AmveStar believes that the dynamics of the current environment have created real estate investment opportunities in various different capacities, including the following:
The recession and banking crises and the concurrent downward plunge of real estate prices have created extraordinary investment opportunities in bank-owned real estate. Commercial banks currently hold record amounts of defaulted loans and foreclosed real estate properties, and they do not have the capital or the management expertise to continue to hold and properly manage these problem assets. As a result, banks have to sell these assets at depressed prices to maintain their required liquidity.
With the commercial financing conduit market having come to a virtual standstill, there are many existing loans which are coming or have come to maturity and these loans/projects are being faced with stricter underwriting criteria and a lack of available credit to refinance. This will require borrowers to contribute additional investment capital. To the extent borrowers do not have the additional capital, they will have to seek additional investors or look to sell projects.
Bank loans were typically made in amounts of less than 75% of collateral market values, and defaulted loans and foreclosed assets are further required by bank regulations to be marked down to market values. Depending on the type and quality of each foreclosed asset, current prices of problem assets have been discounted from their original values as much as 35% to 50% for houses, 50% to 70% for commercial properties and apartments, and 60% to 80% for land and lots in these “forced” sales by the banks.
Given all of the aforementioned factors, AmveStar believes that now is an ideal time to consolidate capital and aggressively seek out unique buying opportunities within the market place. Additionally, the Southeast region has historically recovered more quickly than many other national markets. Correspondingly, AmveStar’s primary emphasis will be on locating suitable investments in this marketplace. AmveStar feels that the timing of this event is critical. We are in unprecedented times.
The Apartment Sub-Market
As a result of the decisions of Congress that it was in the country’s interest to maximize home ownership, FNMA and FDMC lowered their underwriting standards for first mortgage loans beginning in 2000, and for the next seven years, the home building and related industries thrived and the sales volume and market values of houses grew a remarkable 10% per year. However, many of the new purchasers would not have qualified for first mortgage financing under the pre-2000 underwriting standards, and the inevitable occurred as the “bubble” burst in 2007. The recession which began with the decline of real estate markets spread throughout the economy and continues to depress real estate values.
Because of the overbuilding of real estate, there is a large inventory of unsold and unoccupied commercial properties and houses that will take several more years to absorb. One of the significant results of the recession and the subsequent sharp decline in house values is that the once desired goal of most families of home ownership is no longer a practical goal or a priority. This is because: (1) mortgage borrowing standards are now much stricter; (2) unemployment rates at 9% to 18% have reduced the number of potential buyers; (3) families’ net worth has declined substantially; and (4) house values continue to decline and are not likely to appreciate for many years.
However, a major beneficiary of the decline in the long-standing goal of home ownership is the apartment market. Many apartment projects were built in the 2000 – 2007 period, but, subsequently, rental rates and occupancy have suffered. As a result, many apartment loans are in default, and banks are very reluctant to make construction or mini-perm loans for new apartments. Few loans are being made and few apartments have been built for the past three years. In view of these demographic changes, demand for apartments is increasing, supply is flat or declining, and rents and occupancy rates are increasing.