Dallas, TX

Former executives of SunCal and Rockpoint Group have formed a company that will buy distressed single-family housing developments.

The Dallas-based firm, CoastOak Group, plans to form a series of joint ventures that will buy projects in the markets hit hardest by residential overbuilding: Phoenix, Las Vegas, Southern California, Florida and suburban Washington.

CoastOak will primarily target finished and partially finished developments and improved lots. It will also consider buying loans on distressed projects and will recapitalize cash-strapped owners of older developments.

CoastOak is headed by Don Carroll and Greg McGowan. Carroll most recently was a partner at SunCal, a development firm based in Irvine, Calif. He spent a year at the company, leaving after it was forced into bankruptcy when its major lender, Lehman Brothers, imploded in September. Before that he had stints at Archon Capital and Lone Star Funds.

McGowan spent the past 12 years as a principal at Rockpoint and its predecessor, Westbrook Partners. Most recently, he oversaw Rockpoint’s residential land investments.

CoastOak is seeking returns of at least 25% and anticipates a 3- to 4-year hold period.

It will act as operating partner of the joint ventures and will collect management fees. Those fees and the profit-split structure will be negotiated on a deal-by-deal basis with its partners. Carroll said he has been talking with more than a dozen potential joint-venture partners, including real estate investment funds, private equity groups and hedge funds.

Carroll anticipates that acquired projects will generally exceed 200 units. The group expects to buy directly from lenders that have already taken over the projects or have begun foreclosure proceedings. CoastOak will not use leverage, unless there is assumable financing. CoastOak will finish partially completed projects and sell them in phases.

Because the single-family residential market has been battered longer than the commercial sector, residential projects are closer to hitting price bottoms, making CoastOak’s timing attractive, Carroll said. The labor-intensive nature of operating and turning around residential developments has scared off many institutional players, which should contribute to outsized returns, he said.

CoastOak has four other staffers, including three of SunCal’s former Dallas executives. Carroll expects to hire several more principals with expertise in the local markets the firm is eyeing for investments.

Source: Real Estate Alert