What’s going on with Illinois’s distressed bank assets behind the media headlines? Where are the best bank REO and non-performing loan note deals hiding? And what trends indicate the best strategies for realizing the highest returns?
Illinois real estate – particularly Chicago homes – is a hot topic at the moment. Chicago may have arrived unfashionably late to the rebound party, but that suggests better gains and discounts for value-seeking investors.
However, while the Windy City works on getting its mojo back many distressed property and debt investors have found a mixed bag of cheap foreclosures, boast-worthy returns, and plain-old frustration. Many have had a tough time making sense of the headlines, contrasting them with what they are seeing on the ground, and fighting off competition from bloated hedge funds and giant private equity firms.
Illinois banks with REOs and non-performing loans have begun reporting their figures for the third quarter 2013. So what do the numbers reveal that is really going on, and where should investors be hunting for the most profitable deals?
The Data Illinois Distressed Debt and Property Investors Need to Know
Entering the 3rd Quarter 2013, Illinois lenders held an incredible amount of distressed bank assets.
According to IL banks reporting for June 30, 2013 via BankProspector:
- Illinois had almost $2 billion in bank owned REOs as of June 30
- Illinois banks were sitting on almost $2.7 billion in late and non-performing residential loans
- The bulk of defaulting residential loans on 1-4 family units were considered in the “1st Nonaccrual” stage
- There were an additional approximate $3 billion in non-performing commercial and construction loans among 547 Illinois banks
According to the figures reported by 204 Illinois banks at the end of Q3 2013:
- The state has only a modest percentage of residential REOs at 15.43%
- The bulk of current bank owned properties are split between construction and commercial REOs
- The bulk of commercial and construction late loans are in the final stages of foreclosure
- The majority of non-performing residential loans are in earlier stages of default
- There are over $100M in 1-4 family first mortgages 30-89 days late
Of those already turning in their figures…
Top 10 Illinois Banks with Non-Performing Residential 1st Position Loans
- Honey Savings Bank
- First Community Bank and Trust
- First Collinsville Bank
- Edgebrook Bank
- First Federal Savings Bank
- Suburban Bank & Trust Company
- Harvard State Bank
- Spring Valley City Bank
- State Bank of Illinois
Top 10 Illinois Banks with Non-Performing Multifamily Loans
- Suburban Bank & Trust Company
- Edgebrook Bank
- The National Republic Bank of Chicago
- First County Bank
- Great Lakes Bank
- Gateway Community Bank
- Peoples Bank of Kankakee County
- CenTrust Bank, National Association
- Parkway Bank and Trust Company
- Highland Community Bank
September 2013 Statistics from the Illinois Association of Realtors:
- Statewide home sales rose 19.8% year-over-year
- Median home prices rose 12.9% for the 12 months through September 2013
- Chicago sales volume rose 25.6% year-over-year
Chicago Specific Statistics:
- Median sales price up 22.6%
- Home inventory down 27.5% to 8,849 units (MLS)
- DOM down to 50 days from 72
- Condos represent the highest sector for residential sales and price growth with a median sale price of $273,000
- Median sales prices for city single-families stood at $175,000
- Properties are still selling significantly below 2008 highs
Further the NAHB/First American Leading Markets Index for Chicago PMSA reports local activity levels 25% under previous highs.
Crain’s reports almost 26% of Chicago homeowners have free and clear properties.
Opportunity Watch: Which Direction are Real Estate Trends Blowing in the Windy City?
While the digits all show Illinois’s real estate market heading in the right direction with plenty of distressed debt and property in the pipeline to fuel investors, what other trends are at play?
1. Sweet Deals on Chicago’s Celebrity Real Estate
It isn’t clear where the celebrities have fled, but there continue to be sweet deals on famous homes coming to market. Recently we’ve seen a castle listed for just over $1M, Michael Jordan’s 56,000 square foot mansion go to auction, a second six-figure price cut on the Ferris Bueller home, and R. Kelly’s crib going for $400k (down from $3.8 million in 2011).
The one not-so-shiny statistic in the state and Chicago continues to be unemployment. While forecasts are for more job growth the expected gains aren’t much to brag about. This suggests a longer and more drawn out economic recovery. With this in mind, the best investment strategy seems to be fast flips or hunkering down for the long, long run while collecting passive income.
3. Foreclosure Fuel
It looks like the foreclosures keep on coming, and with government aid and mortgage settlement money drying up many units in this new round of defaults are likely to go the distance unless they are scooped up as short sales and notes early. There is little worry about these properties slowing momentum, thanks to huge demand, but it is wise to take a close look at the comps and pending foreclosures in the close proximity when making acquisitions.
4. Little Guys Beating Off Bigger Players with Sticks
The David-versus-Goliath scenario stills seems like a daily battle on the streets of Chicago for smaller investors. According to complaints in popular online real estate forums hedge funds and private equity firms are still a major force in the local market and are buying wild, and paying above asking prices.
On the bright side, these larger players have been pretty vocal about the fact that they are embracing new strategies which should both alleviate this frustration and provide more liquidity and credit for small investment firms and individual investors.
Perhaps in the interim it’s easier to go around them and look to condos, higher-end homes and non-performing notes than attempting to go head-to-head.
Want more detailed data on the Chicago, Illinois market and to find bank contacts for picking up REO and mortgage note deals? Try out BankProspector today.