Goldman real estate fund down from $1.8 bn to $30m

Whitehall Street International, Goldman Sachs’ international real estate investment fund, has lost almost all of its $1.8bn of equity following soured property investments in the US, Germany and Japan, according to the fund’s estimates.

By the end of 2009, the fund was down to its last $30m, a paper loss of about 98 cents on the dollar, an annual report sent to investors last month said. The report said that Goldman was Whitehall’s largest investor, with a commitment of $436m. Last year, Goldman took a loss of $1.76bn from all its real estate principal investments.

The Whitehall disclosure is the latest in a string of losses reported by bank-owned property funds that relied on debt, and it comes as the Obama administration is seeking to restrict banks’ investment in private equity funds.

It was revealed earlier this week that Morgan Stanley’s most recent $8.8bn international property fund will lose as much as two-thirds of its value.

The Whitehall fund, raised in 2005, invested more than half its capital in the US, and was also heavily exposed to Germany. While the drop in property values was dramatic in these two countries, losses at the Goldman fund were exacerbated by its dependence on debt.

The letter to investors acknowledges the “negative impact of leveraged investing in a market in which estimated asset values have declined materially”.

“The approach of lenders and regulatory agencies towards upcoming troubled debt maturity issues may meaningfully impact the fund’s ability to hold assets until markets recover or to sell select non-core assets in the near future,” the letter said. “Many banks have been unwilling or unable to extend credit or refinance without steep concessions or additional equity.”

The Whitehall fund has a long life and is not set to end until 2014 at the earliest. So it is still possible that values will improve.

“Our continued focus on restructuring opportunities within our portfolio will enhance the prospects for recovering equity for the fund and our investors,” the letter adds. The fund has distributed $45m, or 3 per cent of committed capital, to investors.

Goldman was able to restructure the debt on several of the fund’s investments, including a $558m recapitalisation of Valencia, a Japanese real estate company. It also has restructured several investments in Germany, including a retail portfolio in Berlin.

Goldman has handed the keys to creditors and locked in losses on other investments, including Daiwa House in Japan and several investments in Germany.

The letter says that the fund’s financial statements received a qualified audit opinion for the year, though “this does not affect our ability to execute the fund’s current strategy and the ultimate recovery period for the fund”.

http://www.ft.com/cms/s/0/9ca7d968-48d2-11df-8af4-00144feab49a.html

THE RISK OF LOSS IN REAL ESTATE INVESTMENTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH INVESTMENT IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN REAL ESTATE INVESTMENTS CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES,

MANAGED REAL ESTATE INVESTMENTS BY GOLDMAN SACHS

ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL INVESTMENT PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS.

 

And only a couple of days ago - Morgan Stanley has told investors in its $8.8 billion
real-estate fund that it may lose nearly two-thirds of its money from
bum property investments, the WSJ reports.

These guys should have invested in Dubai they would have only lost 55%

 

Wonder how much in fees both companies took out? Probably in the hundreds of millions.

Same old story, investors take all the risk with no guarantee of a payout. The banks have zero risk and guaranteed profits (at least initially).

But then who's likely to be the investors? Pension funds and the like no doubt and they're there to be skinned.................

 

How is that different from what the OP just said? It was revealed earlier this week that Morgan Stanley’s most recent $8.8bn international property fund will lose as much as two-thirds of its value.

 

Alright anal boy I only read the first few lines and it rang a bell about the story I read on Morgan from 2 days ago. I shall go whip myself now.

It's not going to be a good weekend in the press for Goldman with this and the SEC charges!

 

They'll remain confident until the last nickel is sucked out of the fund. :eek:

 

and then when the pension funds can't make their 8% per year goal. Guess who they will be asked to make up for the short fall?