The time is right to buy houses, the Alaska Permanent Fund Corp. thinks.
It will soon be buying hundreds, if not thousands, of foreclosed properties, said Executive Director Mike Burns.
The permanent fund’s board of trustees, meeting in Anchorage last week, decided to make a bold move into some of the nation’s most distressed housing markets, from San Diego to Tampa.
“We are going to places that have been hit the hardest,” Burns said.
The idea, he said, is to buy foreclosed properties and rent them out while waiting for the real estate markets to improve. That should provide both ongoing income, and further profits when they’re later sold.
“We see the market has attractive pricing now,” he said.
The initial investment will be $400 million, about 1 percent of the $40 billion fund.
Some of the properties will need additional work, with most likely needing paint and carpet, he said, but “we’re not in the fixer-upper business.”
Burns said he recently toured some properties in Tucson, Ariz., and found a variety of conditions.
In one house, the former owners had removed both the dishwasher and garbage disposal, he said.
In another, though, it appeared as if the departing owners had prepared it for sale to new owners.
“The garage door openers were sitting on the kitchen counter, they’d cleaned the place — kind of breaks your heart, honestly,” Burns said.
In some cases they won’t know the home conditions until just before or after purchase, depending on jurisdictions.
“There’ll be a surprise in a lot of these houses,” he said.
Some of the houses available are in very nice neighborhoods, he said. The locations of the available houses will be one of the key factors in deciding which ones to purchase, he said.
The board this week gave conceptual approval to the new strategy, but the deal still needs to be finalized.
Burns said the new investment strategy wasn’t market timing, something the fund doesn’t do, but a recognition that various factors have made sales prices drop below what the single-family houses are worth.
“We are really looking for anomalies in the market,” he said.
That shows up in how the investment will be categorized internally, as part of the funds “special opportunities” bucket, rather than its more traditional “real estate” investments.
“When we created the allocation to special opportunities, the purpose was to create room within the fund where we could take advantage of unexpected investment opportunities such as this single-family homes strategy” said Bill Moran, who is both the board’s chair and president of Ketchikan’s First Bank.
Moran said the shift in consumer interest from owning to renting presented the fund with a “unique opportunity.”
The fund won’t own or purchase the homes directly, but will instead make an investment of up to $400 million in American Homes 4 Rent LLC, which already owns 1,000 single-family homes, said Laura Achee, spokeswoman for the fund.
Burns said he expects it to take as long as two years to make the purchases, and from 5-7 years before they’ll be sold.
This isn’t the first time the permanent fund had tried to make money from the housing crisis, Burns said.
When mortgage-backed securities dropped in value the fund purchased some and saw them rise in value as the housing market stabilized, he said.
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