Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-07-26
NEW TYPE BUILDING
FINANCING CREATED
High Cost of Large Projects
~
) Leads to Profit Sharing
Is
Stock Issues.

New types of financing have entered
into real eatate construction enterprises
of large size, and there are those who
believe that realty stock issues, in
which investors have chance to par
ticipate in the profits of development
beyond the standard mortgage interest
rates, may to some extent Supplant the
old mortgage bond investments.
II has been found that mortgage
issues only will not provide sufficient
funds to care for the building projects
of huge size. This has led to the crea-
ton of real estate stock issues.
This development in real estate
finance was discussed by Robert Bing-
ham. attorney for the Cleveland Real
Estate Board and co-author OF text
hook on real estate finance, at the re-
cent annual convention of the National
Association of Real Estate Boards.
Mr. Bingham declared that large
projects so financed, If we'll conceived,
are economically sound. He added.
however, that the new types of real
estate securities should be so named
that the person buying them woqIo
Know what type he is buying. He
pointed out that securities designed TO
make the purchaser participant in
speculative enterprise rather than the
participant in a loan representing only
so or so per cent of the value OF the
real estate which secures it should be
30 designated as to indicate that the
buyer is essentially a stocknoloer IN
she enterprise rather than bond
holder.
Costs Run Into Millions.
) "As building projects attain greater
fize. more and more funds are required
- RI fhair nStr1IrfiOT - said
SIR. Bingham. For a time the mort
kage bond issue was thought sufficient
20 provide ample funds for such prof.
fcts There were many operators VINO
fould supply the equity money for
building project costing 100000.
I To-day the buildings in our larger
cities run into many millions. Such
projects, well conceived, are economic
ely sound and when constructed con-
tribute materially to the development
snd growth of cities. The need being
apparent, the means of supplying equity
funds must be worked out.
: The public, through its recent very
General participation in stock market
Speculation, has acquired new invest
ment tastes. The consequent market
Demand for a type of security which
carried with it chance of profits on
large enterprises forced investment
banking underwriting real estate prof.
Gets to devise means to give the pub
nc what it wanted or else suffer lack
Of funds for legitimate projects.
- Thine was when all real estate VEN
lures were financed either by the pro-
Ynoter himself from his own capital or
BIZ borrowing, in whole or in part, the
funds necessary and mortgaging the
property as security for the repayment
or the loan.
New Types Tried Out.
<"For many years past the mortgage
bond issue has been the favorite and
almost the only well recognized method
ef providing funds for great real estate
projects, but during the last two years
there have been tried out various new
types of real estate securities.
Preferred stock with bonus, COM
Faon. debentures with common stock
warrants. debentureS convertible into
common stock, bonds carrying as bonus
common stock in general holding COM
Sanies operating various real estate
projects. and classified bonds and
tempting morsels offered to investors.
y More money is needed to replace
funds withdrawn by stock market in
vestors who now seek equity invest
ments. Such attempts are Of incalcu-
liable value to the country at large"
: Mr.. Bingham warned that: 1T Is
time TO call junior securities by their
Fight name. If q person insists on
specializing in real estate he should be
permitted to do so upon proper repre-
sentations as to what he is buying.
Sacrifices Possible Profit.
"If he wishes to purchase first lien
participation he sacrifices possible profit
In exchange for security and safety Of
,~s 1cixfy1e Qa1u modest RETURN
In the way of interest for the use of
bis money. This is properly the func-
ton that should be covered by first
mortgage financing.
Where funds in excess of SO 10 go
Der cent OF the sound value OF the
zeal estate project are required, the
equity financing should take the form
best understandable by the general
public. Call the issue, whatever 1t Is,
by its right name.
."Here it is proper TO say that for
NnIity financing I personally believe
that the preferred and common stocks
Rave the call A stakeholder is part
Ifer in business. It is proper that one
willing to accept the position OF part
Her in an enterprise should receive
break in the profits of that enterprise.
DO not require him to be partner
under the guise of bondholder."
: As to the essential safeguards for real
estate stock issues and other types
~ securities, Mr. Bingham quoted with
approval comment made by Glenn
Griswold, editor of the Economist, as
Follows:
z I'm this form of financing, the pub
DC must depend more than ever before
on the integrity and ability of the
house that undertakes it."
Advantages and Disadvantages.
i
$antages and disadvantages OF the
plan follows:
THE purchaser of stock, whether
u be preferred Of common. does not