New-York tribune., 1913-05-25
REAL ESTATE MORTGAGES
Development of Mortgage Bonds
in National Popularity.
WESTERN SECURITIES
S. w. Straus Writes on Differ
ence Between Eastern and
Western Investment Values.

western Investment Values.
Western real estate securities are rap
idly growing in popularity. especially in
the Eastern market. according 10 S W.
Straus. president Of s W Straus e. Co..
mortgage and bond bankers. Chicago and
New York. The fact that interest rates
| arc higher I'm the West than in the Ea st.
with an equal degree of safety. according
10 Mr. Suaus. is what is chiefly RESPONSE
he for the success OF the Western first
mortgages and first mortgage bonds
| based on realty
As matter OF fact said Mr. Straus
| the laws of some of the Western states
| require a greater degree of conservatism
in making mortgage loans than I'm the
| East In New York savings banks arc
| limited 90 loans up To- ~ per cent Of the
value of the property securing them. and
trustees may loan UP 10 IS per cent,
| Savings banks In Illinois aTe simply state
! banks. and the law does not place any
| limit Of this nature on their investments.
but trustees are permitted to loan up 20
| only 30 per cent OF the value OF improved
| property.
The result is that Chicago houses deal
|
| loans and first mortgage real estate bonds
| and who make a specially Of catering t.
the needs OF trustees and others requiring
I the maximum ~ safety. are required TO
| put a limit Of ~ per cent on the loans
| they purchase and offer 10 investors. II
| is needless to say that first mortgage
! investment OF this character secured by
| property az least double I'm value the total
amount of the loan and bearing 5l9 20 6
! per cent interest Is highly attractive
| investment
| The attention Of Eastern investors IS
| being centred on this class OF securities TO
an increasing extent Even under present
| conditions. which many investors do not
believe are favorable TO the purchase OF
| securities the sales Of these Western in
vestmcnts have been steadily increasing,
| lp the East as we'll as In the West
There is no better investment than a
carefully chosen first mortgage. secured
by improved property In a large city,
with an ample margin Of safety: but the
great difficulty with mortgages has been
that they come in odd amounts, and. IN
the case of mortgages secured by the
! most valuable property. they are OF such
| size as 10 make them available only for
| the largest investors.
| The type of real estate bond developed
| In Chicago IS quite different from that
| familiar I'm the East. In Chicago the
usual method is simply TO take a large
/ first mortgage. secured by trust deed
upon. let us say. a downtown Office build
! ing. and divide II into a series OF bonds.
+ OF course. the safety of a mortgage is
, not diminished by thus dividing IL. and
I each Of the bonds is no less safe than
any OF the others.
AS a matter OF fact, If the bonds are
made to mature serally. as they should
! in all such loans. an issue Of first mort
| gage real estate bonds is actually safer
than an undivided first mortgage Of the
same size on the same property.
Improved Chicago real estate returns
a larger net yield on the investment than
real estate values are lower in the West
ern city and the buyer OF real estate
docs not have to place SO large a proper
tion Of his investment in its unproductive
part--that Is the lard. Real estate own
crs In Chicago, therefore. are willing and
able TO pay 5is 10 per cent, since first
! class Chicago property, as rule yields
J even more than this amount
I while. OF course. the tendency in the
West is toward n gradual lowering Of in
terest rates, II does not seem probable
| that there will be much change In Chi
| cago FOR some time 10 come.
"A common reproach against real es-
tate securities has been that they are not
readily marketable This. of course. Is
! perfectly true OF mortgage loans made d.
rect by borrower 10 leDder, but I'm the
case Of real estate securities marketed by
large houses who pursue a policy of pro-
| tectinC their clients interests. this re-
proach against real estate securities is
no more true than against 'specialties'
sold by houses dealing in public utility
and other sound bonds.
Most houses in the West dealing in
realty mortgage bonds repurchase bonds
| or mortgages from clients whenever re-
quested. at par and accrued interest, less
a nominal handling charge-usually ! per
cent Such a market as this is highly
satisfactory under all ordinary conditions.
"By their very nature. first mortgage
loans and first mortgage bonds based on
! real estate are non-fuctuatIng securities.
"Gu1ranteed mortgages. 50 popular In
/ New York. are unknown In Chicago. as
4 the laws Of Illinois do not permit such
guarantees Massachusetts, / think, has