Understanding REO Assets in the PPR Portfolio 

Background on REO

REO is a type of real estate that most people have heard of but don’t fully understand. Since REO is an important part of PPR’s portfolio, we wanted to explain what it is and how it works inside our business model. To that end, we interviewed our resident REO expert, Amy Stavin, and excerpted her answers below. Let’s jump in…

REO (which stands for “Real Estate Owned”) refers to the class of real estate properties that have gone through foreclosure and now belong to the bank, lender or asset management company that owns the mortgage on the property.

In our case, we often take ownership of an REO property as a result of taking vacant properties through the foreclosure process.

REO serves an important role in PPR’s portfolio given that sales of REOs, along with loan sales, provide consistent and significant revenue to our fund.

Interview with Amy Stavin, Director of REO Asset Management

We recently sat down with PPR’s Director of REO Asset Management, Amy Stavin, and asked her to explain the REO vertical, her role at the company, and how this asset class best serves our portfolio and ultimately our investors.

So, Amy, let’s start with you: what’s your role at PPR and your background?

“I’m the Director of Asset Management, so I work directly with REO brokers around the country to liquidate any of our single-family residential properties. I determine individual exit strategies for our assets, help determine bid pricing, and provide valuation for underwriting future purchases.

My background is in Real Estate, first as a licensed Real Estate agent and most recently before joining PPR, I had worked for over 6 years as a Senior Asset Manager at Spurs Capital, Inc. where I not only managed non-performing loans and REO assets, but also recruited and managed a team of field agents throughout the state of New Jersey.”

Great! What is the REO process at PPR? How does it work?

“First, we acquire a package of non- performing loans (NPLs) directly or indirectly from government agencies (such as HUD, Fannie, Freddie, etc). Recently we’ve primarily purchased reverse mortgage loans without any living borrowers residing in the properties.

Then, after purchase, they all need to go through the foreclosure process in order to clear title. Step one for us is starting the foreclosure process. Then if there are any heirs to the property, you want to give them the opportunity to pay off the unpaid principal balance and take title to the property. In most cases though, each asset goes through the foreclosure process and then to auction as a REO property via the sheriff’s sale.

Can anyone buy at the sheriff’s sale? And how are assets priced?

“Yes, anyone can buy at auction. And usually, by law, you can only set the required bid for the amount of the loan’s unpaid principal balance (UPB). So for instance, if we purchase an asset for $150,000, and the UPB of the mortgage is $225,000, the highest we can set our bid at the sheriff’s sale is $225,000. 

At the sheriff sale, if our bid isn’t met, it reverts back to our company as an REO property. Meaning now it’s a piece of real estate owned by PPR. And this is where I come in since I’m responsible for liquidating these assets.

What’s your goal on the exit?

“What I try to achieve when I sell an REO is at least an 18% IRR (Internal Rate of Return), meaning an 18% return after considering all expenses related to acquiring and managing the asset all the way through to sale. And I can tell you that in the last quarter for disposition, we were averaging 24.4% ROI (return on investment).

Wow, that’s really good. Now what’s your outlook for this area of the industry as we head into 2024?

“At PPR, every month we sell between 5 and 15 REOs, so it’s an important source of ongoing revenue for the company. We’re currently averaging between 99% and 101% of our asking price for the REOs, with multiple purchase offers, which is very strong. Fortunately for us, the supply-demand imbalance is keeping housing prices high despite the recent interest rate increases, so we expect the ROI on this asset class to continue to be strong for the foreseeable future. I’m very optimistic that we’re going to continue to see great returns on our single-family REO properties.”

Wrap Up

Clearly, Amy is excited about the positive prospects for REO sales into next year, and we at PPR believe that we’ll continue to benefit from the current seller’s market.

We hope you enjoyed learning more about this important asset class!

Final tip: If you’re an individual investor considering adding REO as a potential source of real estate, you’re invited to register as an REO buyer here. We often send out via email our featured REO properties for sale via our affiliate, Foundation CREF. 

Have a question about passive investing in a real estate fund? Schedule a no-obligation call with the Investor Relations team.