Glenfed hires local company to sell off sour assets: thrift unload up to $300 million in loans, properties.

Secured Capital Corp. plans to bring about $200 million to $300 million in sub-performing loans, non-performing loans and a few real estate properties to market for Glendale Federal Bank this quarter, said Mike Van Konynenburg, a principal for the West L.A. real estate investment company.

"We will be selling them as whole loans, but we will be selling them in six or seven pools," he explained. "On average, each pool will be $40 million to $50 million in principal balance -- roughly the same size -- grouped by type of property and location of the properties."

GlenFed's chairman and chief executive officer, Stephen J. Trafton, said he expects to complete the proposed sale without setting aside additional reserves or recording any charge against earnings or capital. At the same time, he predicted, "the sale would represent a 15 percent to 25 percent reduction in the bank's non-performing assets."

Trafton pegged these non-performing assets at $867 million as of Dec. 31.

The Glendale-based thrift's loan portfolio that is being sold by Secured Capital is primarily secured by multi-family and commercial mortgage properties in Los Angeles, Orange and San Bernardino counties.

The GlenFed sale coincides with a $550-million portfolio sale by another Los Angeles thrift -- California Federal Bank.

The CalFed portfolio was brought to market by First Boston Corp. recently. It includes non-performing loans, current loans and a few foreclosed properties. First Boston expects to sell the portfolio loans, which have been grouped into 11 pools, by the end of the current quarter.

CalFed's bulk loan portfolio sale is part of a five-point plan to recapitalize and restructure the thrift. The other four points of the plan were the sale of the thrift's Florida division, a preferred stock offering, a rights offering, and the sale of about $350 million in performing loan securities.

Van Konynenburg said the big difference between the CalFed bulk loan portfolio and this one is that the GlenFed deal has a higher concentration of multi-family dwellings.

Both transactions have hit the market at a time of rising interest rates, which, noted some industry observers, makes the holding of encumbered mortgage portfolios less attractive.

"At this point, we don't think it (the rise in interest rates) is going to have a material impact on the project," said Van Konynenburg.

"The primary thing that drives the value of these sales is what investors believe the underlying real estate cash flows are relative to what the principal and interest are on the existing loans," he explained. "There's still a very attractive relationship between the interest rates on an absolute basis relative to where the cash flows are from the properties and loans."

Steve Friedman, partner and western regional director of real estate services for accounting firm Ernst & Young, agreed that the rise in interest rates would play a minor role in deciding whether or not to buy part of the portfolio -- that is, unless the rise in interest rates makes it too expensive to borrow money to make an acquisition.

"To the extent that the debt cost to the purchaser is higher, it would lower the expected after tax return," Friedman explained. "That (the interest rate rise) would not impact the cash flows that come off the portfolio."

This week Secured Capital will begin to distribute an offering memorandum describing the loans and properties, as well as extensive due diligence material. Key targets for this information will be pension funds and pension-related partnerships, banks, credit companies, insurance companies, real estate developers and well-capitalized real estate investors.

Van Konynenburg intends to take offers at the end of May and close the portfolio sales by the end of June.