An old-fashioned town in California hidden behind redwood trees, Scotia is unique from all other towns in the country - it is owned by Marathon Asset Management, a hedge fund based in New York. The Wall Street Journal reported that the Marathon was awarded ownership of the whole town in 2008 by a bankruptcy court. The hedge fund with about $11 billion under management now owns 272 homes, two churches, a hotel and a number of commercial buildings, which are illiquid investments that it now has the responsibility of unloading for at least the next five years, the report said.
Scotia was a town built by Pacific Lumber Co or Palco beginning in the 1880s. The company rented homes to workers and their homes for generations and held annual Christmas parties for the kids. In 2006, Marathon started lending Palco millions of dollars because they saw that the company could be salvaged even if it was underperforming at that time. However, Palco sought bankruptcy protection just six months later.
Scotia and the company's other assets were awarded to Marathon by a bankruptcy court. At that time, over $160 million was owed to Marathon. Palco has now undergone restructuring, with Marathon taking an 18.5% stake in the firm.
While it's not extraordinary for hedge funds to hold ownership of assets in debt transactions, Marathon seems to be the only hedge fund that claims ownership of a whole town, the report said.
The WSJ reported that the key for Marathon is to conduct a smooth exit of the town, taking profits but leaving a few hard feelings behind as much as possible. Some of the town's residents said some of the communal features that have made Scotia special have been lost under the ownership of the hedge fund. However, Marathon executives said they have done their best to do the right thing for the residents, striving to keep rents affordable and maintaining the homes without losing sight of the investors' bottom line, the report said.
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