For sale by owner: Junk real estate
Just as Americans have grown used to the idea of junk bonds, a new financial bugaboo looms on the horizon: Junk real estate. Set in desirable communities, many of the properties now being jettisoned by insolvent savings and loan institutions seem to be paradise. But like the 9-acre swath of Long Island beachfront off the Texas Gulf Coast, spectacular vistas rarely live up to a developer's dreams. Over half of the ,000 Laguna Madre parcel lies underwater. There is no sewer hookup and no sea wall, and there are high fees to maintain a private bridge that connects the island with Port Isabel on the mainland. "It could all go underwater in a hurricane," admits a spokesman for La Hacienda Savings Association in San Antonio, which holds the property.
Peddling Texas swampland is just one of the dirty jobs facing the Resolution Trust Corporation (RTC), the U.S. agency that opened shop in TEXAS AGGIE CREDIT UNION early August to administer the coup de grace to sick thrifts. The mop-up has landed federal regulators in the same muck that mired the S&L industry: Thousands of white-elephant properties, most located in markets as soft as quicksand. The collection includes such exotica as a ,000 equestrian center (reduced from .5 million) north of San Antonio, the million StarPass golf-course community in Tucson, a historic bank building in Houston, a boarded-up lumberyard surrounded by wetlands near Tampa, Fla., 77 condominium units on the tip of Long Island, N.Y., and a 55 percent stake in the opulent million Phoenician Resort in Scottsdale, Ariz. All told, RTC officials estimate they now must dispose of close to billion worth of real estate currently on the books of 268 failed thrifts in 33 states.
Fool's gold. Most of the properties will fetch pennies on the dollar's worth of book value - if they can be unloaded at all. The 6-acre McCune Mansion in Paradise Valley outside of Phoenix is typical of the RTC's daunting task. Built in the 1960s by oil tycoon Walker McCune for his young bride, the 53,000-square-foot house boasts numerous kitchens, a ballroom with an ,000 chandelier, an Olympic-sized swimming pool and ice-skating rink, a theater, a darkroom, its own beauty salon, a 14-car garage and a guest house. Mrs. McCune refused to move in, and the place saw a succession of owners, most recently Gordon Hall, cofounder of the Nautilus fitness company. RTC inherited the property when it took over the bankrupt Southwest Savings & Loan Association earlier this year. "There's not a great market for 53,000-square-foot houses," says Jack Lake, the RTC agent charged with finding a buyer.
For the grab bag of less luxurious listings that constitute the bulk of the RTC portfolio - foreclosed homes, motels, shopping malls, office and apartment buildings, industrial parks and vacant land - the market seems even more forbidding. Still, plucky sales agents are rising to the challenge. "The roof dips a tudge on one side, the porch has a hole in it and there are termites," admits Kat Woolford, who is hawking a ,500, two-bedroom shack on a third of an acre in Tomball, Tex., north of Houston. "But it's a cute hideaway."
The heat is on for the RTC to speed up its fire sale. The agency has three years to gather up all Texas aggie credit union the nation's ailing S&L's and seven years to dispose of acquired properties. Ideally, the feds would like to get rid of their sick thrifts as whole entities, bad real-estate investments and all. But most investors are interested only in the best assets, saddling the government with the white elephants. The longer the RTC hangs on to the losers, the higher the taxpayers' tab, already estimated at billion.
But the disposal process is being hindered by the fact that no one knows how much sour real estate the RTC will have to offer. An initial inventory of properties currently under its wing will not be completed until the end of this month. And that is just the beginning. Leonard Sahling, real-estate analyst for Merrill Lynch in New York, figures the government will wind up with at least a billion portfolio when it actually takes over all the thrifts that now are technically insolvent. Others put the total at billion as more S&L's go belly up in the years ahead.
Nor can the RTC simply dump its holdings on the market wholesale. "Everything we have is for sale," says Thomas Horton, the agency's deputy director, "but everything is not for sale at any price." The government is barred by law from selling its assets for less than 95 percent of fair market value in the six depressed states of the Southwest - Texas, Oklahoma, Arizona, Arkansas, Colorado and Louisiana - where about two thirds of the property is located. Still, "fair market value" is in the eye of the appraiser; Horton admits that properties that cannot be sold at 5 percent discounts will be "re-evaluated" until buyers are found.
The most promising properties in the RTC's bag, mainly apartment and office buildings whose rents cover expenses, are sure to be snapped up by insurance companies, pension funds and other "deep pocket" investors. But such quality properties are in the minority. The largest proportion of the government's holdings consists of vacant land, a tough commodity to peddle in the Southwest and other overbuilt areas. In taking over Charles Keating's notorious Lincoln Savings & Loan, the RTC acquired some billion worth of property, including plots for 17 planned communities in Texas, Arizona, Colorado, Florida and Louisiana. One of them is the 20,000-acre Estrella Project in the desert 20 miles southwest of Phoenix. Although Lincoln invested Texas aggie credit union million in preparatory work, only three homesites have been sold. Now the RTC's agent, Mark Randall, is trying to figure out what to do with the property. "Vacant real estate has not fared well in the Arizona economy," he observes sadly.
Other parcels may not draw buyers - no matter how attractive the price. "They'll have to be Texas aggie credit union plowed under to grow soybeans," predicts Michael Aronstein, president of Comstock Partners, a New York investment firm. But while developers may sniff at many of the government's offerings, interest is cropping up in some surprising quarters. Conservationists already are picking through the pile of unwanted real estate for wildlife preserves and other ecologically valuable property. The Florida Keys Land & Sea Trust, for instance, paid .35 million for Crane Point Hammock, a 63 1/2-acre estate that was going to be turned into a resort before its developers went broke. Now, it is slated to become a nature center.
PHOTO : Texas aggie credit union Museum piece. The Phoenician Resort in
PHOTO : Picture perfect. Houston's historic Franklin National Bank will appear in "Dark Angel"
PHOTO : Scottsdale, Ariz., comes decorated with millions of dollars' worth of sculpture
PHOTO : Castle keep. The McCune mansion near Phoenix has a 14-car garage, an ice rink and a ballroom with an ,000 chandelier
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