DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1285898
73 To pick the right operating partner, you want to look at track record and history. You don't want to partner with someone who is just building a platform for this particular environment. a short-term dislocation in the market. No matter what, we're not catching a falling knife, as we used to say when we bought NPL back in the 2008 crash. In the 2008 crash, it was a race against the clock to liquidate or get assets re-performing because home values were dropping so quickly. Low interest rates also provide stability in a distressed marketplace. Low interest rates keep the housing market active, thereby creating liquidity as we put homes back on the market for re-sell. Interest rates are at historic lows and they are not expected to increase anytime soon. Steady home values, low interest rates, and an elevated unemployment rate have created a very stable distressed investment landscape. e distressed market is usually accompanied by an unstable environment susceptible to swings the marketplace similar to what we saw in 2008. Today is a great time to be in the distressed asset space. ere are going to be plenty of opportunities, and we have a stable financial market. However, finding the right operating partner who has the experience and track record to manage assets in this type of environment can make or break your investment strategy. CHECKLIST FOR YOUR OPERATING PARTNER Fresh-faced and eager "distressed asset managers," thinking of the distressed space and the opportunities when jumping from one industry to another, sometimes decide that this is a great time to deploy capital and get outsized returns. ose managers generally miss the opportunities with many of them not surviving the current cycle, let alone the next one. To pick the right operating partner, you want to look at track record and history. You don't want to partner with someone who is just building a platform for this particular environment. You want to look for a partner that is in this space indefinitely. Here's a checklist for the investor looking for the right operating partner: 1. Track record. e asset manager should have been in existence for several cycles, not just created for the current environment. 2. Infrastructure. Nationwide counterparty, attorney, servicer, legal, broker, and contractor networks. 3. Technology. Technology that creates transparency and risk management is required in this asset class. e asset manager must have a way to manage a high volume of data and counterparty relationships. 4. Strong Balance Sheet. ere should be a decent amount of assets under management or on the balance sheet. 5. Experience in Structuring Different Types of Deals. ere should be a diverse history of successful deal structures depending on the investor's interests—either joint ventures, LLCs, trust, or Reg B formats. Louis Amaya co-founded and is the CEO of PEMCO Capital Management. PEMCO Capital Management provides an institutional platform for investors to gain exposure in niche sectors within the distressed residential mortgage and real estate markets. Over the firm's history, PEMCO Capital Management has supported the acquisition and management efforts for prominent commingled and single-investor family offices, hedge funds, institutional investors, and private equity funds. PEMCO is now launching a Reg D fund to allow retail investors to participate in the fund's institutional platform. Amaya is also the founder and host of Capital Markets Today, a podcast focusing on real estate and mortgage capital markets.