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Doing Business with the Government Panel

In October 2009, Top industry experts gathered at The Trigild Lender Conference to present a compelling program titled “Doing Business with the Government.”

The high powered panel included Brian Olasov, McKenna, Long & Aldridge; Bruce Nelson, Situs; Pat Sargent, Andrews Kurth; Bill Eckland, Sidley Austin; Dave Dorros, CBRE; Eric Paulsen, LNR and Leslie Lundin, LBG Realty Advisors.

According to panel moderator Olasov, last year was a “tumultuous year, in which Wall Street has acceded its authority to Washington.” In fact, he said, doing business with the government is a “sign of the times. Washington is calling the shots, but the opportunities are there.”

Among the session highlights:

Question: Can you demystify the government recovery programs that affect Commercial Real Estate?

Answer: There are now more than 30 government financial programs in effect. According to Sargent, all are designed to bring liquidity into the marketplace. “Because of these programs, the locked up credit markets have improved significantly,” he said. The bottom line? Any economic recovery will be dependent on a resurgence of securitization in some form.

A few of the programs include:

Troubled Asset Relief Program (TARP): An extensive bailout program originally designed to buy up the bad debt that threatened the financial stability of banks and has evolved into billions in government investments in financial institutions.

Public-Private Investment Partnership (PPIP): TARP funds, combined with private investments, used for the purpose of buying up bad debt. The goals: to clean up bank’s balance sheets so they can more easily loan money. PPIP had two components: legacy securities, legacy loan program.

Term Asset-Backed Securities Loan Facility (TALF): Created to loan up to $200 billion to financial institutions that offered bundled loans for small businesses and consumers. The goal is to make it easier for consumers to get student, car and other types of loans.

Targeted Investment Program (TIP): This program, run by the Treasury Department, allows the government to provide aid to a troubled financial institution if that company’s problem could have a ripple on other aspects of the U.S. economy, such as creditors.

Question: What are some FDIC sale and financing methods?

Answer: According to Eckland, the government website, www.fdic.gov offers a wealth of information on this subject. “A powerful tool, it walks you through all aspects of what the FDIC is doing and also gives you a good feel for what assets are trading for, as well as explaining how to contract with FDIC. It’s a long arduous process, but there are opportunities to contract and subcontract with the FDIC.”

Investors should also note that the FDIC has an aggressive program targeting women and minorities, said Lundin. “There’s an entirely different system you go through.”

Dorros noted that there are a multitude of ways in which the FDIC makes sales, including cash, structured (larger transactions run out of Washington), whole bank and REO sales, as well as the legacy loan program.

The FDIC provides financing, encompassing five categories: acquisition, development and construction (ADC) loans, commercial loans, commercial and industrial loans (secured or nonsecured), consumer and residential loans.

ADC loans are especially problematic, as they depend on a healthy real estate market and completed project. “It’s difficult to take over someone’s half built project,” Paulsen said.

The good news: the FDIC provides rules and groundwork, giving investors have the ability to price risk. The biggest problem though, is the lack of options.