Canadians are snapping up foreclosed homes in the U.S. Southwest. Is it the opportunity of a lifetime, or a disaster in the making?
In her form-fitting power suit, in a beige-toned Calgary hotel conference hall, Nancy Bacon greets a crowd of would-be real estate investors with a question: “How many people in this room like to be told what to do?” Bacon, VP of financial planning development with CBI Group, is flattering the Calgarians in their after-work jeans, who like to think they don’t need Sarah Palin to tell them what a maverick is. And CBI is pitching a scheme only mavericks could love: invest a minimum $10,000 in a foreclosure acquisition fund created to make massive real estate purchases in one of the worst-hit subprime cities in the United States—Phoenix, Ariz.
As of February, prices there had fallen 35.2 per cent in a year, and by slightly more than half from their peak in June 2006, according to the S&P/Case-Shiller index. That annual decline is the worst in the country. One in 40 Phoenix homes received foreclosure notices in the first quarter, according to RealtyTrac, which monitors U.S. foreclosure data, the country’s ninth-highest rate—visible on the desert cityscape as discrete patches of unwatered browns amidst a checkerboard of green lawns.
Despite those stomach-churning stats—indeed, because of them—CBI’s Arizona Acquisition Fund of Alberta is aiming to raise $12.5 million to purchase 175 single-family homes around Phoenix. It uses local intelligence, sending teams of scouts at 4 a.m. to assess lender-owned properties slated for auction the next day. A Phoenix property management company will rent the homes—some to the very families the banks have foreclosed upon—for the next five to six years. Then CBI will sell, raking in the appreciation. Investors get six per cent a year on their money and 60 per cent of the net profits.
Read Nicholas Köhler’s full article “Vultures in the desert” in MacLeans (May 25, 2009).