Some folks say they are seeing small, but encouraging signs that sophisticated investors are kicking the tires of so-called toxic real estate assets still languishing on big banks’ balance sheets. Joel S. Telpner, a structured finance lawyer with Mayer Brown in New York says that hedge funds and private equity clients are starting to ring him up to talk about the best way to acquire these assets.
The current government programs that sponsor private-public partnerships to price, buy and invest in these assts is “no panacea and helps at the margins,” says Telpner. “But the flip side is that last week alone I talked to three clients about new investment strategies. People seem to be feeling more comfortable in coming up with a valuation. I’m not the only lawyer starting to see activity in this space. That’s encouraging.” A lot of these clients are tapping Telpner to discuss the possibility of “unstructuring” current mortgage-backed securities from existing investment bundles and moving them into other buckets where they might be able to garner better value and visibility. What’s more, Telpner says a lot of these investors say they won’t be seeking the rating agencies’ seal of approval on the new deals. Rather, there seems to be new interest in “boutique” deals that have been through rigorous stress tests and assessments, with no hidden surprises of what’s lurking in the pool of underlying assets. “You can be assured that they’ll be underwritten with tremendously tough standards,” says Telpner.