In another sign of strength for banks burdened with bad real estate assets, Chemical Banking Corp. on Friday said it sold one of its biggest pieces of foreclosed real estate at 80% of book value.
The nation's third-largest bank company said it sold a 725,800-square-foot shopping mall in Montgomery, Ala., to Heitman Financial Services Ltd., a Chicago-based investor group, for more than $40 million.
The Montgomery Mall was the largest piece of retail property held on Chemical's books.
By recovering 80% of book value, Chemical significantly bettered recent recovery rates ranging around 50 cents to 55 cents on the dollar, according to real estate liquidation experts.
Though the strong sales price reflected particular interest in regional malls and strength in the Southeast, it also signified that liquidity has returned in general to the real estate market.
40 Cents on Dollar a Year Ago
One year ago, with little liquidity in the market, banks were selling property for an average of 37 cents to 40 cents on the dollar, said Philip N. Duff, a managing director in bank mergers and acquisitions at Morgan Stanley & Co.
Excluding the Alabama deal, Chemical has sold $402 million of foreclosed real estate over the past five quarters at prices averaging about 60% of original loan value, said Joseph A. DeLuca, the bank's executive vice president in charge of real estate.
"There's a wide variation, ranging from 30 cents to 90 cents on the dollar," said Mr. DeLuca. "This one was on the higher end of the range."
Chemical said it recently completed another sale of a large office building in Baltimore to the State of Maryland. It did not reveal the price but said it was sold at a discount "substantially deeper" than that of the Montgomery mall.
Some Opt for Bulk Sales
Chemical also sold a mixed-use complex in Atlanta, realizing $35 million in cash, and a luxury apartment property in Manhattan for an undisclosed price.
Commercial banks that are sitting on mountains of foreclosed property have been struggling with the question of selling properties individually in an attempt to get the best price, or packaging them for bulk sale to quickly get the real estate drag behind them.
Chemical has chosen the former route, despite the expense of maintaining the properties, paying realty taxes, and marketing and selling to investors.
The New York company had $11.7 billion of commercial estate assets on March 31, including $2.5 billion that was nonperforming.
Its portfolio of foreclosed real estate stood at $500 million at the end of the first quarter.
Several other banks have recently stepped up their sales of property to meet the demand of new pools of money put together by Wall Street firms and other investors who believe prices have bottomed.
"The market has gone from zero liquidity to more buyers chasing property than there is property on the block," said Mr. Duff.