They didn't plan it this way, but banks that cut through their own morasses of bad real estate in recent years have found a new business line in financing the sale of distressed real estate for others.
"It's a pretty competitive business right now," said Joseph G. Greenough, senior vice president and business line manager of Shawmut National Corp.
"There are only a few players in it -- it's a high risk end of the real estate product."
Mr. Greenough said that his bank only developed the necessary expertise after engineering the sales of hundreds of millions of dollars of its own bad real estate assets.
Aside from Shawmut, units of Bankers Trust New York Corp., NationsBank, and Fleet Financial Group all are financing such deals, industry sources say.
Mr. Greenough said Shawmut takes a SWAT-team approach, in which personnel with expertise in appraisal, environmental review, workouts, and foreclosure sales, evaluate a client's ability to execute a liquidation strategy.
Shawmut generally intends to limit its loans to the $10 million-to-$40 million range, he said. The bank has bid to finance several acquisitions, he said, and has developed a relationship over the past six months with Goldman, Sachs & Co., which runs a fund that buys and liquidates distressed real estate portfolios.
Typically Higher Yields
A typical $25 million loan, he said, would enable the client to purchase a portfolio for $33 million, Mr. Greenough said. Assuming the client is spending 75 cents on the dollar, he said, that means Shawmut would be lending 55% of the original face value of $45 million on the property.
Mr. Greenough said the loans yield more than a typical real estate loan would. "There is an incremental return for taking the risk."
But he denied the risk is inordinate. "The groups of buyers are becoming adept at disposal strategy, and the market is becoming receptive to investing in real estate," he said. The loans generally mature quickly -- in 12 to 24 months, he said.