Resolution Trust Corporation: Real Estate Activities in Southeast Pennsylvania

Published by the Government Accountability Office on 1990-11-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

-..-.~-._-__.-   ---_.l_-l-   ..-.--ll__---~-~-
Nov(w~ twr I!~!)0
                                                  RESOLUTION TRUST
                                                  Real Estate Activities
                                                  in Southeast

      ,.   ...I_ ..”   -..                 -....   .._.. - ._.. ._.” .,._ _...._ ..-__--   ___.._.-_,l____   --   --   ____-I

_.._ -.        .             _   __   _I   I ,,         II ..*...
                                                                     . .-. - .-..-..-.-- ____-_
        ,*,L ss,,
I)‘--------                                              ---

                         United States
  GAO                    General Accounting <)ffke
                         Washington, DC 20548

                         <;eneral Government, Division         -


                         November 9,19!90

                         The Honorable Richard T. Schulze
                         House of Representatives
                         Dear Mr.      Schulze:
                         On March 5, 1990, Chairman J. J. Pickle,                Subcommittee        on
                         Oversight,       House Committee on Ways and Means, requested
                         certain     information     on Resolution      Trust Corporation          (RTC)
                         activities       in six geographic      areas.     This fact sheet
                         addresses      questions    on RTC real estate       holdings       and property
                         management activities           in one of those areas--a          portion    of
                         southeastern       Pennsylvania,     near Philadelphia.'            Chairman
                         Pickle     asked that we send this information             directly       to you
                         since you represent         this area.      The five other areas are
                         being covered in separate           fact sheets.
                         Specifically,        the Chairman asked for information            on
                          (1) thrifts      and real estate assets placed under RTC
                         control;      (2) the names of managers of any high-value               real
                         estate     properties      in the inventory     and what they are paid;
                          (3) real estate        assets that have been sold and the
                         purchasers       of those sold for $1 million          or more; and (4) the
                         number of real estate agents that have been qualified                    or
                         disqualified        for RTC contracts,      and for those disqualified,
                         the reasons why.          The following     discussion    provides    this
                         THRIFTS AND REAL ESTATE ASSETS
                         PLACED UNDER RTC CONTROL
                         The Office     of Thrift     Supervision     initially     places troubled
                         thrifts    under the direct       su ervision        of RTC--which     serves
                         as conservator2       or receiver !I --when certain        conditions,      such
                         as insolvency,       capital   inadequacy,       or unsafe and unsound
                         practices,    exist.

                         'The Subcommittee     requested   information     for specific    zip
                         codes, listed    in appendix I, encompassing         an area including
                         portions   of Berks, Bucks, Chester,        Delaware,   and Montgomery
                         counties,    in southeastern    Pennsylvania.
                          2A conservator     is appointed  to, among other things,
                          operate the thrift     as a going concern,   and preserve               and
                          conserve the assets and properties      of the thrift.

                          3A receiver        is charged by law with the duty           of winding       up
                          the affairs        of a bank or savings association.

Three thrifts      in Pennsylvania     with total    assets of about
$5.9 billion      were in the RTC conservatorship          program as of
June 30, 1990.        However, none of these thrifts          were located
in the review area.         Prior to this date, four thrifts          in
Pennsylvania      had been resolved,      that is, sold to new owners
or closed if no purchaser         was found.      One of these four--
Hill  Financial      Savings Association      in Red Hill,
Pennsylvania    --was located     in the review area.
Hill    Financial     was resolved      through     a purchase and
assumption       agreement in October 1989.4              At that time, Hill
Financial       and its remaining       assets and liabilities            were
placed into receivership.             It had assets totaling            about $2.7
billion       when it was partially         acquired     by Meridian      Bancorp,
Inc. of Reading,        Pennsylvania.          Meridian    acquired     assets
valued at about $.8 billion,              leaving     assets valued at nearly
$1.9    billion     to be transferred        to RTC to liquidate.           About
87 percent       of the assets in the Hill            Financial     receivership
(over $1.6 billion)         were financial         assets (loans,
securities,       and mortgages).         The remainder       was about $150
million       in real estate and about $95 million               in other
Hill    Financial's       real estate assets were scattered                through-
out the country.            Specifically,         as of March 31, 1990, 575
former Hill        Financial     real estate         assets were under RTC
control.       A total      of 533 properties          were located     in 15
states     other than Pennsylvania,               primarily     in Georgia,
Texas, Tennessee,           and Florida.          Only 42 of Hill      Financial's
properties      were located         in Pennsylvania;          5 of them were in
the review area.            Also within       the review area, we identified
two other RTC-controlled               properties      previously     owned by two
other thrifts         located    elsewhere.          The total    asking prices
for these seven properties                was about $6.7 million.            These
properties      are shown in table             1.

41n a purchase and assumption              resolution,       an assuming
institution,      selected       by RTC through competitive             bidding,
purchases    certain     assets and assumes certain             liabilities        of
the failed    thrift.        In most cases, the most desirable
assets-- typically,        cash, securities,          and performing
loans --are purchased.            Real estate,       personal   property,
nonperforming       loans,     junk bonds, and frequently,              any
subsidiaries      owned by the thrift,            are not generally
   II        by the acquiring         institution.

                                Table 1:
                  Real Estate Assets Under RTC Control
                in the Review Area as of March 31, 1990
  Asset                           Asset
location                         description            Receivership
Geryville Pike                   Commercial             Hill Financial
Upper Hanover                    office building        Red Hill,   PA
Township, PA 18073
E. Sixth St.                     Commercial             Hill Financial
Upper Hanover                    office  building       Red Hill,   PA
Township, PA 18076
400 Main St.                     Bank building          Hill Financial
Red Hill, PA 18076               and offices            Red Hill,   PA
426 Main St.                     Commercial             Hill Financial
Red Hill, PA 18076               office  building       Red Hill,   PA
412 Main St.                     Single-family          Hill Financial
Red Hill, PA 18076               residence              Red Hill,   PA
1510 Chester   Pike              Commercial             Concordia       Federal
Eddystone,   PA 19013            office  building       Lansing,      IL
11 Elm Drive                     Single-family          Horizon Financial
Lansdale,  PA 19446a             residence              Southampton,   PA
aThis      property   was sold    by RTC after      March   31,   1990.

As of September 12, 1990, RTC had not entered                    into any asset
or property       management contracts        for real estate         under its
control      in the review area.        However, a property          management
contractor      has been selected,       but the contract          had not been
awarded.       RTC had expected to award this contract                  in July
 1990.     It is to cover several        properties      located      in eastern
Pennsylvania,       including    the four commercial          buildings        in
Upper Hanover Township and Red Hill               listed    in table        1.
These properties         were used to house the operations                of RTC's
Northeast      Consolidated    Field Office       until    July 2, 1990, when
these operations         were relocated     to King of Prussia,

A'security       company has been contracted    to provide 24-hour
guard service        for $1,300 per week for the other unsold
property      in the review area --the   vacant Eddystone commercial
office     building.
Environmental        problems may affect        the value and
marketability        of commercial     property     held by RTC in the Red
Hill    area.     One of the four commercial           office   buildings
formerly      occupied by Hill      Financial      Savings and the RTC
Northeast      Consolidated    Office     was found to have excessive
levels     of radon.      RTC has awarded a contract          to determine
the extent      of environmental       problems in this and another
A single-family     residence,    an asset of the Horizon Financial
receivership,    was the only sale identified      in the review
area.     The Lansdale,    Pennsylvania,   home was sold for $81,000
on May 2, 1990.       The asking price for this property     was
RTC procedures          do not require         real estate    agents to register
with it because state laws and regulations                      require    agents to
work through         licensed      brokers.       However, RTC real estate
brokers      interested        in handling       RTC property    are required     to
register.         Brokers must certify            that their    employees or
subcontractors,           including     real estate agents,         meet
qualification          and integrity        requirements.       As of July 24,
1990, 424 real estate brokers that wished to do work for RTC
in southeastern           Pennsylvania       had registered      with the agency.
This figure        included       11 brokers      from within    the review area,
52 brokers        with Pennsylvania          office    addresses    outside   the
area, and 361 brokers              from other states.
RTC may disqualify          brokers,     or any other contractors,         on the
basis of information           provided      on the Fitness    and Integrity
Certifications       Form that must be submitted            with the firm's
Contractor      Registration       Request.       As of July 31, 1990, none
of the brokers       with offices         located   in the review area had
been disqualified.           In fact,       as of that date, only 19 firms
of any type nationwide            had been disqualified        from being
considered      for RTC work.         Firms may ask for a
reconsideration        of their      status     at any time after   they have
been disqualified.


The'fact    that a firm is registered                with RTC and its name is
included    on the contractor            registry     simply enables the firm
to be considered         for RTC contracts           and receive       solicitations
for services.         Inclusion       in the registry           does not imply that
the firm is qualified            to do work for RTC or that it is an
approved RTC contractor.                RTC contracting          procedures       require
contracting     officers       to determine         qualifications        and obtain
additional     ethics     certifications          from potential        contractors
each time a firm is considered                 for a contract.
To obtain     the information        requested    by the Chairman, we
obtained     a listing     of assets located        in the review area from
RTC's computerized          real estate    inventory.     The inventory
contained     information       on real estate     under RTC control    and
sales of RTC real estate as of March 31, 1990.                  RTC had
experienced      problems with the completeness           and accuracy of
its property       inventory     and placed a disclaimer       on the
We discussed     with the RTC Northeast        Consolidated    Office
Director   and his staff    the southeastern       Pennsylvania
properties   listed   in the inventory,        and they identified         one
additional   property    in the review area not listed          on the
March inventory.      To obtain    information     on real estate
agents and brokers,      we consulted     RTC's contractor       registry.
We did our work from March through                      August     1990 in accordance
with generally accepted government                      auditing     standards.

We discussed    the results    of our work with the Director    of
RTC's Northeast    Consolidated    Office    and his staff, who
agreed with the facts presented         in this document.
As agreed      with the Subcommittee,      no further  distribution                   of
this fact      sheet is planned;   however, we will      make copies
available      to other interested    parties    upon request.
The major contributors   to this fact sheet are listed    in
appendix  II.   If you have any questions,  please contact   me
on 275-8387.

    Management      Issues

APPENDIX I                                                           APPENDIX I     '
Zip code       Post office                         Zip code
                               .-..","--. ._,"I-..__          Post   office
18041          East Greenville                19363           Oxford
18054          Green Lane                     19365           Parkesburg
18070          Palm                           19366           Pocopson
18073          Pennsburg                      19372           Thorndale
18074          Perkiomenville                 19373           Thornton
18076          Red Hill                       19374           Toughkenamon
18084          Sumneytown                     19375           Unionville
18915          Colmar                         19380-83        West Chester
18924          Franconia                      19390           West Grove
18957          Salford                        19395           Westtown
18958          Salfordville                   19401           Norristown
18964          Souderton                      19403           Norristown
18969          Telford                        19407-08        Norristown
18971          Tylersport                     19420           Arcola
18979          Woxall                         19425           Chester Springs
19013-16       Chester                        19426           Collegeville
19061          Marcus Hook                    19430           Creamery
19073          Newtown Square                 19432           Devault
19087          Wayne                          19433           (invalid      code)
19301          Paoli                          19435           Frederick
19311          Avondale                       19438           Harleysville
19312          Berwyn                         19440           Hatfield
19316          Brandamore                     19442           Kimberton
19317          Chadds Ford                    19446           Lansdale
19318          Chatham                        19450           Lederach
19319          Cheyney                        19453           Mont Clare
19320          Coatesville                    19456           Oaks
19321          (invalid      code)            19457           Parker Ford
19331          Concordville                   19460           Phoenixville
19335          Downingtown                    19464           Pottstown
19341          Exton                          19468           Roye rsford
19342          Glen Mills                     19472           Sassamansville
19343          Glenmoore                      19473           Schwenksville
19345          Immaculata                     19474           Skippack
19347          Kemblesville                   19478           Spring Mount
19348          Kennett Square                 19480           Uwchland
19350          Landenberg                     19481-82        Valley      Forge
19352          Lincoln      University        19491           (invalid      code)
19353          Lionville                      19492           Zieglerville
19354          Lyndell                        19504           Barto
19355          Malvern                        19505           Bechtelsville
19357          Mendenhall                     19512           Boyertown
19358          Modena                         19525           Gilbertsville
19360          New London

     f   1’

APPENDIX II                                                     APPENDIX II


Gaston L. Gianni,     Jr., Associate    Director,   Federal Management
Ronald L. King, Assistant     Director,     Federal Management Issues
Stuart    M. Kaufman, Senior Social     Scientist

Mario         L. Artesiano,      Evaluator-in-Charge
Kevin         C. Handley,     Site Senior


I I.S. (;ckncbr-ill Acmut~t~itrg     Ol‘f?ccb
I’. 0. 130x 60 15
(;;LiIllcbrst)IIrg,   MI) 20877

Orctcrs   may also     t)cb plactd     Iby calling   (%02)   275-624   I.