FirstService Corporation: REO Assets Should Go to Investors

In response to the Federal Housing Finance Agency's request for information regarding how the government-sponsored enterprises should handle their REO asset disposition, FirstService Corp. supports the idea that large-scale REO sales should go to institutional investors who have management infrastructure.

The Austin, Texas-based property management and leasing services provider, which is the parent company to Field Asset Services, TenantAccess, Colliers International and First Service Residential Rental Management, said the Obama Administration should also pursue investors across a diverse spectrum of size, geography and not-for-profit affiliations.

Paul Hayman, CEO of TenantAccess, said scale and speed-to-market are critical requirements when considering potential investor partners and strategy to reduce the GSEs real estate owned inventory.

“There are many institutional and private investors with access to capital but initializing the management of a local market housing strategy that includes a diverse and scattered property portfolio can present significant logistical challenges,” Hayman added.

To avoid these challenges, FirstService is recommending that the FHFA develops a national set of standards for valuations, assessments and improvements that servicers would have to comply with. The company also believes the FHFA should create nationwide policies for renter service, property habitability and neighborhood stabilization.

If these rules are implemented, investors of all sizes can manage larger portfolios across diverse geographies, the firm said, relieving the GSEs of their REO inventory more efficiently and equitably.

“Successful management of a property and its renters as well as the preservation of a property are essential elements to ensuring long-term value of an investor's portfolio,” Hayman said. “Having local knowledge and expertise coupled with national resources capable of executing a diverse, property-by-property plan within the context of data-driven strategy, is the best way to achieve stability and liquidity.”

The government currently owns about 210,000 properties, which makes up nearly half of the overall REO inventory across the country. Analysts are projecting foreclosures to rise in the upcoming months and into 2012, which will only cause the REO rate to grow significantly in the future.

“In order for the administration to successfully reduce this number, it's essential that the guidelines enacted create an equal playing field for investors of all sizes, local or institutional,” said Toni Moss, CEO of AmeriCatalyst. “One way to ensure fairness and equality is to establish national standards that address every step of the distressed lifecycle from property assessment and acquisition to management and future disposition.”

FirstService also proposes performance management and third party auditing at both the property and investor level. By providing objective, relevant and timely information reporting to the FHA, an integrated “checks and balances” system is enabled that can be uniform across the entire portfolio, FirstService said.

Besides gathering the proper information to ensure properties and their renters are being managed correctly, the reviews also will offer the FHFA the ability to avoid renter abuse and bring greater steadiness to communities throughout the country.

“FirstService's intent is to provide alternatives that are practical, scalable and attractive to all parties in the pursuit of maximizing property value and stabilizing neighborhoods,” Hayman said.