Thursday, September 24, 2009

Banker and Borrower

Recession hits Welch Realty and Bank of Bartlett.

Posted By on Thu, Sep 24, 2009 at 4:00 AM

Jackie Welch sold a lot of suburban real estate for other people during the real estate boom. Now he's selling his own office in the heart of Germantown.

Harold Byrd and Bank of Bartlett were big lenders to blue-chip builders. Now they're scrambling to raise private capital in hopes of avoiding intervention by federal regulators.

Fed chairman Ben Bernanke said last week that the recession is probably over, but the predicaments of Welch and Byrd show that the aftershocks will continue for some time in Memphis and its suburbs. Welch Realty has been in business for 46 years; Bank of Bartlett for 29 years. Welch and Byrd are hard-minded, politically active businessmen. Byrd plans to run for county mayor in 2010. Welch has raised money for the last three county mayors, including A C Wharton, who is running in the special election for Memphis mayor in October.

Welch Realty has been a big player in the commercial and residential real estate market in Germantown and southeast Memphis for nearly 30 years. Welch sold several school sites to the county board of education, thousands of land parcels to homebuilders, and commercial sites along Winchester and Germantown Parkway. His personal loans to former city councilman Edmund Ford's funeral home were the focus of a federal criminal investigation in 2008. Ford was acquitted.

Last week, Welch put his office building on Wolf River Boulevard near Germantown Road on the market. The asking price is $1.6 million. He hopes to stay in it as a tenant for three more years. He said two things prompted him to sell: "One, we're not doing any business, and two, the doctors and their offices have run the prices up out here."

The office is near Campbell Clinic and other medical facilities. Welch said "one or two patients a day wander in here."

Welch said his company will stay in business, but he doesn't expect things to improve much until 2011, and he sees no return to the high-flying days of a few years ago. In an interview, he ticked off several names of builders he worked with who have gone out of business — Beezer, Matthews, Sweeney, Bronze, Vander Schaaf, Edwards.

"The ones who are left are working out of debt," Welch said. "Really, what we're doing is working for the banks."

He said the underlying problems were subprime loans, loose lending standards, and packaged mortgage products.

"Thieves got us into this situation, but we all benefited from it," he said.

Bank of Bartlett, a $435 million family-run bank, was listed last week as being in the "danger zone" in a report issued by and the Investigative Reporting Workshop at American University and first reported in The Memphis Business Journal. The bank is in the bottom-10 percentile in its peer group of 1,200 banks in several categories of the FDIC's latest rankings, including net income and capitalization.

"That article caught us by surprise," Byrd said. "We are not under any federal action, but we do recognize that we need to raise capital."

Byrd's mayoral candidacy has a prominent group of supporters, including former county mayor Bill Morris, Anfernee "Penny" Hardaway, Maxine Smith, and Welch. Byrd, head of the University of Memphis Rebounders booster club, was hosting a benefit with basketball coach Josh Pastner on Monday. Byrd said the bank will rebound. It lost $8 million last year and projects a loss of $2 million or less this year. The loans that led to the losses were made in 2006. Of 28 foreclosed homes in the bank's portfolio, 17 have been sold, as has a 90-lot subdivision.

"We're a local bank that lent money to the top folks in the Memphis community," he said. "As they have been stressed, so have we. We've taken our hit and are on the way back up."

Local banks like Bank of Bartlett face special challenges.

"We're all in a tough business right now," said homebuilder Jerry Gillis. "The big banks got TARP money to save the banking system, but the little guys have got to raise capital privately."

A West Tennessee banker who asked not to be identified said finding investors isn't easy.

"They can stand around and wait for the FDIC to close you and get the bank for free," he said. "The Byrds probably have time to work it out because there are so many other banks out there with problems as bad or worse."

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