Distressed Asset Funds Continue to Emerge

Home Builder with Artisan Custom Estates

While many ask, "Have we reached the bottom in the current national decline in residential real estate pricing", the answer may very well be supported by the developing momentum in distressed asset funds that continue to draw significant investment interest.   Much of the investment in these funds is driven by European dollars - from a European investor's perspective, the US is offering a "once in a lifetime sale" with the combination of a historically low dollar, and a rare national decline in real estate values.

In the North Atlanta area, there are several funds that have been raised by some of the larger real estate developers, both from an opportunisitic play on the current market conditions, and also as a hedge against their long position in land development.  The regional funds I am aware of range from $50MM to $150MM in scale and primarily target bulk portfolio purchases from banks of foreclosed homes or large luxury home developments that were a little ahead of their time, and have now been repossessed.

On a national scale, there are many large funds being raised for similar purposes - Blackstone announced a new $11 Billion dollar fund this week per the attached link.  http://www.bloombserg.com/apps/news?pid=email_en&refer=&sid=aKkKno._qU14

This trend of distressed funds should be interesting to follow, and should continue to gather steam.  If from no other source, the supply and demand balance may ultimately be brought back into equilibrium by these opportunitic and well capitalized investment funds that underwrite a "long term hold" scenario for any distressed asset purchase they execute.

Comments (4)

William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.
Chris...very true in my eyes.  A lot of short sitedness.
Apr 05, 2008 04:23 AM
Bo Hunt
First Choice Mortgage Group - Douglasville, GA
Metro-Atlanta Mortgage Professional
This is an interesting post, Chris. I haven't heard of these funds, however from an investor's perspective, it may be a lucrative endeavor. Dependant on the purchase price of these properties, the banks could possibly take some decent hits, and find themselves having to write off some losses, were they willing to let go of the properties less than what was owed by the consumer at time of foreclosure. The homes in the surrounding area could be at a loss as well, with appraisals dependant on comparables, creating yet a chain reaction of foreclosures for those still in adjustable mortgages attempting to refinance out, but in the long run, it may help settle the decline of the market once the tide of over-financed homes finish bleeding out of the system. It will, indeed, be interesting to see how it all plays out... Thanks for the post. Thought-provoking information!
Apr 05, 2008 03:05 PM
Artisan Custom Estates
Artisan Custom Estates - Alpharetta, GA
Thanks Bo - From what I hear, most of the projected purchases from the Banks are at values below the banks basis.  From the banker's perspective however, they don't want to be in the property management business and regulators are applying pressure.  The distressed asset funds provide an outlet for banks to potentially improve their balance sheets - even if it requires a short term hit.  I expect to see some consolidation in the regional banking industry as write downs and capitalization ratios require banks to seek bigger partners to remain viable.
Apr 06, 2008 05:25 AM
Bo Hunt
First Choice Mortgage Group - Douglasville, GA
Metro-Atlanta Mortgage Professional
Hi, Chris... I agree with you completely. The volume of inventory banks are beginning to accumulate is staggering, and I see the distressed asset fund as being a very valuable option for banks to get some relief. Were I a bank CEO, I would welcome a small loss for the level of volume in sales that these funds would offer. As well, you are right in regard to many of the small, regional banks. We are already seeing, at a much greater rate than historically, many small bank being purchased by larger, stronger ones that can stand to stomach this housing "challenge" a little better.
Apr 06, 2008 02:15 PM