AIG Holds Off Giving Funds To Real Estate Ventures

In a recent development, the American International Group (AIG) has held off releasing payments to many of its real estate ventures. As reported in the Wall Street Journal, the move by the company carries with it the potential to do serious damage to the credibility and financial stability of both the banks and developers involved.

The insurance company reportedly halted payments to the Alabama-based shopping center developer Alex Baker. Fifteen banks may face possible exposure to defaults on loans. Despite assurances from AIG that a settlement is available, the lenders and financial institutions involved are not likely to accept the offer.

In February, the insurer’s inability to keep its payment obligations landed AIG in the middle of a lawsuit filed by Mitchell L Morgan Management Inc. According to an AIG spokesperson, the company and Morgan have made an agreement to postpone any litigation for 60 days to broker a settlement-even while the insurer’s position is that Morgan’s complaint is groundless.

The figures for AIG’s real estate branch, AIG Global Real Estate, place its interests at an astounding $23 billion. This number represents about 53 million square feet of real estate. This may explain better what sort of blow the insurer’s activities might be to the markets as well as the banks and developers.

In the aftermath of such mismanagement and failure to meet obligations, the company has been placed under the watchful eye of the Federal Reserve. Every transaction conducted at AIG is being monitored closely. With $180 billion in bailout funds provided to keep the insurer solvent, it stands to reason why there is so much oversight.

The final outcome of AIG’s real estate fiasco remains to be decided. Likely, the U.S. government will be playing an active role in its amicable resolution.