As an increasing number of borrowers skip their mortgage payments, opportunistic investors have been on the lookout for distressed loans sold off at discount prices.
A new venture intends to acquire up to $175 million in delinquent loans on properties across the country, particularly in New York City and Miami. The funding will start with a commitment of $25 million.
Real estate investment firm Lakeport Capital will acquire non-performing loan portfolios on condos and single-family homes. Lakeport will receive most of its funding from a “division of one of the top 50 global banks,” which will serve as its venture partner. Financial technology platform Finitive matched the bank with Lakeport. Neither Lakeport nor Finitive would identify the bank.
The venture will focus on condo loans on existing properties and on buildings in development, said Yonel Devico, Lakeport co-founder.
“The condo market in both New York and Miami is pretty bad,” he said in an interview Tuesday. “There is a lot of inventory and it’s not selling.”
In particular, Devico pointed to distressed mortgages on luxury condos that foreign buyers had scooped up. Some of those buyers put down hefty deposits on units in Miami or New York, then ran into financial trouble and had to take out bridge loans to pay the remainder of the purchase price. These loans are now in default, Devico said.
Devico previously worked at Société Générale’s equity derivatives group in Paris. Jean-Marc Orlando, Lakeport’s other co-founder, is a former BNP Paribas executive.
Finitive is led by founder and CEO Jon Barlow.
The venture intends to buy the loans from banks, nonbank lenders, hedge funds and private credit funds that want to push the mortgages off their balance sheets.
“Some lenders and banks are having issues in other parts of their business like corporate debt and commercial real estate debt, and sometimes they need to unload good assets at a discount to cover losses,” he said.
The venture is seeking to buy defaulted mortgages at a loan-to-value ratio of no more than 70 percent. Lakeport will then work with homeowners to help them catch up with payments and refinancing to remain in their homes.
The announcement comes at a time when many borrowers have fallen deeper into debt. Residential mortgages that were at least 90-day delinquent increased to 3.72 percent in the second quarter, according to the Mortgage Bankers Association. That was the highest rate in a decade.
During the last recession, opportunistic investors were able to scoop up luxury condos in cities like Miami for pennies on the dollar. Now, there is a similar sentiment among some industry pros. But because buyers generally have to put down higher deposits on condos, the level of distress isn’t as great, developers contend.
Investment firms like Churchill Real Estate started raising money last year to buy distressed debt focusing on condo and retail projects. Churchill also recently secured $2 billion to provide debt on residential real estate, with banks having backed away from lending due to market distress.