As distressed assets continue to pile up, several Web sites are offering multifamily and single-family investors access into specific buying opportunities.
The LFC Group of Companies, which already auctions land and single-family homes online, launched a new site in March that seeks to become an eBay for investors looking to buy and sell mortgage notes.
The site, BigBidder.com, auctions nonperforming mortgage notes secured by commercial real estate, as well as a range of other loan types. The idea for the site “is based upon the premise that just about anything can be sold in an online auction,” says Kelly Lovegrove, director of operations for the Newport Beach, Calif.-based LFC Group.
BigBidder.com is not alone. One company already well established in the online distressed debt marketplace is Boston-based DebtX, and its site, DebtX.com. The company has a contract with the U.S. Department of Housing and Urban Development (HUD) to sell the agency’s distressed debt. In February, DebtX offered about $144 million in nonperforming multifamily and healthcare HUD loans.
What’s more, DebtX has a contract with the FDIC to offer distressed debt from banks in receivership. At the end of March, DebtX will auction $318 million in loans—$47.7 million of which is for multifamily—seized from West Los Angeles-based Security Pacific Bank and placed in receivership last fall.
The advantage of an online auction site goes beyond transparent pricing, each company says. Buyers can peruse opportunities more quickly online, and sellers can get a higher price for their assets—more bidders often translate to bigger price tags. Plus, the process is expedited, with some transactions at DebtX closing in 30 to 45 days. And since the online model offers lower transaction prices than standard auctions, it’s economical to sell or buy loans as small as $1 million.
At BigBidder.com, those benefits also include increased a heightened level of transparency in the auction process—much note trading in the past was institution-to-institution—while opening the market up to a larger pool of buyers. The LFC Group’s executive team, which has a background in the mortgage industry, saw “an opportunity to capitalize on the wave of real estate-backed assets that would weigh down institutional balance sheets,” Lovegrove says.
Indeed, the sites are on to something big—and have the traction to prove it. DebtX says that its business doubled in the fourth quarter of 2008 compared to the fourth quarter of 2007. While multifamily loans aren’t the bulk of its business, “we expect to see more as the cost of owning a single-family home continues to fall,” says Kingsley Greenland, CEO of DebtX. “Home purchase activity will drive down rental rates to a point where debt service will become an issue.”
Now, regional sites are also emerging. In late February, a start-up site that zeros in on the struggling condo market in South Florida was launched. Condoreports.com provides detailed reports that include historical sales and listing activity, recent sales by unit types, foreclosures and bank-owned units on nearly 2,000 condo communities in Miami-Dade County.
The Web site has seen a lot of traffic from institutional investors looking for discounted acquisitions, as well as lenders looking for clarity on underwriting criteria, according to the site’s founder, Adam Cappel.
CondoReports.com released its Miami Bulk Buyer report March 25, which identifies more than 140 condo and townhouse projects with large blocks of inventory under a single owner, usually the original developer or lender. While the overwhelming majority of those projects are fractured deals, where only a few units were sold, many are failed condo deals without any sales, which “will certainly become rental projects,” Cappel says.