As reported in the Wall Street Journal, earlier this week, a residential-land company named LandCap Partners bought $40 million of distressed loans from Wachovia Bank. These loans, which were made to home developers in several different states, have a book value of approximately $80 million.
Wachovia’s incentive here is to remove these loans from its books and raise capital, and LandCap’s incentive is to sell the foreclosed property to different home builders.
Of the deal, Jefferey Gault, head of LandCap, says, “We get it off their balance sheet, and we take on the management duties. It’s the best of both worlds.”
Wachovia is offering up far more than those LandCap bought- roughly $350 million in distressed loans. Furthermore, its percentage of delinquent construction and land loans rose from 7.7 in the first quarter to 9.4 in the second quarter.
According to the research firm Zelman & Associates, U.S. banks may write off between $65-165 billion in bad construction and land asset loans over the next five years. As this trend continues, we’ll likely be covering this in numerous blog posts here
LandCap, in addition to other investment ventures, intends to buy more of these type of loans.
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