Morgan Stanley finds investors highly receptive to bulk REO sales idea
Morgan Stanley (MS) said investors are interested in acquiring distressed properties in bulk to rehabilitate them into rentals, if the government approves such a plan. Analysts with the investment bank released an update to this strategy — which is known as the Rebuild proposal — estimating there are currently 6 million properties in REO, foreclosure or more than 90 days past due. In its latest update, Morgan Stanley addressed some concerns raised about the proposal, namely that it would not be free-market based with the government-sponsored enterprises becoming landlords and growing their balance sheets. It also expressed concerns that it would be unregulated, giving investors purchasing power at rock-bottom prices without ensuring they have a concern for rehabilitation or neighborhood property values. Morgan Stanley defended the proposal, saying it will not choose between the two extremes. "We believe the best solution lies somewhere in the middle, and instead of focusing on what we don’t want, we think it’s better to focus on what we do want, and figure out a way to reach those goals," analysts at Morgan Stanley said. "In this case, we believe that the goal should be effective ownership and management of rental properties, while retaining some upside for taxpayers if everything works out and home prices recover," according to Morgan Stanley. The analysts said the bulk sales element is essential and sales will be best pooled at the MSA level into sizes that allow investors to undertake the rehabilitation and rental of those properties in the most efficient manner. "Pools of single-family rental properties will look more like commercial rental portfolios, so loan characteristics should match, including nonamortizing bullet structures with shorter maturities than traditional residential mortgages," the Morgan Stanley analysts wrote. Write to: Kerri Panchuk.