GM seeks deal for RenCen

Carmaker may sell building if it can’t borrow $500M; Pitch to be made to Detroit pension funds

Robert Snell and Christine MacDonald / The Detroit News

General Motors Corp. wants to borrow about $500 million from one or both of Detroit’s pension funds to refinance the Renaissance Center, the automaker’s iconic world headquarters, in a move that could pump cash into the financially strapped company’s coffers.

GM officials are scheduled to make a preliminary investment pitch Thursday to the city’s Police & Fire Retirement System and are trying to schedule a meeting with the pension fund representing general city employees, The Detroit News has learned.

If a deal cannot be reached, GM will consider selling the landmark and leasing space within the RenCen, John Blanchard, GM’s executive director of worldwide real estate, said Monday.

The moves come as the automaker is trying to raise about $5 billion through asset sales and borrowing to survive the worst auto sales market in 15 years. Already on the shopping block are the Hummer brand, GM’s medium-duty truck business, vast amounts of real estate and shuttered manufacturing plants.

Blanchard stressed talks are preliminary and any deal with the pension funds is merely one way the RenCen could be used to raise cash for GM.

"That’s an option we would look at," he said. "We are committed to the city. We have no plans to move."

Blanchard said GM will consider selling the RenCen but would structure a deal that would allow the automaker to lease the property.

"I guess the financial squeeze is on," said auto analyst David Healy of Burnham Securities Inc. "GM might be burning through that much (cash) a month. But it will get them through the squeeze period."

GM bought the RenCen — a set of seven interconnected towers that includes a movie theater and several restaurants and a hotel — in 1996 for $75 million, then borrowed $500 million against it for a major remodeling and had been leasing it until May. That’s when GM paid $626 million to take full ownership of the building.

GM officials have been exploring ways to refinance the building ever since.

In simple terms, GM wants to take out a mortgage on the RenCen and generate cash that could be spent on developing technology, vehicle launches or weathering a sales slump as consumers have shifted away from profitable trucks and sport utility vehicles. Vehicle sales have fallen 18.1 percent this year, and GM posted a $15.5 billion second-quarter loss in August.

In return, one or both of the pension funds might receive an equity stake in the RenCen and regular payments over time.

"We think it is a great investment opportunity for both pension funds," Blanchard said. "It’s almost fully occupied. It’s a very visible iconic property, which generates a lot of cash flow. From our position, it’s a safe investment."

GM isn’t alone in using assets to raise cash. In November 2006, Ford put virtually all of its U.S. assets up as collateral to raise about $23 billion in financing from investment banks for its own turnaround plan.

Two city pension funds, one representing police and firefighters and the other for general city employees, have deep resources and investments in some of the city’s top development projects.

At the end of June 2007, the police and fire fund had nearly $4.5 billion in assets. The general pension system had nearly $3.9 billion.

Locally, the pension funds have invested $24 million in the Westin Book Cadillac Detroit Hotel, which re-opened Monday, and the general pension fund has invested more than $20 million in the Doubletree Guest Suites Fort Shelby Hotel redevelopment.

But GM’s request comes at a tough time for the city’s pension funds, members of which are concerned about investments in failing companies. Both funds may be out as much as $30 million in loans that helped billionaire Alabama lawyer Donald Watkins, a member of former Mayor Kwame Kilpatrick’s legal defense fund, buy the now-bankrupt TradeWinds freight airline company. In June, the boards sued Watkins in U.S. District Court, alleging he missed an $880,000 interest payment and failed to pony up his $5 million investment in cash.

"We’re not going to do it because we don’t have that kind of money," said George Orzech, police and fire pension board member. "There’s no interest that I know of, but stranger things have happened."

He said the pension board already has too much invested in downtown Detroit real estate.

"We don’t want any more," Orzech said.

Another board member said he needs to hear GM’s pitch before making a decision.

"It’s hard to comment when we haven’t heard anything," said member Gregory Best. "Thursday will be the first time."