Tags: sovereign | funds

We Found a Buyer for Your House

Monday, 11 Aug 2008 04:09 PM

Don't be surprised if the buyer of the foreclosed home near you turns out to be a sovereign fund.

According to The New York Post, foreign money is expanding its attention from commercial real estate like the Chrysler Building in New York — it was sold to Abu Dhabi sovereign wealth fund in July — to the thousands of disclosed foreclosed homes across the U.S. such funds can buy at a huge discount.

The Post reports that one sovereign fund has already earmarked $29 billion to buy foreclosed residential real estate and hired a West Coast mortgage brokers to search for deals. The search is focusing on single- and multi-family real estate-owned (REO) homes, or homes that have already been taken over by the bank.

"The critical mass of bulk REO is in well-capitalized institutions that don't need to sell yet in bulk at a deep discount because they are better off not taking substantial hits to the capital just to get the assets off their books," Robert Pardes of Recourse Recovery Management Services told the Post.

Of course, sovereign funds aren't the only money looking to take advantage of the cheap deals on foreclosed homes that are amply available now. U.S. investors, hedge funds, and Wall Street banks are also looking to get in on the investments.

But a sovereign fund has two advantages over other investors, the Post reports: First, the depressed value of the U.S. dollar makes these homes a bargain; and second, sovereign funds have extensive financial resources.

The sovereign fund of Abu Dhabi, for example, has a reported $875 billion in assets. Norway has $391 billion, Singapore has $303 billion, and Kuwait has $264 billion, in their sovereign funds.

The Abu Dhabi Investment Authority is expected to announce next month what type of U.S. distressed assets they will be investing in, according to a report in Financial Times. Real estate is at the top of the list.

With a weak U.S. dollar and REO accumulating fast, sovereign funds are looking for 50 cents on the dollar discounts in residential and multi-family property. Prices on bulk sales of REO properties vary depending on location and are selling from 60 cents to 80 cents on the dollar.

One mortgage consultant even negotiated a $2 billion deal recently that came mixed with homes across the country for 31 cents on the dollar.

While this may be the exception rather than the norm at this point, some experts say that could easily change if the market becomes more crowded with bank failures and distressed institutions.

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Don't be surprised if the buyer of the foreclosed home near you turns out to be a sovereign fund.According to The New York Post, foreign money is expanding its attention from commercial real estate like the Chrysler Building in New York — it was sold to Abu Dhabi sovereign...
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2008-09-11
 

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