April 2021 – Page 3

Why Banks Will Move Quickly to Sell Distressed Debt

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So far, the COVID-19 pandemic hasn’t spawned the waves of property distress that were initially predicted. However, once lenders can pursue remedies, Andrew Van Tuyle, senior managing director of investments for BH Properties, expects the floodgates to open for loan sales in judicial foreclosure states and situations where bankruptcy appears imminent. Speaking to an audience of the American Bankruptcy Institute, Van Tuyle, who oversees the Value Add and Bankruptcy divisions of the company, and is responsible for identifying potential acquisitions, stalking horse bids, debtor in possession financing, and other related opportunities, said that pressure from lenders or creditors or investors has been mitigated or delayed by all the government intervention programs. “So debtors have been less inclined to file because of the lack of pressure, said Van Tuyle. “When CECL [Current Expected Credit Losses] and TDR [Troubled Debt Restructuring] relief expires, borrowers will begin to experience more pressure, which should result in more bankruptcies.” Every time it appears that there will be some activity around distressed debt in the market, a stimulus package is released, which inevitably delays transactions. When loans have traded, they’ve usually been for 90 cents on the dollar or even more. The problem is that buyers expect 60 to 70 cents on the dollar, causing gridlock in the market. “The reality is though that so few deals are hitting the market, that bid sheets are as deep as they’ve ever been,” Van Tuyle said. “So either the loan sales aren’t trading, or a buyer is stepping up and getting the bid over 90 cents. “Many of these lenders and special servicers aren’t staffed to take on the sheer number of loan defaults that they have. They will probably be too overwhelmed to deal with the number of problem loans they’ll face,” he continued. In other cases, lenders don’t want to deal with the hassle or public relations fallout of foreclosures. “We don’t think that lenders are going to want to be the big bad bank that got bailed out in the last financial crisis and is foreclosing on the poor borrower that was negatively impacted by COVID at no fault of their own,” he added. Even beyond staffing crunches, servicers have other reasons to rid themselves of loans quicker than they did during the Global Financial Crisis (GFC). “CMBS 2.0 also has created some changes from the GFC that will put pressure on special servicers to move quicker than they did last time instead of milking the process,” Van Tuyle says. Add it all up, and once the government support eases up, there should be opportunities to buy, he concluded. About BH PropertiesFounded 23 years ago by real estate entrepreneur Steve Gozini, privately held BH Properties, is a vertically integrated real estate investment company focusing on the acquisition and management of a geographically and product diverse portfolio of assets. The Los Angeles-based company, with offices in Phoenix and Dallas continues to focus on value-add transactions, distressed debt, special situations and ground leases. Today the company owns and operates nearly 10 million square feet across 19 states.

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Leading iBuyer and real estate solutions provider expects to buy and sell homes in nearly 1,000 cities and towns Offerpad, a leader in modern home buying and selling solutions, continues business development and market expansion with the announcement of a new major market launch into Indianapolis, Indiana. The Arizona-based company will bring its Real Estate Solutions Center to homeowners and sellers in the Midwest beginning this summer. Offerpad’s first pitch to homeowners and buyers in the Midwest follows on the heels of its expansion into the Denver and Nashville markets last month. With the launch of Indianapolis, Offerpad’s coverage is expected to extend the company’s total availability nationwide to up to 1,000 cities and towns. “We’ve been monitoring Indianapolis for some time now. It’s one of the fastest-growing and hottest housing markets in the country,” said Offerpad’s Vice President, Strategic Initiatives, Matt Brohn. “The market’s strong economic trends including affordability, employment and population growth, and a burgeoning tech community, are encouraging. “Indy also has appealing home construction dynamics with a positive outlook and inventory, as well as a large amount of real estate transactions overall – key indicators of support for current and future Offerpad services.” What Offerpad Offers IndianapolisIndianapolis is a top-level market which Offerpad believes presents opportunity and appetite for the company’s flagship iBuyer solution, Offerpad EXPRESS direct cash offers, and its full suite of custom selling solutions, services and benefits the real estate tech innovator is known for. With a Net Promoter Score of 72, and a 93% Customer Satisfaction Rating, based on a Q4 2020 survey of over 360 people who sold a home to Offerpad, the company is set to take innovative solutions and premier services to Indianapolis real estate consumers. Offerpad’s exclusive Real Estate Solutions Center will bring new real estate options, including: Offerpad FLEX, a re-invented home listing experience which enables home sellers to list their home on the open-market with an Offerpad-employed agent and a backup cash offer, plus other customized selling features not offered with a traditional home listing such as home improvement advances and show-ready home services. 60-Day Extended Stay program, so sellers do not have to worry about the stress and rush of closing and moving on the same day. Home buying options with flexible move-in dates and the services of a dedicated transaction manager to help buyers through the entire process. Offerpad also offers homebuilders and agents in the Indianapolis area new opportunities for business growth and development through access to its Solutions Center. By partnering with Offerpad’s Homebuilder Services program, new home construction builders can use the company’s services to facilitate new-home sales at their communities. Through the company’s Agent Partnership Program, agents and brokers can receive an industry-high 3% referral fee when assisting their home sellers with a sale to Offerpad.

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Average Property Tax of $3,719 Up 4 Percent Effective Tax Rate at 1.1 Percent Highest Effective Tax Rates Remained in New Jersey, Illinois, Texas, Vermont, Connecticut ATTOM Data Solutions, curator of the nation’s premier property database, released its 2020 property tax analysis for almost 87 million U.S. single family homes, which shows that $323 billion in property taxes were levied on single-family homes in 2020, up 5.4 percent from $306.4 billion in 2019. The average tax on single-family homes in the U.S. in 2020 was $3,719 — resulting in an effective tax rate of 1.1 percent. The average property tax of $3,719 for a single-family home in 2020 was up 4.4 percent from $3,561 in 2019 while the effective property tax rate of 1.1 percent in 2020 was down slightly from 1.14 percent in 2019. The report analyzed property tax data collected from county tax assessor offices nationwide at the state, metro, and county levels along with estimated market values of single-family homes calculated using an automated valuation model (AVM). The effective tax rate was the average annual property tax expressed as a percentage of the average estimated market value of homes in each geographic area. “Homeowners across the United States in 2020 got hit with the largest average property tax hike in the last four years, a sign that the cost of running local governments and public school systems rose well past the rate of inflation. The increase was twice what it was in 2019,” said Todd Teta, chief product officer for ATTOM Data Solutions. “Fortunately for recent home buyers, they have mortgages with super-low interest rates that somewhat contain the cost of home ownership. But the latest tax numbers speak loud and clear about the continuing pressure on both recent and longtime homeowners to support the rising cost of public services.” New Jersey, Illinois, Texas, Vermont, Connecticut again post highest property tax rates States with the highest effective property tax rates in 2020 remained New Jersey (2.2 percent), Illinois (2.18 percent), Texas (2.15 percent), Vermont (1.97 percent) and Connecticut (1.92 percent). Other states in the top 10 for highest effective property tax rates also were the same as in 2019: New Hampshire (1.86 percent), New York (1.68 percent), Pennsylvania (1.64 percent), Ohio (1.62 percent) and Nebraska (1.53 percent). Hawaii, Alabama, West Virginia, Colorado, and Utah post lowest property tax rates The lowest effective tax rates in 2020 were in Hawaii (0.37 percent), Alabama (0.44 percent), West Virginia (0.51 percent), Colorado (0.54 percent) and Utah (0.54 percent). Other states in the top 10 for lowest effective property tax rates were Tennessee (0.59 percent), Nevada (0.6 percent), Idaho (0.61 percent), Arizona (0.62 percent) and Wyoming (0.63 percent). Average tax more than 10 times higher in most expensive state versus least expensive New Jersey had the highest average property tax on single-family homes, $9,196. That was more than 10 times over than the average tax of $841 in Alabama, the state with the lowest average levy. Others states in the top five were Connecticut ($7,395), New York ($6,628), New Hampshire ($6,596) and Massachusetts ($6,514). Others in the bottom five were West Virginia ($849), Arkansas ($1,147), Tennessee ($1,202) and Mississippi ($1,241). Northeast metro areas have highest effective tax rates Among 220 metropolitan statistical areas around the country with a population of at least 200,000 in 2020, 12 of the top 20 effective tax rates were in the Northeast. Those with the highest effective property tax rates in 2020 were Syracuse, NY (2.83 percent); Trenton, NJ (2.69 percent); Binghamton, NY (2.67 percent); El Paso, TX (2.66 percent) and Rockford, IL (2.62 percent). The highest rates among metro areas with a population of at least 1 million in 2020 were in Rochester, NY (2.46 percent); Houston, TX (2.44 percent); Hartford, CT (2.18 percent); Chicago, IL (2.15 percent) and Dallas, TX (2.13 percent). The lowest rates in 2020 were in Honolulu, HI (0.36 percent); Daphne-Fairhope, AL (0.37 percent); Montgomery, AL (0.38 percent); Tuscaloosa, AL (0.39 percent) and Colorado Springs, CO (0.42 percent). The lowest rates among metro areas with a population of at least 1 million in 2020 were in Nashville TN (0.53 percent); Salt Lake City, UT (0.58 percent); Birmingham, AL (0.58 percent); Phoenix, AZ (0.58 percent) and Denver, CO (0.6 percent). Property taxes increase faster than national average in 55 percent of markets Among the 220 metropolitan statistical areas analyzed in the report, 120 (55 percent) posted an increase in average property taxes from 2019 to 2020 that was above the national figure of 4.41 percent. They included Salt Lake City, UT (up 11.4 percent); San Francisco, CA (up 11.1 percent); San Jose, CA (up 10.8 percent); Seattle, WA (up 10.3 percent) and Atlanta, GA (up 10.2 percent). Other major markets posting an increase in average property taxes that was above the national average included San Diego, CA (up 10.2 percent); Tampa, FL (up 10 percent); Denver, CO (up 9.9 percent); Raleigh, NC (up 9.7 percent) and Columbus, OH (up 9.1 percent). Sixteen counties with average annual property taxes of more than $10,000 Among 1,453 U.S. counties with at least 10,000 single family homes in 2020 and sufficient data to analyze, 16 had an average single-family-home tax of more than $10,000, including 12 in the New York City metro area. The top five were Rockland County, NY ($13,931); Marin County, CA (outside San Francisco) ($13,257); Essex County, NJ ($12,698); Nassau County, NY ($12,386) and Bergen County, NJ ($12,348).

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Distressed asset auctioneer Richard Kruse of Gryphon USA said plans by the Consumer Finance Protection Bureau to delay foreclosures another nine months and create more regulations only builds pressure on consumers and the nation’s housing market. The CFPB this week announced proposed rules meant to encourage lenders and loan servicers to continue working with consumers to avoid foreclosure, pushing potential filings out to January 2022. “Trust me. I understand the intent,” said Kruse. “But the CFBP is effectively demanding an immediate and unrealistic overhaul of lending, investment, servicing and mortgage insurance industries, not understanding that the end result will be much worse with these rules than allowing the legal system work.” Nearly 13 months ago, Congress and the Trump administration agreed to a one-year ban on mortgages insured by U.S. agencies with a March 31, 2021 sunset. Certain evictions also were postponed as the Coronavirus-19 pandemic spread and millions of Americans lost their jobs. In February, the Biden administration through varies agencies extended the foreclosure and eviction ban through June 30. The CFPB, in its April 5 news release, warned that the expected surge of borrowers exiting forbearance in the fall will put mortgage servicers under strain. https://www.consumerfinance.gov/about-us/newsroom/cfpb-proposes-mortgage-servicing-changes-to-prevent-wave-of-covid-19-foreclosures/ While the independent commission tries to frighten Americans about this wave of potential foreclosures, Kruse said the proposed delay would only allow for nonperforming mortgages to be further along in default status negatively impacting the homeowner once the ban is lifted. “Consumers have been afforded a year to identify next steps and the administration is now suggesting to add another 6 months to the timeline. What CFPP doesn’t seem to grasp is that their proposal will not stop foreclosures,” Kruse said. “Call it what you want; kicking the can down the road again, sticking another finger in the dyke or stacking additional pressure behind a cork that must eventually pop.” Kruse added, “The fact remains that throwing these new rules at the problem is the very thing that will overburden the system, yet will not solve homeowners‘ financial distress but delay it. The proposed changes are unrealistic to implement and will ultimately fail, but the administration gets their hollow victory of being able to say ‘well, we tried’ while at the same time distressed borrowers get to say ‘thanks a lot for that’.” For further comment on this topic, contact Richard Kruse at 614-774-4118 or email at rfk@gryphonusa.com.

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Finance of America Equity Capital LLC (“Finance of America” or the “Company”), an end-to-end lending and services platform, and Replay Acquisition Corp. (NYSE: RPLA) (“Replay Acquisition”), a publicly traded special purpose acquisition company, announced the completion of their previously announced transaction to take Finance of America public. The combined company is named Finance of America Companies Inc., and its common stock and warrants will begin trading Monday, April 5, on the New York Stock Exchange (“NYSE”) under the ticker symbols “FOA” and “FOA.WS,” respectively. Finance of America Companies Inc. (“FOA”) enters the public markets as a highly differentiated, diversified consumer lending platform that is capable of delivering cycle-resistant earnings. Its lending businesses are supported by strong, uncorrelated secular tailwinds and include mortgages, reverse mortgages and commercial loans offered across distributed retail, third-party brokers and digital direct-to-consumer channels. FOA recently launched a complementary home improvement loan vertical with the acquisition of Renovate America’s Benji®business, further enhancing its ability to meet consumers’ financial needs at each stage of their lives. In addition to its lending businesses, FOA has a fee-for-service business as well as a portfolio management business that includes a broker-dealer and a registered investment adviser. These business lines further broaden FOA’s revenue streams and provide multiple avenues of growth. FOA is well positioned to continue to expand organically by introducing innovative new products – as demonstrated with the recent launch of EquityAvail™ – and inorganically by successfully acquiring, integrating and optimizing businesses on its platform. The successful closing of the transaction follows FOA posting another quarter of strong financial and operating performance across its multiple lines of business. FOA’s fourth quarter results for the period ended December 31, 2020, drove record full-year performance of $500 million in pre-tax income that represented 541% year over year growth and exceeded the high-end of the company’s guidance range. These results further demonstrate the power of FOA’s diversified platform, the demand for its products across its addressable markets, and the effectiveness of its asset and capital light business model. “We are excited to enter our next chapter of growth as a publicly traded company and look forward to capitalizing on the many opportunities ahead of us,” said Patricia Cook, CEO of FOA. “Our value proposition is truly unique given our proven ability to innovate and deliver complementary financial solutions that consumers want and investors value. These attributes should continue to provide us with a sustainable competitive advantage. Today’s milestone would not be possible without the support of everyone on our team who has worked diligently and passionately to advance our mission.” Brian Libman, Chairman and Founder of FOA, stated, “What started eight years ago as a novel idea to reinvent the traditional finance company model has culminated in the sustained growth of a one-of-a-kind, end-to-end consumer lending platform that is capable of meeting the full range of borrower needs while at the same time delivering strong returns for investors. I am proud and humbled to reach this point in Finance of America’s evolution, and remain as committed as ever to advancing the company’s strategic priorities.” Edmond Safra, Co-CEO of Replay Acquisition, commented, “With its broad suite of products, multi-channel distribution network, unparalleled track record of innovation and impressive financial performance, Finance of America stands out among its monoline industry peers. Benefiting from multiple growth vectors, Finance of America is redefining consumer lending in a manner that should continue to deliver compelling value to customers and investors alike over the long-term.” Ms. Cook will continue to lead FOA with the support of the company’s highly experienced management team. The current owners of FOA, which include management, entities managed by Mr. Libman, and funds managed by Blackstone Tactical Opportunities, will own approximately 80% of the combined company. Simpson Thacher & Bartlett LLP acted as legal advisor to Finance of America. Credit Suisse Securities (USA) LLC acted as capital markets advisor to Replay Acquisition. Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC served as lead placement agents and Credit Suisse Securities (USA) LLC served as placement agent for the PIPE. Greenberg Traurig, LLP acted as legal advisor to Replay Acquisition. Additional information about the completed transaction will be provided in a Current Report on Form 8-K to be filed by FOA with the Securities and Exchange Commission and available at sec.gov. About Finance of America Companies Finance of America is a diversified, vertically integrated consumer lending platform. Product offerings include mortgages, reverse mortgages, and loans to residential real estate investors distributed across retail, third party network, and digital channels. In addition, Finance of America offers complementary lending services to enhance the customer experience, as well as capital markets and portfolio management capabilities to optimize distribution to investors. The Company is headquartered in Irving, TX, and is a portfolio company of the leading global asset manager, The Blackstone Group. The company is listed on the NYSE under the ticker symbol “FOA.” For more information, please visit www.financeofamerica.com. About Replay Acquisition Corp. Founded by Edmond Safra, Gregorio Werthein and Gerardo Werthein, Replay Acquisition Corp. was formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses on industries that it believes have favorable prospects and a high likelihood of generating strong risk-adjusted returns for its shareholders. www.replayacquisition.com

Home Flipping Sales and Profit Margins Both Decline Across U.S. in 2020

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Number of Homes Flipped by Investors Decreases for First Time Since 2014 ATTOM Data Solutions, curator of the nation’s premier property database, released its year-end 2020 U.S. Home Flipping Report, which shows that 241,630 single family homes and condos in the United States were flipped in 2020, down 13.1 percent from 2019 to the lowest point since 2016. The number of homes flipped in 2020 represented 5.9 percent of all home sales in the nation during the year, down from 6.3 percent in 2019 to the same percentage seen in 2018. The declines in the number of homes flipped in 2020, as well as the portion of home sellers represented by investors, marked the first time since 2014 that both measures decreased annually. While flipping activity declined, gross profits and profit margins shifted in opposite directions. Profits rose in 2020, but profit margins dipped—the third straight year that returns on investments declined. Homes flipped in 2020 typically generated a gross profit of $66,300 nationwide (the difference between the median sales price and the median amount originally paid by investors). That was up 6.6 percent from $62,188 in 2019 to the highest point since at least 2005. But the typical gross flipping profit of $66,300 translated into just a 40.5 percent return on investment compared to the original acquisition price. The latest ROI (before accounting for mortgage interest, property taxes, renovation expenses and other holding costs) was down from 41.5 percent in 2019 and from 46.4 percent in 2018. The 2020 ROI was off more than 10 percentage points from peaks over the past decade in 2016 and 2017. The 2020 figure also stood at the lowest point since 2011. Investors saw their profit margins dip again during a year when the median value of the homes they flipped rose more slowly than the median price they paid to purchase properties—8.4 percent versus 9.1 percent. The decline in home-flipping profits marked a rare weak spot in the U.S. housing market, which otherwise boomed in 2020 despite economic damage caused by the worldwide Coronavirus pandemic. “Last year was a banner year for the U.S. housing market, with the apparent exception of the home-flipping business, which saw its fortunes slide a bit more in 2020. Home flippers did still make a nice profit on investments that generally take around six months to turn around—just not as much as they did in the previous few years,” said Todd Teta, chief product officer at ATTOM Data Solutions. “It’s too early to know if that small slide was a sign of weakness in the broader housing market or just a bump in the road. We will know much more as we gauge other key market metrics in the coming months.” Home flipping rates down in 64 percent of local markets Home flips as a portion of all home sales decreased from 2019 to 2020 in 126 of the 198 metropolitan statistical areas analyzed in the report (63.6 percent). Nine of the 10 biggest decreases in annual flipping rates among MSAs came in the South and West, led by San Antonio, TX (rate down 27.3 percent); Tuscaloosa, AL (down 25.7 percent); Santa Rosa, CA (down 24.8 percent); Brownsville, TX (down 24.1 percent) and Houston, TX (down 22 percent). Metro areas qualified for the report if they had a population of at least 200,000 and at least 100 home flips in 2020. Aside from San Antonio and Houston, the biggest decreases in flipping rates in 2020 across MSAs with a population of 1 million or more were in Indianapolis, IN (rate down 19.3 percent); Las Vegas, NV (down 19 percent) and Austin, TX (down 18.4 percent). Home flipping rates increased from 2019 to 2020 in 72 metro areas with sufficient data toanalyze (36.4 percent). The largest annual increases in 2020 in the home flipping rate came in Norwich, CT (up 38.2 percent); Hartford, CT (up 31.1 percent); Boulder, CO (up 29 percent); Albuquerque, NM (up 26.9 percent) and Anchorage, AK (up 26.2 percent). Typical home flipping returns up in 2020 to highest level in at least 15 years Homes flipped in 2020 were sold for a median price nationwide of $230,000, with a gross flipping profit of $66,300 above the median original purchase price paid by investors of $163,700. That national gross-profit figure was up from $62,188 in 2019 and from $64,000 in 2018 to the highest level since at least 2005. Among the 53 markets in the U.S. with a population of 1 million or more, those with the largest gross-flipping profits in 2020 included San Jose, CA ($274,000); San Francisco, CA ($171,000); New York, NY ($152,000); Los Angeles, CA ($151,500) and San Diego, CA ($147,750). The lowest gross-flipping profits among metro areas with a population of at least 1 million in 2020 included Raleigh, NC ($30,000); Houston, TX ($37,174); San Antonio, TX ($39,867); Las Vegas, NV ($45,600) and Charlotte, NC ($46,000). But typical home flipping returns decline for third straight year With median resale prices on home flips rising more slowly in 2020 than they were when investors were buying properties, the profit margin on the typical flip in the U.S. last year fell to 40.5 percent, from a 41.5 percent in 2019 and 46.4 percent in 2018. The typical 2020 ROI was off more than 10 percentage points from peaks during the past decade of 51 percent in 2016 and 2017. Among metro areas with a population of 1 million or more, the biggest decreases in profit margins in 2020 were in Jacksonville, FL (ROI down from 52.2 percent in 2019 to 39.4 percent in 2020); Richmond, VA (down from 84.4 percent to 73.6 percent); Cleveland, OH (down from 108.2 percent to 98.5 percent); Birmingham, AL (down 65 percent to 58.6 percent) and Pittsburgh, PA (down from 133.8 percent to 128.1 percent). High-level takeaways from fourth-quarter 2020 data The 51,993 home flips in the fourth quarter of 2020 were completed by 43,929 investors, a ratio of 1.18 flips per investor. The share of homes