The Washington times., 1931-06-09
BANKING GROUP
. HITS REALTY
FINANCING
Little More Than 0ne-third of
Ten Billions Bonds Issued
Called Properly Secured

CHICAGO, June Am inten-
sive investigation of the real es-
tate bond situation, giving sug-
gested plans for working out de-
faults and for restoring real es-
tate financing to a sound basis, is
given to the investment banking
business and the pubic today by
the Investment Bankers AsSocia-
ton Of America in the latest in
terim report of the associations
real estate securities committee.
After giving a brief history OF
real estate bond financing and of
rental and real estate value trends
since 1914 the report divides out
standing real estate bonds into
five classes and says:
Record Is Black
"The real estate bond situa-
tiOn is one of the blacklist spots
in our present financial outlook,
made so to some extent by gen
eral ignorance as to how the
situation should be handled. Es-
Inmates of the total outstanding
volume of real estate bonds
vary from eight to twelve bill
lion dollars. Ten billion dollars
may be a fairly correct estimate.
I'm the city Of Chicago $780,
100000 in real estate bonds are
in actual foreclosure and similar
conditions exist in most Of our
larger cities. The ten billion OF
real estate bonds should be con-
Sidered in groups and a claSsifi-
cation follows which your COM
mittee believes is more or less
correct"
The classification places in
class /, $4,000, 100000 of real es-
tate bonds in good standing with
good record. Class 2, $4,000, ,OOO,-
900 which appear to be able to
work out without foreclosure or
loss. Glass 3, $2,50O, 1000, 900, where
foreclosure of workout with small
loss is probable QosSes 10 per cent
to Is per cent?. Glass 4, $3,000,-
100000. with losses from Is per
cent to so per cent when fore.
closure and sale are completed.
Class S, $500, 100000; incompleted,
ill-conceived and misplaced build
ings, including many leasehold
and second mortgage bond issues.
Losses in this class will run from
so per cent to 100 per cent and
items should often be entirely
abandoned.
Some Well Secured
Bonds in classes l and 2 are we'll
secured, the committee believes,
and are entitled to a preferred
market and investment houses
should endeavor to maintain such
a market. In class 3, and 5, the
committee advises that each bond
holder should be furnished with
information as to the probable
liquidating value and that when
possible some price for these
bonds should be maintained by
the originators.
Where liquidation is necessary
originatorS should take the lead
ership in liquidating each issue
and should at least absorb their
own expenses, to make the burden
on the property as light as pos
sible. The report adds:
1--WE do not believe that the
investment house need absorb
the loss on real estate bonds
and mortgages. We do believe
that investment houses which
expect to stay in business
should help to preserve the in
tegrity of their real estate bond
issues as far as possible"
The committee reports that it
has received many plans that pro-
pose to work out defaulted bond
issues in groups. AS a general rule,
says the report, these plans of in
Guiding several different defaulted
issues in a group are not fair to
all depositing bond holders, some
of the plans are sponsored by in
diViduals who are intent on max
ing a profit from the situation,
and all the plans are primarily
weak in that no capital is fur
nished.