Hedge Funds Eye New Orleans Real Estate Market

by Carla Johnson, Investors Offshore.com

14 September 2005

Anticipating a resurgence in the New Orleans property market assisted by federal grants, hedge fund managers are preparing to buy up portfolios of mortgages in the hurricane-stricken area, according to Dow Jones Newswires.

With many homeowners in the region - particularly those financed by sub-prime loans - unable or unwilling to honour their mortgages, hedge funds are said to be betting that big rewards will come their way as a result of buying up these assets from regional banks and loan companies.

The report tells of one hedge fund manager located in the South East of the United States who is in the process of raising a fund to invest specifically in distressed mortgage debt in the region. The manager, who chose to remain anonymous, also revealed that there is plenty of competition for distressed mortgages, and several hedge funds are reportedly considering making a move on real estate in New Orleans.

However, with much of the city still under water, and with the scale of the damage to property yet to be fully assessed, others noted that the long term economic situation remains very uncertain and something of a gamble for hedge funds, which, typically, tend to focus on shorter-term gains.

There are also potential legal obstacles to consider, according to John Burchett, chief executive of Hanover Capital Mortgage Holdings Inc., which invests in mortgage-backed securities.

"Economically it is hard to determine where the values are going to be - there is too much uncertainty," he told Dow Jones.

Burchett also noted that some hedge funds may be reluctant to swoop into the New Orleans property market for ethical reasons, fearful that they would be seen as profiting from the distress and hardship of the hurricane's victims.

"It's not the right thing for us to be doing," he stated.

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