PPR Capital Management’s Relationship Manager, Patrick McClatchy, recently presented a webinar on alternative investments, focusing on mortgage note investing as a strategic diversification tool. The session addressed the significant growth in interest in alternatives by retail investors and provided practical insights into PPR’s approach to this asset class. Here’s an overview of the insightful discussion.
The Alternative Investment Landscape
The make-up of the retail investment landscape has shifted dramatically, with U.S. retail investors contributing $122 billion into alternative investments in 2024, surpassing previous records, according to Robert A. Stanger & Co. Inc. Analysts project that retail investors will fund over half of private market capital by 2027, reflecting sustained momentum in this arena. Recent surveys conducted by Business Wire indicate that over one-quarter of Americans plan to invest in alternative assets, with active investors willing to allocate an average of 25.7% of their portfolios to these investments, representing potential inflows of $1.3 trillion.
Understanding Mortgage Note Investing
Patrick’s presentation examined mortgage notes, legal documents in which house borrowers formally agree to repay specific amounts to lenders under defined terms. Note investing offers several distinguishing characteristics, including passive management, backing by real assets, portfolio diversification, and discounted purchase prices that create value opportunities.
PPR’s typical bulk note purchases range from $25-100 million, targeting properties with home values between $350,000 and $450,000. The firm focuses on first-position liens located throughout the U.S., providing geographic diversification within the portfolio. PPR’s strategic approach thus creates flexibility to maximize returns based on each asset’s unique circumstances, consistently delivering strong returns across varying market conditions and hold periods.
Exit Strategies and Performance
The webinar detailed two primary exit strategies for loans that are not current in their repayment plans, generally referred to as non-performing loans: resolution through borrower reperformance and resolution through property acquisition and sale. Patrick shared two case studies demonstrating these approaches.
The first example, a property in Lindenhurst, New York, was acquired for $65,655 and, after working successfully with the homeowner in restructuring the loan terms, sold as a reperforming loan for $78,391, generating a 28% gross cash-on-cash return over a 7.6-month hold period. The second example, a mortgage held on a Crownsville, Maryland property, was acquired for $321,995 and being unable to restructure the loan with the homeowner, it was ultimately sold as a real estate property for $481,500, producing a 22% gross cash-on-cash return over a 21-month hold period.
Strategic Portfolio Positioning
The session reinforced PPR’s disciplined approach to identifying alternative investment opportunities, in this case, real estate-backed, that balance diversification benefits with ongoing risk management. As retail investors continue evaluating options beyond traditional markets, understanding the characteristics and execution strategies of alternative asset classes remain essential for informed investment decisions.
