As the US economic downturn began to take shape in 2008, many funds began scanning the landscape to position themselves to steal a distressed asset deal. Consequently, being financially positioned to take advantage of a down market, all the funds had to do was wait a little while for the banks to begin unloading distressed properties. Undoubtedly lenders would need to clean house and divest themselves of bad debt now sitting on their books. However, the thirty-cents-on-the-dollar deals just didn’t materialize. What happened?

Two major factors came into play that changed the landscape.

1. New changes in governmental regulations allow banks to leave the asset values “as-is” without incurring additional write-downs
2. The Federal Reserve’s monetary policy allows banks to borrow at close to zero interest

As banks made new loans or perhaps simply invested in treasuries, big profits are the results. Thus, the banking industry is recapitalizing and will soon be better able to write-down the bad loans. As we gradually move thru the recovery, book values and market values will improve and become more aligned with one another enabling the banks to sell their loans and not adversely affect their balance sheet or impair book values of similar assets.

Today, we are beginning to see many of the advantageous loan terms originated in prior years begin to mature. In some cases, floating rate or interest-only terms are beginning to expire. New opportunities are developing in the market place. As values have bottomed and are looking to rise, lenders will become more motivated to dispose of distressed assets. As these factors come to bear on financial decisions, we expect distressed assets to reach the market in greater and greater numbers throughout 2010 and 2011. For those who have been patient, the opportunity to invest in distressed assets at prices that make sense to the buyer and the seller will become more common.  Click here for full report…