$817M FDIC Deal Underscores Colony Strategy

SANTA MONICA, CA-Just about a year after investment vehicles managed by Colony Capital bought a 40% interest in an LLC created by the FDIC to hold assets of 22 failed-bank receiverships, the company has led a consortium of investors in acquiring two FDIC loan portfolios with an unpaid balance of $817 million. The latest deal, along with a host of others by privately held Colony Capital and a publicly traded REIT called Colony Financial that it formed in 2009, underscore a strategy that Colony has pursued in two decades as a leader in distressed asset investing.

Founded in 1991 by chairman and CEO Thomas J. Barrack Jr., Colony Capital was one of the pioneers in buying distressed assets from the Resolution Trust Corp., the federal agency that was formed to dispose of the assets of failed savings and loans after the S&L industry collapse. Later, Colony expanded to Europe and Asia, establishing offices throughout those regions. Its Colony Financial is believed to be the first publicly traded REIT that was ever formed for the specific purpose of acquiring distressed assets.

In its latest deal, the $817 million FDIC portfolios, Colony led a consortium of investors acquiring two portfolios totaling 1,505 residential and commercial acquisition, development and construction loans. The purchase price for the combined portfolios was 23.6% of the unpaid principal balance of the loans, according to a Colony announcement. Colony Financial's equity participation totaled $5 million.

Cushman & Wakefield served as adviser to the FDIC on the sale of the 50% managing member equity interest in the newly formed limited liability company created to hold the acquired loans, with the FDIC retaining the remaining 50% equity interest. The FDIC provided 1:1 leverage financing bearing a zero percent interest rate.

In the January 2010 deal, the LLC in which Colony invested was created to own a portfolio of approximately 1,200 distressed commercial real estate loans with an unpaid principal balance of $1.02 billion, of which 70% were delinquent. In addition to that January 2010 deal and its most recent FDIC deal, Colony in July last year consummated its second structured transaction with the FDIC, in which Colony and investment funds acquired a 40% managing member equity interest in a newly formed LLC created to hold the acquired loans, with the FDIC retaining the remaining 60% equity interest. Called the Barclays FDIC Portfolio, it included approximately 1,660 loans with an aggregate unpaid principal balance of approximately $1.85 billion, consisting of substantially all first mortgage recourse commercial real estate loans. The Barclays FDIC Portfolio was acquired at approximately 59% of the unpaid principal balance of the loans, with an aggregate cash contribution of approximately $218.2 million (excluding working capital and transaction costs) for the 40% equity interest.

Colony Capital has invested $45 billion in over 13,000 assets through various corporate, portfolio and complex property transactions. The company has a team of more than 250 and, in addition to its headquarters in Santa Monica, maintains offices in New York, Boston, London, Madrid, Paris, Rome, Hong Kong, Beijing, Tokyo, Seoul and Taipei.

Colony Financial, from the closing of its IPO in September 2009 to Sept. 30, 2010, has invested primarily through joint ventures with one or more private investment funds managed by Colony Capital or its affiliates, according to the most recent quarterly financial report by the REIT. These include Colony Distressed Credit Fund, LP, Colony Investors VIII LP and related funds, and Colyzeo Investors II LP.