The Wall Street Journal tags LandCap Partners' $40 million purchase of a package of real estate loan assets from Wachovia in late August as nothing less than "an early sign that investors are starting to pounce on the billions of dollars of troubled land and construction loans that banks are looking to unload." There is no shortage of people who crave the first evidence of a tide of hoped-for liquidity to start taking heaps of non-performing loan assets off the hands and balance sheets of beleaguered banks.

LANDCAP'S LAND GRAB: LandCap Partners CEO Jeff Gault recently pounced on $40 million in Wachovia real estate loan assets. Photo: Jaime Windon Still, in almost four weeks following the LandCap-Wachovia deal, no cascade of transactions took place. As a matter of fact, no other significant non-performing loan portfolio deals occurred. Why? Too soon.

Word from one of Big Builder's trusted insiders–who's sitting on some of the billions in funds poised to do that pouncing–is that it's still too early to talk of making a move. For those who've got real money ready to go to work in the space to commit to the assets that are available, either as parts of bank real estate NPL portfolios or among distressed builders, two events need to occur to indicate stabilization, which, to date, is non-existent.

One is that the trends in delinquencies, defaults, and foreclosures need to stop worsening. Another is that inventory, including real estate owned inventory, needs to top off and begin to measurably decline.

Until then, our insider says, "paying a low-ball number, or even paying zero, might be stupid," as it's still impossible to value many assets. "We're digging, and there's just nothing of interest in the NPL portfolios, just a bunch of cats and dogs."

That said, LandCap CEO Jeff Gault's move to lead a joint venture ownership and take over management of 2,900 lots in Arizona, California, Florida, and Illinois, as well as other selected portions of the Wachovia portfolio, "could absolutely be something he can make money on," with the relationships he has and operational skills he brings into the mix, according to our industry source.

Gault explains that he's sticking with A and B location/land acquisition basics as he cherry-picks the asset portfolio–short commutes, good schools, parks, infrastructure, and infill locations. "We're going to start to be able to sell in the second half of 2009," says Gault. "Obviously, some markets will recover sooner, and others not until 2010."

LandCap bought into 10 communities, including a fair amount of raw land that LandCap will finish. "We've got lots in communities that were selling for $130,000 two years ago that we got for $40,000, so I feel pretty good about what we got," Gault says. It may not actually signal a tide of transactions, though. Distress is spreading, and even as foreclosure rates are climbing, commercial loans slip into non-performing status at an increasing rate. The moment for vultures to wrap those talons around their prey is still not here.

–John McManus