A10 Capital, a workout firm in Boise, Idaho, planned to announce today that it has raised $100 million to buy weak commercial real estate loans from banks, rehabilitate them, then sell them back to the originators.

"Banks really want to be able to get those borrowers back as customers, so this would give these borrowers additional time to lease up their properties and get the loans back to being conventional-type loans," said Dale Conder, A10's chief operating officer and chief risk officer.

A typical borrower might have enough interest reserve to make payments but face a cash crunch because the property has yet to be completely sold or leased.

"In the past, if a bank wanted to sell such subperforming loans, they would have to lump those in with nonperforming or defaulted loans and sell them to a 'distressed' buyer, getting 65 cents on the dollar at the most," Conder said.

Instead, A10 says, it will pay 75 to 80 cents on the dollar, work out the loans with borrowers, then sell them back to the bank.

The new fund is part of a larger effort by A10 Capital to sell advisory services to banks with troubled credits — a growing market, given the ailing financial services sector. A10 also is starting a group to provide loan workouts, management of bank-owned properties after foreclosure, monitoring of problem loans and consulting services on loan sales.

A10 is targeting banks with assets of $2 billion or less because such institutions typically lack the expertise to handle loan workouts or real estate services, while larger banks have in-house staff, said A10 chief executive Jerry Dunn.

"In basic terms, we would be the hospital, or the rehabilitation center, where the loan goes to get fixed up before being sent back to the bank," he said.

Several banks are using A10's advisory services, and some are negotiating loan sales. But Dunn said such customers prefer not to publicize their workouts of still-performing loans.

Patrick J. Rusnak, the CEO of AmericanWest, a $2.1 billion-asset banking company in Spokane, said he is interested. "We're going to contact the company — every alternative is worth pursuing in this environment," he said in an interview Wednesday.

Analysts said it is rare for a financial firm to focus on buying still-performing loans to rehabilitate and sell back. Numerous banks might consider selling such loans, the analysts added, but they noted that the price must be high enough to warrant the capital hits.

"All of the banks that have substantial amounts of exposure on their balance sheets should consider it, if you can get a fair price," said Chris Stulpin, an analyst at D.A. Davidson & Co. in Portland, Ore. "A 20% to 25% haircut on construction loans is very reasonable in this environment."

Brett Rabatin, an analyst at Sterne, Agee & Leach Inc., said a lot of banks may be unwilling to accept less than 90 cents on the dollar for loans that are still performing because a lower price would cut into earnings and subsequently their capital ratios.

"But banks also have to think about the future of the economy and the potential hits to earnings if those loans turn into nonaccrual loans. It's a tough decision," Rabatin said.

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Corrected March 23, 2009 at 6:42PM: A previous version of this story misstated A10 Capital's plans for its new $100 million fund. A10 says the fund will buy bad commercial real estate loans, but not construction loans, from banks.