Debt-Laden Thrifts Are Unloading Subsidiaries : Restructuring: Complying with new federal regulations, several S&Ls; are selling office towers and other prime properties.

<i> Galperin is a Los Angeles-based free-lance writer who has covered the commercial real estate scene for several years</i>

Dozens of Southern California real estate development companies are being put up for sale or liquidated altogether as the thrift industry begins to comply with FIRREA--the landmark federal Financial Institutions Reform, Recovery and Enforcement Act of 1989.

H. F. Ahmanson, Glendale Federal, Columbia and Great American are just a few examples of savings and loans seeking immediate ways to raise cash and substantially unload their development subsidiaries. The race is on, because many managers are worried that what they don’t sell now will only get harder to sell in the months to come. And, on July 1, thrifts must meet stricter real estate related capital requirements or risk getting taken over by federal authorities.

H. F. Ahmanson is one of California’s healthier thrifts. Its Home Savings of America headquarters building went up for sale this spring, and now the company is exploring the sale of both Ahmanson Commercial Development Co. and Ahmanson Developments Inc.

Ahmanson executives didn’t want to talk directly about their plans to get out of the real estate business last week. Instead, they referred to remarks by Richard H. Deihl, chairman and chief executive officer, who told shareholders last month that the company was “exploring the possible sale” of its real estate operations. These include 10 million square feet of commercial space completed or under development.


Besides the Home Savings of America Tower being marketed by Goldman, Sachs & Co., Ahmanson is involved in building the 40-story Savings of America Tower in Chicago, nearly 1 million square feet of space at Lake Merritt Towers in Oakland and a long list of office, industrial and retail projects throughout California.

Goldman, Sachs wouldn’t confirm that all of Ahmanson’s real estate portfolio was for sale. But, said Barry Sholem, vice president and manager of real estate activities at Goldman, Sachs, “Home Savings has the best portfolio in the business.” And, he added, “1990 will be the year of the portfolio deal.”

Meanwhile, Salomon Bros. Inc. has been retained to sell GlenFed Development Corp., which has gross assets of about $500 million. “Our job is to find a buyer or buyers who will pay the highest price,” reported David L. Knowles, managing director at Salomon Bros. in Los Angeles. “We think the strongest candidates are a combination of Asian interests.”

The problem with selling off a whole development company such as GlenFed’s, Knowles conceded, is “it’s a heterogeneous portfolio and most real estate investors target a specific type of asset.” The result is that most buyers expect a bargain.


With all the portfolios coming to market, “some may have to sell at a discount,” predicted Sholem of Goldman, Sachs. “In California, we are at least blessed with economic fundamentals better than the rest of the country.” That means some California properties may get discounted, but they won’t be selling at fire-sale prices.

Who will the buyers be? “There are a number of war chests being developed,” observed Sholem. Unlike Knowles, he doesn’t expect many Japanese trading or insurance companies to be among the likely candidates, though. Foreign buyers, said Knowles, aren’t equipped to perform the intensive due-diligence research necessary to analyze a whole portfolio versus one particular project. U.S. pension funds may also opt out of the running, warned Sholem.

”. . . The pension funds themselves are rethinking whether they want to be in real estate,” Sholem said. While many of these companies have increased their real estate investments in recent years, Sholem said they are beginning to realize, “Gee, it’s not performing as we expected.”

Pension funds may become more circumspect about their real estate investments, he noted, and that could create “a herd mentality.”


Before buyers lose interest, many thrifts hope to sell their portfolios and start cleaning up their lending operations. Thrifts are also concerned that once the Resolution Trust Corp. begins to liquidate insolvent S&Ls; around the country, the supply of properties for sale will depress prices even more.

“They’re trying to beat the RTC to market,” reasoned Barry M. Rubens, chief executive officer of California Research Corp., a Santa Monica-based banking consultant. “When the RTC comes on line it will glut the market.”

Just how to best market these properties is the center of a growing debate. Some institutions are selling their real estate assets piecemeal through brokers. Others prefer auctions. So-called workout specialists are popping up everywhere, and investment bankers such as Goldman, Sachs and Salomon Bros. are seeking a high profile too.

“I’m wondering if the investment bankers are the right ones to do it,” Rubens said. “We often give them more credit than they deserve. I haven’t seen a lot of success using them.”


In fact, nobody’s quite figured out how to sell billions of dollars in real estate quickly and painlessly. Even thrifts that manage to line up a buyer may find closing the transaction a challenge.

In mid-April, Landmark Land Co. of Carmel, the parent of New Orleans-based Oak Tree Savings, announced that Hon Development Co. of Laguna Hills would pay $967 million for a sizeable chunk of the S&L;'s $1.3-billion real estate portfolio.

The sale was designed to make sure that Oak Tree complies with new capital requirements that go into affect on July 1. But the Office of Thrift Supervision in Washington, D.C., rejected the deal. Hon planned to borrow about 80% of the purchase price from seller Oak Tree; federal authorities said no, arguing that it was unsafe for the thrift to loan so much money to one borrower.

With the sale nixed, Oak Tree probably will join a growing list of institutions that fail to meet new federal capital requirements July 1. To remedy the situation, however, Oak Tree and Landmark will sell Hon 7,000 acres of land at the junction of the 10 and 60 freeways in Riverside County for $275 million. If that deal closes as expected, Oak Tree hopes to return to the good graces of the federal regulators by late July.


This partial sale is but a temporary solution, for July 1 is only the first of several deadlines set for thrift executives to restructure.

Starting next month, thrifts will have to back up 10% of their real estate investments with institutional capital--meaning that if an S&L; has $1 billion in real estate assets, it must have a corresponding capital account (assets less liabilities) of at least $100 million.

Next year, however, that percentage jumps to 25%, followed by 40% in 1992, 60% in 1993 and 100% in 1994. While these new guidelines don’t expressly forbid direct institutional investments in real estate, they make it completely impractical for thrifts to consider holding on to such assets with no leverage.

“We need to get those assets out of our (thrift) institution,” said Landmark Chairman Gerald G. Barton. Properties on the block include the PGA West, La Quinta and Mission Hills golf resorts near Palm Springs. Said Barton: “We intend to shrink as we sell our real estate.”


The same goal is shared by just about every S&L; in California. Great American Bank of San Diego placed its Great American Development Co. subsidiary on the market in February and is seeking to sell about 30 real estate projects.

“We originally set July 1 as the date we wanted to complete a sale, but we now hope to do so by Sept. 30,” said spokesman Brian Luscomb.

The need to complete a sale is particularly acute for Great American. As of March 31, the thrift failed to meet all three federally-mandated capital requirements. On July 1, those will, of course, get even tougher. Great American won approval of a new plan to straighten its finances by the end of this year. In short, Luscomb said, his company must raise $350 million by the end of 1990 or risk getting taken over.

Troubled Columbia Savings & Loan in Beverly Hills is equally anxious to sell a chunk of its real estate holdings. “We’re winding down the real estate operation,” reported Jeffrey E. Palmer, first vice president of Columbia Real Estate Group. The company has already sold about $153 million in properties and is dissolving Columbia Development Partners as its seeks to sell several developments on Wilshire Boulevard in Beverly Hills called “The Masterpiece Collection.”


Columbia is simultaneously looking to sell both its current headquarters building and a new one under construction. If they both sell, the S&L; will have some tough choices to make about where to move.

In January, Coast Federal Savings sold out its interest in CoastFed Properties to joint venture partner Alan Casden for $112.6 million. The portfolio included two Beverly Hills office projects and a number of residential developments.

Great Western too has an office building for sale in Beverly Hills. Executives report that they’re out of the real estate business for all practical purposes, and Goldman, Sachs is evaluating offers for the building at Wilshire and La Cienega boulevards.

Not every thrift is ready to call it quits when it comes to real estate investments, however. As FIRREA goes into affect, several strong institutions are finding new ways to stay in the real estate game.


HomeFed Corp. of San Diego, parent of HomeFed Bank, recently created HomeFed Communities, a new development subsidiary that will operate by borrowing money from third-party sources instead of from its parent. By using outside money, HomeFed Communities can add to HomeFed Corp.'s bottom line without requiring HomeFed Corp. to set aside lots of extra capital as a guarantee of solvency.

The bank’s real estate subsidiary, Home Capital Development Group, which was financed with HomeFed Bank money, will be phased out.

California Federal Bank is spinning off assets from subsidiary Cal Fed Enterprises to C.F. Income Partners L.P., which is structured to operate independently. The new partnership has already taken over seven properties from Cal Fed Enterprises and has options to acquire another 19.

Meanwhile, Cal Fed sold 20% of its management interest in the new partnership to New York-based real estate merchant bankers Wellsford Group Inc.


Cal Fed also sold its direct investments in the Wilshire Courtyard and in its now-former headquarters tower in the Miracle Mile District for several hundred million dollars. New investments through C.F. Income Partners will be financed through outside sources instead of through the bank, but profits will still kick back to Cal Fed shareholders. Eventually, if any of C.F. Income Partners’ investments go sour, some other lender will be left holding the bag--not Cal Fed.

How all these sales, liquidations and recreations sort themselves out has yet to be seen. About the only sure thing, said Ivan Faggen, director of real estate services at the accounting firm of Arthur Andersen & Co., is “five years from now we’ll still be talking about this.”

Galperin is a Los Angeles-based free-lance writer who has covered the commercial real estate scene for several years. News releases and column inquiries should be mailed to 8306 Wilshire Blvd., No. 7078, Beverly Hills, Calif. 90211.