Banking Project Profiles

New Corporate Strategy Uncovers Opportunity in REITs

A global financial services conglomerate with a large commercial real estate division wanted to investigate whether to provide financial and complementary services to Real Estate Investment Trusts (REITs). What mix of products and services would it take to market? How could it compare investment needs, profitability requirements, and risks across many different alternatives?

Good Bank, Bad Bank

In the closing years of the 1980s, a large number of savings and loan institutions found themselves with an unusually high percentage of non-performing real estate loans. Conventional financial analysis was not sufficient. Without systematic and rigorous information about the risks and uncertainties inherent in the non-performing assets, no investors or buyers would consider purchasing the assets. Evocative of the subprime mortgage crisis of today, this period marked the beginning of a savings and loan crisis in the United States. Because these financial institutions did not want to be in the business of managing real-estate-owned (REO) properties, many took steps to establish a separate "liquidation bank" that would dispose of these non-performing assets. Financed by securities backed by the non-performing loans, the liquidation bank would buy the non-performing assets from the established bank.