Friday, May 15, 2009

Investor's in Money-Losing Goldman Fund Hit With Capital Calls

Even Goldman, widely regarded as one of the savviest traders on Wall Street, couldn’t avoid buying the top in the commercial real estate market. According to the Wall Street Journal, Goldman’s Whitehall, a real estate opportunity fund is faced with irate investors. What, pray tell can these investors possibly be irate about? After all, weren’t they all clamoring two years ago to get into a fund run by Goldman with a hoity toity name like Whitehall? First and foremost, the fund spent $3.7 billion on a wide range of real estate investments in 2007 that it has since marked down by $2.1 billion. Then, Whitehall bought out Goldman employees’ stakes in the fund late last year, albeit at hefty discounts, without granting other investors the similar courtesy. As if all this weren’t enough, Goldman is now asking remaining investors in the Whitehall Funds to pony up another $1 billion to meet capital calls. Sure, the capital calls are well within Goldman’s rights, and the investors are contractually obligated to cough up the dough, but still. It takes a lot of nerve to lose roughly 60% of investors’ money in a year and then ask them for more money. But if you’re Goldman, I guess you can always pull out that whole “We’re the best traders and investors on the street, so you’re better off giving us your money instead of those boobs at Lehman, or Bear, um, I mean Merrill, no wait, Morgan Stanley!” The thing is, according to the newly revised Whitehall business plan, the money from the capital calls will be used to pay back a $677 million credit line, and to recover 71% of investors’ total equity over the funds holding period. How Whitehall plans to pull off that feat in this depressed commercial real estate market where its assets are deteriorating by the minute remains a mystery. In particular, because Whitehall’s debt is guaranteed by Whitehall, the fund’s lenders can go after other assets within the fund besides individual properties. Sounds like one real estate "opportunity" I’d be glad to miss.

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