Market Opportunity

During the first quarter of 2011, Turnstone Group LLC acquired a diverse portfolio of real estate owned (REO) assets from a regional financial institution, which included approximately 550 vacant, developed residential lots (VDLs). The dramatic economic downturn coupled with the overly optimistic pricing and absorption projections of both developers and lenders caused many projects to fail and fall under the control of the banks. Accordingly, banks were holding an inordinate and increasing amount of residential related land and non-performing notes (NPLs), while at the same time, facing pressure to shed underperforming assets. Further, the few builders that were purchasing lots at that time preferred to acquire lots on extended “take-downs,” where the lots are purchased piecemeal when needed and just before new home construction. Because most banks prefer to sell broken residential subdivisions in bulk rather than piecemeal and because few other buyers were interested in residential land, a dislocation occurred between the price and the actual value of the in-place infrastructure.

Strategy

Turnstone Group LLC identified and made contact with the owners, which were primarily banks, in its targeted markets that held a large share of the residential land and VDLs. In addition, Turnstone Group LLC secured a relationship with a private equity firm that provided access to capital, affording it the ability to act quickly when presented with opportunities, which were often time sensitive. Finally, Turnstone Group LLC developed a network of outside service professionals to enhance deal sourcing capabilities as well as to facilitate best practices on all post-acquisition matters in order to ensure that value maximization and optimal exits are achieved.

Results

Since the initial acquisition within its residential land and VDL platform in March of 2011, Turnstone Group LLC has completed REO and NPL transactions with 46 separate financial institutions, consisting of more than 18,000 VDLs and 19,000 “paper lots,” located in the following states: Alabama, Arizona, Florida, Georgia, Illinois, North Carolina, South Carolina, Tennessee, and Virginia.