Call them grave dancers, vulture funds, turnaround specialists or the more euphemistic opportunity investors. However you identify them, the deal is the same: When hyperactive real estate markets lose their sizzle, or property owners no longer can afford to hang onto their houses, well-capitalized investors smell blood -- and move in.
That's happening in most of the bubble areas that saw heavy speculative activity and razzle-dazzle financing from 2001 through 2005. But it's also happening across the country in less volatile markets where unaffordable mortgages and economic distress are producing record numbers of panic sales.
In Miami Beach and south Florida, for example, real estate consultant Jack McCabe says he is advising "hedge funds, high net worth individuals, Wall Street investment banks and groups of doctors and lawyers" who want a piece of the area's tottering condominium and town house sector, where some properties are selling for 50 cents on the dollar.
McCabe, CEO of McCabe Research and Consulting Inc. of Deerfield Beach, Fla., declines to identify any of his roster of vulture fund clients, "who prefer to fly under the radar." But they are out in droves to acquire buildings then refurbish them, convert them to different uses, rent them out or hold them and resell at the first sign that the local market is bouncing back.
McCabe's segment of the market tends toward big-bucks, but around the country there are hundreds of much smaller-scale investors on the prowl for individual turnaround situations in otherwise stable markets. The largest organization of such entrepreneurs is HomeVestors, a Dallas-based franchiser started in the mid-1990s.
Best known for its advertising slogan "We Buy Ugly Houses," HomeVestors trains its franchisees to spot and capitalize not only on houses that need work, but on what Hayes calls "ugly situations." Among the most common are divorce, death, loss of a job or mortgage delinquency.
HomeVestor franchisees -- who typically are professionals or small business veterans -- pay a $49,000 fee upfront and must have net assets of $200,000 in cash or cash equivalents. They also pay the parent company a flat $775 for every house they acquire, plus interest on credit lines the company extends to enable them to buy high volumes of properties. Some HomeVestor franchisees buy, fix up, rent or resell 100 or more houses a year, thanks in part to high volumes of potential sellers.
"The owner might be offended at the low-ball offer," said Hayes, "but then again, in some situations that might be the only offer they get."
KENNETH HARNEY, based in Washington, writes on national housing issues. His e-mail address is kenharney@earthlink.net.
