How Much Rent Does Chrysler Pay Cerberus?

by Robert Farago

Published: December 23rd, 2008

how much rent does chrysler pay cerberus

President Bush has pledged $4b of your taxes to Chrysler. Ultimately, the money will be under the control of the ailing American automaker’s owners, Cerberus Financial. Despite the enormous call on the public purse to fund a company whose prospects are dimmer than a 70’s porno theater, the secretive private equity group that pulls ChryCo’s strings has not opened the company’s books to full public scrutiny. Fortunately, we have a little something called the free press (and I don’t mean you Freep) ready to poke its nose into the dealings of the company about to poke its nose into the federal trough. The Wall Street Journal [sub] reports that “Public documents filed in Oakland County, Mich. show a Cerberus subsidiary called Auburn Hills Owner, LLC, bought the 458-acre complex on Aug. 3, 2007, for $325 million. That same day, Cerberus completed the deal to take over 80.1% of Chrysler from Daimler.” While the Journal seems obsessed with the fact that ChryCo employees didn’t know that Chrysler proper doesn’t own the Auburn Hills campus, the accounting behind the transaction is more interesting…

“While trying to sell Chrysler, Daimler put a higher value on the property. The sales binder that Daimler showed to potential buyers of Chrysler said the headquarters had a book value of $800 million and that Daimler had received an offer of $1.2 billion for the complex in August 2006, according to people who have seen the two-inch thick prospectus.

“The city of Auburn Hills assessed the property’s value at just over $460 million last year, down from a peak of approximately $620 million in 2005… On the day the acquisition of Chrysler closed, Cerberus secured a loan of $225 million against the headquarters building from Citigroup Global Markets Realty Corp., public documents show.

“A person familiar with the matter said Cerberus used that money to pay part of the $325 million it owned [sic] Daimler for the building.”

The bottom line: Cerberus owns the property and Chrysler pays rent to cover the nut. What’s the nut? What’s the rent? Unknown. As “investors” in Chrysler, taxpayers should demand to know every detail of their business. What other skeletons lurk in Cerberus’ closet?

[thanks to tced2 for the link]

Robert Farago

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Ronnie Schreiber on Dec 24, 2008
There’s nothing wrong with the idea of splitting out the real estate from the main company. The rent payments are an expense that reduce the tax liability, and it reduces Chrysler to what it should be, which is a car company, not a real estate operator. Successful family owned businesses (like appliance chains, carpet stores, and other retail operations where real estate location is a key to success) have long separated real estate holdings from their companies. The families typically retain ownership or leases of the property and rent or sublet to the company. That provides rental income to them from the company as well as protecting the family from the result of business failure. When Highland Appliance and Fretter Appliance went out of business here in Michigan, the locations were valuable and were quickly rented out to Best Buy, Circuit City, etc. Sometimes company creditors get nasty about family holdings. When the London and NYC commercial real estate markets collapsed in the 1990s, the Reichman family let Olympia & York go bankrupt and lost control of the Canary Wharf development rather than give their creditors a look at family finances. The banks recognized the ultimate potential of the project and used O&Y's considerable debt to force the Reichmans out. While the family, once one of the world's wealthiest, lost billions, by keeping family holdings separate from O&Y they were left a stake to grow upon. Since then, the family's fortune has recovered a bit and with partners they retook control of Canary Wharf, only to lose a takeover battle with Morgan Stanley in '04-'05. In '06 Paul Reichman, who is now in his late 70s, started a $4 billion investment fund. Disclaimer: I attend religious services at an institution that has received philanthropic contributions from the Reichmans. Unlike most billionaire families, they don't live luxurious lives. I get the feeling that Paul Reichman isn't driven by greed but rather that he makes money the same way that carpenters work with would.

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U mad scientist on Dec 25, 2008
If Cerberus is nasty and evil (and it is), it’s probably because of cutthroats such as Steve Feinberg who run the show, not because of half-wits such as Dan Quayle who are along for the ride. I don't think anyone is claiming that Dan Quayle is evil. Evil tends to be a systematic effect, and the source here is opacity of certain portions of the finance world.

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