REAL ESTATE REPORT The Feds

THE FEDS: FOR AT LEAST THE NEXT five years, maybe longer, people in the real estate business in Dallas are either going to be competing against them or working for them. Like it or not, the federal government in one form or another is a prominent force in this real estate market as a controller of real estate and an employer of real estate talent. So, as long as they’re here to stay a spell, you might as well get to know these people a little bit better.

Forget the dumpy image of the typical federal employee that lies somewhere in the back of your mind… the guy straight out of Central Casting, balding, overweight, fiftyish, sitting at a desk watching the clock all day, counting the days until his pension kicks in. That stereotype doesn’t apply. But don’t throw out all of your preconceived notions about bureaucrats; some of them are right on the money: for instance, one guy interviewed for this story had to fill out an application, send it to Washington, and wait two weeks for an approval before he could return my phone call. And that’s just the beginning.

This is the continuing saga of the savings and loan crisis. For full background, see our May 1987 Real Estate Report, but here’s a synopsis; when we last left our heroes, the federal government was trying to get a handle on the problems we were having down here. Between the hurting economy and a deregulated environment that led to “liberal lending practices,” developers and S&L owners in these parts were in a heap of trouble. Chunk by chunk, the Federal Home Loan Bank Board, FHLBB. which regulates the industry, began to take over failed S&Ls and offer “guidance” to troubled S&Ls. Within a very short time, the feds had a multibillion-dollar portfolio of deeply troubled real estate to handle, most of it in the Southwest. Which brings us to the present and our Introduction to Federalese 101.

To handle the problem, the FHLBB appointed the Federal Savings & Loan Insurance Corporation, FSL1C, as receiver for certain failed savings and loan institutions. The duties of the FSLIC as receiver are to manage the recovery of funds from those failed institutions through the sale of their assets for the benefit of the depositors or creditors of the institutions. Dallas is the home of FSLIC’s Southern Regional Receivership Office and handles the bulk of the assets.

But the job was too big for the FSLIC to handle alone. So, the FHLBB, under former chairman Edwin J. Gray, chartered a quasi-government agency called the Federal Asset Disposition Association, FADA (see related story for pronunciation guidance on all of these acronyms), as another tool to help solve the asset problems in troubled thrift portfolios. The people at FADA will tell you time: and again that they are not a federal agency. Correct. They are technically a federally chartered savings and loan association owned by the FSLIC. Uncle Sam does pay them, though, so in that sense, they are federal employees. The way FADA was organized allows it to circumvent federal pay regulations. The idea was that if FADA could pay market-level salaries, it could attract top real estate talent. FADA’s chief executive Roslyn B. Payne makes $250,000 a year before bonuses-more than the president of the United States-a salary that some people say means political Suicide for the organization, which has been riddled with criticism since its inception. There is Continued talk about resentment and power struggle between FADA and FSLIC employees, since the FADA people are paid two and three times what the FSLIC people make, and FSLIC is technically the boss in this situation.

FADA was created to both manage the workout of, and dispose of the most complex troubled assets of foiled and supervised institutions. FADA has five regional offices-the largest in Dallas. It was intended to self-destruct within ten years when, supposedly, there would be no more need for it. At this writing, FADA works through FSLIC (the receiver) on everything. FSLIC holds title to any property that FADA deals with; FSLIC makes the final decision on what is done-or not done-on assets,

The FHLBB also contracts separately with professional workout groups in private industry to handle assets of some S&Ls, and it pays healthier thrifts to acquire and rescue unhealthy thrifts.

Confused enough yet? Hang in there, we’re almost to the good part.

FADA and FSLIC, as receiver, have no natural allies in this marketplace. Some observers say they aren’t even on the same side. Developers who still own their property are afraid the feds will dump real estate at low prices and hurt the value of their development. Developers whose properties are in workout in failed or federally supervised institutions see FSLIC or FADA as the enemy, the entity trying to take away the real estate, telling them to pay up or die. The developer who is not really a developer anymore since he’s not building, and is out there trying to hustle fee work as a consultant, may hate FSLIC or FADA because they gave the job to someone else-maybe one of twenty companies wanting contract work gets it. The people who are getting contract work from FADA and FSLIC are frustrated because they aren’t used to working for the federal government.

Those are just some of the problems Dallas developers have with FADA and FSLIC. And that’s just a scant overview of what FADA and FSLIC are doing in Dallas. For a fuller explanation of the feds and their role, step into their offices…



THOMAS R. PROCOPIO IS THE DIRECTOR OF the FSLIC Southern Region Receivership Office. His office is in an FSLIC-owned building called Woodview Office Tower off of Stemmons on Empire Central that he says was developed, but not too well, Some foundation work is going on out front that should have been done right the first time. The reflective glass high-rise doesn’t have a lot of tenants, except for the Mexican Consulate on the ground floor-which explains why the signs in the parking lot are in English and Spanish. But once you get past the foundation work and the bilingual signs to Pro-copio’s office on the sixth floor, you could be in a Gerald D. Hines marketing center. The lobby is good looking, with a mission statement explaining the way FSLIC as receiver works, and big color photographs of real estate for sale. These people are geared up to move some property, Dallas style.

Procopio says he is the only lifetime bureaucrat in the office; he spent twelve years in the liquidation division of the Federal Deposit Insurance Corporation and was a bank examiner for the FDIC before that. He sounds real proud when he calls himself a “civil servant.” And he likes what he’s doing down here in Dallas, says it’s the biggest challenge of his career. Insiders say he’s the best the government has when it comes to cleaning up this kind of problem. He’s got more field experience in real estate liquidation than any other civil servant, period. For quite a few years, Procopio was a “liquidator at large” for the FDIC and worked with most of the biggest bank failures. He was in Houston for four years, then went to Puerto Rico for awhile. He was at Penn Square and the First National Bank of Midland.

When Procopio came on with FSLIC, the southern region had $500 million in assets to liquidate. That went to $3.5 billion total book value within a year. (That number has since been reduced because of write downs.) Procopio took his position here in May of 1986 when FSLIC had about twenty people in the southern region. Now Procopio has one hundred employees in the Dallas FSLIC receivership office, 216 in the region.

“We’ve made a deliberate effort to come across in a more professional manner,” Procopio says, explaining why his office looks better than the nondescript cubicles occupied by most federal employees. But he jokes that if you look closely enough, nothing in the office matches. That’s true. “We have fifteen different styles of furniture in here, and it’s not because we have a blind interior decorator,” Procopio says. It is because FSLIC gets more than just problem real estate as receiver for these failed thrifts; it gets office furniture, artwork, jewelry, even horses. Procopio has a couple of statues of naked Indians he doesn’t know quite what to do with.

“We spend a lot of dollars and time on marketing and we’ve moved a lot of product,” Procopio says. Since June of 1986, $160 million worth has been sold-57 percent of which was handled exclusively by the receiver staff, the rest by FADA or other contractors. In early September, Procopio had $1.5 billion in real estate on his hands-another $1.3 billion, all from the FirstSouth receivership, had been moved to the Chicago office. Rumor had it that the bank board was going to take down another couple of S&Ls and Procopio would be handed some new business.

His office is responsible for managing the assets of foiled institutions in Texas and three other states. A majority of those assets are real estate properties located in Dallas, Houston, and New Orleans markets, predominantly office, residential, and raw land properties.

If you want to do business with FSLIC, you don’t just call Procopio up and say, “Hey, Tom, have I got a deal for you.” You’re dealing with a system here: a list of available properties and current asking prices can be obtained from the FSLIC office. Then, written offers to purchase an asset should take the form of either a letter of intent or a completed FSLIC contract form. Buyers have to be qualified, and offers are responded to on a first come, first served basis. FSLIC “strives” to respond to all legitimate offers within two weeks of their receipt. And, any offer that is accepted by the receivership must ultimately be approved by the FSLIC corporate people in Washington.

Procopio says one of the biggest misconceptions he has to deal with is the idea that his employees get the “no-brainer” deals while FADA gets all of the complicated deals. He says that’s simply not true. “The degree of the complexity is in the eye of the beholder,” Procopio says. “We have some very talented individuals here, MBAs, Ph.D.s, CPAs, people with extensive background in real estate workout and with a great deal of local experience in the real estate market.” And, he says, although people in the community may think his office is full of stuffy bureaucrats, 90 percent of the FSLIC employees in the southern region are from the private sector. “We couldn’t attract people like that with the challenge of a no-brainer type asset,” Procopio says.

In Dallas, FADA handles about $254 million or 20 percent of the total assets in FSLIC’s lap. Procopio says the approximately $800 million worth of assets FSLIC is handling itself are plenty complex, but the book values and the exposure to the state are lower than for those given to FADA.

“What I’ve seen over the last few months is a trend toward giving FADA the larger dollar volume assets with a higher complexity level,” Procopio says, adding that was why FADA was created in the first place. “They are bringing in the expertise on the large, complex, big-volume assets. Those situations need the network that FADA has to stay on top of,” Procopio says.

Another misconception: Procopio says people tend to think of his regional office as FSLIC the insurer of savings and loans, or what he calls FSLIC corporate, and get his office mixed up with the bank board. But his office does not get involved in taking insurance applications, taking insurance away, closing or giving financial assistance to or merging S&Ls. etc. He says he gets hundreds of calls from people that want to get involved in purchasing S&Ls or managing troubled S&Ls through the bank board’s Management Consignment Program, which his office has nothing to do with. He sends all those inquiries to FSLIC corporate and the bank board people in Washington.

His office does hire consultants, though, for short-term situations. For instance, The Swearingen Company is handling leasing and marketing on the Woodview building that FSLIC occupies.

As far as the stories about resentment between FADA and FSLIC go, Procopio says they are blown out of proportion.

“Our goal and theirs is the same: we want to build confidence out there in the general depositing public that FSLIC can do its job. And if we don’t build that confidence together, we are all in trouble.” Procopio says. He says dedicated civil servants know private contractors make more money; he says his people see that every day, “We use those people to get the job done. It’s the nature of our business,” Procopio says. “We can’t do it by ourselves, we need FADA, and we need outside private expertise to do our jobs, or literally we’d have to have thousands of little tiny bureaucrats running around doing the work instead of a few highly paid, highly expert individuals.”

That’s the theory behind FADA.



I GOT LOST WHEN I WENT TO MEET DENNIS L. Dorsey, vice president and regional manager for FADA in Dallas. That’s because Dorsey didn’t tell me the name of his office building, the Spectrum, which is at the northwest corner of Belt Line and the Toll-way. Dorsey said it was on the east side, at the corner of the Tollway and Belt Line. His office is in the East Tower of the Spectrum. By the time I finally got up to the FADA offices, I wasn’t expecting to meet any Dallas real estate genius. I mean this guy didn’t even know the name of the building he officed in.

Dennis Dorsey is the nicest guy you’d ever want to meet. He has sort of a meek, soft-spoken, pastor-like manner, and when he wants to really make a point, he’ll lean forward and clasp his hands together, almost like he’s praying. Dennis Dorsey has “I’m Ethical” written ail over his face. As far as FADA’s concerned, Dorsey is too good to be true. Though he’s certainly no whiz kid, he has quite a bit of practical real estate background. But most importantly, he cut his teeth at Xerox, and having gone through Xerox management training, Dorsey knows how to manage people.

Dorsey is really proud of the people who work for him, almost all of whom have letters behind their name-CPM, CPA, JD, MBA, And he gets real upset, sits forward and clasps his hands, when he talks about the criticism people throw at FADA, particularly comments about FADA employees not being able to get “real private sector” jobs. Dorsey says that’s probably just sour grapes talking; on any given day, he gets between ten and twenty-five resumes in his office and only a small fraction of them are selected by the national search firm that fills job openings for FADA, even though FADA is hiring pretty fast. Between May 1, 1987, and September 1, 1987, the Dallas office hired ninety-nine new employees.

FADA received its first asset management assignment in July of 1986-sixty-four assets with a book value of $131 million from Sun Savings and Loan, a failed thrift in San Diego. By June 30, 1987, FADA was managing 2,300 assets for thirty-two S&Ls, both failed and government-supervised institutions-a portfolio valued in excess of $6 billion. In its most recent business plan update, FADA claims that the vast majority of these assets were put in its portfolio since January 1987. And most of those assets are in the hands of the Dallas office-$2 billion through the Vernon Savings Management Consignment Program alone.

FADA gets criticized both coming and going. At the root of the problem seems to be that controversial word in its name-disposition. Some people are afraid that FADA is going to “dispose” of these assets too fast-dump them on an already hurting market. Others point to the very few assets that FADA has actually sold and say they aren’t selling anything, aren’t doing anything.

Dorsey and his superior Ros Payne would both fervently disagree. The vast majority-more than 80 percent-of FADA’s workload is loan restructuring, not asset disposition. Its name has become a misnomer. As of FADA’s most recent business plan update, June 30, 1987, FADA had either sold or was in the process of selling or restructuring loans on about 400 assets with a value of $1.5 billion.

Thirty-three-year-old Gene C. McQuown knows all about the task that FADA has undertaken. As FADA’s portfolio manager for Vernon Savings & Loan FSA, McQuown must handle the biggest of messes in this very messy S&L crisis. In a word, McQuown is eager. He and his support staff of about sixty people work until midnight more often than not.

“And then I’m up here at 7:30 a.m. on an adrenalin rush doing it all over again,” McQuown says, adding that none of the FADA employees are paid enough to justify those hours. So. why do they do it? McQuown says they feel an enormous sense of responsibility to get the job done right, and they know they are working with taxpayers’ money.

McQuown, who spent several years with the InterFirst Bank workout group before going to FADA, says he also took the job to advance his career. The learning curve at such a job is extremely high. And McQuown’s feelings are echoed throughout the young FADA workforce. Kevin P. McGinnis, regional counsel for FADA in Dallas, says no law firm can match the responsibility, excitement, and variety FADA offers young attorneys. FADA employees feel that if they do this job well, they can write their own ticket in the next real estate cycle.

Still, McQuown does admit to feeling overwhelmed by the job at times. When he got to Vernon and realized he had a $2 billion problem on his hands, realized there was no central computer system and no central filing system, then learned that some important files had walked right out the door, he knew it would be quite a while before the Vernon problem would be cleared up. When McQuown got to Vernon, 90 percent of the loans were on non-performing assets. Some of the non-performing loans hadn’t been addressed in more than a year.

Jay Kaplan is another young, entrepreneurial, gung-ho FADA employee. As senior asset manager and regional contractor manager for FADA in Dallas, Kaplan spends more time in his car traveling from meeting to meeting than he does in any one spot. He says he rarely eats lunch, and when he does, he insists on picking up the check-and he’ll make a spectacle of himself if he has to.

The potential for corruption in FADA is great; thus Dorsey and Kaplan’s obsession with picking up the check. David Williams, Dorsey’s predecessor as regional manager, quietly resigned from FADA fast May just because some potential for conflict of interest existed-not an actual conflict, just the potential. FADA’s strict code of conduct requires all employees to file disclosure statements every six months.

As regional contractor manager, Kaplan is under extraordinary pressure. He emphasizes over and again that FADA utilizes its database when selecting contractors. Meaning, if you want work from FADA, don’t call Kaplan. First, call and get an application from FADA (does this sound familiar?) and carefully fill it out. Then, you are entered into the vast FADA database, and when Kaplan needs to find a hotel property manager that works in Waxahachie, he’ll go to the database and punch in the requirements and all of the contractors that fit those requirements will pop up. Dorsey emphasizes that three or four people sign off on each job-just part of the checks and balances involved in keeping things ethical.

FADA spreads the work around. Dorsey thought it was amusing that I had talked to three contractors for FADA and that each one told me they were doing the bulk of work for FADA in Dallas. “That proves we’re doing our job.” Dorsey says.



WHEN D WENT TO PRESS, DANNY WALL, the new chairman of the Federal Home Loan Bank Board in Washington, was in the process of reevaluating the system his predecessor Ed Gray had set up to handle the S&L crisis. There was a chance, insiders were saying, that FADA could be done away with altogether. Others were saying that that would never happen, but that FADA’s role could be diminished, that the important, big-dollar complex problems would be contracted to private business. Still others were saying that the system was working, that criticism was inevitable, that the petty problems between FADA and FSLIC were being worked out, and that in the end, FADA’s performance would be measured by the dollar amounts in capital recovered for the FSLIC fund. That seems to be the only thing that all parties agree on.

FEDERALESE-A GUlDE TO GOOD PRONUNCIATION

The first thing you need to know when you deal with the Feds is what to call them. And since it wouldn’t be polite to call them what you might want to call them, you’ll have to use their real names-FADA, FSLIC, and FHLBB.

Now, the Federal Home Loan Bank Board is easy. You can call them “the regulators” or you can call them “the bank board” or you can just say each initial-F,H,L,B,B,-which is kind of awkward.

The people at the Federal Savings & Loan Insurance Corporation are sometimes called regulators, but that doesn’t apply to the people in the Dallas Southern Regional Office, which is a Receiver (of property of S&Ls taken down by the folks in Washington). So you can just call the FSLIC people here in Dallas “receivers,” The controversy is how to pronounce FSLIC. Now down here in Texas, where we tend to say everything a little differently, most people say “fizzlick.” The people in Washington, however, say “fisslick,” with that sort of soft, hissy sss sound that Texans find distasteful.

The toughest one by far is the Federal Asset Disposition Association. Like the old potato and tomato disputes, some people say “fayda” with a long a sound, while others say “fata” with an a like in fat. There is even a new Middle Eastern school of pronunciation that prefers “fuhdaaa” with a soft u and emphasis on the last syllable. Roslyn Payne, FADA’s chief executive, is a purist. She says “Federal Asset Disposition Association” on each reference in interviews. However, rumor has it that she has been overheard saying “fata” in private quarters. In FADA offices in San Francisco and in Washington, people say “fata” exclusively. While in Dallas, new employees in the FADA office have been caught saying “fayda.” That’s because they are fresh from the private sector, and the Dallas real estate community overwhelmingly prefers the “fayda” pronunciation.

For the final word on this federalese,we went to Ralph Slovenko, a fifty-nine-year-old professor of law and psychiatryat Wayne State University in Detroit.Slovenko is an acronymaniac, a SOA,Specialist on Acronyms. He wasn’t surprised at all to hear about the FADA pronunciation controversy in Dallas. But hesays it doesn’t really matter how you sayit just as long as you don’t lose sight of themeaning behind the acronym. “Sometimes, the creators of the acronym don’twant you to remember the full name.Then it loses its meaning,” Slovenko says.Given that controversial word, “disposition,” in FADA’s name, Slovenko mighthave put his finger on yet another government coverup. -S.G.