The US government’s bid to buy $700 billion of troubled real estate-related assets from struggling financial institutions is the best way to restore confidence to the industry, Real Estate Roundtable chief executive officer Jeffrey DeBoer has said.
Speaking as US treasury secretary Henry Paulson appeared before the House of Representatives financial services committee yesterday, DeBoer said the US had to take “resolute action” now.
Although the price tag appeared high, the chief executive of the US industry body – which is set to be led by Dune Real Estate co-founder Dan Neidich from next June – said that negotiations over detail should not slow down the process. “The cost of not acting now would be far higher,” he added.
Paulson and Federal Reserve chairman Ben Bernanke are facing questions over how the plan will work in practice, with Democratic Senator Charles Schumer of New York, suggesting an initial investment of $150 billion, rather than the full $700 billion.
In his testimony to the House yesterday, Paulson said the acquisition company to be set up under the rescue plan and which has yet to be named would hold assets for an unspecified amount of time before reselling them to investors.
Carlyle Group co-founder David Rubenstein has already steeled his firm to take advantage of the distress, telling CNBC this week he and other private equity players would be among the largest buyers of the assets.
The $700 billion bailout is being seen as an RTC-style rescue that would see distressed debt, mainly mortgage- and real estate-related assets, bought up from financial institutions in a bid to try to keep credit markets from choking up.
In response to the savings and loans crisis of the late 1980s, the US government created the Resolution Trust Corporation to hold $394 billion of debt products before selling them off at vastly reduced prices. Financial institutions such as Goldman Sachs’ Whitehall funds and the founders of JER Companies, Joe Robert, and Colony Capital, Tom Barrack, invested heavily in the assets and went on to form some of world’s largest private equity real estate firms.
Paulson said today that “depending on the rate at which our housing market and economy recover,” the loss to US taxpayers would be “much less than the purchase price of the assets.”