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Insurance companies post more for-sale signs.

Faced with pressure from regulators and rating agencies, insurance companies have recently become big sellers of real estate. And since they have already written down the properties and built up reserves, they are prepared to take less than face value.

On Oct. 7, Met Life, Prudential, Travelers and two other life insurance companies will offer 32 of the 71 properties in an estimated $500 million auction to be held in Dallas. Banks account for eight of the properties and miscellaneous corporations and individuals comprise the rest of the sellers. There are no Manhattan properties in the auction. New York offerings include the Alpine Apartments in Jackson Heights, Queens, and Sunrise Pavilion, a retail/professional building in Valley Stream, Long Island.

Conducted by Grubb & Ellis/Ross-Dove Real Estate Auction Partnership, the auction will be a highlight of RealMart '93, the annual NAIOP conference. The multi-location event is expected to attract 500 to 600 registered bidders in the United States and Europe via a satellite hookup in London. Prudential participated in a previous auction conducted by the venture.

According to a Wall Street Journal report, Soros Realty, a fund led by George Soros and managed by Paul Reichman of Olympia & York fame and a Zell/Merrill Lynch fund led by Samuel Zell with funds raised by Merrill Lynch, are in talks with Travelers Corp. to purchase some $750 million of foreclosed real estate.

Nick Carter, a spokesperson for Travelers, said the auction would allow them considerable exposure and it was in keeping with the insurer's strategy for "accelerated disposition" of foreclosed property.

In February, the company announced that under the new accounting requirement, SOP 92-93, they had to account for almost all the properties at "fair value." The move was intended to "... take early advantage of emerging liquidity developing in real estate markets ..." and to "increase future earnings by redeploying the proceeds from sales into assets with higher current returns."

In terms of the Zell and Soros sales, he said he could not comment on market speculation.

Real estate has become the junk bonds of the 90's for insurers, said Steve Mann of Clifford Companies, and that is probably making them anxious to sell.

"There's tremendous pressure from the outside to reduce their exposure," said Mann.

Previously, he said, as with the banks, insurers were reluctant to foreclose and they were forced to write down the loans. Now that they have, he said, they are eager to sell despite their considerable management capabilities.

"It's like a great veil being lifted," said Mann.

Insurance companies are now being ranked on the amount of capital they have versus the amount of real estate loans.

"You don't want to be in that top 10, Mann said.

There is a convergence offorces here, according to Michael P. "Rusty" Nelligan, audit partner in the Insurance Services Group of Price Waterhouse. Insurance companies have built up considerable reserves and investor interest is driving prices slightly upward.

"That's when assets actually start to change hands," said Nelligan.

But while many insurers have built up considerable reserves that would allow them to accept current market value, Nelligan said, having such reserves may also encourage them to hold on to the real estate and not let others have the "bargain." This is particularly so, Nelligan said, for well located properties that fit the insurers current portfolio mix.

"They may feel it's a good enough property that it's worth the risk to hold on to it," said Nelligan.

In Westchester County, the Edward S. Gordon Company sold a building for Travelers and they have been commissioned to market others.

"The insurance companies are looking at their portfolios [for] buildings that really don't fit their long-term holding criteria, said Michael Siegel, branch manager for Edward S. Gordon in Westchester/Fairfield.

Those that require a major cash infusion, for example, he said, will probably be sold.

"They are selectively cleaning house and I think that can be said for most institutions," he said.

Most of the properties they are selling, he said, are the result of foreclosed loans recently or from some time ago.

Charles N. McKinney, president of Grubb & Ellis Asset Services Company, Dallas, agreed that some of the insurance companies are recasting their portfolio types and want less exposure to real estate, but he says they are lending as much as they are selling.

But, Mann said he sees insurance companies wanting to move away from real estate investment and this, he said, has an unfortunate consequence for the real estate industry.

"This was one of the great sources of capital," he said.
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Title Annotation:insurance companies sell off real properties in response to pressure from regulators
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Date:Sep 8, 1993
Previous Article:Smith Barney acquires downtown buildings.
Next Article:Fund, award memorialize George Brooker.

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