Betting Markets to Hit Bottom
By David Wilkening
It is sometimes called “opportunity investing,” or to put it more bluntly, vulture capital. In a possible sign that the housing market has reached its bottom, hedge funds are circling.
This development is somewhat unusual in part because hedge funds have been famous for making many executives rich, and to a large extent are blamed for causing the nation’s real estate crisis.
The New York City based hedge fund Och-Ziff Capital Management Group LLC was the latest to publicly announce they are buying mortgages — particularly troubled ones.
“Given the opportunities we are currently seeing to acquire pools of assets at attractive levels, we are close to marketing this opportunity,” CEO and Chairman Dan Och told investors. His firm manages $33.3 billion in overall assets. Most of that is invested in senior, secured loans but the company has started buying mortgages.
The company, which was one of the first hedge funds in the U.S. to go public in the last year, has been investing only small amounts of capital in mortgages so far, but is in discussions for more.
More companies are betting that some good mortgages are being discarded with the bad ones. They are also betting that the market will not worsen. For example:
a. Officials of the Fortress Investment Group told investors late last year
that its hedge-fund side has been purchasing residential loan portfolios.
b. Wilbur Ross Jr. of W.L. Ross & Company spent $2.6 billion for two
mortgage services and a bond insurance company. Ross said he
planned to buy more as hedge funds and other investors sell at bargain
c. South Florida condo developer Jorge Perez (the biggest condo
developer in the state) is joining with a Wall Street firm to create a
$1 billion investor fund that will buy troubled mortgages. Perez’s move
is widely watched because he has demonstrated a knack for spotting
trends and quickly taking advantage of them.
“I strongly believe the Miami real estate is undervalued,” he said. “Three years from now, people will look back and be amazed.” He said he is basing his buys on the long-term success of the Florida real estate market. Most of his buying will be done in the Southeast, from Atlanta and Jacksonville to Miami.
He said his group will hold onto properties for two to five years and then sell them at a profit. Other companies besides hedge funds are doing variations of similar principles.
BlackRock, for example, handles global investments and is not a hedge fund but its CEO Lawrence Fink announced plans earlier this year to raise $1 billion for investing in distressed residential mortgages.
Stanford L. Kurland, former president and COO of Countrywide Financial Corp., also formed a new company that plans to acquire and restructure distressed mortgages.
“We’re looking to restructure mortgages and as soon as the loans are re-performing, and if there’s the capability and the market liquidity, we’ll look to sell” he said of the new company, Private National Mortgage Acceptance Co. LLC. “We’re prepared to hold five to seven years.”