Building a business from bad loans
(Crain’s) — Wade Hundley has set out to turn the loan portfolio that doomed Corus Bank into an investing success story — and a springboard for a new real estate business. But he’ll need some cooperation from the crippled condominium market.
The former Wall Street investment banker and casino executive took over in January as CEO of ST Residential LLC, a company formed by a group of private-equity firms that acquired a 40% stake in the $4.5-billion failed Corus portfolio a year ago.
His mission: Figuring out what to do with 102 loans made by the Chicago-based bank, many of them to condo projects around the country that went bust when the housing market crashed. The list includes a vacant 333-unit tower in the South Loop that ST may decide to convert to apartments.
But the Corus portfolio is just a starting point for ST, says Mr. Hundley. He expects the Chicago-based company to be around long after the last Corus loan is resolved, and is already scouting other distressed loans and projects to buy.
“We’re not just a liquidating concern,” he says. “We’ve really formed a company and developed a structure that we hope is going to be pretty special.”
Some of the biggest names in finance are backing him up: buyout firms Starwood Capital Group, TPG Capital, Perry Capital and WLR LeFrak, a venture including Wilbur Ross. The firms formed a joint venture with the Federal Deposit Insurance Corp. to take over the Corus loans last October.
After reading about the transaction in the newspaper, Mr. Hundley, 44, called up his friend and TPG Partner Kelvin Davis and told him he was interested in managing the portfolio. The Oklahoma native had just spent several years in the casino industry, including three as president of Las Vegas-based Pinnacle Entertainment Inc. But he was interested in getting back into real estate, where he began his career, first as an investment banker at Merrill Lynch & Co., then at private-equity firm Colony Capital LLC, where he honed his distressed-investing skills after the real estate crash of the early 1990s.
He got the job and has been commuting two or three days a week since January from his home in Dallas to ST’s Loop headquarters, where the company employs 42 people. Almost all of them used to work for Corus, the main reason ST is based here.
They’ve spent much of the year trying to determine which delinquent loans to foreclose on and which ones to restructure. Of the original 102 loans, about 15 have been paid off or been sold, Mr. Hundley says. ST has taken over 33 properties, many through foreclosure, and about 25 loans are delinquent and either being modified or headed to foreclosure, he says. The rest are current.
Most of the Corus loans were to projects in overheated markets in California, Las Vegas, South Florida and Atlanta. ST is overseeing two mortgages here, including a $130-million construction loan on Walton on the Park, a slow-selling 201-unit project in the Gold Coast built by local developers Ronald Shipka Sr. and Richard Stein. A few months ago, ST agreed to extend the maturity date on the loan as far out as September 2012.
In May, ST took over the other Corus-financed project here: Lexington Park, a 333-unit condo tower in the South Loop built by Chieftain Group Ltd., an Irish developer. ST has delayed closings in the tower as it repairs damage caused by a major flood inside the building — at a cost of about $18 million — and mulls a switch to apartments amid a depressed South Loop condo market.
“Right now, the dynamics of the rental market are quite strong, and we think it would do well as a rental,” Mr. Hundley says. “The for-sale market we’re still assessing.”
Related story: Nearly vacant condo tower does back to lender
ST faces similar decisions in other markets, choosing, for instance, to convert projects to apartments in Las Vegas and Tampa, Fla., where demand for condos is especially weak. After some promising signs earlier this year, the housing market has faltered in recent months, a sign that ST may have a harder time selling condos than originally expected, even at vastly discounted prices. But Mr. Hundley isn’t concerned.
“I think you have little pockets of real growth and opportunity, you have little pockets that are really suffering and the rest of the country is just getting on its footing, where prices have stabilized now and are starting to inch up again at a more normal pace,” he says.
Another question is whether the joint venture will be able to pay off loans it received from the FDIC to finance its share of the Corus acquisition. A $150-million loan comes due next October, and an $850-million loan comes due in October 2012, says Linus Wilson, professor of finance at the University of Louisiana at Lafayette.
“The big test for them is: Are they able to pay the loans or refinance?” he says.
Through a spokesman, Mr. Hundley says he “doesn’t anticipate any problems in meeting our obligations.”
Indeed, Mr. Hundley, who has an MBA from the University of Texas and an undergraduate degree from Oklahoma State University, is thinking beyond Corus. He wants to start expanding ST’s portfolio by buying other distressed assets as early as next year.
“The goal is by the end of the year, we’ve got most of these things on a solid track,” he says. “Once that happens, then I think we’ll be ready to really take a serious look at some new things.”
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