New Investment Fund Targets Foreclosures

Education & Training

Vulture funds, as the name suggests, swoop in and buy bankrupt companies and then sell them with a profit in mind.

Now a similar investment fund here recently formed to target distressed or foreclosed properties - whose numbers continue to rise each month.

Northbrook-based Hilco Residential Partners LLC is a new residential real estate investment fund chartered to purchase residential homes, mortgages and unsold developer assets directly from lenders. The group debuted recently as a joint venture between Hilco Real Estate LLC and Real Estate Principal Solutions LLC. One partner will buy and the other will market the properties to sell.

Hilco intends to buy foreclosed homes from individuals, lenders and builders, such as Warrenville-based Neumann Homes, a home builder that filed for bankruptcy late last year.

Lenders and developers are not generally the best equipped to manage properties, so it might make sense for them to sell assets to a firm that specializes in managing the properties over a longer period, said Robert Korajczyk, a finance professor at Northwestern University.

"In essence, these firms are providing liquidity to lenders and developers," said Korajczyk. "The lenders can now use that capital to make further loans rather than having nonperforming properties on their balance sheets."

Unlike other investment funds focused on acquiring distressed mortgages and unsold developer assets, Hilco Residential Partners has an infrastructure that enables the fund to acquire, locally manage and market properties on a national basis, said Hilco Real Estate Vice President Navin Nagrani.

"We've been talking to a large number of lender s about their situations," Nagrani said.

The types of properties that Hilco is targeting are: single-family and multifamily properties, condos and senior housing; closeout units in a residential development, to provide immediate liquidity for the builder; and nonperforming notes on single-family and multifamily projects, including 90 percent or more completed projects. This aims to free lender capital and relieve reserve requirement pressures, said Nagrani.

"There are an incredible number of lenders out there that are struggling with assets that aren't performing," he said.

Nagrani declined to say how much money his new group has available for such purchases. But he's already acting as an adviser to two large home builders, Neumann Homes and Levitt & Sons in Florida.

Few such investment funds in the Midwest are capable of buying entire property portfolios, such as Hilco's new group. "Very few firms can pull this off," said Doug Crowe, director of Lombard-based Springboard Group, a real-estate investor education academy. "It takes a high level of investing."

NOTE: I spoke with Anna (journalist for this article) and contributed to the content. She was surprised to hear of the term, "vulture fund." While it might not be a flattering image, vultures are part of nature...they clean up the mess and get rid of the rotting corpses.

This analogy couldn't be better. As the mortgage and housing issues escalate, we need reputable money funds to go and pick the bones of the bloated corpses of greed. Don't worry about the market, I say. the opportunists will quickly take care of the foreclosures. The only downside is the recent news about Fannie Mae and Freddie Mac being in trouble.

A government bailout is a sure thing if they bleed any more. In the end, the taxpayers simply take the end!

Comments (2)

Tony & Darcy Cannon
Aubrey and Associates Realty - Layton, UT
The C Team

Doug, it is inevitable that companies with enough liquid assetts will come in and profit from this mess.

Jul 11, 2008 05:21 PM