Bank Bulk REO Sales

I’ve seen quite a bit of email and postings about bulk bank REO sales and most of it, in my opinion, is wishful thinking and promotional rather than being based on actual portfolios available.  An interesting article from the North County Times (hat tip Calculated Risk) talks about one property as part of a bulk sale:

For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.

The group typically purchases 200 to 350 foreclosures at a time from banks for $50 million to $100 million, said Schlieder, a Riverside real estate agent. Schlieder said her business has turned entirely to representing such foreclosure resales for bulk investors.

While the numbers seem rather amazing, and it doesn’t seem to make a lot of sense from the banks perspective, it doesn’t seem too out of line to me.  A portfolio of 300+- foreclosed properties will have some properties with very good profit margins, some properties will be breakeven and some will be lucky to breakeven.  That’s why a portfolio is sold in bulk, and at a discount to the face value of the notes/property.  Cash now almost always gets a discount.

If my memory is correct, the last major downturn had distressed portfolio purchasers paying something around 65% of face value, so this really isn’t a new phenomenon.