Pooled S&L; Asset Sales May Put RTC in Hot Water : * Bailout: Some sources say selling property in bulk to big buyers could boost taxpayers’ cleanup costs. Small investors are also feeling squeezed.

The federal government is rejecting attractive bids from small investors for property and other assets seized from failed savings and loans so they can be sold in bulk to big buyers, often at much lower prices, according to government sources and private bidders.

In some cases, officials of the Resolution Trust Corp., the federal agency handling the S&L; cleanup, are turning down offers of nearly full asking price for individual properties and selling the same assets at just 50 cents on the dollar as part of much larger deals.

The strategy is even being used to dispose of some of the most exclusive residential real estate in America--homes and lots in Malibu and Beverly Hills.

The RTC’s top managers in Washington deny that they are rejecting valid bids and strongly defend the practice of “bundling” individual assets into large packages to be auctioned off to big investors at significant discounts.

But RTC sources say the agency has been turning down viable offers that were solidly financed and close to completion. These sources, including some high-level officials familiar with the transactions, say the practice violates the agency’s own policies on getting the best prices for property sales.

In addition, internal RTC analyses and other evidence suggests that the rejection of better offers may add to the overall cost of the S&L; bailout and play havoc with local real estate markets by driving down the value of nearby properties.

The unusual practice of turning down viable bids for individual buildings, land and real estate loans reflects the RTC’s headlong scramble to dispose of its massive inventory of thrift assets as quickly as possible.

The RTC late last year set a Herculean goal of selling $100 billion worth of loans, mortgages real estate and other assets by next Sept. 30, the end of the government’s fiscal year. Dissidents within the agency speculate that the ambitious goal was timed just before the November election to show Congress and the American public that the Bush Administration is committed to taking care of the S&L; crisis.

To unload assets quickly, the RTC is selling in bulk. The agency is pooling assets into huge packages worth hundreds of millions of dollars apiece. The packages then can be sold or auctioned all at once to big buyers.

But sources say that the agency, in its zeal to put together such large transactions, has gone beyond its own guidelines and is ignoring the cost of rejecting higher offers on specific properties.

The cancellation of individual deals has led to a rebellion within the RTC. Some agency staffers and private bidders are angered at being forced to cancel contracts for nearly full price, only to see the same properties sold for much less as part of those giant packages.

“Something’s not right,” said Steve Shakin, a San Francisco investor who was prepared to pay $5.5 million in cash for an Albuquerque apartment building until the RTC canceled the deal without warning earlier this month.

In Phoenix, real estate agent Frank Moro said a client’s cash offer of $945,000, the full asking price for an apartment building in Sierra Vista, Ariz., was rejected. “The taxpayers will be the ones who suffer when this property goes for a lot less in the auction,” Moro predicted.

Senior RTC officials insist that the strategy is the most economical way to dispose of the thousands of assets it has acquired through the seizure of more than 600 insolvent thrifts.

Selling real estate piecemeal to buyers interested only in one or two properties could take years, lengthening the time it takes Washington to finish the S&L; cleanup, RTC officials say. At the same time, bundling better properties with less attractive assets could reduce the eventual cost of the S&L; bailout, they contend.

Lamar Kelly, the RTC’s senior vice president in charge of asset sales, argues that when the agency tries to sell real estate properties one by one, it has “to hire a broker, you have to hire a manager--with a bulk sale you avoid a lot of those costs.”

Yet to dispose of properties in bulk, the RTC must auction them at a deep discounts to their potential market value, RTC records show.

And even senior RTC officials acknowledge that the bulk sales strategy was never intended to lead to the rejection of higher offers by small investors for individual properties such as homes, apartment buildings, condominiums and even small shopping centers.

“We do not make a practice here of turning down valid enforceable commitments to buy assets from the RTC,” said agency spokesman Stephen Katsanos, who denied that such problems exist. Frustrated would-be buyers who are complaining “don’t know what they are talking about,” he said.

“If someone had a valid purchase agreement, then they should have closed their deal and bought their asset,” Katsanos said. “I’m really tired of hearing sources saying they would have bought assets.”

Kelly’s response to the critics is “show me a real deal and I will make it.” Discussing the specific deals, Kelly said the RTC wanted a May 15 closing date and Shakin “could not live with” the deadline. He said Moro’s client did not return a signed contract by the March 31 deadline.

But other officials within the RTC say the agency’s senior managers, determined to attract big bidders, have repeatedly ordered staffers to place attractive real estate into large sales pools even if doing so meant ignoring higher bids.

One huge deal, the sale of nearly $1 billion in real estate and loans for about $500 million to General Electric and the billionaire Bass brothers of Texas, is being investigated by the General Accounting Office, the Congressional watchdog agency. The probe is a result of angry complaints from within the RTC, sources say.

One portion of the deal--$180 million worth of properties seized from Imperial Savings of San Diego--could have been sold for $40 million more if offered on a retail basis, according to an RTC internal analysis obtained by The Times.

At Far West Savings, a Newport Beach S&L; seized by the government last year, the RTC rejected bids of close to full value in order to sell properties to GE and the Bass brothers for half price, RTC sources say.

“They (Washington) didn’t want to do anything to prevent Bass-GE from bidding,” said one RTC source who requested anonymity.

This summer, the RTC will begin one of its biggest bulk sales ever, offering more than $2.2 billion in loans and real estate held by Great American, another San Diego thrift. To the consternation of buyers and brokers, the agency recently began freezing apparently valid sales agreements to individual buyers, and throwing at least $250 million worth of high-quality properties covered by such agreements into the bulk sales pool, according to RTC sources and records of the transactions.

Kelly says the properties had been marketed without success for a long time and that finally the agency has to tell buyers “to get real or forever hold their peace.” He brushed aside complaints from within his own agency by officials who felt they had arranged good sales. “It’s a natural reaction from people because it (bulk sales) takes away their jobs,” he said.

However, an April 9 memo obtained by The Times suggests that the agency has become increasingly concerned about the ramifications of halting deals with small investors at Great American. “Please provide me with copies of all correspondence provided to (potential buyers) on assets . . . since March 18 . . . it is urgent that we determine our exposure in these areas,” J. Michael Berry, the RTC official in charge at Great American, wrote to his staff.

An RTC source said most of the deals being scrapped at Great American “would normally go through. . . . It took six or nine months to get to that stage on the contracts. This is a lot of time and effort for serious buyers of property.” The “taxpayer is taking it in the shorts with the cancellation of these deals, while some people will get a windfall from the auction,” the source said.

To be sure, the RTC is still offering some real estate for sale to individual buyers. But agency policy now calls for sales to large buyers whenever possible.

The RTC’s Kelly insists that such massive sales, which are open to the public either through written bids or live auctions, do not favor certain buyers over others. “Everybody, all the buyers are equal in our eyes. They’re all green.”

Yet the sheer size of the bulk sales means that the transactions are dominated by Wall Street investment firms, large conglomerates and wealthy family-owned firms.

In the first installment of the Great American sale, for example, buyers will need deep pockets indeed: They will be asked to make separate bids on pools of properties worth between $75 million and $413 million, or one bid on an entire package worth $1 billion. And it will cost $50,000 just to get a copy of the RTC’s list of assets and minimum acceptable bids for the $1-billion first-round sale at Great American.

Kelly stresses that he sees nothing wrong with offering attractive deals to big investors, since it keeps them coming back for more.

“I want people to think they made money in the auctions,” he said. “That makes more of them tee up and compete for this property.”

RTC records show that the potential profits are enormous: GE, for example, just bought thousands of condominium units in Texas, Colorado and Tennessee in bulk sales for a total of $56.6 million, even though the properties had current appraised market values that totaled $93.9 million, according to agency records reviewed by The Times.

Other big buyers have reaped similar windfalls. Maxxam Corp., a Fortune 500 conglomerate, paid $30.2 million for Texas condominiums that the RTC had appraised at $54.2 million. Wealthy California investor Michael Lebeau and his partners paid $13.6 million for a package of Arizona properties, including the luxurious Superstition Springs Golf Club, that the RTC had appraised at $34 million.

The strategy has led to mounting frustration and anger among some RTC staffers.

“We were following one policy, and then we were given significantly different directions by Washington,” said one RTC staffer. “There has been a lot of frustration. We just want to do our job and get the most money for the taxpayers.”

Meanwhile, small investors like Lloyd Prell of Los Angeles find they are unable to participate in what is shaping up as the biggest real estate fire sale in history.

Prell recently bought two prime Malibu lots from the RTC for $1.4 million--86% of the asking price--but has been rebuffed on his standing offer to buy another lot for 82 cents on the dollar. Instead, the RTC plans to include the lot in a bulk sale of 17 lots and homes in Malibu, Hidden Hills, Pacific Palisades and Bel Air Crest. Those properties, valued by the RTC at $27 million, will be sold as a package for bids as low as $14 million.

The agency “would get much better prices if they sold it on a retail basis,” Prell complained.

However, Kelly says that, although there is a minimum acceptable price of $14 million, the RTC probably will get a final price closer to $16 million. This sum would provide a much better return for the taxpayers than waiting for $27 million in retail prices at some uncertain future date, he argues. “Let somebody else take the risk (of a real estate downturn),” he said. “I hope to God it doesn’t, but the market could turn down,” he said.

Kelly noted that the RTC was widely criticized when it sold the Grand Hyatt Hotel in Indian Wells for $68 million. Now the property is worth about $45 million, he said.

But frustrated buyers aren’t convinced that the RTC gives them a fair break.

Shakin, the real estate broker, is especially bitter because he had big plans for the Albuquerque apartment complex he offered to buy. He wanted to manage the complex for years to come, and was planning to pour $300,000 into the building to upgrade its apartments, remove asbestos and improve landscaping.

“But you know the people who buy it in the bulk auction don’t care about it; they will just resell it right away for a profit,” he said.

When the RTC officials sought to console Shakin, they only managed to further enrage him. Shakin said they told him that if he was patient, he might be able to buy the complex at a better price from the big investors who will acquire it in the Great American auction. The clear message was that those investors were going to buy it for much less than Shakin had offered.

Even some individuals seeking to pay off their own loans have been turned down by the RTC so their mortgages can be included in the Great American auction.

Christopher Leady, a Seattle investor, was approached by RTC officials from Great American earlier this year to see if he wanted to buy back his mortgages on two Seattle-area warehouses. He jumped at the chance, because the RTC was offering a discount from the full value of the loans. Later, the RTC suddenly backed out so the properties could be included in the auction pools.

Agency sources who are critical of the bundling strategy say the problems associated with massive sales to big investors will increase in coming months.

As Sept. 30 deadline approaches, RTC sources say, the agency is likely to accept lower and lower bids from big investors to accelerate bulk deals and meet their sales objectives.

These sources say senior RTC officials may have personal incentives to sell quickly and cheaply to large investors because they are eligible to receive performance pay bonuses tied to their annual job objectives. And this year, the agency’s biggest objective is to sell as many assets as possible.

Other RTC sources also suggest that senior officials in Washington are reluctant to break up large headline-grabbing deals, which give the beleaguered agency some rare upbeat press coverage. After the GE-Bass brothers deal was announced last fall, the Wall Street Journal ran a front page story trumpeting that “at long last, there’s some good news” at the RTC.

Meanwhile, a cottage industry of investment bankers and traders has sprung up inside many of the nation’s biggest investment and finance firms to handle all the business the RTC is sending their way. Several major Wall Street investment houses now have an RTC “working group” of staffers who keep track of upcoming asset sales and stay in close contact with senior agency officials. That detailed knowledge of the agency gives those firms an edge in dealing with the agency when it comes time to auction off assets.

Often, Wall Street firms that buy assets from the RTC are simultaneously serving as financial advisers to the agency on other asset sales, blurring the relationships between those companies and the RTC, agency sources say.

Goldman Sachs, for instance, is the financial adviser to the RTC on the $2.2-billion auction at Great American. The firm also is buying $3 billion worth of assets in an unrelated transaction.

Sources say Goldman also will also act as the financial adviser on upcoming sales of properties from HomeFed, a large San Diego thrift. HomeFed has not yet been shut down by federal regulators, but the RTC has taken effective control of the financially troubled institution. Goldman will earn millions of dollars in fees as financial adviser in each case.

Many of these big buyers also have close ties to the Bush Administration and to congressional leaders who oversee the RTC. Robert Bass, for instance, is a member of “Team 100”--a group whose members contribute at least $100,000 each to the Bush reelection effort through the Republican National Party.

Three Goldman executives--Dan Cook III, Lewis Eisenberg, and Thomas Walker--also are Team 100 members. Since 1987, Goldman and its executives have contributed more than $2 million to congressional campaigns, including more than $375,000 to key congressional leaders on both the House and Senate banking committees that oversee the RTC.

There is no evidence to suggest that the campaign contributions have helped big investors get an edge in RTC deals. Yet the fact that large corporations and wealthy individuals are reaping windfalls from RTC asset sales has not met with any serious objections from the White House or Congress.

The RTC’s Kelly argues that the agency is in a no-win position as it seeks to clean up the S&L; mess.

“We’re going to be criticized for selling too quick, for selling in bulk, for selling individually,” he said. “Anytime we do something, we are going to be criticized.”

Times researcher Murielle Gamache contributed to this report.