Investor aims to buy 3,000 foreclosed Chicago homes

CRAIN’S CHICAGO

by MICAH MAIDENBERG

– October 19, 2012 –

For Donald Cogsville, it’s 94 down, another 2,906 to go.

His company, the Cogsville Group LLC, is on the hunt for more foreclosed homes in the Chicago area after buying its first batch last month, paying $2.1 million for a stake in 94 properties here. His goal: to buy and rent out as many as 3,000 foreclosed homes in the Chicago area over the next 12 to 18 months.

Cogsville has joined the herd of private-equity investors piling into the market for foreclosed homes across the county, tempted by distressed prices and the opportunities presented by the strong rental market. Both exist in the Chicago area.

“Chicago is, relatively speaking, a stable market. It has great drivers in the economy that have performed over multiple cycles,” said Mr. Cogsville, CEO of the New York-based firm, which he founded five years ago. Rental housing here is an “emerging opportunity. It certainly is going to be in the near term, and we think it could be in the long term.”

Cogsville in September completed its first residential buy here in partnership with federal mortgage giant Fannie Mae, investing $2.1 million in equity to take control of 94 foreclosed local properties scattered across the region, from Oak Park to Englewood, valued at $13.7 million. The firm plans to find more properties at sheriff’s auctions, in bulk sales and from banks and the federal housing finance agencies, said Mr. Cogsville, a former college soccer star who once played on the U.S. national team.

“We really want to get boots on the ground and really get familiar and really spend time getting close to communities,” he said. “I think there’s a real opportunity to build a real brand.”

Yet Cogsville faces competition from other firms trying to capitalize on the same opportunity. Competitors include Tinley Park-based Mack Cos. and Waypoint Homes, an Oakland, Calif.-based investor that started buying lender-owned homes here over the summer.

The business also presents management challenges, requiring a well-organized local operation to maintain the properties and keep tenants happy. Cogsville has tapped Fort Lauderdale, Fla.-based FirstService Residential Realty Inc. to handle property management, but the company will partner with local operators, too.

Buying distressed homes can also be risky because foreclosed properties tend fall into disrepair.

The theory is that “if you hold for the long run, you’ll do well,” said Craig Furfine, clinical professor of finance who specializes in commercial real estate at Northwestern University’s Kellogg School of Management. But “because these are foreclosed properties, they may need to make more significant improvements than anticipated.”

Cogsville is targeting foreclosed homes priced at $80,000 to $300,000. The firm likes working-class neighborhoods but won’t shy away from deals in lower-income areas as well, Mr. Cogsville said. As an exit strategy, the firm may seek to sell residents the properties they’re renting or even offer the portfolio they amass in a public offering.

A native New Yorker, Mr. Cogsville, 47, grew up in Trenton, N.J., before moving south to attend the University of North Carolina at Chapel Hill, where he was a soccer star, scoring 29 goals over four years, according to an article in the Daily Tar Heel, a student newspaper.

He joined the U.S. men’s national soccer team in 1988. From 1990 through 1992, Mr. Cogsville played two years of professional soccer for a team called the San Diego Sockers.

After knee injuries ended his athletic career, Mr. Cogsville enrolled in law school at Rutgers University, graduating in 1995. He began working in the New York office of Skadden Arps Slate Meagher & Flom LLP, where he focused on mergers and acquisitions, as well as debt securitization deals.

In 1998, Mr. Cogsville took an investment banking position with Merrill Lynch & Co., leaving four years later to create his own investment advisory firm, which became RCM Saratoga Capital LLC in 2003.

He sold RCM in 2006 and formed Cogsville Group a year later.

“You could almost see the bubble was going to burst and there would be a real opportunity to be an investor,” he said.

The firm has raised one investment fund and is raising money for a second. Cogsville Group does not disclose how much it raised in the first fund, nor its goals for the second.

Cogsville teamed up with partners like Santa Monica, Calif.-based Colony Capital LLC and New York-based BlackRock Inc. on its first investments, acquiring more than 4,000 loans in 49 states, the vast majority of them loans on commercial property. That pool of debt includes 69 commercial loans in Illinois, Mr. Cogsville said.

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