With real estate values expected to decline further in 2009, much of the industry has employed a wait-and-see attitude.
However for the managers of a Blue Vista Capital Management and Place Properties joint venture fund, the $280 million Place/BV Student Housing Fund, waiting isn't always best.
Indeed, Blue Vista and Place are currently renegotiating two deals it put on hold during last year's credit collapse. Since then valuations have fallen by around 20 percent in just four months. Stephen Mitchell, vice president of acquisitions at Place, said the JV is also looking at another 15 to 20 potential deals in real estate owned (REO or repossession) proceedings.
The firms could of course wait even longer to see if valuations fall further, but, according to Mitchell, it sometimes pays to be in the game before the final whistle blows.
Once a lender announces its intention to foreclose on a property, proceedings can take up to eight months, with the property sold to the highest bidder. “If we can entice an owner to find a safety net with us before the special servicer takes over then it can be to our benefit,” Mitchell explained.
“Sometimes foreclosure results in a better price. But if I can find a deal which has a good long-term investment strategy, isn't yet in foreclosure proceedings, but that has a slightly higher price, I'd rather do that than be in a pool bidding with everyone else,” he added.
Blue Vista and Place are currently putting the finishing touches to a $50 million equity play targeting student housing in foreclosure proceedings, or about to be foreclosed on.
With student enrollment at US universities expected to decline this year owing to the economic downturn, many owners who bought at the height of the market will be looking to sell their assets.
In Tallahassee, Florida, around seven deals were emerging because owners were expecting to struggle amid reports enrollment at Florida State University was down by around 2,000 students, Mitchell said.
“This is not a recession-resistant sector, but it certainly is more resilient than some. The current situation though is presenting opportunities for us. It's not everywhere in the US, it's sporadic but there are some funds, REITs and owners who need to sell their portfolios,” Mitchell added.
The Place/BV Student Housing Fund, which is around two-thirds committed, will hold the properties for around five years, before hoping to exit its investments in a large portfolio sale.