Hudson Realty closes FDIC portfolio at 80% discount

Hudson Realty Capital has acquired a $102 million portfolio of commercial real estate loans from the US banking regulator, the Federal Deposit Insurance Corporation, for $18 million.

The New York-based real estate investment firm formed a joint venture with the FDIC to take over the loan portfolio, which includes primarily non-performing loans pooled from seven failed banks taken over by the regulator. Like other structured sales run by the FDIC, Hudson will take a 40 percent interest in the venture, paying an estimated $7 million for its stake, while the regulator will retain a 60 percent interest.

The deal marks the first FDIC structured sale for Hudson, after looking at up to six other auctions either on their own or with equity partners. But, according to managing director Renee Lewis, it may not be the last: “This is the kind of smaller to mid-market transaction that’s on our horizon.”

The Federal Deposit Insurance Corporation

Officially known as the southeastern multibank pool, the Hudson portfolio was one of three commercial real estate pools being auctioned by the FDIC and includes assets largely located in Florida and Georgia.

The Hudson portfolio includes office, retail, some hotels, land, restaurants and commercial condos, with 88 percent of the loans deemed non-performing according to the principal balance. The ratio of non-performing loans by the number of mortgages in the portfolio is around 50 percent. Lewis said Hudson would work through the loans by either restructuring the debt or foreclosing on the underlying assets. As a result of the deal, Hudson is opening an office in Fort Myers, Florida.

The FDIC has come under increasing fire for selling failed bank loan pools in large portfolios that only a handful of players can bid on and win. In January, Colony Capital took down a portfolio of 1,184 loans with a $1 billion face value for $91 million of equity – or 44.7 cents on the dollar – followed six months later by a portfolio of 1,660 loans with a face value of $1.85 billion. On the second deal, Colony and its junior equity partner, The Cogsville Group, paid $218 million for a 40 percent stake in the deal.

Last October, Starwood acquired one of the most high-profile FDIC structured sales, buying a 40 percent stake in 101 commercial construction loans from the failed Chicago bank, Corus. Working with TPG Capital Group, Perry Capital and WLR Lefrak, Starwood paid $551 million for the loans, which had a face value of $4.45 billion.

Lewis said the intense competition seen during the early days of FDIC structured sales had abated slightly, adding: “At first, the FDIC was the only true seller in the market, but there are now more places where deals can be sourced.” Combined with the natural fatigue of investors spending money on due diligence but not winning auctions, the FDIC structured sale market was increasingly becoming “a more normalised market”, she noted.