I___ - __-.__-..” __-__--. ill*. ..I __&, C.“,IX-.“.*.I~-“.-- NowmIwr I !)!)(I RESOLUTION TRUST CORPORATION Real Estate Activ in Houston, Texas lllllllIIll1 1 142628 ._-.-._ l_, -l.~.--..~..*.--._._I _.-_. ~_.II_ “.l”--.-.-l..-l_-l. .“” .._ ._II_.,. United States General Accounting OfTice GAO Washington, D.C. 20648 General Government Division B-241276 November 13,lOQO The Honorable Bill Archer House of Representatives Dear Mr. Archer: 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-- portions of the Houston, Texas area.1 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 n meq),"of managers of any high-value real estate properti et 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 has been qualified or disqualified for RTC contracts, and for those disqualified, the reasons why., The following discussion provides this information. 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. lThe Subcommittee requested information for specific zip codes, which are listed in appendix I, encompassing an area including portions of Houston, Katy, and Spring, Texas, and the city of Tomball, Texas. 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. B-241276 Sixty-five thrifts in Texas with total assets of about $18.2 billion were in the RTC conservatorship program as of June 30, 1990. Five of these thrifts, all in Houston, were within the review area (Bane Plus, Benjamin Franklin, Commonwealth, First South, and Meritbank). Collectively, these five thrifts had total assets of about $3.8 billion. Eight thrifts in Houston (Ameriway, Century, Cornerstone, First Capital, Trinity Valley, Universal, University Federal, and Village) and one thrift in Tomball, Texas (First Equity), had been sold as of June 30, 1990. 'de identified 1,614 properties within the review area listed in RTC's real estate inventory as of March 31, 1990. These properties included single-family houses; multifamily apartment complexes; condominiums; commercial properties, such as office buildings and retail space; undeveloped land; and industrial facilities. The specific properties we identified are listed in appendix III. Due to RTC data input errors, some of the properties listed in the RTC inventory with review area postal zip codes may not actually be located within the review area. We have footnoted those properties where there appears to be an error in either the zip code or the city listed. We did not attempt to determine the actual location of these properties. REAL ESTATE ASSETS SOLD Further, we identified 195 properties within the review area that RTC had sold as of March 31, 1990.. Due to errors and omissions in the RTC headquarters real property database, especially in data on sales occurring before January 1, 1990--the date RTC began to capture sales data, we are not certain that we identified all sales. For example, the RTC regional office in Dallas has not been updating the database to include sales transactions occurring at thrifts in their region. As a result of the understated sales transactions reported by RTC headquarters, we had to develop most of the sales information from regional data. Of the sales we did identify, 10 were for $1 million or more. Appendixes IV and V list the properties sold, the sales price, and, for sales of $1 million or more, the purchaser's name. REAL ESTATE BROKER REGISTRATION RTC procedures do not require real estate agents to register with it because state laws and regulations require a-gents to work through licensed brokers. However, RTC real 2 B-241276 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 August 8, 1990, 2,598 brokers had registered to work in the review area. This figure includes brokers from outside the area who want to be able to list RTC properties. 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. PROPERTY MANAGEMENT We identified 138 properties within the review area in the inventory as of March 31, 1990, that met the dollar criteria specified in the request. RTC conservatorships and receiverships employed property managers to manage 79 of these assets, including such properties as commercial buildings, apartment complexes, and retail space. RTC officials advised us that management fees and contracts vary from property to property. To provide a consistent basis for presenting management fees, we used RTC data to calculate actual or, when actual fees were not available, estimated fees for a typical l- month period.4 Fees RTC paid over a typical l-month period for management services at these properties ranged from 4For each contract, we divided the total management fees by the number of months covered by the contract. 3 B-241276 $300 for a commercial office building to $5,550 for an apartment complex. The remaining assets, such as raw land, did not necessitate ongoing management or oversight. Appendix VI lists the specific properties identified: the managers, if applicable: and the monthly fees being paid by RTC for management services. OBJECTIVES, SCOPE, AND METHODOLOGY We obtained the information requested by the Chairman from RTC's March 31, 1990, computerized real estate inventory database and various documents we gathered and analyzed. We also obtained information through discussions with RTC officials at RTC headquarters, at all four regional offices, at selected consolidated office sites, and at thrifts in conservatorship. We used the postal zip codes listed in appendix I to identify specific properties listed in the property inventory database. We did not verify the computerized data; therefore, we cannot attest to the completeness or accuracy of the property listings. RTC has experienced considerable problems with its real property inventory system. It was aware that data in the system were not always complete and accurate and has been trying to verify the data as it updates the inventory. Because of these data quality problems, RTC placed a disclaimer on the database magnetic tapes and floppy disks. The disclaimer stated that II information, contained in the computer pioduit is not guaranteed and is submitted subject to, without notice, correction, errors, prior sale or withdrawal from the market. The RTC, now and forever, makes no guarantee, warranty, or representation, expressed or implied, as to the location, quality, kind, character, size, description, or fitness for any use or purpose, of any property listed and/or described in the computer product." RTC is in the process of hiring a contractor to develop and operate a completely new system for its automated real property inventory records. It expects this new system to be in place during the first quarter of 1991. Since RTC solicited for a system that was operational, it does not expect the delays sometimes experienced in systems development. We did our work between March and August 1990 in accordance with generally accepted government auditing standards. 4 B-241276 We discussed the results of our review with RTC Southwest Region officials, 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 interested parties upon request. The ma-jar contributors to this fact sheet are listed in appendix VII. If you have any questions, please contact me at 275-8387.