For investors with massive risk tolerance, the global credit crisis is emerging as a once-in-a-lifetime chance to buy troubled real estate assets at bargain prices.
A number of eBay-style auction sites have surfaced on the Internet, giving investors the opportunity to buy distressed loans backed by collateral, including homes, land, and commercial properties.
“All of a sudden, it’s in vogue to want to buy distressed assets,” Kingsley Greenland, president of DebtX, told The New York Times.
“Pools of capital are forming all over.”
Most of these loans trade for a mere shadow of their original value, the newspaper reported. “The whole art to all this is figuring out which one is an opportunity and which one’s a trap,” Chris Moench, who manages a distressed-debt fund in St. Petersburg, Fla., told the Times.
There are some interesting quirks in the process. The new owner of a delinquent home loan for instance, must essentially take over where the previous lender left off.
That means working out a more affordable payment plan with the borrower or foreclosing.
Interest in distressed loans is surging. Nearly 2,700 investors registered to bid in February on DebtX’s auction Web site, more than 10 times the number of registrants from the same month last year.
The company sold notes worth more than $1 billion in the fourth quarter of 2008, triple its sales from the same period a year earlier.
DebtX, along with First Financial Network, a loan sale advisory firm in Oklahoma City, has a contract to sell loans from the Federal Deposit Insurance Corp. Additional firms are being enlisted in the agency’s loan sale endeavors.
On the Web, some auction sites include:
It might be about the right time. Invesco and billionaire Wilbur Ross are spending $1 billion to buy toxic bank loans and securities through the government's Public-Private Investment Program.
The Obama administration expects the program to help mop up illiquid assets held by the banks. Regulators figure only half the estimated $2.7 trillion in bad U.S. loans has been written down so far.
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