A recent small property sale by a PNC Bank Corp. unit wrote an epilogue of sorts to a dark era in real estate lending history.
Midland Loan Services Inc. sold the last commercial property left in the Eastrich Multiple Investor Fund, one of two "blind" pools of real estate assets auctioned by Resolution Trust Corp. in the early 1990s.
The property, Lynwood Town Centre, a shopping center in Glendale, Calif., was sold in December for $6.5 million to LTC Development Inc., a local developer.
The RTC briefly experimented with multiple investor funds as part of its program to liquidate bad loans and foreclosed properties of failed savings and loans. To move assets off its books quickly, the agency auctioned off large pools of nonperforming loans and foreclosed buildings without giving bidders the opportunity to do extensive due diligence.
This practice "increased the velocity at which [the RTC] was able to move the assets out," recalled Stacey M. Berger, executive vice president of Kansas City, Mo.-based Midland. In return, investors in the pools got steep discounts.
The RTC created the Eastrich fund in 1992. AEW Capital Management of Boston was the principal investor; Midland, then an independent company, was assigned to manage the fund.
The RTC retained an interest in the portfolio, allowing the agency to benefit from a real estate market rebound. In case the assets were undervalued by the fund, Mr. Berger said, the RTC "would benefit by the fact that it was sold [to the fund] cheaper because they were an equity partner."
Initially the RTC envisioned that it would sell billions of dollars of real estate through multiple investor funds, but the program's early success stimulated interest in buying distressed assets. "The market recognized that smart money was buying into these assets," Mr. Berger said.
As a result, the RTC was able to repackage nonperforming loans as commercial mortgage-backed securities - jump-starting the growth of that market. The Eastrich fund originally had 460 commercial real estate loans and properties valued at $1.1 billion.
Most of the assets were sold in 1996 and 1997. PNC bought Midland in 1998. The first 118 assets that the RTC delivered to the fund in early 1993 had belonged to HomeFed, a failed San Diego thrift.
One of those assets was the mortgage on Lynwood Town Centre. The fund took title to the shopping center in late 1993.
