RTC to Sell Some Holdings Via Limited Partnerships

The Resolution Trust Corp., the nation’s thrift cleanup agency, will use a partnership structure to sell about $2-billion book value of real estate and real estate loans in its inventory.

The planned sale of the properties follows last week’s creation of the National Land Fund, which holds about $2-billion book value of vacant land and unfinished commercial properties. The Land Fund represents about 10% of the RTC’s total real estate holdings from seized savings and loans.

The RTC’s plan calls for groups of sophisticated investors to bid on packages of real estate from the Land Fund. The winning bidder for each package will put down 25% of the bid amount, while the RTC will retain a 75% interest in the properties.

The winning bidder will then manage the properties and try to sell them. The investors will give 75% of the sale proceeds to the RTC until the agency has received an amount equal to the implied value of its 75% stake. After that point, the investors and the RTC will split the sale proceeds 50-50.

For example, if an investor group bid $500 million for properties with a book value of $1 billion, the group would put down $125 million. The RTC would retain an interest with an implied value of $375 million. Once the investors pay the RTC $375 million, any remaining sale proceeds would be split 50-50.

“This is the first time the RTC has done a limited partnership joint venture,” said Louis Dubin, RTC project manager of the Land Fund.

The planned arrangement gives investors an incentive to maximize the value of the properties they buy. This contrasts with paying an outside group a fee to manage the properties, which gives little or no incentive to maximize the selling price.

The RTC’s Dubin estimates that the properties in the Land Fund will sell for 20% to 40% of book value, reflecting the inflated values assigned to properties at the time the thrifts were seized by the agency.