Exclusive: Asset manager TCW looks to cash in on foreclosed homes

NEW YORK Tue May 15, 2012 4:26pm EDT

The Trust Company of the West building is seen in downtown Los Angeles August 10, 2011. REUTERS/Fred Prouser

The Trust Company of the West building is seen in downtown Los Angeles August 10, 2011.

Credit: Reuters/Fred Prouser

NEW YORK (Reuters) - TCW, a Los Angeles-based asset management firm, is looking to raise up to $250 million from investors for a fund that seeks to capitalize on the red-hot U.S. rental market for single-family homes.

A marketing brochure reviewed by Reuters bills the new fund, the TCW Home Place Partners fund, as an opportunity for wealthy investors to invest in the "housing turnaround" by buying foreclosed homes from banks and federal government agencies.

The new fund, which will require investors to lock up their money for eight years, comes at a time when many hedge funds and private equity firms are raising money to acquire foreclosed homes with the intent to rent them out for several years before selling them as the housing recovery takes hold.

The single-family home fund is one of the first to be offered by a more traditional U.S. money manager. TCW, which manages $128 billion, may be best-known for its wide array of bond mutual funds. A TCW spokesman declined to comment.

The soon-to-launch TCW fund could be an indication that investor interest in foreclosed homes is widespread.

Some of that interest has been spurred by an initiative by the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, to accept bids from investment groups seeking to buy an initial round of 2,500 Fannie-owned homes in cities like Atlanta, Chicago, Los Angeles and Phoenix. Bids for the Fannie pools are expected to be submitted by the end of this month.

Big banks also are looking to shed some of their huge inventory of foreclosed homes. I n April, Bank of America took bids for a second round of a bulk sale of foreclosed homes in California, Florida, Arizona, Texas, Pennsylvania and Georgia.

TCW's Home Place Partners fund will mainly look to acquire single-family homes in California, Georgia, Arizona, Illinois and Florida.

"The combination of low prices, available inventory and stable rents has created a unique opportunity for investors to pursue a long-term buy-hold-lease strategy in the single-family housing space," the TCW marketing brochure said.

Beside foreclosed homes, TCW will also look to pick up "distressed' homes that are in the middle of the foreclosure process.

TCW has been investigating the market for renting out foreclosed homes for about two years. In fact, TCW quietly tested the idea with a small fund that used its own money -- not outside capital -- to acquire single-family homes in Phoenix, one of the hardest-hit housing markets in the nation, according to sources familiar with the matter. TCW bought many of those homes at courthouse foreclosure auctions.

Over the past year, Phoenix has proved to be an attractive draw for housing investors and speculators because the market for operating rental homes ha s been quite active.

On a conference call for prospective investors earlier this month, a TCW executive said once the housing market in a hard-hit city starts to correct, there is a "substantial price appreciation" for rental homes. In a taped replay of the May 2 conference call, the executive said that "based on our experience on the ground in Phoenix, we are now seeing a similar dynamic in Orlando and Sacramento, California."

Other TCW executives on the call said they expect to use leverage, or borrowed money, to give the fund more buying power than the $250 million it expects to raise. The executive said TCW has had conversations with two major U.S. banks that are interested in lending money to investors seeking to buy foreclosed homes, rehabilitate them and operate them as rentals for several years.

The new fund, which will be managed by two senior TCW bond managers, Laird Landmann and Patrick Doyle, said investors can expect to earn a hypothetical gross internal rate of return of between 17 percent and 21 percent.

"We do think this is a fairly profound investment opportunity," said Landmann on the conference call.

(Reporting by Jennifer Ablan and Matthew Goldstein; Editing by Edward Tobin and Steve Orlofsky)

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Comments (3)
bobber1956 wrote:
This is the next bubble and someone needs to stop it. It is a disaster in the making. When this one breaks it is all over. May 15 2012. Mark the day I said it, and remember. I will.

May 15, 2012 5:22pm EDT  --  Report as abuse
Ananke wrote:
Agree :), this is going to be a bubble. But at least Freddie and Fannie will not hold the properties. Only scary part is, the fund intends to leverage, means banks are going to get messy once again.

May 15, 2012 7:23pm EDT  --  Report as abuse
jscottk wrote:
The vultures and parasites move in, using other people’s money again and touting the investment has potential to yield 17-21% earnings. The suckers line up to be fleeced.

May 15, 2012 11:05pm EDT  --  Report as abuse
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