There are several different asset classes of real estate that we consider as additions to our portfolio, to lend against, or to become an equity partner in the project. The actual Assets Under Management (AUM) is available in real time for the investors in the REI (Real Estate Investment) FUND. This section describes in general terms the assets that we evaluate for acquisition by the REI FUND, presents a summary of our lending parameters and describes how we consider projects for equity participation.
REO Properties Owned by Private Lenders
A List Partners builds relationships with private fund managers in Texas and other hot market states who are private lenders. Sometimes these fund managers have no choice but to foreclose on a property. Fund managers of private funds are focused on making loans and generally are not prepared to manage Real Estate Owned (REO) assets. Many of them will be very happy to sell an REO property to another fund so that they can concentrate on what they do best – lend money! A List Partners will evaluate these assets and determine if they will be a solid asset to add to the portfolio. Once acquired, A List Partners will work to stabilize the property and maximize its earning potential then put it on the market to sell to a real estate investor. The maximum that we will pay for such properties is 70% of the ‘as is’ market value as determined by a new appraisal conducted after the foreclosure.
Fund to Fund Investing / Loan Participation with Other Funds
“Alternative Lending is the asset class that some experts are predicting could grow by as much as 700% in the next five years!” Pepper and Hamilton, LLP writing for The Lending Exchange
Just how big is this market? Here are two snippets of predictions from some experts:
“This year (2014) is going to be a $3bn origination market. In five years’ time this will be a $25bn-plus market and there will be a large institutional component…” (Joseph Marra in Financial Times “Peer-to-peer lending: The wisdom of crowds” Elaine Moore and Tracy Alloway 5/19/14)
“There is little doubt that bank loans have lost some of their market dominance to alternative sources of capital. The big question is whether this is a temporary phenomenon or a permanent shift. “(Real Estate Weekly, “Who will lend you money in 2014?”, Konrad Putzier, January 8, 2014)
A List Partners may from time to time participate in a loan originated by another private fund. Private Lenders build communities across America by making loans that banks no longer make. Private Lenders are filling the void left after the demise of the Community Banks across America. Additionally, A List Partners may invest directly into another fund that offers high yields from a portfolio of assets which are different from those managed by ALPM held in the REI Fund.
Fractionalized Mortgage Participation
A fractionalized mortgage is created when two or more parties combine resources to acquire a Deed of Trust. A List Partners will from time to time evaluate participating in a fractionalized mortgage with private investors who prefer to have a more direct ownership to a specific property. When we consider these assets we will never participate with less than 55% or more than 90% of the total mortgage. The maximum loan-to-value ratio is determined by which asset class the property falls in.
Equity Participation / Lending
There are a number of real estate investors who find great projects but are under-capitalized to acquire and develop the project. A List Partners will evaluate these projects and may be able to become the equity partner in the project. Depending on the capital needed for the project and the profitability of the project, A list Partners might become the equity partner and submit the loan to another lender and participate in the loan with that lender. We have a strong relationship with some of the better private lenders in the industry and understand how they underwrite their loans. If the project makes sense for A List Partners as an equity partner it will be funded. We do not broker loans to private lenders. We participate in the lending or we become an equity partner in the project and place the loan with the lender best suited for the project.
Cities and Counties are taking care of abandoned properties (mowing, pest control, boarding up, removal of downed trees, etc.). We locate these properties and seek out the owners in order to negotiate a purchase of the property from them. Generally they will be eager to sell an abandoned property because the property rarely qualifies for conventional financing and therefore a typical Realtor will not seek them out for a listing. Also, the City or County usually have levied fines or liens against these properties. Owners generally cannot pay these fines and liens and the best option is for them to sell the property as opposed to lose it through a foreclosure or judicial process. Lastly, when a property is abandoned there is generally past due property taxes due on the property. Again, owners generally cannot pay the property taxes and therefore would prefer to sell the property as opposed to losing it in a tax lien foreclosure or borrowing money at a high rate of interest to pay the property taxes.
In some states an HOA lien is superior to a first lien. A List Partners will evaluate properties in these states for acquisition of the HOA Lien and then move to foreclose on the properties, lease the properties and manage the properties until a clean title can be established. Once a clean title is available the property can be sold for substantially more than was paid to acquire the HOA lien plus the expenses involved in foreclosing and cleaning the title. A List Partners will not consider any property that has more than a 20% debt to its ‘as is’ market value meaning that if the ‘as is’ value of the property is $100,000 then A List Partners would not acquire a HOA lien that is higher than $20,000.
Property Tax Liens
Property Tax Liens are a source of finding profitable acquisitions. It takes time and patience but there are properties to be acquired for a low debt to property value ratio. We limit these types of properties to real estate in Texas. Once acquired, the property is developed or rehabbed, leased then sold to an investor or sold directly to an owner occupant. A List Partners will not consider any property that has more than a 20% debt to its ‘as is’ market value.
Fix and Flip and Distressed Properties
A List Partners will evaluate properties that are undervalued for their market because they are either outdated or they are in disrepair. If the profit margin is solid A List Partners will acquire the properties, manage the rehab of the property and either sell the property to an owner occupant or lease the property and sell it to an investor. We will consider properties whereby the acquisition cost is no more than 60% of the ‘as is’ value and a maximum 80% of the After Repaired Value (ARV).
Often experienced home builders prefer to seek out an equity partner as opposed to borrowing money. At times, A List Partners may choose to become an equity partner with the builder and then secure a construction loan with another private fund which is better suited for construction lending. A List Partners will evaluate projects to determine if there is the potential of enough profit in the project to become an equity partner in the project. Limited to properties in Texas. At times the REI FUND may want to purchase a property and engage a builder to build a new home on the property and then sell the property to an end buyer or an investor. Acquisition cost, being cost effective and the speed of building determines the profitability of the project.