If everything goes as planned, ailing Chrysler will soon be the happy recipient of a much-needed slug of cash from the impending sale of its wholly owned Chrysler Realty Corp. to a privately held real estate investment company in Wichita, Kan.
Lawyers are currently thrashing out the final details of what's likely to be one of the biggest real estate deals in years. And the wrap-up -- which is expected before the end of the month -- should fatten Chrysler's coffers, so the press reports go, by about $200 million. The Wall Street Journal, in fact, speculated that Chrysler could realize as much as $270 million on the transaction.
It sounds fine, except for a couple of things. Some Chrysler watchers insist the company is getting ripped off by selling its real estate assets too cheaply in what they regard as a questionable deal. And significantly, some insiders from Chrysler Realty think the same thing. And they're telling it to outsiders.
Moreover, Chryster, I'm told, is not getting $270 million or even $200 million for its real estate business -- but only about $125 million.
Sources tell me the actual purchase price is around $195 million, slightly above Chrysler Realty's book value. But the buyer, Abko Realty, Inc., will also receive $70 million in notes that the parent company owes its realty unit. And so, for about $125 million, Chrysler is giving an estimated $430 million in assets (excluding the $70 million in notes.)
Granted, Chrysler Realty is saddled with a pretty substantial debt -- roughly $305 million -- but some real estate pros argue that the purchase price is still ridiculously cheap if you factor in the true understated worth of the realty unit's holdings.
Several savvy real estate people estimate that Chrysler Realty's holdings -- primarily land and buildings of nearly 800 Chrysler dealerships and agencies -- are worth at least 50 percent more than the $430 million figure and possibly a good deal more.
If that's so, why in the world is Chrysler parting with its properties so cheaply?
A justifiable argument can be made, of course, that Chrysler is in desperate need of cash and wants to pull off a deal quickly. But even allowing for that, the word from inside Chrysler Realty -- which earned $12.7 million last year -- is that a better deal could still have been made in a hurry had the properties been shopped around to more people. The allegation is that Chrysler made no serious effort to do this.
Several of the country's biggest real estate buyers -- notably from the insurance field -- told me they hadn't even been contacted by Chrysler (although they were aware of the availability of the realty unit). And a source from one interested company says that an inquiry to Chrysler drew such a cool response that "you had to wonder if they really wanted any other bidders."
I tried getting some answers from Ed Homer, the president of Chrysler Realty. I wanted to ask him, among other things, whether Chrysler had made a thorough, detailed appraisal of its properties to ensure a fair price. I had heard rumors that it had made only a cursory check.
Alas, my effort was fruitless. I couldn't get a clear answer from Chrysler on the appraisal question -- although a spokesman thought that Abko had probably made such an analysis if the auto maker hadn't. Further, a conversation with Homer is out of the question, Chrysler told me, since the real estate negotiations are still going on.
Homer, by the way, will reportedly be joining Abko when it takes over Chrysler Realty.
Having struck out at Chrysler, I tried Abko, a firm that has been newly formed to buy the realty unit. It's owned on a 50-50 basis by George Ablah, a smooth, fast-talking Wichita land investor who's been in the real estate business for 30 years, and Koch Industries, a privately held real estate and manufacturing company that's also based in Wichita. Koch is controlled by Charles Koch, one of the richest men in America with an estimated net worth in excess of $500 million.
Ablah, who has bought land from Chrysler in the past and put the deal together, insists that "no one is getting ripped off, that it's a fair price to both buyer and seller . . . "
Adds Ablah: "We're getting it because the biggies wouldn't consider it. They weren't brave enough; they don't want to do any deals where they may have to repossess 800 showrooms."
(In response, a top official of one of the world's biggest buyers of real estate -- who hadn't been contacted -- says "properties are so hard to come by . . . so scarce, that you don't laugh off anybody, including Chrysler. And that deal strikes me as a giveaway.")
Considering the serious and lingering problems of Chrysler, I wondered what made Ablah and Koch so fearless. "We don't think Chrysler will go broke and that's what we're betting on," Ablah says.
But what if you're wrong? I asked.
"Then we'll still come out okay over the long pull," he responds confidently. "We think real estate values will continue to rise. And that's why we think the business is worth more than we paid for it."
In effect, Ablah is acknowledging the very thing that's bothering the critics of the deal -- namely, that the Chrysler holdings are undervalued relative to their potential.
That being the case, I asked Ablah, how were you able to entice Chrysler to unload at book value?
"Because we're doers, not talkers," says Ablah, who was obviously annoyed at the question. "We're putting up all cash, no notes . . . and besides, we're saving Chrysler's ass."
That comment about cash struck me as noteworthy especially when Ablah told me he personally was putting up half the money to do the deal. That seemed surprising in light of a check one auto industry executive had done on Ablah several years ago when he was involved in a potential deal for the car company.
"we found Ablah to be a hustler, a guy with a negligible net worth," the auto executive says.
Ablah, however, insists his net worth is substantial -- that he has strong financial backing. Maybe so, but he refused to let me talk to any of the financial institutions that were anteing up his 50 percent.
Now I have to admit that I know beans about real estate. Like you, I've heard about homes and office building space skyrocketing in price.
I've also heard from one real estate man after another that many corporate balance sheets list land and buildings at "book value" far below what they would bring if they were sold in today's inflated market. And Chrysler, by Ablah's own admission, has many prime properties.
Now I didn't find any smoking guns in looking into the situation, nor am I suggesting they exist. But when you consider the unanswered questions about what's regarded as a "giveaway deal" -- a controversial transaction that baffles even the pros -- it's no easy matter to blithely ignore a nationally known auto executive when he tells me with strong conviction: "The whole situation stinks."