No matter what experts and investors believe about the future of the real-estate market as a whole, one thing is crystal clear – the demand for premium properties has not died out. There will always be takers for high-end properties like shopping malls, skyscrapers and hotels in the long run. Banks obviously believe so as is evident from the fact that they are lining up to acquire a $7.49 billion chunk of the Maiden Lane III portfolio from the Federal Reserve Bank of New York.  Reports suggest that Deutsche Bank (NYSE:DB), Barclays (NYSE:BCS), Goldman Sachs (NYSE:GS) and Credit Suisse (NYSE:CS) are in the fray for the portfolio which consists of two CDOs tied to commercial property loans.
The New York Fed acquired the Maiden Lane portfolio when it bailed-out AIG (NYSE:AIG) in late 2008, at the peak of the economic downturn. Incidentally, the CDOs forming the portfolio are linked to various commercial real-estate loans issued by Deutsche Bank over the 2007-2008 period. And now Deutsche Bank will try its best to add the portfolio to its balance-sheet.
Why? Well, the Maiden Lane III portfolio has a face value of $47.7 billion. Last December, its market value was estimated at $17.8 billion. And last year, especially the end of it, was a bad time for the debt market – and valuations were clearly depressed. With the global scenario improving this year, it would be an obvious conclusion that today the portfolio should be worth quite a bit more.
That would also explain the interest shown by almost all the big banks. But the bidding process and the selection of the winner is expected to be a long-drawn process that will be spread over several weeks. So lets wait and watch who pockets the portfolio.Notes:
- Deutsche Bank, Barclays Said to Prepare Maiden Lane Bids, Bloomberg Businessweek, Apr 12 2012 [↩]