The FDIC announced yesterday the winner of an extensive bidding process for the assets of now defunct Corus Bank which included some of the largest names in private equity. The portfolio comprises mostly construction loans for residential condominiums. The winner was a group led by Starwood Capital Group. The most fascinating part of the deal was the incredibly innovative structure created by the FDIC. The structure detailed in this Wall Street Journal Article allowed Starwood to invest equity of only $554 million for a portfolio that is estimated to have an original face value of over $5 billion. Although Starwood purchased controlling interest in the portfolio their ownership will only be 40%. It is estimated that Starwood valued the portfolio at $2.77 billion and the remained funds were part of a series of equity and debt provided by the FDIC which is maintaining a 60% stake in the portfolio.
The structure of this deal is very compelling as it incentivized a company such as Starwood and their partners to enter into a long term strategy to workout these loans but still allows the FDIC the opportunity for significant upside participation. I suspect, as the FDIC continues to close banks and control pools of loans that we will see more transactions of this kind. It is pretty interesting that the FDIC in this transaction essentially became the seller, the buyer, the lender and equity partner all at the same time.