RTC now controls GADCO, may have to dump portfolio.

RTC now controls GADCO, may have to dump portfolio

Last week's seizure of Great American Bank by federal regulators could cause a ripple effect that may drive San Diego's soft real estate prices even lower.

The Resolution Trust Corp. now controls all the properties owned by subsidiary Great American Development Co. This includes 3,681 lots or homes, 1,314 apartment units, 328 acres of land and commercial buildings totaling 1.65 million square feet. Most of GADCO's portfolio is in San Diego and Riverside counties. It also has two projects in the San Francisco Bay Area, one in Washington state and two near Phoenix.

The RTC, the federal agency charged with handling failed savings and loans, in the coming months will develop a plan to manage or liquidate GADCO assets, said Kevin Shields, RTC's Denver-based spokesman.

Some experts think San Diego's commercial market will start springing back by the time the RTC inventories GADCO's holdings and decides how to get rid of them. Others say unless the RTC waits for the soft sales and leasing market to firm up, it will have to sell the GADCO assets at huge discounts.

Although most of GADCO's assets are held through joint venture partnerships, there is little chance that its partners will buy out GADCO's interests even at big discounts, said real estate experts.

GADCO owns 100 percent of seven of its 16 commercial projects. It has partners on all 10 of its residential developments, according to a property list given to the San Diego Business Journal by the RTC and Great American.

In many cases, the joint venture partners may have made a downpayment or paid for an option to buy land while they processed a development agreement. Once their plans were approved, they brought in GADCO as their financial partner. At that point, they graded the sites, installed utilities and roads and sold finished lots to homebuilders.

George J. Kallis, Coldwell Banker executive vice president and San Diego regional manager, watched similar sell-offs in 1989 and 1990 when he worked in Denver. He doubts there will be any immediate effect on the San Diego market from the GADCO seizure.

The RTC generally takes 90 to 270 days to have the property of an S&L development subsidiary appraised. "By that time, (commercial) absorption will improve and prices should firm up. I'm not sure the impact from the sale of the GADCO properties will be felt in San Diego," Kallis said.

The RTC's seizure of GADCO doesn't necessarily mean property will be sold at fire-sale prices, Kallis said.

"In some cases, the RTC may take a note back from the partner and sell them the GADCO interest," Kallis said.

But Frederick W. Pierce IV, director of the Price Waterhouse San Diego real estate group, paints a gloomier picture.

"Great American has been trying to sell GADCO for 18 months and hasn't found any takers. If the RTC is willing to sell the GADCO interests in its partnerships at a significant discount, it may find some takers. But I feel it's safe to say that none of their joint venture partners have enough money to buy GADCO out of the partnerships at any price," Pierce said.

The RTC should try to work out deals with venture partners instead of foreclosing on the property, Pierce said. But just after the RTC seized Great American on Aug. 9, the S&L announced it had foreclosed on two Nexus Centre buildings on Towne Centre Drive in the Golden Triangle.

"Since the development is a joint venture of Nexus and GADCO, Great American/RTC is suing itself," Pierce said.

Nexus Development Co., the contractor and a joint venture partner in Nexus Centre, filed $600,000 in liens against the two buildings in April after GADCO allegedly quit funding its share of the project.

Great American Bank has been trying to sell all or part of GADCO's holdings for more than a year. To help market the division, Great American hired Kenneth Leventhal & Co. in 1990 to audit GADCO's assets. Great American had hoped that proceeds from the sale would help improve its capital levels and keep it from being seized.

In late fall 1990, a rumor surfaced that unnamed GADCO officials were buying the development subsidiary, but the sale never happened. Analysts and developers who looked at buying the GADCO package said the properties were overpriced.