RTC Vets Form CRE Fund for Distressed Properties

MBA (8/15/2008 ) Murray, Michael
Three former Resolution Trust Co. veterans have formed a $200 million debt and equity fund to acquire distressed whole loans secured by commercial real estate.

WLJ Partners, formed by Rick Williamson, Eileen Lyons and Paul Jones, targets sub-performing and non-performing commercial mortgage loans in the United States held by banks and other institutions. The fund will provide liquidity, just as RTC provided liquidity for commercial real estate loans acquired during the liquidation of failed savings and loans during the early 1990s.

Despite his work at RTC, Williamson compared the current state of commercial real estate more with the 1970s and less with the 1990s.

“The current situation most closely resembles the 70s," Williamson said. "I remember the 70s. We had high and rising inflation, an oil price shock with its attendant high gas prices, rapidly increasing food prices, an unpopular war and increasing unemployment. That list of items sounds like a litany of current complaints.”

The fund's primary focus will be on loans with an outstanding principal balance from $2 million to $10 million. The fund would also buy larger loans that fit its defined investment criteria.

As a 20-year veteran of commercial real estate banking, Williamson said excessive valuations and aggressive financing alternatives were not limited to residential real estate.

“Our economy is currently suffering through two deflating bubbles, the real estate bubble and the credit bubble,” Williamson said. “We have witnessed an unprecedented run up in the value of residential real estate which was aided and abetted by ‘financial engineering.’ So far, most of the attention has been focused on residential real estate and subprime loans.”

The principals of WLJ Partners, however, believe commercial real estate markets are heading for a correction after a peak marked by Sam Zell’s sale of Equity Office Properties to Blackstone Group.

Williamson said the new administration in November will “almost certainly have to deal with the inflation issue,” faced by the Reagan administration in the early 1980s. During that time, Williamson said Federal Reserve Chairman Paul Volcker raised interest rates to "astronomical levels."

“He ended runaway inflation, but cap rates went up with interest rates and rents dropped due to the lack of demand caused in part by the recession,” Williamson said. “The result was a drop in the value of commercial real estate.”

With hundreds of [agricultural] banks closing and the oil bust hitting more banks, Williamson said the RTC closed hundreds of S&Ls that went broke from bad commercial real estate loans.