In the hunt for individual investors for his distressed real estate investment trust, William A. Shopoff knows you have to go well beyond schmoozing on the country club greens to find them. You have to beat the bushes.
“Otherwise, you might eliminate a suspect,” says Shopoff, whose Irvine, Calif.-based private real estate investment company, The Shopoff Group, is raising capital to invest in distressed real estate one investor at a time.
For scores of privately held home builders bent on making a run for survival to a day when profitable home sales once again become the backbone of the business, no time in memory could be more critical. Bank lending for residential construction, acquisition, and development is currently in nuclear winter, and a theoretical treasure trove of anticipated institutional private equity cash is sidelined until land-asset-related “blood in the streets” reaches knee-high proportions. With neither Wall Street nor commercial lenders—nor certainly Capitol Hill—to turn to for a cash lifeline, home builders and developers find that they must trace back to many of their capital roots—local investors with a stomach for real estate gamesmanship—to structure or replenish a capital base to weather what remains of the late-decade meltdown in new housing.
Consider two of Shopoff's investors, one likely, and the other seemingly not so.
Henry DePhillips, 48, is a physician who works in health care information technology. “I use my day job to generate funds to put in my real estate investments,” he says. “It's certainly a passion.”
DePhillips, who lives in Delaware, has his own commercial investments, but he invested in Shopoff's real estate investment trust after meeting him at a real estate mentoring program and spending time researching his background and track record.
“The bottom line is I have high faith in him,” DePhillips says. “His due diligence list is several pages and hundreds of items long.”
If DePhillips is Shopoff's Yang investor, meet the Yin.
Lois Goodman–a self-proclaimed hippie and intuitive from Austin, Texas, who makes a modest living from her small real estate investments and by giving psychic readings–cleaned out her 401(k) shortly before the stock market went south and handed it over to Shopoff to invest in his real estate investment trust. She also sold her self-storage property and invested the $400,000 in profits in the Shopoff Group.
“The bottom line of it is [Bill's wife] Cindy is one of my best friends, and Bill is one of my dearest friends,” says Goodman. “It's because of Bill and Cindy that I have a house.”
In 1990, Goodman was earning $24,000 a year keeping track of bullets for the National Guard when she went to Bill's wife, Cindy, a Realtor, with her $5,000 life savings and the hope of buying a house. Cindy convinced her to put the money down on an $82,500 fourplex on a park in Austin. Resistant at first, because she really wanted to live in a single-family home, she capitulated when Cindy told Goodman she only had to live there one year. Within two years, Goodman bought the house of her dreams and the revenue from that fourplex has paid her home's mortgage ever since.
“Because of Bill's advice for me, because of him and Cindy, my entire life changed,” she says.
Individual investors, once the angels of home building past, have reemerged to become a last-resort location of capital to buy bottom-priced land or to keep a home building company afloat.
“The country club, call it friends and family, call it almost angel investors, those types are probably the only [investors] who are left,” says Jamie Pirrello, CEO of Vision Homes USA. “The reasons it makes sense: They are invested in their community already; they are familiar with the company through being a part of the community; and they will look to invest some money on a deal-by-deal level.”
The state of the stock market is a help and a hindrance. On one hand, the plunge in equities markets has made many investors look for another, perhaps more tangible place to put their investments. On the other, the money they have left to invest has fallen by a third or a half.