New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1916-02-06
Principle Already Has
Won a Firm FOOthOld,
Says Banker.
OLD FINANCING
METHODS CHANGED
New Scheme Will Solve Prob
lem of City Rebuilding,
II Is Declared.

Amortized real estate loans are the
solution Of the question OF rebuilding
American cities Is the opinion Of S.
". Straus, the New York and Chicago
banker. Real estate conditions all over
the United States have shown a big
improvement in tho last six months,
according to Mr.. Straus. and now that
the country ia in an exceedingly pros
porous condition, he says, We may ex-
pect a large volume OF new building.
"The financing OF new building op-
erations depends chiefly on the con-
fidence investors have in real estate
securities" said Mr.. Straus. There
is plenty OF evidence that old methods
Of real estate financing will not meet
the changed conditions of the twentieth
century.
"Only In limited class Of cases are
borrowers able to meet the entire con-
struction cost Of new building out
OF their own funds. The method OF
obtaining temporary building loans, 20
be replaced later by a long term loan
when the building 10 built, has many
disadvantages. Individuals, and even
large institutions, are not capable OF
meeting the demands for capital, ss II
has developed during the last five or
ten years, and especially as IL Is nov
developing. The result IL that the
funds Of investors, generally. must be
called upon to provide capital for large
portion OF the real estate operations
In our larger cities-just as railroad
planning a new extension, draws capt.
tai from investors the country over
through the medium Of q new bond is
sue, mortgsging the new line, and, per
haps, portions Of the remainder OF the
system.
an order 20 gain the confidence OF
investors in securities based on I'M
proved city real estate u is necessary
that some successful form OF amortizs.
ton be adopted | think experience
has amply shown, both in Europe AND
In the United States, that the best So
luton Of this question lies in the issu
ance OF bonds maturing serially. Inc
most convenient method is TO divide
I'D a mortgage loan on the property
into q series OF first mortgage bonds
all OF which are signed by the mortga
gor. and which are secured by trus
deed covering the property In question
About per cent OF the bond issue
should be retired each year, so tha'
az the end of eight or ten years there
IS very substantial reduction In the
loan. and the borrower then has nc
difficulty in meeting the large bulk o.
the bonds which fall due--eithei
through refunding loan or Other
measures.
"Of course, 10 carry loan Of thi;
character the property must have
good earning power There Is yery
large class OF properties IN New forS
City which return so small net IN
ccme on the amount originally put into
them that they cannot carry seria
loan. There are other properties. how
ever, in rapidly developing neighbor'
hoods which are quite capable OK pay.
ing around 51 per cent on the loan and
retiring about per cent OF the -rinci
nal sum each year out Of the earnings
Of the property. To developing neigh
borhoods, therefore. this class OF &C.
curities will come as boon, because
the confidence OF investors all over the
United States In serial bonds OF thi:
character has been quite firmly estsb
lshed.
Various proposals have been put
forth I'm New York for the amortization
Of mortgage loans as an aid 70 the mar.
ket for these securities and TO the res
estate situation in general. A greai
many borrowers look with disfavor or
the serial method, because il makes ex
actions that not all borrowers care "a
meet. II enforces on tho borrower
careful conservation OF his resources
I. compels him 20 devote the earnings
Of the property first Of all to paying on
,he interest and principal Of the bond.
which. OF course, from the investors
point OF view is perfectly right and
proper.
II might say that there 4, very con
siderable class OF borrowers who do
not. az they should, devote the earnings
or the property first OF all 70 meeting
the indebtedness il carries, but who d.
vert their annual profits 20 other pur-
poses. The speculative real estate
owner naturally looks with disfsvor on
serial maturities. Tho conservative
real estate owner whose property yields
an ample income will welcome this
method o, paying Of the loan. -,
mo human being has yet been abls
20 put up a building that will not de-
preciate. Depreciation is just as sure
"a death and taxes. OF course, IN the
case Of a new building, well construct
Cd and we'll maintained. depreciation
will be comparatively slight for I'VE or
even ten years. But the depreciation
i bound 10 come, and serial msturitie3
mus, be there 20 take care OF II and
maintain or increase the margin OF
safety or equity protecting the bonds.
Serial msturities in this way enforce
upon borrowers more thrifty. more
prudent and more forehanded mode OF
living and conducting their business.
They better real estate conditions. They
make for the prosperity OF communi.
.ies. They aid the best interests OF
borrowers and investors alike.
The principle of amortization, or So
rial payment, has already obtained a
FIRM foothold In real estate In New