Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 14, 1994 TAG: 9408050027
SECTION: BUSINESS PAGE: B8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
The Resolution Trust Corp. says its mission is to sell all properties it inherited from the failed S&Ls of the 1980s ``in a manner that ... maximizes return and minimizes loss.''
But review of congressional reports, agency documents and land records in several states shows RTC sales average at or less than half of the properties' appraised value.
The RTC blames the poor recovery on two factors: the agency's former strategy of selling property in discounted bulk packages and the recession, which drove down real estate values in many areas.
``We've always said real estate will be the thing we take the biggest hit on,'' said RTC spokesman Steve Katsanos.
But while the RTC says it has had trouble getting fair market value, those who bought properties from the agency often did not, the AP review of land deeds in several states found. For example, the RTC:
nSold 17.5 acres in Arizona that had been seized from Charles Keating's Lincoln S&L for $875,000 in December. The same day, the buyer, lawyer Bob Frank, resold the parcel for $1.225 million. Frank's one-day profit was $350,000, or 40 percent.
nRejected a $9.6 million bid for a 224-unit apartment complex in San Ysidro, Calif., in late 1992, said San Diego real estate broker Eric Melby, who tried to assemble the deal. Instead, the RTC sold it for $6.6 million in a bulk sale to GE Capital. Melby then helped a client buy it from GE for $7.5 million in December.
``GE didn't make a killing, but they made a nice profit,'' Melby said. ``And you could say the RTC lost about $3 million.''
nSold a 9.85-acre Phoenix development for $1.7 million in October 1991. In May 1993, the buyer resold this land and an adjoining 10 acres for $6.5 million. The RTC received $3.99 per square foot; the resale netted $7.75 per square foot.
nSold a residential parcel in Phoenix in April 1993 for $185,000 to Kramer Investment Co., which more than doubled its money when it resold the land eight months later for $395,892.
Critics say the RTC was unwilling to spend the time and effort needed to get top dollar for properties, allowing real estate speculators to profit at taxpayers' expense.
``We're talking about extraordinary sums, without a full explanation of how or why,'' said Sen. John Kerry, D-Mass., a member of the Senate Banking Committee. ``The consequences are the taxpayer gets hit again hard, subsidizing someone else's profits.''
Another low-priced sale went to Don Carter, owner of the Dallas Mavericks professional basketball team, who owns much of the office space the RTC leases in the Dallas area. In February 1993, Carter paid the RTC $22.6 million for the lavish new building that was to be the failed Sunbelt Federal Savings' headquarters. The complex, complete with two-level, glass-walled offices and fountains in the lobby, cost more than $100 million to build.
Three officials familiar with the transaction, speaking only on condition of anonymity, said Carter has since agreed to resell the complex to the parent of Mary Kay Cosmetics Corp. for about $36 million - a 59 percent return. Carter's office declined comment.
``Real estate is driven by people who are willing to put lots of money and time into it, and who are not averse to risk. The government doesn't work that way,'' said Frank, who turned the $350,000 one-day profit on the Keating property after spending a year ironing out zoning variance problems.
Katsanos said the agency faces a Catch 22: Holding onto properties too long drives up the maintenance costs borne by taxpayers, while selling them quickly sometimes results in bargains for the buyers.
For instance, under the bulk sale strategy, the RTC at times rejected higher bids for individual pieces of property so that the real estate could be used to make a bulk package more attractive.
L. William Seidman, former director of the Federal Deposit Insurance Corp. who conceived the strategy, said the sheer volume of S&L properties the government inherited necessitated such an approach. ``If we sold $1 million a day, it would take us 200 years to sell everything we had,'' he said.
But one RTC asset specialist said the agency may have encouraged mass, discounted sales by awarding bonuses to agency employees based on their total property sales. ``If you can sell one big package for $50 million, or work feverishly to sell 25 packages worth $2 million, which are you going to do?''
by CNB