Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-06-10
spccial Dispatch to The Star.

Special Dispatch to The Star.
CHICAGO, June 1o.-An intensive
of the real estate bond
situation, giving suggested plans for
working out defaults and for restoring
real estate financing to sound basis, is
given to the investment banking buSl-
ness and the public by the Investment
Bankers Association of America In the
latest interim report of the associations
Real Estate Securities Committee. The
meeting of the associations board of
governors at White Sulphur Springs.
and appears In the June number of the
associations official publication. Invest
ment Banking, just issued. After giving
a brief history of real estate bond financ-
ing and of rental and real estate value
trends since 1914 the report divides OUT
standing real estate bonds into five
classes. and says:
1.-THE real estate bond situation is one
of the blacklist spots in our present
financial outlook, made SO to some ex-
tent by general ignorance as to how the
situation should be handled. Estimates
of the total outstanding volume Of, real
estate bonds vary from to II billion
dollars. Ten billion dollars may be
fairly correct estimate. In the city of
Chicago $400, 900 900 in real estate bonds
are in actual foreclosure, and similar
conditions exist in most Of our larger
cities. The 10 billion of real estate bonds
should be considered in groups, and a
follows which your COM
nittee believes is more or less correct"
Bonds Classified.
The classification places, in class /,
So ,00O, 000, 900 of real estate bonds ''in
good standing with good record" Glass
able to work out without foreclosure or
loss" Glass 8, 81, SOC, 000, 900 where fore
closure or workout with small loss is
probable Oosses 10 per cent to IS per
cent?" Glass 4, $4,000, 100000 with
losses from IS per cent to so per cent
when foreclosure and sale are completed"
Glass 5, $500, 100000 "incompleted, i'll
conceived and misplaced buildings, in
Guiding 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 en-
tirely abandoned"
Bonds in classes and 2 are well
secured, the committee believes, and
are entitled to a preferred market, and
houss should endeavor to
maintain such market. In class 3,
and S, the committee advises that each
should be furnished with
as to the probable liquidat-
ing value, and that when possible some
price for these bonds should be main
tanned by the originators. Where liqui-
dalton is necessary originators should
take the leadership in iiquidating each
issue and should at least absorb their
own expenses, to make the burden on
kk1a TNrOY1affu Iiyht O rnCcfhln The
report adds: I'VE 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 integrity of their
real estate bond issues as far as pos
sible."
Many Plans Considered.
The committee reports that it has re-
ceived many plans that propose to work
out defaulted bond issues in groups.
AS a general rule, says the report, these
plans of including several different de-
faulted issues in group are not fair
to all depositing bondholders, some of
the plans are sponsored by individuals
who are intent on making a profit from
the situation and all the plans are
primarily weak in that no capital is
furnished.
The report then offers definite plan
and proposes that where State laws
permit corporations be organized by
interests in leading cities to
acquire distress income property. These
corporations should have adequate
paid-in capital and holders of defaulted
bonds should have a choice of selling
their bonds to the corporation at a
fair price or of exchanging bonds for
5 per cent preferred stock, each share
of which would carry with it one share
Of common stock. The corporation
might also acquire the equity and junior
claims, either by foreclosure, or pur-
chase, and, the report adds, I'VE believe
1t is advisable for the principal banking
interests in all the cities where the
problem Is serious one to
organize and get the defaulted real
estate bonds out of the way as quickly
as possible"
The report refers to the conserva-
tive type of real estate loans held by
insurance companies and conservative
mortgage guarantee companies and says
that while some Of their assets are
tied up in present foreclosures, they
all feel that their eventual losses will
be negligible" Looking to the future,
the report says:
Until the present situation has
cleared, there VIII be little real estate