Bailout Board Will Slash Prices of S&L; Properties by Up to 20% to Get Sales : Real estate: Officials are eager to offer deals tempting enough to help reduce a $16-billion property backlog.
Federal regulators voted Tuesday to slash prices on thousands of office buildings, shopping centers, homes and other properties seized from failed savings and loans, offering discounts of as much as 20% for real estate unsold after nine months.
“We will be setting market values,” said L. William Seidman, chairman of the Resolution Trust Corp., explaining the drastic change in policy designed to help unload the government’s real estate backlog, currently valued at $16 billion and growing with every new S&L; takeover.
“The time for us to move this property out is as fast as possible,” said C. C. Hope Jr., another member of the RTC board.
The S&L; bailout law requires the government to sell properties in distressed areas--Texas, Oklahoma, Arkansas, Colorado, Louisiana and New Mexico--for no less than 95% of market value. This means that a Dallas property appraised at $1 million could not be sold for less than $950,000.
The floor is 90% for real estate located in other areas.
But federal officials, dismayed because they have sold only $2 billion worth of properties so far, decided that deeper cuts were needed.
The current pricing system has been based solely on appraisal reports. However, RTC officials have decided that if nobody makes an offer for a property within six months, the asking price does not represent true market value no matter what the appraisal says.
Under the new policy, adopted 4 to 0 by the RTC board, the agency allows its local officials who are selling properties to offer a deep discount from appraised values if properties remain unsold after specified time periods.
The policy complies with the requirements of the bailout law because it modifies the procedure for assessing market value rather than lowering the floors, Seidman noted. “We’re dealing with how we determine market values; we’re giving them flexibility,” he said.
Under the new policy, the official market value of a $1-million property in Dallas can be trimmed by as much as 15%, to $850,000, if it has not sold within six months. After three months more, the market value can be trimmed another 5% to $800,000.
At that point, the bailout law’s 95%-of-market-value rule is applied, making the lowest acceptable price $760,000. The government will accept any price above the floor established by these calculations.
Market-value cuts of as much as 15% can be imposed immediately on properties that have been for sale for six months without any acceptable bids. The six-month waiting period will be reduced to four months for single-family homes.
The policy change adds the judgment of local officials to the price set by the appraisal process. Appraisals “only provide an estimate of market value, and do not necessarily offer indisputable evidence of value,” the RTC said in a policy document adopted by the board. “These guidelines allow the RTC some flexibility for determining market value.”
The new policy gives tremendous discretion to RTC officials in 14 local offices, who can reduce prices on properties valued up to $10 million without seeking higher approval. The four regional offices can handle deals up to $25 million; anything bigger must be approved in Washington. California has one local office, located in Costa Mesa. The Western regional office is in Denver.
The RTC issued a four-volume list of available properties at the beginning of the year, and will produce an updated directory soon. The new listings will be available on disks for use in computers.
Adoption of the new policy had been delayed at the request of Comptroller of the Currency Robert L. Clarke, who was initially fearful that any major price cuts could threaten the financial health of banks, which are heavy lenders for real estate.
However, Clarke, a member of the RTC board, voted for the new policy Tuesday. Clarke said he is convinced that the price-cutting will “not have an adverse effect” on any banks that are not already under government control or direction because of financial failings.
The RTC board also adopted a policy allowing auctions of properties with a minimum price of 70% of appraised value, an even deeper discount than the maximum combined cuts of 20% for other properties that go unsold for nine months.
Auctions will be used “as an alternative to marketing properties through local, regional or national brokers,” the RTC said in the policy document approved by the board.
The RTC does not yet have “any particular procedures or policies” for deciding which properties will be sold directly and which will be placed on the auction block, said Gary Bowen, the RTC deputy director for asset disposition.
The first auction will be in Kansas City this summer, where the RTC hopes to attract an international clientele for properties appraised at more than $1 million each, Bowen said. The total value of properties on sale will be $200 million, the biggest single real estate auction in history, but a relative drop in the bucket of the government’s holdings.
The $16-billion real estate portfolio could grow to $200 billion or more, depending on the volume of properties held by hundreds of financially weak S&Ls; that might be seized by the government.
