HWNI Flight to Quality in ARE Fixed Income Fund, Ltd(BVI) 9.5% and ARE Opportunity Fund, Ltd (BVI) 19.53% Sept 2008, Using Their Proprietary Value Method Whole Loan Mortgage Investing System

Share Article

ARE has noticed a contrarian trend of high net worth investors investing $1 million to $2 million through their family office managers, self directed IRAs and wealth managers understanding true value investing in whole loan mortgages has not changed. The once in a hundred year opportunity is here and the proven methods of how our ARE strategy and funds continue to generate successful returns in 2008 and have done since inception 12 years ago continue to produce exceptional solid returns. ARE Fixed income Fund, Ltd.(BVI) ARE Opportunity Fund, Ltd.(BVI) and ARE Strategy, which has $133.7 million under management and growing and has transacted, traded or liquidated over $1.4 billion of assets since 1996.

The 2008 Fixed Income Fund, Ltd(BVI) paid its monthly dividend 1/12 payments annualized 9.5% and ARE Opportunity Fund, Ltd(BVI) for 2008 is averaging 18.84%, and for the Month of September 2008 ARE Opportunity Fund, Ltd(BVI) Returned 1.57% or 19.53% annualized.

ARE Fundamentals - No external leverage, no prime broker accounts, no second lien paper, no equity, no sub-managers. All 1st mortgage and REO bought at deeply discounted levels, and a smaller amount of senior performing loans against commercial real estate assets. 2008 represents the best environment since 1982 for ARE strategies and systems of returns on investment.

1.] ARE: Low volume, consistent returns through loan re-performance: Most of the returns in the ARE Opportunity Fund are created by buying pools of delinquent and defaulted residential mortgage loans from banks at deep discounts to the underlying real estate values and getting the borrowers to make payments again by modifying the terms of the loan in their favor. Our greatest strength comes from getting loans to re-perform in this manner, holding them for income or selling them back to the capital markets. This is central to the returns in the latest fund since launch on May 30: (net performance in June, July, Aug was 1.59%, 1.89%, and 1.47%, respectively). ARE has been running this strategy since 1996 for high net worth international families, and from 2004-2007, per a recent accounting study for an investor due diligence program, we have returned 16.5% net, with no down months.

2.] At ARE we see that the future of mortgage banking looks like its past: The market has put blind-lending behind us, and we have returned to perform old-fashioned credit analysis on a homeowner just like home mortgage lenders used to do. The primary difference between the task we face and the old-fashioned lender is that someone let these homeowners into the house before conducting the credit analysis, which changes considerably the modus operandi! Once borrower, asset, and financing prove to be mismatched, the inevitable symptom of delinquency and default cries for treatment that banks are ill-equipped to dispense, now in unprecedented numbers.

3.] ARE is able to administer the treatment to cure bad loans once a bank (seller) has elected to take a sizable loss: Having acquired loans at deep discounts, once the possibility of borrower re-performance has been eliminated, what comes next in our process calls for a breadth of expertise such as we have developed in "loss mitigation". Effective "Loss mitigation" implementation is generally at odds with a bank's culture and goal of being a repository for performing loans; renegotiating with your borrowers is also seen by bankers as a slippery slope. After failed re-performance on the loan we will often look to offer a "deed in lieu" or a "keys for cash" program for a quick resolution and to avoid a prolonged, full-blown foreclose action against the borrower, and decimation of the borrower's credit rating.

4.] At the point we have the keys in hand- what sets us apart: ARE is also a more efficient steward of foreclosed property than banks can be: We are efficiently looking to sort properties even before we have the keys. In areas with a certain trajectory of employment growth, combined with low levels of real estate owned by banks, we look to effect a quick sale, targeting an IRR in the low-to-mid twenties. Where we see a shortage in supply of rental properties or high levels of unsold homes at prices making a quick sale unlikely, we enter the home into a rental program, very often to the former owner. What has earned us the respect of our peers is our ability to profitably transition sfh's to rental properties. While nationally the US made a hard run at getting over 69% home ownership, we are in a pullback on that front, and will have a need to ride out a period of home ownership retrenchment. ARE, from 12 years of experience in non-performing loans, knows enough to be able to "dance between the raindrops" and avoid markets where profitable loan disposition is difficult to achieve, or to discount bids in such markets appropriately.

5.] In the worst of local markets, simple rules apply: 1. We keep REO occupied, preventing "board-up" of foreclosed property whenever possible (and the 10%-15% min loss in property value that goes with it).

6.] When targeting a house for entry into a rental program, if we cannot achieve a mid-teens return, we attempt entry of that asset into a federal or state program whereby a majority of the rent payment is guaranteed by a federal or state entity (e.g. Housing Choice Voucher Program, which is a type of federal assistance provided by the United States Department of Housing and Urban Development (HUD)).

7.] Turn over assets whenever possible: 12 years of coming in and out of markets with discipline teaches us lessons about the economic stability of neighborhoods, local job markets, etc. These are lessons we can always re-apply on subsequent opportunities. Thoughtful entry of each market or loan with an eye towards one of 10 paths* for potential disposition/resolution, experience, expertise, and willingness to pursue all 10 is the key that allows ARE to preserve capital and consistently outperform more casual distressed real estate investors.

*10 paths* for potential disposition/resolution:
Keys for cash-Rental conversion
Keys for cash-Open market Sale
Keys for cash-Government sponsored rental
Deed in lieu-Rental conversion
Deed in lieu- Open market Sale
Deed in lieu- Government sponsored rental
Full-foreclosure- Rental conversion
Full-foreclosure- Open market Sale
Full-foreclosure- Government sponsored rental
Loan Modification- Homeowner retention & loan re-performance

ARE PROMOTIONAL NOTE TO: Financial Brokers, IFA, Family Offices or ARE Independent Reps can earn prorated commissions against ARE advisory and performance fees of up to 20% of capital invested. And due to market conditions of the unprecedented spread in the whole loan sector and our need to maximize returns, we have a promotion on our commissions around our 6 year 9.5% Fixed Income Fund, Ltd. Class A shares with an additional 2.5% Fee paid-out at .05% over five years and for our Opportunity Fund on AA Shares 5 years with an additional 3% of capital invested paid net 30 days. For more information.

For those interested in password access to the secure offerings on our website please Contact: Clifton Onolfo, Managing Director at CliftonOnolfo@arecapital.net + 1 786 838 9700 http://www.arecapital.net     * IFA's and Brokers ask for the CVO Long Term Investment ARE Representative Promotion Kit. This investment opporutnity is for non-US Residents and US Residents investing through non-US Entities.


Share article on social media or email:

View article via:

Pdf Print

Contact Author

Clifton Onolfo
Visit website