Buying into distress

Homebuilder Ryland Group and locally based hedge fund Oaktree Capital are joining forces in a new firm that will acquire and develop distressed residential real estate projects. The new company will provide the necessary improvements and eventually sell the projects as finished lots. A number of investors who specialize in distressed assets have been looking to capitalize on the current real estate market in various ways. From Reuters:

Rival builder Hovnanian Enterprises (HOV.N: Quote, Profile, Research) announced in September that it was forming a joint land-buying venture although it later said broader economic turmoil had caused some potential partners to put their plans on hold. Luxury homebuilder Toll Brothers (TOL.N: Quote, Profile, Research) said in late January that it is seeing more distressed land deals on offer and that it had two under active consideration. Meritage Homes (MTH.N: Quote, Profile, Research), the No. 12 U.S. homebuilder, amplified that sentiment last week, saying the pace of attractive land deals coming to market is "accelerating right now dramatically."

This week, in an interview with the Business Journal, Oaktree Chairman Howard Marks says of the downturn: "Well, our clients have lost a bunch of money and we’re not happy when that happens. This constrains their activities, including their ability to invest with us. On the other hand, they generally lost far less with us than with others, and we’re very fortunate that our main investment areas, which are distressed debt and credit generally, are the areas which I think are perceived now as the areas where people should invest. So that’s a plus for us."