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Citicorp is arranging to sell hundreds of millions of dollars of prime commercial real estate in transactions structured to give the bank a share of the profits in these projects when markets improve.
Bank officials said last week that one deal is close to an agreement with investors and 10 others are in preliminary talks.
Speculation about which projects Citicorp may sell is centered around two office towers in midtown Manhattan - where it is the lead lender - and a foreclosed apartment building on the West Coast, which Citicorp owns.
Citicorp is borrowing an approach that a handful of other banks have used on a much smaller scale.
By adapting it to the industry's largest portfolio of real estate loans, however, the giant money-center bank is all but certain to accelerate the trend, experts predict. A Lesson from Texas
"Citicorp was very aggressive," said Stephen E. Roulac, managing partner in the Roulac Group, San Francisco. "Their position in the financial community is not what it once was. But there's no question, when a major institution starts doing something, it has an influence."
The technique is modeled on participating mortgages used to restructure loans in Texas a few years ago and in the national real estate recession of the '70s.
In this case, Citicorp plans to write down each loan to the point where cash flow covers debt payments.
In exchange, it will retain the right to a portion of future profits, if any, from the sale of the building. Suited to Top-Notch Properties
The strategy assumes a recovery of real estate values in five to seven years, when the newly issued mortgages come due. It is best suited to top-notch properties - the biggest, newest downtown office buildings that are coming on the market at the worst possible time.
Mr. Roulac said the technique is "not going to help a whole lot" with loans that are too far under water.
But he said the strategy could help banks improve their recovery on projects that are just shy of being able to make debt payments in today's soft market.
"If they pull the plug and do a fire sale, they're going to get less," Mr. Roulac said,...