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Off Market Deals and Distressed Property
February 27, 2009Article by Ray Withers
The majority of investors will never get to see genuine off markets deals, traditionally most opportunities will either be purchased by institutional funds long before it reaches the retail market or seized by the bank due to the short time frames involved. The current economic climates lack of liquidity has removed much of the institutional funds buying power, making private finance king.
Off market deals are designed to protect the integrity of the seller, be it a developer protecting the company’s share price or private individual protecting his or her personal reputation. These sellers are highly motivated by a number of factors, these can include:
Cooperate developer sale:
- A global credit crisis! Virtually removing all lines of credit, this makes financing development debt nearly impossible, causing cash flow problems and a need to liquidate assets.
- The house price crash has resulted in far fewer buyers and a need to look at alternative routes to clear inventory.
Private individual and portfolio sales:
- Their circumstances have dramatically changed (death, divorce, emigration, loss of job etc.)
- They have exchanged or completed on properties they could not financially afford during the boom times, with the sole intention of flipping (selling on)
- Lack of mortgage finance in far less lenient times.
However of all the above the most likely is the risk of foreclosing on their loan repayments.
This not only results in the loss of the property to the bank plus any deposit, but can have the more serious long term effect of tarnishing the company or individuals credit rating. This makes future purchases or business expansion incredibly difficult.
In these unprecedented times, banks do not care about the bankruptcy of a developer or the loss of a personal property portfolio so long as they can recoup their loan amount. They will try to dispose of the property as early as possible regardless of the interests of its owners. Its these type of situations that create buying opportunities not seen in the last 20 years.
Question may arise as to the morality of taking advantage of the miseries and pains of defaulting developers and investors. It may not give one a good feeling to benefit from the miseries of others, but if one looks closely, there is not much choice and the long term effects of foreclosure can be far worse.
Property Frontiers will shortly be offering a private and bespoke service to those investors in the privileged position of being able to benefit from the highly discounted distressed stock in a number of locations, primarily the UK, USA and the Spain but not exclusively.
We currently have access to private offers in Bolton, Sheffield and Stoke, some 35% below RICS all direct from the developer. We are also expecting deals in Spain some 50+% below bank valuations and a portfolio in Brazil some 30% BMV.
These types of proposals come with a strict purchasing procedure and nondisclosure agreements due to the very sensitive nature of the selling parties involved. We cannot advertise these in the usual manner. However, it is these off market deals where true investors will see the exceptional returns and double digit yields we strive for.
Due to the sensitive nature of the developments we will be offering, these will not or cannot be listed on our website, investors will be dealt with on an application only basis and must be able to show proof of funds (£1m +) through a lawyer, accountant or bank.
To register for these types of opportunities investors will have to sign a copy of self certification of HNT or a sophisticated investor disclaimer. We will also require parties to sign an NDA. This process of cause can be done remotely and we are happy to act for investors anywhere in the world.
However where possible we invite you to our head offices in Oxford for a full consultation and will gladly meet you at the site of any of our opportunities.