CENTURY CITY, CA-So many lenders are trying to raise cash these days by selling assets and so many investors are interested in buying those assets that commercial real estate investment banking firm George Smith Partners Inc. has formed a new unit called the Lender Services Group to market and sell lenders’ assets. Craig Hamilton, a George Smith senior vice president, tells GlobeSt.com the new unit—which predominantly will be selling loans—is a response to a large and growing demand from the lenders and investors that the Century City-based firm is in contact with every day.
The new Lender Services Group is looking at potential asset sales that range from individual loans as low as $2 million to pools of assets approaching $1 billion. Hamilton says the firm already has interest from private investors and investor groups that have committed to “substantial amounts” of funds to acquire the assets. Since many of the banks selling assets are looking to raise substantial amounts of cash, the larger assets and pools are expected to attract “quite a bit of interest” from institutional investors, Hamilton notes.
“Virtually every group that calls in today is calling to discuss assets and opportunities to purchase assets from lenders,” Hamilton says. At the same time, he says, lenders who are trying to raise cash by selling assets are asking GSP to find buyers for them. At the lenders’ discretion, the new George Smith group will be able to close deals quickly and quietly by choosing from a select list of potential bidders for lenders who want to execute discreetly, but it will also be able to utilize a broad-based bid system.
Although the Lender Services Group will predominantly be selling loans, both performing and nonperforming, it has been approached by lenders seeking to dispose of REO. “The world is still evolving in this area, but what we’ve seen so far is that lenders are liquidating nonperforming loans, some REO and some performing loans,” Hamilton says. As lenders continue to seek to raise cash going forward, he says, “I don’t think there are going to be any real boundaries on what is it that they choose to sell.”
Hamilton says that the assets vary widely in size and type, so there is no typical deal or deal size. George Smith has already executed one transaction in which a lender approached the firm with a small loan that it wanted to remove from its books. Smith arranged for an interested investor to buy the note at 100 cents on the dollar “because the buyer believes there is equity in the transaction,” Hamilton explains. In other cases, he adds, lenders are willing to sell at a discount.
In general, when it comes to pricing, both the lenders and the investors understand what the anticipated future cash flow is from the loans, Hamilton says. What’s driving the trades is that the current holder of the note needs the cash now and the investors are looking for deals that will generate cash flow and/or upside.
Hamilton observes that what Smith’s new Lender Services Group is trying to accomplish is comparable to what the federal government is doing in its bailout of financial institutions. “It’s about removing illiquid assets from the books of financial institutions and providing sources of liquidity, and we are essentially doing the same thing—transferring the assets,” Hamilton explains.
Hamilton is part of a George Smith Partners Lender Services team that includes principals Scott Bottles, David Rifkind, Gary E. Mozer, Steve Bram and Gary M. Tenzer, as well as senior vice president Andrew Levant. Hamilton says that thanks to the members’ individual expertise and the nature of the relationships that George Smith Partners has formed over the years, the firm is “well-positioned to help these institutions solve their liquidity problems.”
Because the financial markets have remained in so much turmoil, this sort of asset disposition thus far “has happened in a fairly disorderly way,” Hamilton says. “We’d like to provide some order to that disposition effort.