FHFA has released some information concerning the results of the bidding for bulk sales of Fannie Mae owned properties.
The qualifying process began in the spring, for investment groups that could meet specific FHFA guidelines for capital assets, management capability and other criteria. Bidding began during the late spring – early summer, and culminated with closing of escrow for winning bidders in September. Some of the results are now being made public.
According to the FHFA report, there seems to be only two sales that have closed as of October 1st.
The largest sale was for a block of 699 properties throughout the state of Florida, and was sold to Pacifica Companies, LLC.
The terms of the deal include a $12.3 million down payment, and a structured cash flow split for the balance of 49.3 million. Once this amount is paid, the deal will shift to a higher cash flow rate that may be retained by Pacifica. FHFA is basically predicting a total value of around $78 million dollars for the 699 properties, which they estimate at about 95 cents on the dollar. And Pacifica, as the owner, will be responsible for ownership expenses, including taxes, insurance, and maintenance. That roughly equates to a buy price of $111,588 per house, plus ownership costs.
Pacifica Capital LLC has resort and multiunit properties in a number of locations according to their website. They are based in San Diego, California.
I will be watching this deal with great interest, to see how it all works out. Rental houses have a way of eating up lots of cash and Florida is a high maintenance, high insurance environment. From what I gather, checking out info on the web, the local Florida Realtors Association is not any too happy about this either. The local dynamics will be interesting to watch. This is something of a classroom study for real estate investors, as single family investing with such a high number of properties owned by an out of state investor has never been done successfully, as far as I know.
The terms of the deal, allowing for a relatively low $12 millon dollars down, with the remaining balance to be paid for out of proceeds from property cash flows is an opportunity that any investor would relish, but time will tell how much profit, if any, will be realized. My guess is that some properties will perform very well, but as many as 70% could be average or below expectations. I’m told by sources with experience in bulk sales that legal issues over unanticipated title problems along with repair, maintenance and vacancy costs can eat up a lot of cash flow.
In Chicago, a deal closed for a much smaller package of 94 properties with a total price to Fannie Mae of approximately $11.8 million dollars, or what FHFA says is about 86% of market value. Hardly a great price by investor standards, but Cogsville Group, LLC, the buyer, paid only $2.1 million up front, with the balance also to be paid out of cash flow. This is about $125,583 per property, plus all ownership costs.
FHFA also noted that the Atlanta package of some 572 homes was not awarded to any bidder, though they are still willing to look at bids. Las Vegas, Los Angeles and Phoenix were also to be included in the bidding, but there were no details about any specific transactions or buyers. Presumably those transactions may have been awarded but have not yet been settled.
Potential bidders may also continue to apply to prequalify by going to FHFA’s bidder prequalifying page.
Donna S. Robinson is a real estate investor, trainer and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog at www.RealtyBizConsulting.com