Among those offering services aimed at helping market participants sell or buy distressed whole loans is Cantor Fitzgerald, New York.
“Cantor Fitzgerald as a whole is known for execution,” said Jason Kopcak, head of whole loan trading at Cantor Fitzgerald, in a recent interview at the company’s New York offices. “Our approximately 250-person sales force is known for trading and distribution.”
“Specifically, our whole loans group doesn’t take positions. Typically, people are calling us for color on the whole loan market. We know who trades what, who is buying what, why they’re buying it, what’s their sweet spot.
“We understand the trends in each asset class. In whole loans, you can have commercial, you have bank quality, you have nonperforming. We trade the full spectrum. We deal with all institutions and we know, for the most part, who’s trading what and why they’re trading it.
“It’s a big advantage because a lot of competitors that we deal with don’t really have the market defined. Whereas we, for the most part, know who’s buying what so we can reach out to defined markets and be very targeted in our approach.
“What separates us [from the competition] is that our whole loan team is from various points of the buy side market. We understand how to evaluate an asset; whether it’s ADC multifamily, mixed use, or single family; it doesn’t matter if it’s a charged-off second lien. We understand all the different impediments to getting a trade done.
“When our clients come to us, whether it’s insurance companies, banks, hedge funds, we can properly assess that asset, relative to where it’s going to trade in the market, relative to other trades that have been going on in the market,” Kopcak said.
“We can give our clients a very definitive price point for their assets, whether it’s a pool, whether it’s a one-off, we can tell them where it’s going to trade and provide them with a lot of confidence,” he said.
“We’re not going to take an asset to market unless the bank is confident that they are able to execute based on the price we provide them. So very often that’s very discerning for us vs. other competitors.”
Kopcak said “quite often” a bank will give Cantor their entire distressed portfolio “and we’ll price it on a loan-level basis and it will be a mixed bag of assets, it will be performing vs. nonperforming, it’ll be commercial real estate, mixed use, office, retail, industrial as well as residential.
“It can be various types of residential first liens, second liens. It could be litigious liens. It could be deficiency judgments. The full spectrum is given to us. We can price out their entire portfolio and develop a very strategic and accurate approach.”
“It’s very laborious,” he added, noting that “it may take several months to get the assets ready for sale.
“There are less geographic-specific pools trading due the fact that buyers are less capitalized,” Kopcak also noted.
“In 2010, we’ve seen everything. A lot of single-family residence notes, and not as much REO.” He said there were “a lot of distressed notes out for sale, as well as commercial that year.
“We’re seeing a pickup in supply. In early 2011, there was a pickup in trading activity with performing and reperforming assets.
“One trend we’re starting to see now with banks is that their position has strengthened. Banks are looking to reduce their exposure of noncore, nonperforming and reperforming assets.
“What the banks are finding is that trading whole loans is more of a process than expected.
“I think in 2011 even though a lot of banks could maintain the assets and manage them, they’re not in the business to do distressed asset management. Some banks want to unload and want to reduce their exposure.”
As far as pricing, Kopcak said the capital pent up in the distressed space is causing a run-up in prices. “From late ’08/’09, we saw prices increase approximately 20%-30%, usually 10 to 15 points if not more in different asset classes.
“In early to mid-2010, we saw private equity and hedge funds pair up with specialized asset management people and asset managers with very specific knowledge,” Kopcak said. “They might be a specialist in multifamily or a specialist in hospitality…So these funds can be more aggressive in their pricing, in bidding. In late 2010, we saw banks and insurance companies step into buy performing legacy whole loans.
When asked if any assets are still “dead in the water” and do not trade, he noted that second liens and charged-off second liens still hadn’t been trading at the time of the interview.
“We are seeing more ADC, more land trading,” Kopcak said. “In ’08 there was no market for land or ADC paper. We’re seeing more of it though not as fluid as hospitality and multifamily since there is still a large price disparity.”
