The Foreclosure Report

A Winner In The S&L Bust

This page in a Forbes piece on Tom Barrack is a flashback to a previous era of massive defaults. "Barrack's biggest payday was around the corner. In the late 1980s he'd arranged for Bass to buy a portfolio of bad loans from American Savings, a failing thrift that the federal government had taken over. Bass paid about $1 billion, less than half the face value of the construction notes, mortgages on office buildings, and other troubled credits."

"Bass and Barrack were able to turn around and sell many of the loans back to the original borrowers at 70 cents or 80 cents on the dollar, earning about $400 million. It was only the beginning of the S&L bust, and Barrack knew the opportunities would be huge. 'He kept saying to me, 'The government will have to take over all these loans,' recalls Bill Rogers, then one of Bass's partners. 'He said we needed to be raising money to get ready for an incredible buying opportunity.' Barrack formed Colony Capital, the first vulture fund for S&L debt, in 1990."

"His timing was perfect. The newly formed Resolution Trust Corp. was desperate to dispose of $350 billion in nonperforming loans, most secured by real estate. Barrack was poised to write a check in 1991 forking over $1 billion for the first major loan package the RTC disbursed."

"Over the next four years he bought package after package. It turned out even better than American Savings had. Owners who were eager to keep their properties bought back their debt for 70 cents or so on the dollar. Any loans Barrack couldn't unload he bundled together and sold on the public markets as mortgage-backed securities."

"As the real estate market recovered, newly formed REITs also devoured his office buildings and shopping centers. By 1995, Barrack had reaped a profit of $2.5 billion. Barrack rolled on, picking up bargains from Japanese investors who had overpaid for prestige U.S. properties."

posted by Ben Jones @ 4:20 PM