RAIT Financial Trust’s filing for Chapter 11 bankruptcy reorganization comes after a decade of struggles that may make it the first publicly traded real estate investment trust to seek such protection from creditors since the end of the Great Recession.
Through its filing, Philadelphia-based RAIT is now looking to sell substantially all its assets to an entity owned by funds managed by affiliates of Fortress Investment Group. The purchase agreement provides RAIT with a binding bid of $174.4 million, subject to higher or better offers in the bankruptcy bidding process.
RAIT, which originates and invests in commercial mortgages, appears to be the first major property REIT to file for bankruptcy since the $35 billion retail REIT, General Growth Properties, succumbed to the financial crisis in April 2009.
Mortgage REITs were more susceptible to the downturn, particularly residential mortgage REITs, when subprime mortgage delinquencies rose and housing prices weakened. A handful of such REITs filed for bankruptcy. Thornburg Mortgage, with about $36 billion in assets, was the largest.
RAIT, with a market value of about $650 million, comes nowhere close to the asset size of those REITs. Moreover RAIT, unlike Thornburg, invested in commercial mortgages, not residential debt.
The National Association of Real Estate Investment Trusts said it does not track data on bankruptcies. Requests for information on the bankruptcy restructuring were referred by RAIT to the company’s bankruptcy filings.
The company’s stock, which traded as high as $400 a share five years ago, fell to about $19 a share at the end of 2017. Stock analysts had dropped coverage of the REIT in the fall of 2017 when the company announced plans to explore strategic alternatives. Efforts since then to sell the company or its assets came up short.
Like GGP and Thornburg, though, RAIT said the financial crisis of a decade ago played a role in its financial struggles.
“As a result of the 2008-2009 financial crisis, ongoing market conditions, and other factors, RAIT incurred approximately $1.468 billion in losses between 2008 and 2018 through mortgage write-offs, asset write-downs and losses on the sale of assets,” RAIT Chief Executive John Reyle wrote in a court filing.
RAIT went heavily into debt in the years following 2008 and in 2016 began selling off its assets from before the financial crisis.
“During 2016 and 2017, RAIT sold or divested $737.2 million of its property portfolio and reduced related indebtedness by approximately $652 million, as part of a plan to transition to a monoline commercial lending business model,” Reyle said.
A year after announcing that initiative to refocus on its core middle-market commercial real estate lending business, RAIT announced its plans to exit the business altogether and put itself up for sale.
RAIT and its advisers contacted 84 potential buyers and investors and found no takers, according to court filings.