The Federal Deposit Insurance Corp. sold a 40 percent stake in the assets previously held by Corus Bank to a consortium of investors led by Starwood Capital Group.
The Chicago-based bank, which overextended itself making commercial loans for luxury condominium development projects in Miami, Atlanta, and Las Vegas, among other places, was shut down by the FDIC in September.
The FDIC transferred the bank's deposits to MB Financial Inc. and set up a limited liability company to manage its loan portfolio. A total of eight bidders submitted bids to purchase an ownership interest in that limited-liability company's portfolio of 112 construction loans, more than two-thirds of which are in default or are in foreclosure.
Those loans have an unpaid principal balance of approximately $4.5 billion. The Starwood-led consortium, Northwest Investments LLC, agreed to pay $554 million for its interest in the new public-private partnership.
The Starwood consortium bought its interest at a steep discount to the principal value of the loans. That cushion gives it the opportunity to turn a healthy profit by restructuring or selling loans, even accounting for eventual defaults.
The FDIC retained a 60 percent stake in the venture, which it valued at $831.8 million. It also agreed to provide $1.39 billion in additional financing for the deal.
The Starwood consortium also includes the firms TPG Capital, Perry Capital and WLR LeFrak. The latter was part of a different group of investors who purchased the assets of Florida-based BankUnited earlier this year.
Under the deal with Starwood, the FDIC provided zero-percent financing in order to encourage the group to hold the properties within the portfolio instead of quickly flipping individual loans, the Wall Street Journal reported. The FDIC also agreed to provide financing of up to an additional $1 billion in case of "any unfunded commitments, construction overruns, and carrying costs for bank-owned inventory."
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