With the real estate markets booming again, some banking companies are still cleaning up from the last decade's real estate bust.
Chase Manhattan Corp. is setting up a $280 million real estate investment fund that would buy 70 loans and foreclosed properties from its portfolio.
The banking company said the real estate assets date from the 1980s lending boom in the Northeast that was financed in part by its three predecessor institutions. Chase would invest in the fund and manage it, according to sources familiar with the deal.
The Harvest Opportunity Fund would be financed with a $210 million loan from CS First Boston, with Chase and other investors providing additional equity financing. The transaction is set to close in the early part of this quarter.
Chase, Chemical Banking Corp., and Manufacturers Hanover Corp. were active in real estate in the 1980s, and all were burned when the market collapsed. About 70% of the assets in the portfolio are loans, and the rest is foreclosed property. Chase said many of the loans have been restructured and now are considered to be performing.
The creation of the fund, which has been in the works for nine months, has been led by Hugh M. Balloch, a managing director in Chase's real estate investment banking group, and a team of four professionals.
Mr. Balloch, who has been with Chase for over 20 years, headed up the real estate investment banking practice at Chase before it merged with Chemical in 1996. Since the merger, he has been in charge of all portfolio liquidation activities of the combined banking companies.
Though Harvest would be a closed-end fund, once these assets are sold, Chase is expected to build on its experience by creating funds to invest in assets owned by others.
Observers said the move makes sense, given the strength of the capital markets and the hunger of opportunistic investors for real estate assets at bargain basement prices.
"There's so much capital in the system, if you think anything has a pulse, someone will buy it," said one real estate expert. "There are a lot of large institutions who have reevaluated their real estate loan holdings, since the capital markets are so favorable for them."
Chase is "turning what has been a negative into a positive," said Charles Wendel, president of Financial Institutions Consulting, New York.
Mitch Roschelle, a partner with Coopers & Lybrand LLC, said the fund would provide an entry for Chase to additional opportunistic investing in real estate. "I don't think that this market is over, and with all of the opportunities presenting themselves in foreign markets, they have a platform to go after that business."
