NEWS ANALYSIS: GMACCM For Sale, But Will it Close?

Will General Motors get its price for GMAC Commercial Mortgage, the nation's largest commercial servicer?

Maybe, maybe not, but according to some commercial mortgage executives, GM's timing couldn't be worse.

"It's a tough sell," said one veteran commercial executive, requesting anonymity. "With GM now on the market, that means 70% of all commercial (servicing) portfolios are for sale."

Although the 70% number is a bit of an exaggeration, one thing is for certain:

Lend Lease Corp., Atlanta, so far has failed to unload its commercial servicing division, CapMark Services, which means there's plenty of "supply" when it comes to commercial mortgage receivables.

Too much supply often results in weak bids, weak that is, if you happen to be on the sell side. Falling interest rates and concerns over terrorism insurance don't help either. (GMACCM held the mortgage on the Twin Towers of the World Trade Center.)

Moreover, just a few months ago GMACCM, as well as Prudential Asset Resources, Dallas, were being mentioned as the most likely candidates to buy CapMark. (CapMark officials would neither confirm nor deny that it's for sale.)

How much GMACCM might fetch is unclear. Some executives say the asking price could be as high as $1 billion. "I think if they could get book value for this thing the folks in Detroit would be happy," said one commercial manager.

For now, GMACCM officials aren't saying much. But unlike CapMark at least GM confirmed that it's considering a sale and even named its investment banker: Morgan Stanley & Co.

As far as which firms might bid, sources say Washington Mutual, Seattle, the number one residential servicer, will look under the hood, and several other large money center banks will consider their options. Large foreign banks also will take a look. (Washington Mutual officials declined comment in regard to GMACCM.)

One thing's for certain, though, GM, at this time, has no intention of selling the firm's residential business.

"The problem with the commercial unit is that they're a balance sheet hog," said an investment banking executive familiar with the matter. "They're very successful but the eat up a lot of the company's capital."

Two officials familiar with the unit's operation told Mortgage Servicing News that at the end of each quarter the company "lays off its balance sheet" to an investment banking firm.

"If you have no balance sheet at the end of a quarter your earnings can be infinite," said a source. "This way the managers can make their numbers."

Jerry Dubrowski, a spokesman for General Motors, said that the company will auction, "all or substantially all of its interests in the commercial mortgage business."

But he cautioned that the firm is in the early stages of the process and, "may not even complete the transaction at all."

As to why GM is contemplating such a move, Mr. Dubrowski said that considering the "tremendous growth" in the commercial mortgage business over the last few years, GMACCM has, "continued to increase its need for equity capital and funding support from GMAC."

He added that, "given the current market environment, it makes sense to GMAC to explore other options that will allow the commercial mortgage business to continue its growth trajectory and realize its full potential."

Does that mean that GMAC is not willing to invest the additional money required for GMACCM to realize its growth potential?

Mr. Dubrowski said, "The best way to describe it is that GMAC has a number of business units and those business units obviously need capital in order to grow. And this sale, if it were to come to fruition, would provide additional financial flexibility to GMAC to make capital available to its other business units."

At the end of the fourth quarter GMACCM had $160.8 billion in commercial servicing on its books.

It funded $6.8 billion in product in the fourth quarter alone. GMACC is also a Fannie Mae DUS lender.

CapMark, according to figures compiled by the Quarterly Data Report, is the third largest commercial servicer in the U.S. with $65.2 billion in receivables. CapMark's parent, Lend Lease, is based in Australia.

Poonkulali Thangavelu in New York contributed to this story.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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