Everybody loves a bargain. And as every bargain hunter knows, one man's discards can be another man's gold - the trick is being able to turn trash into gold. And these days, just about everybody thinks they might be able to get one.
Opportunity funds have come to be called somewhat crudely vulture funds for the picture they conjure up of investors perched and poised to swoop in on troubled deals, mismanaged and/or underperforming assets. "We have been positioning a lot of the broken deals for investors to take on, whether they are directly from the seller or workouts through banks," said Richard C. MacDonough, Jr., vice president director of operations for Fraser Forbes Land Sales.
Sellers aren't necessarily ready to sell at this juncture though, others said. Sellers that are sitting on property purchased at 5% cap rates with 10-year interest-only mortgages will never get the price they want from today's buyers who have more traditional funding at 6.5% interest rates on a 30-year schedule.
Steve Forde, a vice president at Signature Bank said he is not seeing much movement yet either. "Buyers still expect price discounts and are looking but not signing because they are worried about more devaluation in the market. They would really be taking on more risk at this juncture due to market softness," Forde said. "In addition, many of the funding sources are up to their eyeballs working out current projects, so there will be no loosening of credit until inventory levels are more reasonable."
"As the sub-prime mortgage crisis depresses the commercial credit market, which until recently had fueled soaring real estate investment returns, emphasis now is shifting to improving operating results to drive property values," said Regina T. Mullins, CPM and president of the Institute of Real Estate Management (IREM). "Operations is replacing speculation as the stimulus for growing real estate values - and the lead players in this essentially back-to-basics scenario are the top-notch, professional managers of real estate assets who are hired by investors to do just that, to optimize ROI from operations."
"Now that flipping properties no longer is as prevalent or feasible as it once was, owners and investors are looking to sustained long-term ROI growth as the key to increasing the value of their investments," Mullins added.
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