Silverton And FDIC BidsThe bids are due in about 30 days on the Silverton portfolio. It is mainly hotel loans, and it is only a portion of the hotel portfolio. It consists of whole loans and loans participated out to small community banks. The whole loans are probably reasonable properties with mostly decent borrowers. There are supposedly 65 bidders for everything from the entire portfolio of $416 million face amount of which $254 million is participated loans, down to individual borrowers bidding for their own loan. It is highly likely the winner will be a bidder for the whole portfolio, but politics will possibly interfere with the bid process, and they may sell some loans to the borrowers. FDIC will retain a 60% interest in the buying entity, so it will have substantial control rights over how the workouts are handled. The confi required was so onerous some potential bidders backed away.Here is one major issue. The participating loans are held by tiny banks who have essentially no capital if their assets were written to true value. Whoever buys the loans from Silverton will be faced with the FDIC likely interfering with normal restructures so that the little banks do not take the hit to capital. This is very bad policy and will not allow borrowers to get the restructures they need. It also means many bidders will not bid this part of the portfolio, and those who do, will way underbid due to the FDIC interference. FDIC is likely to require more extend and pretend, and a lot of little banks who do not deserve to exist, will be kept alive by FDIC only to die another day.Now we have already seen a whole host of people involved with these banks screaming that it is unfair to recognize truth and the FDIC is already under huge pressure to lie about the true value of these loans. If reality would be permitted, then we could have a true arms length bid for these assets which would set the market value in a proper way. Then all banks would be forced to recognize reality and the bad loans would be forced to come to market. That would start the loan sales which we have all been waiting for and begin the healing of the banking sector by closing all the small, poorly run banks across the country that should never have been allowed to exist in the first place. They made real estate loans they were not qualified to underwrite, and they have no idea even now what these assets are worth.The politicians and media love to blast the big banks who made many bad decisions as well, but the real problem today lies at the regional and small bank level where all of these small loans still reside, and will continue to reside for several more years so long as FDIC insists on hiding the truth. The Silverton auction is not going to reveal true market values due to this misdirected politicized policy.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM Digital Member, you’ll receive:

  • Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
  • Educational webcasts, white papers, and ebooks from industry thought leaders
  • Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.