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GM could sell its Detroit HQ to raise cash

General Motors Corp. says it is looking to take out a mortgage on its towering headquarters complex as it continues efforts to raise cash to operate in an era of tight credit.
/ Source: The Associated Press

General Motors Corp. says it is looking to take out a mortgage on its towering headquarters complex as it continues efforts to raise cash to operate in an era of tight credit.

The automaker's top real estate executive said Tuesday that GM will make a presentation on Thursday to the Detroit police and fire pension board to see if it might be interested in investing in the Renaissance Center. The company also will talk with the general employees' pension board.

John Blanchard, executive director of GM worldwide real estate, said in an interview that it is common for companies to borrow on large assets, and it's something GM did in 1996 when it bought the seven-tower complex on the Detroit River.

While conceding that GM is in need of cash, Blanchard said it's just coincidence that it is pursuing a mortgage now.

"We have equity that's built up in our global headquarters. We're just looking to tap into that," he said. "This is pretty normal financial management for an asset the size of a building like this."

GM moved to the complex, built by Ford Motor Co.'s real estate arm in the 1970s, from Midtown Detroit in 1996. It took out a $626 million mortgage to buy the buildings and pay for millions worth of improvements, including a huge atrium overlooking the Detroit River and the Windsor, Ontario, skyline.

The automaker paid off the initial mortgage when it expired in May, and since then has been looking to raise cash with another financing deal, Blanchard said.

Last month, GM said it was drawing down the last $3.5 billion of a $4.5 billion secured revolving credit facility to add liquidity during "uncertain times in the capital markets."

The Detroit automaker has been profitable overseas but has lost $57.5 billion in the past year and a half as high gas prices and the weakened economy have sent domestic sales into a dive. GM burned through $3.6 billion in cash during the second quarter, although it said that rate should slow for the rest of the year.

GM had $21 billion in cash and $5 billion available through credit lines at the end of June for total liquidity of $26 billion. The company announced a liquidity plan in July that calls for cutting $10 billion in costs and raising another $5 billion through asset sales and borrowing over the next 15 months.

Fitch ratings analyst Mark Oline, however, has projected that GM could reach the minimum amount of cash required to run the business, $11 billion to $14 billion, within the next year.

The Detroit News reported Tuesday that GM would try to borrow about $500 million with the Renaissance Center as collateral, but Blanchard said the company has not discussed terms yet with the pension boards.

GM, he said, will try to get the maximum amount of money out of the complex as it can, but would prefer to retain ownership. However, selling and leasing back the entire complex also is possible, he said.

If the pension board deals don't work, then GM will go to the credit markets, Blanchard said. He said the complex, which includes a hotel and movie theater, is more than 90 percent occupied and would be an attractive investment.

Such arrangements are common practice for large companies, according to analysts.

"Sale-leaseback is a well-known strategy to monetize an asset," Dwayne Doherty, spokesman for real estate giant Cushman & Wakefield, said in an e-mail message. "In addition, refinancing commercial property is as the value appreciates over time is very common."

Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co., agreed that such deals are standard, but said in GM's case, it's more about raising money.

"It's more of a liquidity play than it is standard operating procedure, but companies do it all the time," he said.

Police and fire pension board trustee Paul Stewart said he'll hold off taking a position on the proposal until he hears GM's sales pitch.

The pension fund, he said, has $3.8 billion in assets, and pays out about $26 million each month in benefits.

He said the fund must get a 7.8 percent return on its investments to pay its bills.

GM has named its iconic Hummer truck brand and its Strasbourg, France, manufacturing operation as assets that are up for sale, and said it could announce more asset sales later this year.