GM Sells Stake in Commercial Mortgage Unit

In a move aimed at lowering borrowing costs at its finance arm, General Motors (GM) agreed Wednesday to sell a majority stake in its commercial mortgage financing business to private equity investors.

A group that includes Kohlberg Kravis Roberts Co., Five Mile Capital Partners and Goldman Sachs Capital Partners agreed to buy 60% of GMAC Commercial Holding Corp. and its $250 million loan servicing portfolio.

GMAC declined to disclose the book value of its commercial mortgage unit or the price. But GMAC spokeswoman Toni Simonetti said the buyers paid "a modest premium over the book value" for their stake.

GM makes most of its money from lending, and shareholders might wonder why the company would want to part with a crown jewel. GM's mortgage unit is a top performer for GM's financing arm, whose profitability has kept the automaker afloat as its auto business has fallen on hard times.

Simonetti said the move was mostly motivated by a desire to free the commercial mortgage unit from GM's credit ratings, which have recently been reduced to junk by Standard & Poor's and Fitch Ratings.

"The commercial mortgage folks want to seek a separate credit rating, and their objective is to get an investment grade rating," said Simonetti. "When you've got a good, growing business with good prospects like commercial mortgage, the negative credit ratings becomes a problem. Because their growth prospects are good, we felt that we ought to find a way to help them gain better access to the capital markets."

Earlier this year, GMAC separated its residential mortgage operations into a wholly owned subsidiary known as Residential Capital Corp. ResCap, as it's been called, achieved investment-grade ratings, allowing it to partake in a financing deal with lower borrowing costs than the rest of GM could access with its speculative-grade ratings.