Hidden in the shadows of the Resolution Trust Corp. for several years, the Federal Deposit Insurance Corp. is emerging as a dominant real estate player.

In recent deals, the FDIC arranged to sell more than $1.2 billion of loans from the portfolio of the failed American Savings Bank, White Plains, N.Y.

It also plans to auction 250 commercial properties, worth $750 million, on Dec. 1 and 2. And, it may securitize $2.2 billion of the $9 billion of real estate loans it now holds.

Change in Focus

Steven Seelig, director of liquidations at the FDIC, said his division would concentrate on foreclosed real estate rather than loans because investor in failed banks are reluctant to take the risk of buying the properties.

"Even when [the agency does] risk-sharing transactions -- when we get relatively few assets -- we have been getting the real estate," he said. To be sure, the current amount of FDIC real estate pales next to what thrift regulators face--the Resolution Trust Corp.'s portfolio is six times the size of the FDIC's. But the RTC has started to wind down its business of liquidating the assets of failed thrifts. And the FDIC is seen as eventually overtaking the RTC.

"There'll be more activity in FDIC, and less at the RTC, over the next two years," said Christoper Kallivokas of Real Estate Recovery Inc., a Virginia-based contractor for both agencies.

Pressure on the FDIC liquidation division will further increase on Dec. 19, when new rules take effect authorizing regulators to seize undercapitalized but solvent banks.

Such banks, with leverage capital ratios of 2% or lower, controlled nearly $12 billion of real estate loans and properties at midyear.

Problems Continuing

Additional deterioration in real estate markets, especially in California, could eat up reserves and put more banks on the FDIC sick list, even if the industry as a whole is getting healthier, said James Barth, a professor at Auburn University. "Have the banks already written down enough? That's what's hard to tell," he said.

Although the rule could increase the RTC's portfolio too, "the upswing will be more dramatic at the FDIC," Mr. Kallivokas said.

Growth of the FDIC's real estate operation means banks that are trying to liquidate real estate will continue to face a big government agency as a competitor, just when they hoped the RTC's depressive influence on local markets would wane.

Several large banks, including First Chicago Corp., Fleet Financial Group, and Shawmut National Corp., have recently announced plans to accelerate sales of real estate assets.

But most observers think the FDIC's mission of preserving the deposit insurance fund will make it sensitive to protecting market values, unlike the self-liquidating RTC.

FDIC officials played down the impact of the new capital rule on its liquidation division. They said that under loss-sharing agreements the agency now offers to the buyers of troubled banks, all but the worst assets will remain in private hands.

Nevertheless, data provided by Sheshunoff Information Services Inc., an American Banker affiliate, show that the new rule could accelerate the flow of bad real estate into the agency.

About $10.4 billion of real estate loans, $1.1 billion of which are badly delinquent, and nearly $1.6 billion of foreclosed properties were held at midyear by the 48 banks that were solvent but had core capital ratios of less than 2% of assets.

Not of Primary Interest

The delinquent loans and foreclosed properties are the types that private buyers most likely would leave to the FDIC.

Under the old rules, only 11 banks - holding $345 million in real estate loans and $41 million in foreclosed properties - would have been closed, according to Sheshunoff.

The agency controls about $4.5 billion of foreclosed property and $9 billion of real estate loans most of the loans being nonperforming.

It sold $1.75 billion of real estate in the first nine months of the year. The recovery represented about 60% of book value and more than 92% of appraised value, Mr. Seelig said.

A recent FDIC contract with Reas Estate Recovery illustrates how real estate disposition is evolving as a result of the FDIC's emergence as a player in the market.

"We have taken what [the RTC has] done and what we did on large pools and refined it," Mr. Seelig said of the new incentive-fee plan.

Fees are one area where the FDIC hopes to pay less than did the RTC.

For example, to win the contract on a $488 million portfolio, Real Estate Recovery agreed to forgo fees if it cannot recover about 80% of the face value of the loans.

Some observers think the FDIC's goal of preserving the deposit insurance fund may have discouraged it from imitating the RTC's commercial securitization program.

One congressional aide argued that the RTC faces losses under the guarantees it grants investors on the underlying loans, and the FDIC cannot compete in the securitization market unless it is willing to match those guarantees.

Securitization Planned

Mr. Seelig said, however, that the agency intends to securitize the loans it makes to facilitate sales of property at auction.

"Securitization is nothing new to us," an FDIC source said, noting that the FDIC completed a number of single-family and commercial real estate loan securitizations in the mid-1980s.

But he added that FDIC opted against securitizing $767 million of American Savings' loans this fall, when it realized it could get 98.25% of face value for commercial assets and 102% for apartment loans in two recent whole loan sales.

The FDIC is likely be more active in the Northeast and slightly less active in the Southwest than was the RTC because of the concentration of troubled FDIC savings banks in New England.

Reasons to think the FDIC's task will be easier than the RTC's include a lower level of highly speculative land loans by banks.

Banks also made fewer loans on a nonrecourse basis, meaning the FDIC may have a better shot at collecting judgments against borrowers than did the RTC.

But Mr. Seelig said widespread ectations that the FDIC will be dealing in bigger, better properties than the RTC are unfounded.

While money-center banks tended to lend to prestigious office buildings more often that thrifs, "they forget we also close a lot of little banks," Mr. Seelig said.

He said the average property in the FDIC portfolio has a face value of a modest $675,000. Banks "got suckered into real estate just like the thrifts did," he said.

There is some speculation that changes in the FDIC's approach are in store, following a shake-up in which Mr. Seelig will become chief financial officer, and John F. Bovenzi, the deputy chairman of the agency, will take over liquidations.

Moreover, some worry that the Clinton administration might place the bank and thrift restructurings under a single agency in an effort to lump the problems together as mistakes of a past administration.

But managers who have dealt both with the FDIC and the RTC advise against placing management-intensive real estate with agencies whose sole purpose is liquidation.

Ronald B. Bruder, president of the Brookhill Group in New York said the FDIC "seems to be able to get things done better. Because it was formed three years ago, the RTC doesn't have that cohesiveness." BEGIN TABLE Real Problems A comparison of real estate liquidations of the Federal Deposit Insurance Corp and the Resolution Trust Corp. FDIC RTCPortfolio at Foreclosed $4.5 $13Sept. 30 real estate billion billion Real estate loans $9 $68 billion billion(*)1992 sales Number of 11,600 24,219through properties sold

September Price recovered $1.75 $3.64 billion billion Percentage of book value recovered 60% 53%

(*)As of Aug. 31 Source: FDIC, RTC END TABLE

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