Has anyone tried buying multiple listed properties at once?

Question

I am working with an investor who wants to buy multiple properties.   He is not quite a big enough player to buy a large portfolio; even if he did I would not have the contacts to get it done.

However, he was asking me if it is possible to buy 10-30 properties that are currently listed.  Here in California that is would be between $2M-$15M. Right now there are a lot of agents who have that many properties listed from one lender in one area so it could be plausible.

Has anyone heard of this or done this before?

Jeff Fairchild · Answer

How are these people getting rid of 30 Reo's that they buy all at once so that the interest from cost of funds to acquire them doesn't get huge?

Account Closed · Answer

Are you Jay or Larry? The website directs people to Larry but the email address is the one you use here on BP.

Thanks in advance,
John Corey

J Michaels · Answer

"These funds do not mess about with physical property"

John, you are right and this is exactly why we are busy.   That $1.2 bln package from a few weeks ago included $200mm in properties, and $1bln in whole loans in advance of securitization. The securitization market has essentially been closed for over 60 days now.  These whole loans are weighing on balance sheets and we are seeing increasingly more hybrid pools of loans and properties coming out.

What investor wouldn't prefer cusip numbers and bonds at steep discounts over properties and whole loans?    Not all, but the investors that can navigate this markeplace, (the ones that we're dealing with), will indeed take the baby and the bathwater.

Account Closed · Answer

Assume that some of the buyers are using all cash. They are not using debt so no carry costs other than the opportunity costs when the money is tied up.

As to the WSJ article...

The fund and the others like it are focusing on notes and other instruments (i.e., securities). These funds do not mess about with physical property. Too messy, too time consuming compared to just handling the instruments. No need to visit property when buying and selling securitized paper.

Translation: room for BP folks to focus on REOs.

John Corey

J Michaels · Answer

Here is the meat on the bone...
These guys are legends, very big boys. When the big sellers need to move size, this is who they will phone. Notes, bonds, REO's, anything. These guys love discounted assets.  Like they say, ""Even if you're just throwing darts, you know you're not buying high."

But NOTE: They have staying power and more money then they know what to do with.

Enjoy...

Vulture Funds Start Circling Credit Markets 
Move on Distressed Debt Could Signal Recovery Might Be Long, Slow
Wall Street Journal
By CRAIG KARMIN
August 31, 2007; Page C1

Jeffrey Gundlach, chief investment officer for TCW Group, thinks the turmoil that started with subprime loans and spread throughout other debt markets is going to get worse. He is launching a giant distressed-debt fund aimed at seizing on the turmoil.
 
The development, along with other similar funds being started, could be an early signal that credit markets are beginning a potentially long process of adjustment to the unrest of the past few months.

Fresh money seeking out investments in mortgage securities could help to clear these markets, which have been highly illiquid and plagued by uncertainty as mortgage delinquencies rise.

Mr. Gundlach's TCW Special Mortgage Credits Fund is dedicated to mortgage-related securities, including asset-backed securities, commercial and residential mortgages, and other distressed loans. The $1.56 billion fund, which stopped accepting investors this week, was offered to existing institutional clients and employees of TCW, a Los Angeles money manager overseeing $161 billion in investments. TCW is a unit of French bank Société Générale SA and parent of Trust Co. of the West.

"The fact that there's someone else on the other side of the market is very helpful at times like this," said Alan Ruskin, chief international strategist at RBS Greenwich Capital, a Greenwich, Conn., unit of Royal Bank of Scotland Group PLC.

Other firms, including Ellington Management Group LLC in Greenwich and Marathon Asset Management LLC in New York, also are raising money for vulture funds, according to people familiar with the matter. Neither firm responded to calls seeking comment. All these funds aim to buy assets on the cheap after widespread selloffs that have knocked down prices on healthier securities, too.

"There's the potential that some debt goes to levels of epic cheapness because of the size and complexity," said Mr. Gundlach. "Even if you're just throwing darts, you know you're not buying high."

These funds face considerable potential risks. If markets remain depressed and illiquid longer than they anticipate, these funds could find themselves sitting on investments that fall further. Most will be focusing on investments tied to the $2.3 trillion of subprime and Alt-A mortgages, a category between prime and subprime, where some of the biggest bargains, and riskiest plays, can be found.

Many investors made bundles of money investing in real estate after the market turned down in the late 1980s and early 1990s. Institutional investors were especially active in buying distressed assets from the Resolution Trust Corp., a government body created to unwind failed savings-and-loan institutions.

Mr. Gundlach has been with TCW since 1985 and is a veteran of numerous crisis periods. The distressed-mortgage-securities fund he ran from 1999 to 2004 had an annualized return, net of fees, of 27%, according to TCW.

Mr. Gundlach said the fund is close to being entirely in cash as he and a team of 80 mortgage specialists wait for the selloff in this debt to wind down. But he has started buying. This week he bought a triple-A-rated security for three-quarters of its value a few months ago. "It may fall, too, but it will come back," he said. In the near term, he said TCW will focus on higher-rated securities that he believes will be among the first to recover.

He said he expects credit-rating companies to continue to downgrade many mortgage-backed securities and for mortgage delinquencies to keep rising, making some investors eager sellers.

Mr. Gundlach said he worries current holders of mortgage investments could be reluctant to sell at a loss now. He also worries there could be such an overwhelming amount of debt for sale that prices remain depressed for a long time.

Still, some securities experts think this wave of distressed funds could have an advantage over those who try to wait for a bottom. "They'll be sitting on piles of cash and can move quickly," said Sylvie Durham, a partner specializing in securities markets at the New York office of law firm Greenberg Traurig LLP.

TCW plans to invest more broadly in the months ahead, seeking securities that have been hit harder. Mr. Gundlach said his investors have committed to keeping their money tied up in his fund for years. TCW will begin to distribute money back to investors after no more than three years.

For every 100 of these kind of investments, he figures, 20 to 30 will lose money and 20 to 30 will get high returns.

N/A N/A · Answer

What would be a typical discount for a small guy buying 3 to 5 properties with cash?

J Michaels · Answer

John
My name is Jay Michals and I head sales and marketing area.

Larry is the big boss who runs the 120 person title, settlement,  foreclosure, and law firm.

Please feel free to contact him directly at the number you found. Alternatively feel free to contact me directly as well.

I hope we can answer your questions.

Regards

Jay Michals
REO Workout Solutions

N/A N/A · Answer

if you are still trying to find out if the bulk acquisition of properties is possible, I can assure you it is. There are many ways to go about it, but the worse paths often times include middle men. If you want to more, I can fill you in.

J Michaels · Answer

Here is one play on bulk purchases, however there are many ways to skin this cat.

Hedge fund or Private equity player will buy anything at a steep discount if they can have a very reasonable chance of selling it higher.

I can categorically say that there are new distressed real estate funds being set up right now (to go with the existing hedge funds in Westport that havent blown up from their mortgage backed CDO exposure).

I know of a conference that took place this past weekend in Vancouver and also some CT groups that are getting together to play in this space. The size numbers are "good" for wall street.  Under a billion.

There are many that watched the S&L crisis come and go, and millionaires were made.  A bank in Hawaii rings in my head sold for pennies, rings in my head.

Many of the investor groups are looking at each other and saying, "i want in, but do i need to buy the bank? do i want to buy the troubled bank?

How about we just buy the whole loan notes at a discount (happening now), slap in some REO's (starting to happen in bulk more frequently and the future looks more liquid), outsource the servicing of the notes, and outsource the title and servicing of these transactions.  We won't need any regulatory approval, we can move today, and sit on this until the market turns. No Fed, No OTS, no OCC, not nothing. each investor has a plan, but the big boys have more money then they know what to do with it. (Thus we have NYC skyscrapers trading at 2% cap rates) and all the cranes in the world building Dubai up to be the world financial capital of the 21st century.

By purchasing REO's in bulk, the idea is to acquire better pricing. Some might purchase a block of REO's and sell them off in smaller pools immediately Some may hold and bleed them out to the realtor channel. Some may do both for the right price, and the right amount of time and effort. Again, different strokes.

Economies of scale need companies that can handle volumes, at affordable pricing.  Investors need deep pockets.   Thats my two cents, but there are more ways to skin this cat.

We do NOT broker or act as agent in any of our transactions so really dont get too deep into the investing goals of our customer base.

Regards

Jay Michals
REO Workout Solutions.

J Michaels · Answer

We have experience in this.  Without sounding like im pasting the board with an advertisement, ill be gentle.

Essentially, institutional buyers and sellers of bulk REO properties and whole loan pools often overlook the complexities of re-titling and settling, or the handling of foreclosures on bulk transactions. This is expensive.  Additionally you will want to be able to track your purchases during this retitleing and settlement process.

We work with hedge funds/private equity groups that are bulk traders /  buyers, and banks that are wanting to be bulk sellers of blocks of REO's.  (Above 10mm at a clip).  Sight unseen sometimes, warts and all.

The bank REO depts are not equipped to handle 1 and 4 properties at a time, and seek a very quick way to move "size".

Do not undersestimate that this title and settlement process varies from state to state, and county to county and, if incorrectly managed, is very time consuming, costly and could put any investment in jeopardy. Especially when we are dealing with 500 properties at a time.

We provide institutional investors/private equity, who buy and sell 
blocks of REO properties and whole loan pools,  a centralized title and settlement, loan servicing  and foreclosure solution.

There is too much to write here, but the bulk side of this equation is heating up very much now.

Regards

Jay Michals
REO Workout Solutions