Evening star., 1933-04-29
NEW REAL ESTATE
METHOD FAVORED
D. C. Financier Would Put
All Bank Holdings Under
Same Management.
BY EDWARD c. STONE.

BY EDWARD C. STONE.
Arthur j. Linn, controller of the
Federal American Bank & Trust Co.
of this city, is the author Of an un-
usually interesting article in the Bur-
roughs Clearing House Magazine on
Meeting the Problem of Other Real
Estate" He says management of the
asset known as ''other real estate
owned" is tending to become the most
serious problem confronting a great
majority of bankers. A good many
banks have obtained large amount OF
real estate in the process Of realizing
on the security for loans. Other banks
have great many real estate loans or
are holding many real estate securi-
ties
All the situations are grouped by Mr.
Linn under the comTIlon head OF dis
tress real estate" He offers a new and
unusual plan whereby city banks
might set up cooperative organza-
ton for disposing of some OF this real
estate in a beneficial way. some time
ago some of WaShington's leading
bankers took up the plan carefully
and declared it sound. The idea is one
that might be applied to the closed
bank situation here, at least 1t is worth
careful study.
Mr.. Linn suggests that by co-opera-
tion with a logical area banks might
save a great deal Of the time now CIV
en- to real estate matters ana nave
much better reports on income ana ex-
penses on large properties tnan tnelt
real estate representatives often furnlsh.
Through this organization they would
be in a better position to realize on as
sets. centralize previously scattered ac-
tivities, relieve the banks of all details
of supervision and provide manage
ment superior to that which had pre-
yiously been employed.
First Point to Be Settled.
The first matter to be considered, he
says, would be the capital structure OF
the proposed corporation.
The important phase OF the capital
set-up Is. of course, the values at
which the assets of the banks would
be transferred to the management cor
roration. It seems essential that these
values should be determined in uni
form manner. preferably by nation,
al appraisal company: The appraisal
should include an analysis OF the eco.
nomic factors governing the present
market and potential values, giving
consideration to:
Relative advantages OF location
Past, present and prospective occu-
Normal operating costs and fixed
Actual and prospective revenues and
earnings. .,. .o
Reconstruction costs If desirable 10
remodel buildings for other uses.
Costs of reproduction according with
local conditions as to land values ana
market prices for materials and lapor;
Condition of the properties IN regard
IN adequacy. deterioration, obsoleScence
and other factors bearing upon their
utility.
Insurable values Of buildings as
basis for adequate insurance protecLlon
and provable evidence IN case Oh ioss
by fire. ,..;
Values to owners based upon pres
ent operation expectations.
Possibilities for future development.
Contents Of Report.
The analysis and report OF the ap.
praiser. Mr.. Linn adds, snoulo SeV
forth the relative desirabillty OF tne
respective properties, permit tne eAe
else of a selective but not restrictive
judgement as to their operation ana
sale and furnish sound basis for cap
italization. The basis of capitallzatlon
must of course, be acceptable to the
state authorities and the Conlrouel
The securities issued would be OF
several classes, one class covering tIle
value of any unimproved grouno con-
tributed by the banks. Thls class W
security would probably be subject W
assessments for carrying charges ,r,a un
the assets purchased therew1th. Inc
second class of securities would be Is
sued for the net equity in improved
property heavily encountered by prior
liens. where there may also be the pos
sibilitv of an operating defclt. Inc
third class might cover properties tnaI
are easily carrying themselves ana re-
turning net pront.
Management Vital Issue.
MANAGEMENT Is a prime consioera.
ton. Mr.. Linn declares, Tor WltnouI
an improved condition, no plan OF
consolidation would be effective. The
Corporation should be able to employ
the best real estate and flnanclol IN
telligence available and that manage
ment should have only one duty: 10
integrate the present scattered &C
tivities, to create the maximum EN-
cheney in management and marketing
and finally to effectuate the most ia
vorable realization OF assets 10 tne
parties in interest.
The directorate would necessarily be
constituted from among the partlci-
pating banks Howeyer-and thls Is
important-unless the banks have en-
tire confidence in the executive man.
agement of the proposed company and
are willing to transfer to it their real
estate problems without reservations,
its purposes would undoubtedly be de-
feated. The banks must clear their
desks and the minds Of their ofncers
from these problems that are foreign
to banking and concentrate on the
business contemplated by their char
ters
The savings usually derived from
large scale operations ahould be real
ized-depending Of course upon the
scope of the organization. quantity
purchasing, elimination Of waste in
advertising and selling effort, avoid
ance of lost motion and duplication In
general management and accounting
are economies that should Immediately
be observed.
A direct saving to the participants,
Mr.. Linn concludes, would be effected
due to the transfer Of selected officers
and employees to the new organlza-
ton, thereby relieving the banks OF
those salaries, other executive expense
ana all of the overhead incident to
real estate management.