RTC to Sell Seized Residential Lots by Megapool : Real Estate: Builders fear that the move will depress the San Diego County market even more.

The Resolution Trust Corp. soon will sell its first-ever “megapool” of seized residential lots and raw land, all of which are assets of the failed Great American Bank of San Diego County.

It’s a prospect that fills most San Diego County home builders with dread. They have already seen new home prices sink over the past year and are fearful that the bulk sale of properties to Wall Street interests at deep discounts, and the eventual unloading of those assets to local builders, will depress an already battered market.

One pool up for sale involves 17 properties, mainly subdivisions, that secure original loans totaling $125 million. The assets, all of which are located in northern San Diego County, add up to 819 lots and another 100 finished homes. Local builders say they will be surprised if the winning bid comes in at more than 50% of the original loan value.

The other pool of Great American Bank-originated loans and foreclosures, located in central and East San Diego, involves properties worth $74 million in original loans. The pool includes 162 lots and a 600-acre master-planned community called Sunbow in Chula Vista that the RTC expects to sell back to the original borrower before the auction.

The Resolution Trust Corp. is the federal agency charged with disposing of the assets that the government has taken on with the seizure of about 650 thrifts since 1989. The RTC has already sold off assets worth $258 billion, and is now turning to bulk sales of foreclosed property or delinquent loans to quickly rid itself of the problems.

The RTC is turning to “megapools” because it doesn’t have the time or manpower to sell off or resolve assets individually. So, bidding groups with cash are able to buy lumps of assets at deep discounts.

Local builders such as William R. Cardon, president of Kaufman & Broad of San Diego, worry that winning bidders will be able to buy lots at such discounts to established values that it will force owners of neighboring projects to lower prices to levels that will result in deep losses.

“What the industry is going through now is a very gut-wrenching experience in that the property that is held by the majority of the builders is worth less today than it was a year ago,” Cardon said. “My prediction is that property will be worth even less a year from now than it is today, and that it will be a long and slow recovery.”

Prices at San Diego County subdivisions have been headed down for the past year. The median cost of a new single-family house in the county fell to $229,500 over the second quarter ended June 30, a 10% drop from the median cost a year before, according to the Meyers Group, a San Diego-based housing market research firm. Unit volume was down by 29% over the quarter.

Another San Diego residential developer who asked not to be identified said that the megapool sales may work to establish “new and lower appraisal values” that will make it tougher for existing developers to get construction loans.

Lower appraisal values will only exacerbate the current scarcity of construction financing, a major problem confronting the local industry, he said.

Bill Fontana, partner of Westana Builders/Developers, a San Diego-based subdivision builder, said developers who “have been holding on by their fingernails are going to be sucked under now by virtue of people who are going to be recipients of these low prices.”

Where will the sales leave new home buyers? Fontana and Keith Johnson, president of Fieldstone Co. home builders of San Diego, say it’s not certain that home prices will go down appreciably because of the bulk sales. It may result merely in “windfall profits” for some builders with the financial strength to ally themselves with the Wall Street interests making the bids.

Johnson said the 1,000 or more lots to be sold in the two Great American megapools are not enough to “move the market in a particular direction.”

“Housing supply and demand are both at a very low level,” Johnson said. “Suppliers are feeling uncertain and not wanting to make commitments. As far as consumers are concerned, the market reflects the consumer confidence problem. We need something to trigger that confidence. The lack of clear, national leadership, what’s happening in Sacramento--it’s very unsettling for people.”

Both Fontana and Johnson said they plan to approach the winning bidders of the Great American pools and offer to buy selected pieces of properties if they are priced right.

Up to now, the government has used megapools only to sell commercial properties--and loans that are secured by them--such as hotels, retail centers, apartment and office buildings. But the sale this November of two pools of lots and raw land in San Diego County will be the first time that land will be disposed of in this manner.

The bidding process favors huge investors with cash. In fact, the low bidder for a $340-million package of Southern California apartment buildings is said by knowledgeable sources to be a joint venture of General Electric Credit and the Bass brothers, the Texas billionaires. The winning bid is to be announced when the deal closes escrow later this month.