In 1991, Sterling and American created SAP I to be their exclusive real estate investment vehicle. SAP I’s primary objective was to seek out value enhancement real estate opportunities throughout the United States. Around the time of SAP I’s formation, the Resolution Trust Corporation commenced offering portfolios of distressed loans. SAP I, which had originally anticipated acquiring direct ownership of assets, refocused its efforts to take advantage of this opportunity.

Domestic banks and insurance companies followed the RTC pattern and offered portfolios of non-performing and sub-performing loans to the market. By then SAP I had already successfully broadened its strategy by focusing on various loan portfolios which were purchased for 50% to 80% of their face value. Utilizing Sterling’s extensive real estate operating knowledge and experience, business plans and exit strategies were developed for each of the assets.

SAP I, with its co-investors, acquired interests in 2,124 assets between April 1992 and April 1995. This included approximately 1,750 underlying mortgages and other real estate related instruments as well as 374 directly owned assets in ten transactions. The largest geographic concentrations of these assets were in California, New York and Texas. Multifamily properties constituted approximately 40% of the assets acquired.

• SAP I and its co-investors invested a total of $1.1 billion in ten portfolios between 1992 and 1995. These investments were acquired utilizing $633 million of debt and $487 million of equity capital. SAP I contributed $83 million, including $24 million from the principals of Sterling and American. Co-investors contributed $404 million.
• Returns were maximized by understanding the underlying value of the assets. SAP I worked with borrowers to allow them to share in the upside, while staff was kept lean and foreclosure costs nominal. Fewer than 10% of 2,124 assets ultimately required foreclosure.
• Returns were achieved over an average equity duration of 44 months.
• The aggregate debt to capitalization ratio was 56.7%.