The U.S. Department of Housing and Urban Development is using real estate brokers to sell multifamily properties that have been in its inventory as long as seven years.
The move, which is being tried with four properties in Illinois and one in Atlanta, is among several different approaches to property disposition that have been developed by six private consultants retained by HUD.
"This fits in with the thrust of the present administration to utilize the private sector more fully in governmental types of sales," said John Pritscher, chief of the multifamily property disposition section in HUD's Chicago area office.
Twenty-seven other multifamily buildings in HUD's Chicago area inventory may be marketed through other real estate brokers after these four are sold, according to Pritscher.
The property that has been in HUD's inventory for some seven years -- a 167-unit apartment building in Chicago that is only 50 percent occupied -- is about to be sold to an investment and management company.
Buyers also are being lined up for two others properties -- a money-losing 328-bed nursing home in Carbondale in southern Illinois and a 95-unit apartment building constructed on a peat bog in Woodstock, northwest of Chicago.
And offers are being reviewed for the property considered by brokers to be the most unmarketable of the four, a long-vacant, 38,000-square-foot former nursing and children's home in Chicago.
Pritscher said he hoped that sales could be closed on all four properties by Sept. 30, the end of HUD's fiscal year.
One sale was closed on Thursday, contracts have been signed and closings scheduled next week for two others, while no acceptable bids have been received for the fourth one.
A different real estate firm was given an exclusive listing for each of the properties and will be paid a 5 percent commission. Each of those firms is among the city's leaders in handling investment property.
Dick Harrington of the Property Disposition Division of HUD's Office of Multifamily Financing and Preservation in Washington said that HUD has had authorization in the past to offer a commission of up to 5 percent to private brokers on a project-by-project basis on hard-to-sell properties. "But it hasn't been used very often," he admitted. However, such an arrangement, with brokers having exclusive listings, has been changed to arregular policy, Harrington added.
Carla Hills, HUD secretary in the Ford administration during 1975 and 1976, said that working with private brokers was attempted earlier with the huldreds of single-family homes that HUD had repossessed, but that HUD ran into statutory problems.
"We could have given the homes away but they still could not be "sold economically for low- and moderate-income families, Hill said. "We had to sell to low- and moderate-income people. We had that restriction on our charter that made it difficult to move them out in the 75 recession. The statutory frame work has changed somewhat in the intervening six years."
Forrest Jolley, a real estate specialist in HUD's Chicago area office, said that none of the four properties lend themselves to a public bid. "They all have features that make them a little difficult to sell," he said.
"We really needed someone such as the broker firms to seek out investors to explain the problems and suggest solutions. These broker firm also probably have contacts from working in the marketplace on a daily basis and know what firms and individuals are seeking that type of investment opportunity."
These potential investors contrast sharply with HUD's mailing list of persons who are interested in bidding on HUD properties. This list makes no distinction among names and mostly includes people interested in smaller properties, Jolley pointed out.
HUD also has changed its traditional financing requirements to help achieve prompter sales, Jolley reported. With these four properties, it will give an 80 percent mortgage at 11 percent interest amortized over 40 years but with a 10-year call.
In Atlanta, HUD has turned to a private real estate broker to try to find a buyer for a multifamily development whose location near the Atlanta airport no longer makes it suitable for housing, explained James Schoenberger, associate deputy assistant secretary for multi-family housing programs in Washington.
"The housing will have to be demolished," he said. "It should be considered an industrial property, and that is out of HUD's area of expertise."
Schoenberger said that there were nearly 260 multifamily properties in HUD's inventory at the start of the Reagan administration. "The administration decided they would like to reduce that inventory as quickly as possible because of the holding costs and because they wanted to get more housing back on the market," he explained.
That inventory is now down to about 215 properties, he said.
A technique that is being used successfully in Atlanta and South Carolina reduces the once-almost-certain chances of HUD acquiring at a foreclosure sale property on which it had insured the mortgage, according to Schoenberger.
He pointed out that, when there is a default, HUD pays off the lender, in effect becoming the lender and probably having to take foreclosure action. At the foreclosure sale, HUD would bid a price pegged to 90 percent of the remaining debt, insuring that it would get the property. But at the suggestion of a private consultant, HUD now makes a lower bid in those two locations and then advertises its intentions, thus encouraging others to make bids that will be accepted.
The four brokers who are handling the Chicago area's four properties all are pleased with the opportunity HUD has provided.
Daniel J. Hyman, a broker with Sheldon F. Good and Co. who is handling the Chicago apartment building, said that, although properties HUD itself offers for sale often "become tainted," the same properties have "credence" when handled by a private broker. The use of brokers also "give a chance to people who never bought a HUD property before to buy the property, make some money on it, and improve it and help the neighborhood and everybody else."
The brokers also can go after investors and syndicators who typically pay higher prices for properties, Hyman pointed out.
"Brokers can provide a very good service to HUD," he added.
One indication of the reaction of real estate firms not chosen for the initial listings came from Leonard Szerlong, who until recently was manager of commercial division of Heil Heil Smart and Golee, a Chicago real estate brokerage firm. Szerlong said he supports the idea despite exclusive listings.
"Those HUD things were like free-for-alls, and brokers said 'the hell with it,'" he commented. "I'd rather work with a broker who has an exclusive then go through HUD."
Officials of two organizations that work on behalf of housing for lower-income families in the Chicago area were divided in their assessments of the new approach HUD is taking.
Rich Dieter is executive director of the Organization of the North East, a community group that works in the area where the larger apartment building is situated.
Dieter questioned the idea of HUD working exclusively with a broker, complaining that HUD has not invested much in that neighborhood. He suggested that HUD try assisting a joint venture between a private real estate firm and a nonprofit housing group that would rehabitate a building for occupancy by moderate-income families.
Saul Klibanauw is executive director of Rescorp, a housing group financed by Chicago area financial institutions which has acquired and renovated a number of large apartment buildings for families with moderate incomes.
"Probably the idea of HUD handling this through brokers makes sense," Klibanauw said. "More often than not, dealing with the HUD bureaucracy has made things more difficult."