What Is The Reality Of Someone Buying Those Hundred Million Dollar Plus Bulk REO Assets

Good Afternoon Everyone:

Well it could be morning or late night where your at, in my case it is early afternoon. I want to clarify something for everyone who has read my discussions.


I will never tell anyone i am the grand messiah of the paper and bulk asset business because I am not. I discuss things that I have learned from experience. We all start somewhere in this business and everyone makes mistakes. They trust everyone until they get beat up enough.


I have had real buyers rip me a new you know what because I caused them to undertake a deal where the deal was not what was told to me. So when I say I have been there, done that, please trust that I have. Most will never admit their mistakes.


When i was at JP Morgan, I was part of a team with a Vice-President who was the team leader. The things that I was delegated to undertake was always monitored as was everyone on the team, because of the big "C" word, which is still alive and well today, that word being compliance. There are severe penalties for serious mistakes made. Mistakes happen, oversights occur, it happens.


In this business, there are many shady characters. They don't realize that what they are doing is considered this, because their actions stem from the way they were taught. They believe that they know how the business works, when many just do not. This does not make them a bad person, just someone who really needs to throw everything they have learned out the window and work with someone who knows what they are doing.


The business of bulk reo's and NPN Notes is not a business that you can go to Borders and purchase a how to book on. One day it will be written, but who knows when. This is a business that in order to succeed in, you have to know how the business actually works.


If you study the postings on this forum as well as others, you see what? opportunities to make money. The majority of deal postings are in the area of Bulk REO and NPN porfolios. This is one of the red hot areas of opportunity right now, especially with banking institutions such as Bank of America being in the position that they are in. Don't be surprised if they go under, even as big as they are. Big does not mean financially stable.


Now, the majority of postings are for deals at $100,000,000.00, $300,000,000.00, $500,000,000.00 and yes, some even larger than that.


Lets begin picking apart these size deals, and let's say that we have the deals Tape in hand. The first thing we need to look at is the seller. Who is the seller and did they actually originate all the loans themselves or is the Tape a mix of deals they underwrote themselves and deals they purchased from other financial institutions. This is important to know. This pertains more to Tapes of NPN's more than REO's.


The reason it is important to know is because we need to know how the paper or property got onto the tape. Did the seller want to beef up the strength of the Tape by adding loans to it or properties to it. Lets just say that the Tape is all NPN's on deals the bank underwrote.


In addition to the above, we want to ensure that the bank actually makes loans in the markets where the notes are based. Not every bank makes loans everywhere. Bank of America, Wells Fargo, Chase, are banks that underwrite loans in most every Tier-1 City and most sub markets as well. However, not every big bank underwrites and lends in every city.


Okay so lets say that the bank is not a major bank, but a regional bank. If the Tape has properties listed in places such as Arkansas, Mississippi, Alabama and you know or determine that the bank does not make loans in those States, than you know that something is very wrong and it is time to take a pass on this opportunity. Lets say you decide to keep doing your first look. The First look is not the due diligence, it is what you do when your seeing for the first time, the Tape. If the first look is not successful or does not meet your standards, then obviously there will not be a due diligence. This business is not about getting a tape in hand and writing a check, that would be too easy and too dangerous.


The next thing you want to look at is the type of loans that are on the Tape. If you buy or your buyer purchase only first liens and you see a Tape of Firsts and seconds, then you must know what you or your Buyer is going to do. Do you/they purchase the Tape and wholesale out the seconds, do you take a pass on the Tape, this is dictated by your exit strategy. You must know what your going to do with the Tape and it's product.


Let's now take out what I said above about broker and buyer and lets shift the paradigm to your the broker on the deal or lets say you hope that your the only broker on the buyers side.

We won't get much into the sellers side here. For this discussion, we are going to briefly touch on the seller side.


Now, if you have not developed a buyers list, where you have vetted them and verified they are a real buyer, than what your going to continually do until such a time that you have that buyers list is blindly take to market what you feel good about presenting to the market.  What I mean by Blindly taking to market is that your going to find product first then try to successfully find a buyer.


In a effort to move on, I will say that your a broker who does not have a buyers list that is real and you have no choice but to try your luck on the open market. If you had a buyers list, you would be marketing to a closed market, but in this case it is the open market.


Here is now where we get into the discussion based upon the title of this discussion. You have a $100,000,000.00 or $100,000,000.00 plus size Tape. This is where I am going to now open your eyes, very, very wide.


How many buyers do you think there are who have $100,000,000.00 or more to invest in your Tape? not many. Where are they then? that is a fair question, and here is your answer. They are in a place that is so far out of your reach and the reach of most people. This is the number one reason why deals of these sizes don't close. The number two reason is that there are too many people in the deal.


Buyers for these size Portfolios or Tapes are on Wall Street, are on the client roster of Hedge Funds, and are on the Forbes list of Billionaires. Do you really believe that the average broker who has no contacts, has been in the business for 2 years or less, has never closed a deal because all they want to do is bring to the open market these oversize fools deals that were never going to close anyway, and operates by their own name and not a companies and has a joker broker email, with all this spelling ZERO CREDIBILITY is going to get inside this very tight group? It will never happen.


Now as I have said once and I will say it again, these oversize fools deals do not exist for the average person. They do exist for those who are not the average player in the game. They exist as CMBS deals, which are Collateralized Mortgage Backed Securities and other similar type deals that are only open to select individuals.


In closing, when someone asks you to help them broker one of these deals, ask yourself this. How many real buyers on the open market are going to be sitting around with this kind of money just waiting for you to show up with a real deal? the answer is really not many.


You stand a better chance of taking a $10,000,000.00 deal and bringing it to market and getting it done. You also stand a better chance of syndicating a $20,000,000.00 deal amongst ten to fifteen people and earning a profit for putting together the deal.


I wish everyone alot of success in the business. Questions and comments are welcome.



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Not sure if you still visit this board but what you wrote is very true.  Thank you for taking the time to post.


"How to Acquire 1,000 Apartment Units in the Next Five Years and Never Work for the Man Again!"


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