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Capmark Financial Group , a former major commercial-real-estate lender, whose failure wiped out investors at the height of the financial crisis, could make at least partial amends over the next two or three years.

Started 18 years ago as GMAC Commercial Mortgage, part of General Motors' financial-services outfit, Capmark is now liquidating its portfolio of loans and real estate under a court-ordered process. Attracting some savvy buyers, shares (ticker: CPMK) have jumped to $22.75 from $14 since it emerged from bankruptcy last fall. Some analysts and investors, however, think the stock could be worth $29 a share if Capmark's real-estate sales continue on their upward price path. Teeing up the asset sales: The company's holdings include golf courses, office buildings, and shopping malls Capmark

Evermore Global Advisors, a respected value investor, picked up a sizable chunk of Capmark stock once it began trading again. Matt Spiegel, an Evermore analyst, says, "You're betting that these assets have been marked down so aggressively in the credit crisis that the liquidation will deliver a substantial premium to the marked-down price." He says the stock could rise 15% or more from recent levels and could ultimately go further if other assets, like an operating bank that Capmark owns in Utah, are also disposed of. Capmark has a market value of $2.3 billion. Its 100 million shares are thinly traded on the Pink Sheets.

Once the Horsham, Pa., company sells real-estate holdings that include golf courses, office buildings, and shopping malls, as well as its loans and other assets, it will pay off about $334 million in debt. Then it will distribute the remaining cash to shareholders over the next three years. After the distributions, Capmark isn't expected to exist.

A SHELL OF ITS FORMER SELF, Capmark once boasted a portfolio valued at $276 billion; then, six years ago, it was spun off from GMAC (now Ally Financial). A private-equity group including KKR (KKR), Five Mile Capital, and Goldman Sachs Group (GS) were the buyers, and the Ally unit retained 21%. Their timing could not have been worse.

The firm ran aground in the credit crunch as it tried to service more than $360 billion of commercial debt. The 2009 bankruptcy filing wiped out the private-equity players' holdings. The newly issued shares are in the hands of investors like Evermore and JPMorgan Chase (JPM), much of it in their mutual funds. One of the wild cards in Capmark is its Utah-chartered corporate bank operating under a regulatory cease-and-desist order. In the bankruptcy proceedings, the mortgage- and loan-servicing operations went to Warren Buffett and Leucadia National (LUK) for a reported $490 million. Analyst Spiegel thinks there's an outside chance the company will opt to retain the bank and distribute its shares to stockholders.

The whole Capmark operation is headed by Chairman Gene Davis, a workout specialist. He and other senior executives didn't respond to Barron's queries.

So far, the results of their efforts have been encouraging, lifting the stock. A Webcast of a recent management presentation noted that the portfolio's properties were written down to about 75% of their value at the time of the credit freeze in 2009. But current sales indicate that recoveries are coming north of 82%. For all of 2011 the company sold $653 million in assets, well ahead of the $515 million envisioned by the court-approved liquidation plan. In the fourth quarter of 2011, Capmark's North American division had an 88.4% recovery of assets, much higher than the plan's 57.1% estimated for this segment.

"Asset sales since the company's emergence from bankruptcy remain ahead of plan in terms of dollar volume, and have generally occurred at a gain to carrying value, boding well for the timing and amount of the ultimate distribution," says Brian Charles, an analyst with New York-based R.W. Pressprich, who issued a Buy on the stock on May 9. He also likes the secured debt of Capmark. He estimates the ultimate liquidation value will be north of $26. "The benefits of such an investment have just become more obvious since the company has emerged from bankruptcy," says Charles. "This is a relatively safe bet on an improving American economy. Things don't have to take off for this to do well."


Capmark shares could go as high as $29 from a recent $22.75 if the company continues to unload its commercial real estate at better-than-expected prices.

Tom Fairfield, Capmark's chief financial officer, sounded optimistic in the Webcast: "We're certainly seeing good money coming in where loans are repaid. A lot of the cash in the next couple of years will be loans being paid off at par. We haven't had a lot of negative migration into non-payments." Translation: Values are holding up.

Obviously, the run-up in the shares has diminished their appeal. And there are risks in the portfolio, particularly from loans made in 2006 and 2007. One key miscue: a multimillion-dollar loan to the ill-fated Xanadu development in the New Jersey Meadowlands. That deal alone has cut the recovery rate on Capmark's owned real estate to 55 cents on the dollar from 65 cents. And, under its regulatory pact, Capmark must continue to run Capmark Bank in Utah, which requires it to maintain a fully staffed lender separate from the real-estate liquidation.

Even so, with a short time horizon and some help from an improving U.S. economy, Capmark could be a low-risk real-estate play.

Go to Black

Some investors think Capmark can beat its own liquidation forecasts.
 The Intriguing Real-Estate Sale at Capmark


