The planned sale of a majority stake in General Motors’ GMAC subsidiary to a group of investors should strengthen the company’s real estate operations, said real estate brokers and managers affiliated with the subsidiary.
Cerberus Capital Management LP, a private investment firm named for a mythological three-headed dog that guards the entrance to Hades, is leading the investment group, which also includes Citigroup Inc. and Aozora Bank Ltd. The planned sale is subject to regulatory approvals and is expected to be finalized in fourth-quarter 2006.
GM expects to receive about $14 billion in cash over three years in the deal, which will give the investment group a controlling interest of 51 percent in General Motors Acceptance Corp. and GM will retain a 49 percent ownership stake, according to a company announcement today. Under the new ownership plan, GM has the option to buy back a controlling interest in GMAC within 10 years.
GMAC engages in automotive financing, commercial finance, insurance, mortgage, banking and real estate services, with operations in about 40 nations. As a part of the deal, Citigroup has announced plans to set up facilities that will inject $25 billion to support GMAC’s ongoing business.
“It’s an optimal situation for all of the parties,” said Lane Barnett, president of the franchise business unit for GMAC Real Estate. The franchise unit has about 22,000 affiliated sales associates and 1,300 real estate offices in the United States, Canada and Puerto Rico. GMAC-affiliated agents took in about $52 billion in sales volume in 2005.
The investor group has announced that it will keep all of the GMAC subsidiaries for at least five years, Barnett said. The deal “is optimal for everybody. I don’t see any downside in this at all,” he added. “This is a great day for all of us.” Barnett said he doesn’t anticipate that the GMAC brand would change as a result of the ownership change.
GMAC chairman and CEO Eric Feldstein, who will continue to lead the company after the equity sale, said in a statement, “This transaction begins an exciting new chapter for GMAC that will allow us to realize our strategic vision of becoming a premier global financial services company. With improved access to cost-effective funding, we will be able to provide more competitive financing to promote GM vehicle sales and to re-establish our historic trend of profitable growth across all our business sectors. GMAC is now poised to move from a defensive game plan to playing offense again, which should enable us to deliver tremendous value to our shareholders.”
“Employment levels are not expected to change as a result of this transaction,” according to the GM announcement. “Under the agreements, GM will have an option to acquire GMAC’s global automotive finance operations, under certain conditions. This option is exercisable for 10 years after the closing of the transaction.”
George F. Donohue, president of GMAC Real Estate International Properties Group, a residential and commercial real estate firm in New York City, said he also has a positive view of the new ownership group. “I think it will provide us more opportunities. I think that the new entities that are involved have depth and reach and resources that will help us in our real estate transactions … (and) give us more financial horsepower. It’s good for our customers and good for us.”
Al Galperin, broker-owner for Cherry Creek GMAC Real Estate of Denver, Colo., said rumors were swirling for several months about a potential GMAC sale, and there were some worries about that potential sale. He said the investment group looks solid and he is pleased with the outcome. “Based on everything I’ve seen, it looks like the buyers have a wealth of strength. I see this as nothing but a positive all the way around.”
Galperin said he considered a change of ownership at GMAC as a possibility when he purchased the franchise in November 2005. “I felt pretty confident that no matter what happened I would be OK.”
After the GM announcement this morning, Galperin said he had a conversation with one of the senior agents from his office. “I presented this to him today and he was pretty excited about it,” Galperin said.
Neal Clayton, broker-owner of BrokerSouth Real Estate Partners in Nashville, Tenn. and a former GMAC affiliate who left the network last year, said GMAC has “great leadership,” though he said that large real estate franchise companies have some challenges in competing with independent companies in smaller markets, particularly because of pressures on industry commission rates.
GMAC real estate franchise operations opened 100 new offices across the United States in 2005, the company announced in January. GMAC Home Services, which includes real estate and mortgage operations, purchased Better Homes & Garden Real Estate from Meredith Corp. in 1998. GMAC Global Relocation formed in 1998 when GMAC with the purchase of Argonaut Services. GHS Mortgage, a part of GMAC Mortgage, offers home mortgage products through GMAC real estate franchise offices.
GMAC also has about 95 company-owned real estate offices, and about 3,500 real estate professionals affiliated with those offices.
Established in 1992, Cerberus Capital Management has about $18 billion in assets under management for individual and institutional investors. Cerberus is based in New York City, with offices in Chicago, Los Angeles, Atlanta, Amsterdam, Frankfurt, Tokyo, Osaka and Taipei.
GM Chairman and CEO Rick Wagoner said in a statement, “This agreement is another important milestone in the turnaround of General Motors. It creates a stronger GMAC while preserving the mutually beneficial relationship between GM and GMAC. At the same time, it provides significant liquidity to support our North American turnaround plan, finance future GM growth initiatives, strengthen our balance sheet and fund other corporate priorities.
The GM Board of Directors reportedly approved the sale, which has been in the works for several months, in a special meeting on Sunday.
George Fisher, presiding director of GM’s board, said in a statement, “This transaction along with the other progress GM has been making on its turnaround plan, is an important milestone. While there is still much work to be done, the GM Board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability.”
“We are very proud to align ourselves with an American icon like GM through GMAC, one of the most recognized and respected names in the financial services industry,” said Mark Neporent, Cerberus’ chief operating officer and senior managing director, in a statement. “We are committed to a long-term partnership that we expect will bring sustained growth, diversity of product offerings and lasting benefits to GM and GMAC employees, dealers, suppliers, customers and other stakeholders.”
Lenard Tessler, senior managing director at Cerberus who is in charge of private equity, added, “We have great confidence and respect for the people of GMAC, and look forward to the continued success of the GMAC automotive financing, mortgage and insurance, banking, and real estate services businesses around the globe.”
The GMAC board of directors will have 13 members — six appointed by the investor consortium, four appointed by GM, and three independent members. GMAC will continue to be managed by its existing executive management, according to the GM announcement.