Interesting article from the FAR...
Focus: Vulture funds preying on the U.S.
NEW YORK – March 25, 2008 – The subprime meltdown in the United States is creating great prospects for opportunistic investors and causing a lot of funds to be set up to scoop up properties on the cheap.
In the Reuters Housing Summit held last month in New York, it was noted that many distressed debt investors and vulture funds are starting to “hover over residential real estate” as they sense the U.S. housing bubble is about to burst.
Corcoran Group chief executive Pamela Liebman said this is even happening in Manhattan, which is among the few U.S. real estate markets still buoyant.
She said, however, the funds are not interested in individual houses but in the unsold inventory in large apartment projects.
“They are prepared to buy the unsold stock, hold them for rental and then sell (when the market recovers),” she said.
Liebman said although many New York developers are hesitant to sell at a discount, they should face up to the current situation, as over time, prices might sink even lower.
In states such as Florida, several vulture funds have already been set up to buy real estate for immediate rental income.
Real estate powerhouse The Related Companies (TRC) chief executive officer Stephen Ross said “the biggest problem today is that people don’t recognize how bad things are ... and it’s only going to get worse.”
Ross expects more economic stress to occur once a new U.S. president enters the White House next year.
“Whenever a new president is elected, they’ll want to get all the bad news out of the way in their first year ... I think things will be somewhat unstable in the first couple of years.”
To prepare itself, he said TRC sold its project sites in Las Vegas in 2005 and 2006 for a profit instead of pursuing construction, fearing market demand was based on investment buyers rather than people planning to live there.
“It was all speculative ... we thought ‘This is crazy’ and got out,” he said.
Not all the speakers at the Reuters summit felt the same way, though. C.P. Morgan Communities head Tom Eggleston, for instance, said he doesn’t see the struggling U.S. housing market hitting rock bottom until mid-2010 and even then, “the recovery would not be a sharp ‘V’.”
As one of the largest privately owned U.S. home builders, he said house prices would fall another 20 percent and land by 25 percent.
In Europe, the European Mortgage Federation (EMF) secretary-general Annik Lambert said except for the United Kingdom, property owners are not at risk of a U.S.-style subprime mortgage crisis and, thus, do not need more regulations to protect borrowers.
She said EMF, which also advises the European Central Bank and Basel Committee on mortgage industry matters, has so far noted “little fallout” from the $8.4 trillion European mortgage market as a result of the U.S. debacle.
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