Sigaba
04-21-2009, 03:38
Source is here (http://washingtontimes.com/news/2009/apr/21/senate-husbands-firm-cashes-in-on-crisis/print/). This is the first of two parts.
Tuesday, April 21, 2009
Senator's husband cashes in on crisis
Chuck Neubauer THE WASHINGTON TIMES
On the day the new Congress convened this year, Sen. Dianne Feinstein introduced legislation to route $25 billion in taxpayer money to a government agency that had just awarded her husband's real estate firm a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.
Mrs. Feinstein's intervention on behalf of the Federal Deposit Insurance Corp. was unusual: the California Democrat isn't a member of the Senate Committee on Banking, Housing and Urban Affairs with jurisdiction over FDIC; and the agency is supposed to operate from money it raises from bank-paid insurance payments - not direct federal dollars.
Documents reviewed by The Washington Times show Mrs. Feinstein first offered Oct. 30 to help the FDIC secure money for its effort to stem the rise of home foreclosures. Her letter was sent just days before the agency determined that CB Richard Ellis Group (CBRE) - the commercial real estate firm that her husband Richard Blum heads as board chairman - had won the competitive bidding for a contract to sell foreclosed properties that FDIC had inherited from failed banks.
About the same time of the contract award, Mr. Blum's private investment firm reported to the Securities and Exchange Commission that it and related affiliates had purchased more than 10 million new shares in CBRE. The shares were purchased for the going price of $3.77; CBRE's stock closed Monday at $5.14.
Spokesmen for the FDIC, Mrs. Feinstein and Mr. Blum's firm told The Times that there was no connection between the legislation and the contract signed Nov. 13, and that the couple didn't even know about CBRE's business with FDIC until after it was awarded.
Senate ethics rules state that members must avoid conflicts of interest as well as "even the appearance of a conflict of interest." Some ethics analysts question whether Mrs. Feinstein ran afoul of the latter provision, creating the appearance that she was rewarding the agency that had just hired her husband's firm.
"This clearly gives the appearance of a conflict of interest," said Kent Cooper, a former federal regulator who specializes in government ethics and disclosures. "To maintain the people's trust in government, it is incumbent on a legislator to take the extra steps necessary to ensure that when she introduces any legislation that it does not cause people to question her motives or the business activities of her spouse."
Mrs. Feinstein and Mr. Blum, a wealthy investment banker, are a power couple in both Washington and California who sat behind President Obama during his inauguration in January. Mrs. Feinstein also is mentioned as a candidate for California governor.
The FDIC contract "highlights the problem of a senator with a spouse who has extensive business interests that intersect frequently with the federal government," said Melanie Sloan, executive director of the watchdog group Citizens for Responsibility and Ethics in Washington (CREW). "Even if there is no actual conflict of interest, it often has the appearance of a conflict."
A 'very sweet deal'?
Real estate specialists also question the government's generosity in the CBRE contract.
The firm, known for its commercial real estate services, is to be paid monthly maintenance fees for each foreclosed property it handles, as well as commissions and incentives. The total compensation can range from 8 percent of the sales price on many residential properties to 30 percent for properties worth $25,000 or less. A smaller firm also won a slice of the work with similar terms, records show.
Most real estate agents earn no more than 6 percent on residential, even on foreclosed properties, and CBRE doesn't have as much experience in foreclosure sales as other firms, the experts said.
"From everything I know about it, it is a very sweet deal and went to somebody who is less than qualified in dealing with foreclosed residential properties. Their expertise is in commercial real estate," said Cynthia Kenner, a Colorado real estate agent who specializes in selling bank-owned residential properties and last year helped sell more than 600 foreclosed properties.
"There are companies that are more experienced in selling such properties than CB Richard Ellis," she added.
FDIC and Feinstein respond
The FDIC said politics was not involved in its decision, noting the contract was awarded after a six-month competition run by career staff who determined that CBRE was "deemed to be technically qualified and their fee structure fair and reasonable." That means the competition did not mandate the contract go to the lowest bidder necessarily, officials said.
The agency said the above-market incentives were designed to encourage quick sales of the growing number of foreclosed properties the FDIC has inherited during the recession. "The longer the asset is held, the more costly it is for the FDIC, and more expenses are incurred for the assets," the agency said in a statement to The Times.
Feinstein spokesman Gil Duran said there was no conflict of interest between Mr. Blum's firm getting the contract and the senator's legislation. He said she introduced the legislation because it would help prevent home mortgage foreclosures at a time when many Californians were in danger of losing their homes.
"She was not aware of the contract before she introduced the legislation," Mr. Duran said. "There is no evidence of any relationship or conflict between this foreclosure relief bill and the contract. Senator Feinstein complies with the rules and guidelines of the Ethics Committee."
Mr. Duran also said Mr. Blum "is not involved in the day-to-day operations of the company, nor does he have any involvement in the company's contracting." Mr. Blum declined through a spokesman to comment.
CBRE spokesman Robert McGrath said the firm had $5 billion in revenues last year and was "well positioned" to help the FDIC as the nation's largest commercial real estate services company. Its pricing was at market rates after a highly competitive bid process, he said.
"We believe the FDIC will realize significant value from all the work we perform on their behalf," he said.
The contract process
In May, the FDIC began the formal process of looking for help to manage and market its growing portfolio of foreclosed real estate acquired from failed financial institutions nationwide. It sent letters to 33 real estate firms and received proposals from 18.
In November, the FDIC signed a contract with CBRE that could be worth tens of millions of dollars or more at a time when real estate firms are scrambling for business in the distressed economy.
CBRE said it was hired to act "as a primary adviser" to the FDIC for its real estate portfolio nationwide, according to a press release announcing the contract. The firm called the FDIC a "major account."
Mr. Blum became chairman of CBRE in 2001 and has played a major role in its corporate business strategies. He led a buyout of the company, first taking it private and then a few years later taking it public again. He runs an investment management firm called Blum Capital Partners, which controls the second largest block of publicly traded CBRE stock - 38 million shares or 14.4 percent.
Mr. Blum, whose position as chairman of CBRE is not full time, sets up partnerships through Blum Capital Partners that invests money for its clients and its owners. He reported owning more than $3 million in CBRE stock through various partnerships at the end of 2007, according to Mrs. Feinstein's personal financial disclosure statement.
CBRE's initial contract is for three years. The FDIC has the option to extend it for three two-year periods, records show. The contract calls for the real estate firm to be used "as needed."
In March, the FDIC said it had assigned CBRE 507 properties for disposal, valued at $221.7 million. In March, the company already had 23 FDIC properties valued at $11 million under contract to be sold.
Over the past 16 months, 50 banks have failed and more are expected to close. As a result, nobody knows how much CBRE will be able to earn over the life of the FDIC contract.
Blum and the stock offering
The FDIC contract came at a good time for CBRE. Even though it remains the world's largest commercial real estate services firm, it was hit hard by the economic downturn. The company saw its revenues and income slide in 2008 and its stock price tumbled from $24.50 in May to below $4 in November.
"Our third quarter results reflected the extremely challenging market conditions, which continued to deteriorate globally," Brett White, president and chief executive officer of CBRE, said in early November.
A few days later, CBRE raised $207 million through a stock offering that sold for $3.77 a share. Mr. Blum's investment partnerships bought 10.6 million shares at the market price of $3.77. The stock offering was announced a couple of days before the signing of the FDIC contract.
In its November prospectus for the stock sale, CBRE warned potential investors that the company could be hurt by the money problems of its clients, noting that federal regulators had recently taken over one of its "significant" clients, Washington Mutual, the nation's largest savings and loan.
Tuesday, April 21, 2009
Senator's husband cashes in on crisis
Chuck Neubauer THE WASHINGTON TIMES
On the day the new Congress convened this year, Sen. Dianne Feinstein introduced legislation to route $25 billion in taxpayer money to a government agency that had just awarded her husband's real estate firm a lucrative contract to sell foreclosed properties at compensation rates higher than the industry norms.
Mrs. Feinstein's intervention on behalf of the Federal Deposit Insurance Corp. was unusual: the California Democrat isn't a member of the Senate Committee on Banking, Housing and Urban Affairs with jurisdiction over FDIC; and the agency is supposed to operate from money it raises from bank-paid insurance payments - not direct federal dollars.
Documents reviewed by The Washington Times show Mrs. Feinstein first offered Oct. 30 to help the FDIC secure money for its effort to stem the rise of home foreclosures. Her letter was sent just days before the agency determined that CB Richard Ellis Group (CBRE) - the commercial real estate firm that her husband Richard Blum heads as board chairman - had won the competitive bidding for a contract to sell foreclosed properties that FDIC had inherited from failed banks.
About the same time of the contract award, Mr. Blum's private investment firm reported to the Securities and Exchange Commission that it and related affiliates had purchased more than 10 million new shares in CBRE. The shares were purchased for the going price of $3.77; CBRE's stock closed Monday at $5.14.
Spokesmen for the FDIC, Mrs. Feinstein and Mr. Blum's firm told The Times that there was no connection between the legislation and the contract signed Nov. 13, and that the couple didn't even know about CBRE's business with FDIC until after it was awarded.
Senate ethics rules state that members must avoid conflicts of interest as well as "even the appearance of a conflict of interest." Some ethics analysts question whether Mrs. Feinstein ran afoul of the latter provision, creating the appearance that she was rewarding the agency that had just hired her husband's firm.
"This clearly gives the appearance of a conflict of interest," said Kent Cooper, a former federal regulator who specializes in government ethics and disclosures. "To maintain the people's trust in government, it is incumbent on a legislator to take the extra steps necessary to ensure that when she introduces any legislation that it does not cause people to question her motives or the business activities of her spouse."
Mrs. Feinstein and Mr. Blum, a wealthy investment banker, are a power couple in both Washington and California who sat behind President Obama during his inauguration in January. Mrs. Feinstein also is mentioned as a candidate for California governor.
The FDIC contract "highlights the problem of a senator with a spouse who has extensive business interests that intersect frequently with the federal government," said Melanie Sloan, executive director of the watchdog group Citizens for Responsibility and Ethics in Washington (CREW). "Even if there is no actual conflict of interest, it often has the appearance of a conflict."
A 'very sweet deal'?
Real estate specialists also question the government's generosity in the CBRE contract.
The firm, known for its commercial real estate services, is to be paid monthly maintenance fees for each foreclosed property it handles, as well as commissions and incentives. The total compensation can range from 8 percent of the sales price on many residential properties to 30 percent for properties worth $25,000 or less. A smaller firm also won a slice of the work with similar terms, records show.
Most real estate agents earn no more than 6 percent on residential, even on foreclosed properties, and CBRE doesn't have as much experience in foreclosure sales as other firms, the experts said.
"From everything I know about it, it is a very sweet deal and went to somebody who is less than qualified in dealing with foreclosed residential properties. Their expertise is in commercial real estate," said Cynthia Kenner, a Colorado real estate agent who specializes in selling bank-owned residential properties and last year helped sell more than 600 foreclosed properties.
"There are companies that are more experienced in selling such properties than CB Richard Ellis," she added.
FDIC and Feinstein respond
The FDIC said politics was not involved in its decision, noting the contract was awarded after a six-month competition run by career staff who determined that CBRE was "deemed to be technically qualified and their fee structure fair and reasonable." That means the competition did not mandate the contract go to the lowest bidder necessarily, officials said.
The agency said the above-market incentives were designed to encourage quick sales of the growing number of foreclosed properties the FDIC has inherited during the recession. "The longer the asset is held, the more costly it is for the FDIC, and more expenses are incurred for the assets," the agency said in a statement to The Times.
Feinstein spokesman Gil Duran said there was no conflict of interest between Mr. Blum's firm getting the contract and the senator's legislation. He said she introduced the legislation because it would help prevent home mortgage foreclosures at a time when many Californians were in danger of losing their homes.
"She was not aware of the contract before she introduced the legislation," Mr. Duran said. "There is no evidence of any relationship or conflict between this foreclosure relief bill and the contract. Senator Feinstein complies with the rules and guidelines of the Ethics Committee."
Mr. Duran also said Mr. Blum "is not involved in the day-to-day operations of the company, nor does he have any involvement in the company's contracting." Mr. Blum declined through a spokesman to comment.
CBRE spokesman Robert McGrath said the firm had $5 billion in revenues last year and was "well positioned" to help the FDIC as the nation's largest commercial real estate services company. Its pricing was at market rates after a highly competitive bid process, he said.
"We believe the FDIC will realize significant value from all the work we perform on their behalf," he said.
The contract process
In May, the FDIC began the formal process of looking for help to manage and market its growing portfolio of foreclosed real estate acquired from failed financial institutions nationwide. It sent letters to 33 real estate firms and received proposals from 18.
In November, the FDIC signed a contract with CBRE that could be worth tens of millions of dollars or more at a time when real estate firms are scrambling for business in the distressed economy.
CBRE said it was hired to act "as a primary adviser" to the FDIC for its real estate portfolio nationwide, according to a press release announcing the contract. The firm called the FDIC a "major account."
Mr. Blum became chairman of CBRE in 2001 and has played a major role in its corporate business strategies. He led a buyout of the company, first taking it private and then a few years later taking it public again. He runs an investment management firm called Blum Capital Partners, which controls the second largest block of publicly traded CBRE stock - 38 million shares or 14.4 percent.
Mr. Blum, whose position as chairman of CBRE is not full time, sets up partnerships through Blum Capital Partners that invests money for its clients and its owners. He reported owning more than $3 million in CBRE stock through various partnerships at the end of 2007, according to Mrs. Feinstein's personal financial disclosure statement.
CBRE's initial contract is for three years. The FDIC has the option to extend it for three two-year periods, records show. The contract calls for the real estate firm to be used "as needed."
In March, the FDIC said it had assigned CBRE 507 properties for disposal, valued at $221.7 million. In March, the company already had 23 FDIC properties valued at $11 million under contract to be sold.
Over the past 16 months, 50 banks have failed and more are expected to close. As a result, nobody knows how much CBRE will be able to earn over the life of the FDIC contract.
Blum and the stock offering
The FDIC contract came at a good time for CBRE. Even though it remains the world's largest commercial real estate services firm, it was hit hard by the economic downturn. The company saw its revenues and income slide in 2008 and its stock price tumbled from $24.50 in May to below $4 in November.
"Our third quarter results reflected the extremely challenging market conditions, which continued to deteriorate globally," Brett White, president and chief executive officer of CBRE, said in early November.
A few days later, CBRE raised $207 million through a stock offering that sold for $3.77 a share. Mr. Blum's investment partnerships bought 10.6 million shares at the market price of $3.77. The stock offering was announced a couple of days before the signing of the FDIC contract.
In its November prospectus for the stock sale, CBRE warned potential investors that the company could be hurt by the money problems of its clients, noting that federal regulators had recently taken over one of its "significant" clients, Washington Mutual, the nation's largest savings and loan.