Evening star., 1924-05-13

| In
| Note.--Loans amounting to more than 50 {
| from 1920 to 1923 on 80 apartments.
! Smith Company. had sold the notes
under the third trust of 1884 800 to the
! Commonwealth Finance Corporation
! Of New York for reported price OF
! 100000, and when the property was
sold at auction This company lost TINS
amount on the deal. (This is sec
| ond loss of 100000 reported by
this compaEy) The Commonw ealth
! Finance Corporation stated that the
F.. II. Smith Company, through Il.
! Bryan Pitts, misrepreSented the true
| value of the property and the facts
| regarding the trusts when the notes
| were sold to the corporation. The
misrepresentations made are in brief
as follows:
misrepresentation Is Charged.
| The F. H. Smith Company, through
| it's vice president, G.. Bryan Pitts, ne
gotiated with the Commonwealth
| Finance Corporation of New York to
| pur chase these trust notes. Pitts fur-
nished appraisementS and recommend
| ed the purchase as a, good buy, stat
| ing that the property was appraised
| by real estate experts on valuation
| and that the appraisers We're men or
| reputable standing, and added that
! the notes are we'll secured, as is IN
dicated by the appraisements, and
| that the property is we'll worth more
| than the loarS on it.
The Commonwealth Finance Cor
| poration believed the +. II. Smith Co.
| to be Il thoroughly reliable organl-
| zation, and relying on the word OF its
vice president, G.. Bryan Pitts, and
the appraisements submitted, bought
| the notes. BY the time the property
was to be sold at auction the
Commonwealth Finance Corporation
| learned. much to its regret and cor
row. the unrelia bility of the state
ments made and the true value of
| their holdings. A card in the files of
| the office of the assessor for the DIS
| trict of Columbia shows that a trust
| for 5000, 500 was on this property at
| the date of sale, March >, 1922, yet
Mr.. Bowling, vice president of the
B. F.. Saul Co.. who held the trust for
| S125,00O. stated that this s609,500 did
not mean anything. No doubt he was
| right at that, but it is quite evident
| that the Commonwealth Finance Cor
| poration did not think the same way.
| (See also exhibits 81, SO, and 80 per-
| tanning to loans and adjustments by
| the Commonwealth Finance Corpora
| tion on various properties.)
When an individual, firm, or cor
| poration buys some of this worthless
! paper and is then forced to buy the
| property at auction to protect what
| he has already put into it, 1t is per-
| fectIy natural that he should want
| to receive enough from the rents to
| get some return on their worthless
investments, so up go the rents on
| inflated prices"
4 similar detailed account is given
| of the Chastleton, apartment house
! After telling of that case. the report
makes this general assertion:
Declares Values Inflated.
Further Investigations show that
a combination of real estate oper-
ators, mortgage investment COM
panies builders and bankers by the
| use of fictitious trusts initiate values
| to bring property up to a new sales
| value. This new sales value would
| increase the rents in proportion to
the amount of money loaned on it,
| so that the new owners would re-
| ceive a return on their investment
| to justify the purchase.
while the method of bringing
property up to a new sales value has
succeeded in some instances, even
with the present rent law. it would
become generally used should the
present law go out of existence, and
rents would be raised out of all pro-
portion to what the average tenant
could afford to pay
Shows Concerns Operations
Continuing, the report reads as
follows:
FOUR attention is further called to
the fact that from 1920 there has been
incorporated and doing business with
IN the District of Columbia over thirty
mortgage investment companies with
total capitalization of over $4,000
QUO. THESE companies specialize in
the purchase of second and third trust
notes at large discounts. The larger
investment companies are officered by
local bankers. builders and operators
k inn fn f0r, al,
uation through the money bags
High rates are being demanded
for money and loans are being made
far in excess of a safe margin to in
vestors of stock in banks and loaning
organizations. This is evidenced by
the fact that within the last year sew
eral banks and investment companies
have either closed their doors or gone
into the hands of receivers, due di-
rectiy to making large unsecured
loans-loanS on inflated trusts
IF this method of financing is al
lowed TO continue, it will only be
short time when all property will be
inflated by the same method, and
more banks and investment organi-
zations will be forced to close their
doors.
VERY little data have been obtained
regarding the construction of new
houses Only one case is submitted,
but from observations and inquiries
VI.
From estimates and other data it
appears that profits of from 25 to rs
per cent of the building costs are
being made IF this is true in some
cases, others may be judged accord
ingly.
Forced Change in Estimate.
THE one case submitted is that of
a row of houses being built by Joseph
Shapiro, builder and real estate op-
orator He is erecting thirty-two
houses of six rooms and bath on
cut avenue. on filled-in land. The
selling price of the inside houses is
S12,950. The lots are 20 by 100 feet.
The assessed value of each lot is
$500. In Shapiro'S application for
building permit (see Exhibit 36) he
gave as the estimated cost of these
thirty-two houses S650.000. or $40, 200
a house. When this discrepancy was
noticed by the Investigator, the build
ing inspectors attention was called
to it and he had Shapiro come to the
District building and change his eSti-
mate. 1t will be noted that the cor
rected estimate is s292,500, or about
$4,000 a house. The land was bought
in bulk; that is, about 100 lots were
and as this property is not excep-
tionally valuable, except that it is
close to Wardman Park Hotel Gas
Shapiro states in his ADVERTISEMENT,
it is safe to say that the fots did
not cost him over $500 each.
Allowing $500 for the lot and a
st,of $4,000 for the house, the total
These houses, selling for 1880 show
net profit of $3.50 each, or 2s11k'
per cent. AS Shapiro claims that the
s2925O0 covers all financing and SELL