Distressed home mortgage market window closing

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Several private equity funds have rushed into the market for distressed home mortgages, aiming to buy them cheap, rent the properties for a few years and sell after prices recover.

Such funds--from companies like Blackstone, Colony Capital, GTIS Partners, KKR, Oaktree Capital, Och-Ziff Capital, Waypoint and the Alaska Permanent Fund--have raised nearly $6.5 billion collectively. Illinois has emerged as a recent hotspot. Most want to package these mortgages into REITs.

It's fair to say that the market has matured quickly. Blackstone, as noted by Bloomberg, says the window of opportunity will be fleeting, favoring those who can move at light speed. The company feels that the opportunity for funds to buy homes at discounts could last less than three years.

One executive was quoted saying, "Prices are starting to move faster. That's one of the risks that emerge as more people like us get into the space and as individual homeowner confidence grows. Frankly, buying a home today is pretty compelling."

The market is already crowded, and there's a decent chance that not all firms that moved into this market will get off the ground. Blackstone has been among the biggest buyers of homes across the economy, making it that much harder for others to compete.

At this point, I would have to agree that the opportunity window is closing fast. Not all the market participants will be able to thrive. It wouldn't surprise me if some firms decided to return capital to limited investors rather soon. -Jim

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