by JOHN GITTELSOHN
– October 2, 2012 –
Cogsville Group LLC, a New York-based real estate investment fund, won an auction of 94 homes for $11.8 million in Fannie Mae (FNMA)’s second bulk sale of foreclosures to be managed as rentals.
The government-controlled mortgage company is auctioning almost 2,500 repossessed properties in six states. The homes purchased by Cogsville, all in the Chicago area, sold for about 86 percent of the estimated total value of the properties, according to a summary by Credit Suisse Group AG, which managed the transaction.
“Our belief is that we acquired these at a decent, sub- market price,” Don Cogsville, chief executive officer of Cogsville Group, said in a telephone interview. “I think there’s going to be a lot more opportunity there.”
Investors are taking advantage of real estate prices that have fallen more than 30 percent from their 2006 peak to buy single-family homes as demand for rentals increases because many Americans lack the means or desire to buy a house. Private- equity funds such as Colony Capital LLC and Blackstone Group LP (BX) have raised as much as $8 billion to buy as many as 80,000 single-family homes at distressed prices, according to a Sept. 21 report by Keefe Bruyette & Woods Inc.
“Investor interest has increased meaningfully as the large foreclosure inventory combined with a secular shift toward renting has created the possibility of larger-scale investments in the space,” Jade Rahmani, Bose George and Ryan O’Steen, analysts based in New York, said in the report.
Vulcan Investment Partners LLC, a Miami-based company founded by Mexican investors, said today that it plans to spend $150 million to buy 1,200 South Florida homes to manage as rentals. The properties are expected to double in value by 2017, when the fund that holds them will be liquidated, after earning an annual rental capitalization rate “above 14 percent,” the company said.
The Chicago homes are the first residential acquisition for Cogsville, whose fund has purchased and managed about $3 billion in loans on distressed commercial real estate. The company plans to buy about 1,000 rental properties in the Chicago area over the next 12 to 18 months to gain “a critical mass” in the region and manage the homes efficiently, Don Cogsville said.
The single-family rentals in the Fannie Mae portfolio will generate annual percentage returns “in the mid-teens,” Cogsville said. His company paid $2.1 million in cash, with Washington-based Fannie Mae funding the balance, according to the transaction summary.
Under terms of the joint venture, Fannie Mae will receive 90 percent of the income on the properties until it gets to $8.39 million. After that, Fannie Mae’s share will drop to 50 percent of returns. Cogsville will also get a 20 percent management fee for running the properties, according to the transaction summary.
Pacifica Companies LLC, a San Diego, California-based real estate investment firm, acquired 699 Florida foreclosures for $78.1 million through a Fannie Mae bulk sale, the Federal Housing Finance Agency announced Sept. 6. Santa Monica, California-based Colony, headed by Tom Barrack, won the bidding for properties in Nevada, Arizona and California, four people with knowledge of the results said in July. A portfolio of 541 Fannie Mae-owned homes in Atlanta didn’t sell, according to the FHFA.
Fannie Mae and Freddie Mac, the government-sponsored mortgage financiers that came under U.S. conservatorship in 2008, reduced the foreclosed homes in their combined inventory to 162,537 as of June 30, down from a peak of 241,684 in the third quarter of 2010, the FHFA said in a Sept. 26 report.