RTC faces $1 billion tidal wave of Southland sales.

It will auction non-performers, foreclosed properties

In one of the largest selling waves since the savings and loan crisis began, the Resolution Trust Corp. plans to auction off more than $1 billion worth of non-performing loans and foreclosed real estate which were held by failed Southern California savings and loans, including HomeFed Inc.

HomeFed sold $600 million worth of foreclosed-on real estate, which is commonly called Real Estate Owned (REO), last month and plans to auction off another $150 million of its REO portfolio next month.

In addition, a West Los Angeles-based auction firm plans to sell real estate assets with a book value of $700 million of 35 failed California institutions in sealed bid auctions in November and December.

The sales mark a sharp increase in the amount of peddling of California real estate assets held by the RTC. From 1989 until now, the RTC has sold $923 million in California real estate assets.

"We do have some major sales initiatives that will be coming up in the next six months," said Frederick Smith, director of sales for the RTC's California office. Smith added the reason for the increase is that two large San Diego-based S&Ls, HomeFed and Great American Bank, were put in receivership in the last 12 months.

Sales of California real estate assets held by failed financial institutions could go into the multibillion-dollar range and in the next few years rival the amount of discounted real estate sold in Texas and New England, according to an RTC official and private sector contractors who sell property for the federal agency.

Last month, the RTC, which has been operating San Diego-based HomeFed since July, sold $600 million worth of real estate on which the bank had foreclosed, said Carl Goin, RTC credit specialist who is overseeing HomeFed's portfolio.

The RTC fetched 97 cents to 110 cents of appraised market value for the 97 commercial projects, including 65 California projects worth about $210 million, Goin said.

The RTC plans to auction off another 46 parcels of foreclosed land, worth about $150 million, during the last week of October, Goin said. Twenty of those parcels, which are undeveloped residential subdivisions, are in California, Goin said.

Next year, the RTC plans to package $500 million to $1 billion worth of HomeFed's non-performing real estate loans for a joint partnership offering in 1993, Goin said. The HomeFed loans will be part of $2 billion in loans nationwide to be auctioned off in a new RTC program which will use private companies to lease and develop large packages of non-performing loans secured by real estate, Goin said.

Under the program, the $2 billion worth of loans from failed thrifts nationwide will be placed into four $500 million packages to be auctioned to "major players in the U.S.," Goin said.

The RTC is looking for pension plans, insurance companies, real estate development companies and huge corporate conglomerates, such as San Francisco-based Bechtel Corp., to take over the packages of loans, foreclose on the properties and develop the land for a 10-year period. In return for the companies investments, they will receive partnership stakes in the projects, a return on their investments and management fees, Goin explained.

RTC officials believe the joint-partnership approach could recoup more of a loan's value than straight sales, Goin said. About $100 million to $250 million in non-performing loans secured by California real estate may be part of the joint-partner auction, Goin said.

Another $600 million worth of non-performing real estate which was held by 35 failed California savings and loans will be sold through a sealed bid process in November and December, said Stephen A. Roth, president of Secured Capital Corp., a West L.A.-based real estate investment banking firm, which is conducting the sale for the RTC.

The $600 million worth of real estate and non-performing loans secured by real estate to be auctioned was formerly held by failed institutions Columbia Savings & Loan Association, Far West Savings & Loan, Santa Barbara Savings & Loan Association, Brookside Savings & Loan Association, Great American Bank and others.

The real estate and non-performing real estate loans include undeveloped housing tracts in Southern California, as well as commercial projects and apartments, Roth said.

The real estate will be parceled into $10 million to $100 million packages and is part of the RTC's portfolio sales program in which loans and real estate of similar types and from the same region are placed in a pool for sale. Thus far, the RTC has sold about $10 billion of assets through the program, of which Secured Capital has sold $4 billion, Roth said.

The $4 billion worth of RTC properties Roth has sold were located in Texas, the Northeast and Southeast, Roth said. "California is just starting to happen," he said.

Terry Strongin, regional vice president of Ross-Dove Co., said California will become a hot spot for sales of real estate assets of failed financial institutions in the coming years, just as Texas and New England were in the past few years. His San Francisco-based auction house recently completed a nationwide sale of $247 million in RTC assets.

Strongin compared California to "where New England was three years ago." He added that he expects that more thrifts as well as banks will fail in California, noting that the Federal Deposit Insurance Corp., the agency that liquidates failed banks, is "beefing up" its presence in California.

Goin of the RTC said there was "no question about it" that more California financial institutions will fail in the next few years. He added that the amount of California real estate assets which will be sold by the government "is probably going to surpass Texas."

So far, for its size, the amount of RTC sales of California real estate has been minor, compared to other states, according to information provided by the RTC.

From the RTC's inception in 1989 to present, the federal agency has sold $923 million worth of California real estate. This compares to $2.1 billion of Arizona real estate, $1.6 billion of Florida real estate and $6 billion of Texas real estate that the RTC has sold.