The RTC learns its ABCs

1991 Charles Hurwitz buys the first portfolio of distressed S&L assets

In some respect, the private equity real estate industry was jolted into existence on August 9, 1989, when President George H.W. Bush put pen to paper and signed into law the Financial Institutions Reform Recovery and Enforcement Act, the S&L bailout package that led to the creation of the Resolution Trust Corporation. Six years later, the RTC had resolved 747 failed savings and loans and unloaded $465 billion in assets, many of them to an emerging cadre of opportunity fund managers.

In the beginning, however, the RTC disposal program was beset by administrative difficulties and delays. Nevertheless, the pace of asset sales picked up considerably when the government body began selling bulk portfolios of distressed assets, rather than just single properties. And the first such portfolio it sold was purchased by Maxxam, the Houston-based real estate, timber and aluminum conglomerate owned by financier Charles Hurwitz.

As part of the deal, Maxxam acquired a $300 million collection of assets, consisting of 32 mortgage loans and 26 commercial properties, many of them Texas apartment complexes, for $130 million. Ron Kravit, now the head of Blackacre, the private equity real estate arm of Cerberus, worked for Hurwitz at the time and, according to one source, led the deal.

While the transaction was notable for being the first of its kind, setting the stage for all that would follow, the transaction was equally well known for the controversy it engendered. In addition to his ties to Michael Milken and Drexel Burnham, Hurwitz had also been the chairman of United Savings and Loan, a failed $1.6 billion thrift that was seized by regulators in 1988. According to one report, RTC officials “almost came to blows” while debating whether or not to sell a portfolio of S&L assets to someone who had actually overseen an S&L as it fell into bankruptcy. Hurwitz eventually had to endure a long legal battle with the federal government over his role in the United affair, though the suit was later dismissed.

Hurwitz fared much better with his RTC portfolio in the market place. In 1993 he sold a portion of the assets he had acquired in that first bulk sale, 16 multifamily apartments, for $114 million, nearly what he had paid for the entire package. The sale generated a pretax gain of $48 million.

Perhaps Hurwitz's real estate prowess was influenced by the site of his offices. During the 1990s, Maxxam maintained its headquarters in Houston's San Felipe Plaza, the site of another landmark transaction engineered by Sam Zell (see previous page).