Real estate de Triomphe

As the US savings and loan crisis ebbed in the mid-1990s—the RTC closed its doors in 1995—opportunistic funds began looking for the next big carcass, which explains why so many real estate investors started flying the Concorde to Paris.

According to various reports at the time, French financial institutions held between $20 billion and $60 billion of non-performing loans, though such institutions had historically been very reluctant to clean up their balance sheets. Nevertheless, in 1996, a consortium of investors including Cargill, Lehman Brothers and La Salle Partners acquired a $180 portfolio of real estate loans for reportedly 20 percent of face value, the first large sale of distressed real estate in France,

But it was the Credisuez portfolio, a huge $1.5 billion collection of commercial mortgages and property developments, that every vulture investor was eyeing. After a very competitive and time-intensive due diligence process—one person who worked on the deal said it lasted eight or nine months—Goldman Sachs' Whitehall Fund emerged as the winner, paying $550 million for the assets, or approximately 30 percent of face value.

Yet today the Goldman deal is remembered as much for its size as for its limited aftermath. Though many had predicted that the Credisuez transaction would ultimately unleash the floodgates in France's distressed real estate market, the reality did not live up to the hype. And US investors, now schooled in the art of Continental real estate, set their sights on the rest of Europe.

Though the French market did not end up as the RTC Part II, Goldman's Credisuez acquisition allowed it to gain a substantial foothold in the region and, according to one source, establish their property management subsidiary, Archon, in Europe.

The deal was not so sweet for the losing bidders. According to one participant, JER and Lehman Brothers, who had worked together on the transaction, were initially told they had won the auction, not Goldman. Champagne corks were popped and celebration ensued. The next day, however, they received the bad news via fax: Goldman had beaten them to the prize.

C'est la vie.