In fact, nobody's quite figured out how to sell billions of dollars in real estate quickly and painlessly. Even thrifts that manage to line up a buyer may find closing the transaction a challenge.
In mid-April, Landmark Land Co. of Carmel, the parent of New Orleans-based Oak Tree Savings, announced that Hon Development Co. of Laguna Hills would pay $967 million for a sizeable chunk of the S&L's $1.3-billion real estate portfolio.
The sale was designed to make sure that Oak Tree complies with new capital requirements that go into affect on July 1. But the Office of Thrift Supervision in Washington, D.C., rejected the deal. Hon planned to borrow about 80% of the purchase price from seller Oak Tree; federal authorities said no, arguing that it was unsafe for the thrift to loan so much money to one borrower.
With the sale nixed, Oak Tree probably will join a growing list of institutions that fail to meet new federal capital requirements July 1. To remedy the situation, however, Oak Tree and Landmark will sell Hon 7,000 acres of land at the junction of the 10 and 60 freeways in Riverside County for $275 million. If that deal closes as expected, Oak Tree hopes to return to the good graces of the federal regulators by late July.
This partial sale is but a temporary solution, for July 1 is only the first of several deadlines set for thrift executives to restructure.
Starting next month, thrifts will have to back up 10% of their real estate investments with institutional capital--meaning that if an S&L has $1 billion in real estate assets, it must have a corresponding capital account (assets less liabilities) of at least $100 million.
Next year, however, that percentage jumps to 25%, followed by 40% in 1992, 60% in 1993 and 100% in 1994. While these new guidelines don't expressly forbid direct institutional investments in real estate, they make it completely impractical for thrifts to consider holding on to such assets with no leverage.
"We need to get those assets out of our (thrift) institution," said Landmark Chairman Gerald G. Barton. Properties on the block include the PGA West, La Quinta and Mission Hills golf resorts near Palm Springs. Said Barton: "We intend to shrink as we sell our real estate."
The same goal is shared by just about every S&L in California. Great American Bank of San Diego placed its Great American Development Co. subsidiary on the market in February and is seeking to sell about 30 real estate projects.
"We originally set July 1 as the date we wanted to complete a sale, but we now hope to do so by Sept. 30," said spokesman Brian Luscomb.
The need to complete a sale is particularly acute for Great American. As of March 31, the thrift failed to meet all three federally-mandated capital requirements. On July 1, those will, of course, get even tougher. Great American won approval of a new plan to straighten its finances by the end of this year. In short, Luscomb said, his company must raise $350 million by the end of 1990 or risk getting taken over.
Troubled Columbia Savings & Loan in Beverly Hills is equally anxious to sell a chunk of its real estate holdings. "We're winding down the real estate operation," reported Jeffrey E. Palmer, first vice president of Columbia Real Estate Group. The company has already sold about $153 million in properties and is dissolving Columbia Development Partners as its seeks to sell several developments on Wilshire Boulevard in Beverly Hills called "The Masterpiece Collection."
Columbia is simultaneously looking to sell both its current headquarters building and a new one under construction. If they both sell, the S&L will have some tough choices to make about where to move.
In January, Coast Federal Savings sold out its interest in CoastFed Properties to joint venture partner Alan Casden for $112.6 million. The portfolio included two Beverly Hills office projects and a number of residential developments.
Great Western too has an office building for sale in Beverly Hills. Executives report that they're out of the real estate business for all practical purposes, and Goldman, Sachs is evaluating offers for the building at Wilshire and La Cienega boulevards.
Not every thrift is ready to call it quits when it comes to real estate investments, however. As FIRREA goes into affect, several strong institutions are finding new ways to stay in the real estate game.
HomeFed Corp. of San Diego, parent of HomeFed Bank, recently created HomeFed Communities, a new development subsidiary that will operate by borrowing money from third-party sources instead of from its parent. By using outside money, HomeFed Communities can add to HomeFed Corp.'s bottom line without requiring HomeFed Corp. to set aside lots of extra capital as a guarantee of solvency.
The bank's real estate subsidiary, Home Capital Development Group, which was financed with HomeFed Bank money, will be phased out.
