Archive for the ‘Atlanta Commercial Real Estate’ Category

Bank Failures and Real Estate Supply

Investors and Colleagues,

Last Friday, another three banks kicked the bucket…

At the end of last week, the FDIC announced that Integra Bank, Virginia Business Bank of Richmond, and Bank Meridian were officially insolvent and would be merged or taken over by the government.

Bank Meridian hit closest to home as the South Carolina bank was forced into a merger with SCBT Financial – another South Carolina bank. All together, these three banks represented about $2.5 billion in assets, and the total number of failed banks this year is now at 61.

A few generations ago, even one or two bank failures like this would have the potential to damage the entire financial system. If depositors lost their assets at one bank, consumers would be likely to pull their savings out of other financial institutions – igniting a run on the bank and sending the system into a state of chaos.

Today, of course, the FDIC protects depositors by ensuring the first $250,000 for each depositor. So as long as your savings account is below a quarter million, you can rest assured that a bank failure won’t result in you losing money.

Most people understand that the FDIC insures deposit accounts, but fail to realize what happens behind the scenes when a bank goes under.

The Proud New Owner of Real Estate
When a bank is taken over by the FDIC, depositors receive the full value of the assets in their accounts, and the FDIC actually takes over the assets of the bank. Sometimes the assets are able to be merged with another more healthy bank, but often these assets continue to sit on the FDIC’s balance sheet.

For banks who have made bad real estate loans, these assets actually represent property that has been foreclosed on.
Here’s an example… A southeastern developer might take out a $3 million dollar loan from Bank Meridian in South Carolina to purchase development property in Greenville, Nashville and Atlanta. Due to poor planning and a difficult economic environment, this developer goes out of business and the bank forecloses on the property.

Now a few quarters later, the bank is declared insolvent and is taken over by the FDIC. The FDIC pays the depositors cash and assumes ownership of the bank’s assets (including the developments in Greenville, Nashville and Atlanta).

The FDIC is now the proud owner of a few hundred acres of residential property. But of course this is not the position the government entity is supposed to be in. The FDIC’s assets are supposed to be held in cash so they have capital available to insure deposit accounts.

So what does the FDIC do with these developments? Well, the short answer is that they go looking for a buyer. Sometimes the assets are able to be merged with another bank, sometimes the real estate is sold to a private buyer, and sometimes the land is put up for sale by auction.

Today, the FDIC is sitting on a substantial amount of non-cash assets such as residential real estate developments. The number of bank failures over the past two years has been very high – and the longer it takes for our broad economy to recover, the more banks continue to fail.

Bank Failures Create Opportunity
Now no one wants to see banks continue to go under. But for us as investors, these bank failures actually translate to opportunity.

With the FDIC holding significant amounts of real estate (and needing more cash to cover deposit balances) there are some tremendous bargains available to opportunistic buyers.

At Ashford Capital, we are working directly with the FDIC to identify attractive properties and buy them at a significant discount. We only purchase properties in locations that we expect to rebound quickly – and this gives us a chance to sell the locations at a substantial profit for our investors.

Could we grab a few minutes to chat this week? I would love to give you details on some of the deals we are negotiating and help you grow your capital through one or two of these opportunities.

Wishing you every success,
Matt

Opportunities in a Bi-polar Market

Today’s real estate market is the most fragmented I have seen in more than two decades of experience. On a national level, industry surveys point to pockets of economic rebound and strength, offset by areas where the recovery just isn’t taking hold.

The same could be said of our local Atlanta real estate market – which has its own pockets of strength and pockets that are still locked in a difficult environment. In some neighborhoods we have huge inventories of developed land – just sitting there as the builders and banks suffer. Buyers are scarce and there are plenty of existing homes for sale.

But in more desirable areas of the city, we have a booming recovery. Builders are stepping up to the plate, buying land and selling homes. Profit margins are increasing and attractive mortgage rates continue to propel the activity.

This bi-polar environment carries both risk and tremendous opportunity. Pick up a development in a stale are of town and you could be sitting on it with no buyers for a number of very long years. But invest in a thriving area with existing projects underway and the returns can be phenomenal.

Why the Banks Are Selling Their Very Best Inventory

If you’ve been reading my notes for the past several months, you know that many of the local regional banks are under pressure. These institutions originally made loans to developers and builders who bought real estate at the top of the market. As the economy contracted, these developers went belly up and the banks had to take possession of the properties.

In some cases the banks themselves became insolvent and were taken over by the FDIC. In this scenario, it’s now the government agency that is sitting on acres of property that it wants to get OFF its balance sheet!

Because these institutions are so anxious to repair their financial position, they are willing to sell their most valuable assets at attractive prices. Why would they sell the BEST stuff first? Well think about it… In today’s market, the best stuff is the ONLY stuff that can actually be sold. If a property is less than ideal, it doesn’t matter what the price is. There simply is no interest out there.

So regional banks and the FDIC are in a tight place. They have no options for the poor properties on their balance sheets and they need cash to cover their risk. And that puts Ashford Capital and our investors in the enviable position of buying the highest quality at the most attractive prices.

Within a few calendar quarters, I expect to turn around and sell these attractive properties at a substantial profit.

New Opportunities Under Contract

Ashford Capital has been busy so far this year, spending time assessing individual properties, and haggling at the negotiating table for the best deals. We currently have a number of specific assets that are available to investors for a very limited time.

As available investment slots are filled, we will continue to look for new and attractive properties to add to our portfolio. But I should warn you that I’m not willing to compromise quality for the sake of “just getting a deal done.”

Today’s purchases should generate some of the most profitable returns we have seen in years. But since I am only looking at high-growth, niche areas of Atlanta, there is limited capacity for new investors to get involved. Once the banks and the FDIC have liquidated the most attractive developments, it may take a number of months – or even years – until we see these kinds of opportunities again. I want to make sure that you have the opportunity to invest before this key time period comes to an end.

Could I take a 30 minute window of your time to show you some of the specific properties we are involved with? I think you will appreciate the due-diligence that we put into each deal and will agree that Ashford Capital offers some of the best returns for your investment portfolio or IRA account.

Please give me a call this week. I don’t want to see these deals pass you by without giving you the opportunity to look at the details carefully.

Wishing you every success,

Matt

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