Posted by David Butler on January 17, 2010 at 18:00:09:
In Reply to: David Bulter posted by Roy on January 17, 2010 at 12:06:27:
Hello Roy...
We are not actively purchasing notes directly at this point in time, particularly MH notes secured by MH units in parks, which previously was the major focus of our note investing for twelve years. The reasons for this are three-fold.
First... due to a collapse in the Manufactured Housing industry in general (new home building and sales) that began in early 2000 and has continued since, collateral MH values have been in a long, albeit gradual, decline - and have now been drastically overshooting to the downside for almost three years, depending on location. All note investing demands very exacting due diligence, more than ever before - particularly with regard to collateral values of the security. In this respect, MH properties in particular have been taking a tremendous beating in many parts of the country.
Quick example... we are holding several MH notes with $40k to $45k balances due, in Southern California. The underlying homes have dropped in value from $60k values down to $25k/$30k values. These will almost cover about what we still have invested in the notes after amortizing the partial recapture of the price we paid for the notes three years ago. Now we are facing collection challenges due to the employment issues in play in the areas where our security is located. No matter what happens next, earning a break-even return going forward is likely our best outcome. We are facing similar issues with the MH notes we have left in Georgia and Texas, though the home values and note balances are on a somewhat smaller scale. And of course, that makes them more difficult to resolve on a time-value basis.
Second... though we continued to purchase some packages through that time, with the last being in late 2007 - the upshot is that we've not seen much in the way of attractive MH paper during that time. Sellers, quite understandably, are having a very hard time accepting the huge discounts that are now in play for the time being.
Third... our own investing has been REO properties the past three years, but frankly, that was more by design, rather than the downward spiral in MH notes. In this respect, we are creating our own paper in the near term, with the option of selling blocks of that from time-to-time to both institutional and private investors. We began preparing in mid-2005 for the disaster that is out there now, with a business plan based on bringing affordable housing back to the working middle-class - through coordinating interaction between institutional and GSE sellers, nonprofit agencies, and the SRI (Socially Responsible Investing) community.
We have some success on variations of that enterprise, some with smaller local nonprofits in the Rust Belt, and some with advanced 1031 exchange strategies in Southern California. It's been tough sledding, as both the government, and the banking industry have done a lot of things totally unexpected in a vain, and counterproductive effort to prop up unaffordable pricing structures. However, we believe the wheels of progress are finally turning in the first half of the coming year. We have been involved with a major nonprofit group for the past nine months, developing a pilot program to roll-out when the current frothy "false-bottom" market shakes out. Time will tell.
Best wishes for your success, and may you have a Big WIN in 2010.
David P. Butler
Nascent Equity and
Hotspur Investment Group
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