Wilbur Ross, Related Bid On Corus Assets

Billionaire investor Wilbur Ross said he has teamed up with Barry Sternlicht‘s Starwood Capital Group to bid on the assets of failed Corus Bank, while a source said Related Companies had also made an offer.

The bids for these condominium loans and other assets with a face value of roughly $5 billion were put in at noon on Sunday, said Ross, chairman and CEO of private equity firm WL Ross & Co, at the Reuters Restructuring Summit in New York.

The Federal Deposit Insurance Corp (FDIC) is running the auction, which is being watched for its potential impact on the commercial real estate market.

Ross, who founded his firm in 2000 and is known for distressed investing, said the FDIC was offering financing for the deal, but declined to give any details about the terms.

Separately, the source said Related has teamed up with entities including real estate investment firm Lubert-Adler Partners in its bid on Corus’s assets. The source declined to be identified because the process is private.

Sources had previously told Reuters that other possible bidders for Corus’s assets included private equity firm Lone Star Funds and real estate investment firm Colony Capital LLC.

Starwood, Related, Colony and Lone Star declined to comment. FDIC could not be reached immediately for comment.

Corus Portfolio

Long controlled by the Glickman family, Chicago-based Corus Bank crumbled under the pressure of bad loans on commercial real estate and condominium developments in Arizona, southern California, southern Florida and Nevada.

Corus’s assets included about 120 loans — mostly for condominiums — that had an original principal value of about $7 billion, said Norman Radow, chief executive of the Radco Companies.

Radow’s firm specializes in the rescue of distressed commercial real estate nationally and said he has looked at the Corus portfolio.

On September 11, the FDIC seized the bank, a unit of Corus Bankshares, and sold its deposits to MB Financial Inc, leaving the bulk of its assets to be sold later in a private placement.

At the time, the FDIC said it planned to complete the sale in the next 30 days.

“The price will probably be higher than it normally would be because of the structure of the transaction,” Radow said, referring to FDIC’s involvement in helping the deal get done. “But I think it still would have an impact in those markets and it would hopefully start loosening the log-jam that’s stopped assets from trading in the last two years.”

At the Reuters Restructuring Summit, Ross said there had now been two auctions where the FDIC had separated the assets of a failed bank from its deposits and sold each separately.

He said he also bid in the auction of about $1.3 billion of assets of Franklin Bank, the lender founded by mortgage securities pioneer Lewis Ranieri that failed in November last year.

FDIC Rules

When asked about a new set of rules issued by the FDIC to govern private equity investments in failed banks, Ross said he expects the regulator to be more lenient in cases when buyout firms were the only bidders.

“They reserved the right to change the policy in individual situations,” Ross said. “That suggests to me that in the circumstance where perhaps there’s not a strategic bidder — or there is one but it’s miles below the bid that’s made by private equity — it may well be that they will be more lenient.”

The FDIC rules, which were put in place in August, included a capital requirement for private equity investments in banks of 10 percent and a requirement that private equity investors maintain their ownership of a bank for at least three years.

These rules were less harsh than those the FDIC originally proposed, but private equity firms are still at a disadvantage when up against strategic bidders.

The FDIC had also said it would review its rules in six months.

“My hope is that at the end of the six months they’ll review what happened with the bidding and review what’s happened with the banks that are owned in private equity form, and come to the conclusion that this is not a problem, it’s more of an opportunity for them,” Ross said.

Ross said about 60 percent of a $4 billion fund he raised in 2008, the WLR Recovery Fund IV, has been invested.

(By Paritosh Bansal and Megan Davies)