RTC Arranges 1st Bulk Sale Of Realty Seized from S&Ls
WASHINGTON - An investment group has agreed to pay the Resolution Trust Corp. up to $500 million for 50 to 100 office buildings and hotels.
The massive sale is the first one in which the S&L bailout agency has been able to unload properties in bulk. "This is evidence that the RTC has turned the corner," said its chairman, L. William Seidman.
More Big Deals in the Works
Mr. Seidman told reporters Wednesday that two more large deals are being negotiated.
The agency now has authority to sell up to $8 billion of distressed real estate in packages. If the program succeeds, the RTC expects bulk sales to become a key step in the disposal of real estate. The RTC currently has a total of $18 billion of real estate in its inventory.
Mr. Seidman calculated that, if the RTC were to sell just $1 million worth of assets a day, it would take 504 years to dispose of assets from failed thrifts. "If this job is going to be done, we have to move toward large sales," he said.
The RTC said the initial sale of office buildings and hotels was made to an investor group named Patriot American Investors LP. While Patriot American's four principals are from Toronto and New York, the company will be based in Dallas, because 60% of the properties are in Texas, according to Paul A. Nussbaum, one of the four.
Optimism About Texas
Mr. Nussbaum heads the real estate practice at the New York law firm of Schulte, Roth & Zabel.
"We believe in the future of the state of Texas," Mr. Nussbaum said in a telephone interview Wednesday. "We believe the turnaround will come. We believe that we will profit substantially from that turn-around."
He said he expects Patriot American to put down $130 million - about $78 million in cash and $52 million into an escrow account that will be used for property improvement and to cover the cost of carrying the properties.
A European bank is financing the escrow portion of Patriot American's bid. However, neither the RTC nor Mr. Nussbaum would identify the bank.
Terms to Be Determined
Mr. Seidman said no U.S. commercial bank is involved in any of the three pending deals. Domestic banks' lack of interest in lending on real estate led the RTC to offer Patriot American financing.
Terms have yet to be determined, said Amy Hersh, a senior asset marketing specialist at the RTC. But Patriot American is expected to use the RTC's new cash-flow mortgage.
Under this type of loan, the RTC gets a portion of the properties' income every year. The RTC's cut will range from 15% to 70%, increasing as the investors recover their original equity. If real estate markets rebound during the 12-year mortgage, the RTC also gets 25% to 30% of any increase in value above the sales price.
The exact properties Patriot American will buy have not been selected, Ms. Hersh said. But all real estate sold under this program has been on the market for at least six months, she said. The average price for properties in these bulk portfolios will exceed the minimum the RTC would demand if the properties were sold individually, she stressed.
Identities of Investors
Patriot American's three other investors are: Jack Daniels, former chief executive of Cadillac Fairview Corp., a major Toronto-based real estate development company that was bought by JMB Realty Corp. in 1987; William L. Mack, whose company, the Mack Organization has developed 16 million square feet of suburban office space in the New Jersey-New York area; and George S. Mann, president of Unicorp American Corp., a holding company to Lincoln Savings Bank, New York.
Of his optimism about Texas real estate, Mr. Nussbaum said: "We're not magicians, but we are seasoned real estate veterans."