portfolio is delinquent, and two-thirds matures by the end of next year.

The 367-loan Midland/Pentalpha portfolio appears to carry higher risk. About 60% of the total balance is tied to projects that are either stalled or never got off the ground. Most of the loans defaulted at maturity. Some 43% of the pool balance is backed by properties in Nevada, one of the hardest-hit areas in the country. There are also large concentrations in Georgia (17.4%) and California (9.8%). The average loan size is $2.3 million.

Bids on the Deutsche portfolio are due in late October. Midland and Pentalpha will accept offers on Nov. 12. The FDIC this week also released marketing materials for a $2.6 billion portfolio of residential-construction and land loans. Bids for that portfolio, marketed via Keefe Bruyette, are due Nov. 12.

Six previous “structured sales” by the FDIC over the past two years generated an average winning bid of 21 cents on the dollar, with individual sales ranging from 9 to 38 cents. Overall, the FDIC sold $1 billion of participation interests for $209.8 million.

The offerings come as the FDIC is taking bids on $5 billion of assets from the failed Corus Bank of Chicago. That auction has drawn the attention of a number of opportunistic investors, including Colony Capital, Lubert-Adler and Starwood Capital. Some investors said the overlap might tamp down demand for the new offerings.

The structured sales are separate from whole-loan offerings, which the FDIC markets via First Financial Network of Oklahoma City and DebtX of Boston. The two firms combined are taking bids on roughly $1.5 billion in mortgages over the next six weeks.