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Our Response to Halsey Minor

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Halsey Minor's post on September 28, 2010 entitled "FDIC, the Governments Job Killer..." is painfully inaccurate and distorted and shows no understanding of even basic economics. Frankly, we are appalled that Mr. Minor did not bother to check any of the facts as it relates to Starwood Capital or the acquisition of the failed Corus Bank.

Where do we begin? Starwood Capital is not a "hedge fund". We have never been one. We are a private equity firm. We acquired the assets of the failed bank, Corus, in a bidding process administrated by an independent investment bank hired by the FDIC. The process was open to all interested and qualified parties. This was no "under the table" deal. In fact, after the liquidation of the assets of the failed savings banks during the Resolution Trust Corporation era in the early 1990's, the FDIC wanted to avoid providing the possibility of windfall returns for acquirers of distressed assets from the taxpayers. So this time around, the FDIC decided they would retain 60% of the equity of the transaction. Starwood and its partners bid for a 40% of interest in the equity and receive a management fee to work and maximize the value of the assets. Essentially the government "rented" our shop, which has 160 professionals, so that they could recover as much of the "loss" for the taxpayers as possible. Though we paid $2.7 billion for the assets, we expect the government will recover more than $1 billion in additional proceeds from this clever structure.

As to the "zero per cent financing", this too was mighty clever of our government. First, it was available to all bidders. Second, our purchase price for the loans increased nearly $500 million in proceeds for the taxpayer when the government provided this financing. We recognized upfront the benefit of this financing (60% of the benefit went to the taxpayers of course) but it did more than just provide interest expense "savings" for the buyer. By having this patient financing, the new owners of Corus bank knew we would avoid the time pressure of having to simply dump the more than 12,000 finished and semi finished condominiums and other assets on the already depressed local property markets, injuring existing residential owners in the acquired condominium towers. Imagine the anger the government would have faced had we "dumped" apartments in bulk auctions well below the prices paid by existing residents in these buildings. In fact, the government specifically prohibited bulk sales of assets in an effort to avoid destabilizing the markets. This too was quite clever.

Now the "go forward" business plan, which was approved by the FDIC, and which we implemented about a year ago, has remain unchanged. We would examine each property and seek to maximize returns for the government and our own investors. About 40 of the 101 Corus assets we acquired were performing loans at the time of acquisition and most all are still performing. About 20 of the assets were already owned by Corus and about 40 were in need of modifications and or restructuring/foreclosure. The portfolio has now decreased to just 84 assets as we have resolved 17 properties. Of the 101 assets, only 3 borrowers have sought bankruptcy protection. For each owned property, our plan was to finish, reposition and renovate the asset, build a marketing team, work to provide financing for end buyers and then price and sell the assets. After such a process, we just recently launched our entire Atlanta portfolio for sale and have executed dozens of sales contracts. Nearly 200 people attended the opening of the Solair condominium project in Los Angeles and we've sold 32 units in just four weeks.

Buyers are excited by our team's commitment to value and our strong sponsorship which ensures that we will work to protect their home investment. By maximizing sales prices through our deliberate and patient approach, we are actually maximizing the value for our federal government and to the taxpayers, as well as local tax revenues in sharp contrast to Mr. Minor's naïve allegations. The higher the price, the higher the real estate tax. We have built a website for our new company, ST Residential (, which you should visit. In fact, since taking over the Corus Bank loan portfolio, which included dozens of unfinished projects across the country, ST Residential has funded more than $500 M to complete construction and enhance properties that many developers could not finish. This commitment is providing hundreds of construction jobs that would have otherwise been abandoned. We have created rather than destroyed jobs at a time the nation needs jobs the most. In Chicago alone we have rebuilt a staff of 30 people, all new hires, to oversee this investment.

The individual cited in Mr. Minor's mostly inaccurate piece, Sonny Astani, developer of the Concerto in Los Angeles, actually stopped paying construction workers and tradesmen and was the ONLY Corus borrower to file Bankruptcy BEFORE we acquired the assets of Corus Bank. He is in our view an extortionist trying to get value for a position far underwater through no fault of ours. He has tried to hurt the taxpayers not us. Sonny effectively owes the Federal Government the amount he borrowed from the bank. Like nearly every developer in the nation who borrowed funds from banks to build their projects, Sonny's timing was poor and unfortunate. In contrast, a neighboring residential building, EVO, was nearly sold out when we acquired Corus and the loan we bought was subsequently retired in full. Mr. Astani has started a media circus trying to embarrass us and the FDIC. It appears Mr. Minor has also fallen for his pile of lies. Mr. Astani could not achieve the sales prices nor the velocity he needed to pay back his loan. As we speak, there are still hundreds of workers attempting to complete the Concerto project. We and the FDIC are not destroying jobs. ST Residential, in compliance with the bankruptcy court order, allowed Astani to finish his construction in accordance with a budget submitted by him to the bankruptcy court. We have honored every funding request made by Astani since we acquired the loan.

In sum, our transaction with the FDIC is a partnership to maximize the value of the Corus Bank loan portfolio and minimize the loss to the American taxpayers. The FDIC chose experienced real estate firms like Starwood Capital, TPG Capital and the LeFrak Organization to manage projects where developers are otherwise unable to meet their commitments or filed bankruptcy like Sonny Astani. At the same time, buyers of condominiums from ST Residential have the confidence that their investments will be protected by ST Residential, a financially strong sponsor that is committed to maintaining and enhancing the value of their new homes.

I hope you find that after a review of the actual facts above, Mr. Minor's article and his claims regarding myself and Starwood Capital are baseless and frankly outrageous. Mr. Minor owes us an apology.

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