Investors eye opportunities in distressed properties and loans
In the time between Black Friday and the Christmas break, nonperforming loan investors look set for a bull run, in what one market player is expecting to be a "buying frenzy." Market indications, not just living on rumors of a billion dollar Pimco fund for distressed loans and properties, are such that global investors are also looking more at the U.S. According to a global distressed property monitor from the Royal Institute of Chartered Surveyors, investor interest in distressed sales is now double that of a year ago. Expectations for increased distressed property sales in the coming months are highest in the Republic of Ireland, where beleaguered banks asked for, and will receive, a massive Eurozone bailout over the weekend. After Ireland, the U.S. is next on the list of heightened investor focus. The RICS survey reveals investors believe the opportunities will be rich going into 2011, with "specialist funds" showing the most amount of interest. Oliver Gilmartin, RICS senior economist warns that financing for such deals may be harder to come by. "Renewed falls in rental values may also be making banks more nervous as to the size of their property loan books," he said. "Significantly, specialist investors appear to be showing increasing interest in distressed property listings. However, ultimately banks hold the keys as to how the market for distressed property listings will evolve in the coming year. The sentiment is similar in the distressed loan space, where the pipeline is stocking up according to Jon Daurio, CEO of Kondaur Capital. "From November 1, we've seen a resurgence of scratch-and-dent loans hitting the market," said Daurio. "It could be loan owners clearing balance sheet, maybe it's robo-signing resolutions — none of the sellers are telling us the reason for it — but we are expecting a buying frenzy by December 31." Daurio dismissed rumors that the Pimco fund is meant to compete with his aggressive bid strategy. He also said that Kondaur's two recent rounds of layoffs (40 staffers were shown the door on Nov. 5) were more a letting go of underperformers than an indication of Kondaur scaling back operations. Rumors that Daurio would step down are also unfounded, he said. But one thing is clear, the non-performing loans are not coming from Fannie Mae, where the inventory for nonperforming loans is steadily shrinking. "Serious delinquency rates for various states, including California, have fallen from 5.73% at the end of 2009 to 4.28% at the end of September 2010, so that would suggest our overall supply of NPLs has decreased," said a spokesperson at Fannie Mae. Daurio said he's seen little supply of non-performing loans from Fannie Mae or Freddie Mac. Write to Jacob Gaffney.