In search of "distressed" homes
Banks are trying to get rid of foreclosures, but California-based Redwood Real Estate Partners wants to buy them -- along with homes nearing foreclosure. It said today that it's started an investment fund to get $500 million in distressed properties.
The company expects to focus a lot of its attention on the western U.S. -- not surprising, since there are a lot of foreclosures in California and nearby states. But it told me that Maryland is on its list of "targeted states" for acquisitions.
This move is a change for Redwood, which invests in commercial real estate. Here's the plan, according to its website: "Purchase bulk portfolios of residential REOs and late stage defaulted whole loans through direct relationships with mortgage banks and financial institutions."
The company wants individual homes and buildings with up to four residences, valued between $100,000 and $900,000, with no more than "light rehab" needed.
And it intends to quickly resell -- "at discounted retail levels priced lower than competing distressed inventory." It thinks it can do so because it's expecting to get the properties at a "significant" discount from lenders who see a benefit to getting a bunch of homes off their books -- in return for cash -- in one fell swoop. That $500 million in distressed properties it wants? It's expecting to pay $300 million to $350 million for them.
If Redwood succeeds, this could mean new opportunities for buyers. And new challenges for traditional sellers, the homeowners who just want to move.
Categories: Real estate investing
Comments
Fantastic idea. I would hope that this would lower the price of housing in one fell swoop and overcome this slow but inevitable downturn in prices. This can't happen soon enough.
Posted by: Kevin R | May 20, 2009 12:48 PM
I've been through Bank Tape and Bulk REO negotiations many times, and the concept is great, but the execution is difficult.
It is not going to lower housing prices in "one fell swoop". $500 million is a drop in the bucket compared to national foreclosure statistics. Also, the challenge is in getting the lending institution to agree to a price that makes unloading the properties in bulk viable for both the bank and the investor.
The other challenge is in determining how much property $500m really is. $500m at appraisal value? $500m at note value? $500m at resale value? is condition factored in? The risk for the investor is high, the loss for the bank is huge, and it's is a bitter pill for a lender to swallow when they're getting bailed out by the Government anyways.
Posted by: Jonathan Benya | May 22, 2009 1:12 PM