Need assistance analyzing bank note deal

[Stephanie T.]

I am totally new to the purchasing of notes. I have recently begun working with local banks in gaining access to their non-performing assets/notes before they're handed over to brokers. One bank recently sent me the following opportunity:

- Single blanket note backed by 32 condos units in major metro Texas
- 90% occupied; avg $700 monthly rent/unit
- Current full retail appraisal $1.4m (bulk appraisal $900K)
- Interest, fees and delinquent property tax $170K
- NOI $1.47m; 10% cap rate
- Unpaid balance $1.165m
- Asking $1.2m

To me, this doesn't look like a good deal given (a) the fact the note is backed by condos which some investors consider to be a risky investment (b) there is such a slim LTV margin, especially if one assumes that the appraisal is overstated and (c) if one were to decide to foreclose on the properties, the numbers just don't work.

Since I know very little about notes I realize I may be looking at this through the wrong lenses so I'd appreciate any comments/input from BP seasoned notes experts!

[Marc Faulkner]

Ask them if they are selling a property or a note? If they are selling the note then we want to know:

1. Original purchase price.
2. Down payment and improvements.
3. Terms of note: Years financed, rate and date of first payment.
4. What collection actions have been taken so far?
5. Credit of payer.

Maybe they are handing it over to you to see if you know anyone crazy enough to pay that much. Non performing notes are not bringing a premium in this market. If they are selling the note, they are going to have to get realistic on the price. If they want to jump through the hoops of taking the property back then they can talk about the NOI and cap rate.

The $900k "Bulk Appraisal" is most likely over stated as you say and there is a lot of back taxes and other BS fees in the UPB. These are certainly not adding any value to the equation. To answer your question, "am I missing something?" I would say yes- you are missing a motivated seller in a buyers market, which means you are totally missing the mark.

This looks like a deal that has been passed around by a bunch of brokers, spun around and marked up several times over. Are you sure you are working directly with a bank?