Does this explain why home prices are temporarily rising?

REO/Foreclosure inventory kept off the market?

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As part of the Fannie Mae’s SFR REO 2012-1 offering of eight sub-portfolios of residential real estate owned (REO) properties, including tenant-occupied units and vacant single family residential properties, Fannie Mae awarded three of the sub-portfolios – Florida Southeast, Florida Central / Northeast, and Florida West – to Pacifica L 47, LLC (Pacifica), a diverse-owned investor, in a structured sale transaction.

On September 6, 2012 (Closing Date), Fannie Mae sold to Pacifica an interest in the equity cashflows of a newly created limited liability company (SFR 2012-1 Florida LLC, or LLC) which holds 699 properties transferred to the LLC by Fannie Mae. Fannie Mae has retained an interest in the equity cashflows of the LLC. Pacifica is the Managing Member of the LLC, responsible for managing the operations of the LLC.

The equity interest retained by Fannie Mae (Initial Member Interest) entitles Fannie Mae to receive 90% of the distributions to LLC equity until Fannie Mae has received $49,313,402.64 (Shift Threshold), after which Fannie Mae is entitled to receive 50% of the distributions to LLC equity. The equity interest purchased by Pacifica (Managing Member Interest) entitles Pacifica to receive 10% of the distributions to LLC equity until the Shift Threshold has been distributed to Fannie Mae, after which Pacifica is entitled to receive 50% of the distributions to LLC equity1. In addition to receiving distributions on its equity interest, Pacifica will also receive an asset management fee of 20% of gross rental income actually collected, with such fee to be used to compensate Pacifica for managing the entity and provision of asset management and property management services. The purchase price paid by Pacifica for the Managing Member Interest was $12,328,350.66, which resulted in an estimated transaction valuation to Fannie Mae of $78.1mm, or 95.8% of Third Party Valuation (as described below).

A Working Capital Reserve to finance working capital expenses and a Replacement Reserve to finance property maintenance, repairs, and improvements were funded upfront by Fannie Mae and Pacifica and over time by cashflow generated by the LLC.

The transaction is designed to promote home price stability, improve quality of housing stock, and enhance rental inventory of markets by utilizing a rent and hold strategy. During the initial three year period of the venture, the number of properties that may be sold is limited, and the sale price for any property sold by the LLC during such time must meet or exceed a related minimum price threshold. Further, all properties must be maintained in accordance with applicable legal standards and requirements.

In order to assure a smooth transition for existing tenants, Pacifica provided a property management transition plan detailing steps to be taken in connection with their assumption of property management responsibilities from existing property managers. To assist tenants with credit repair, the LLC will offer HUD-approved housing and credit counseling to current and new tenants free of charge.

Fannie Mae will receive periodic reporting and business plans from the LLC and Pacifica, and, together with a third party verification agent engaged on Fannie Mae’s behalf, Fannie Mae will monitor certain activities of the LLC.

Credit Suisse was Financial Advisor to Fannie Mae on the Fannie Mae SFR REO 2012-1 offering.

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