Today we're joined by Dave Van Horn, CEO and President of PPR Note Co., veteran real estate investor, and author of Real Estate Note Investing.
PPR Note Co. focuses on distressed, non-performing notes. The company has done over 9,000 acquisitions and dispositions of these notes.
A non-performing note is one that isn't paying, and a performing note is one that is paying. There is different vocabulary for the stage of the note, such as sub-performing, and other terms that classify the notes. A sub-performing note would be a note that is generally late and may received payment 9 or 10 months of the year.
Dave became interested in non-performing notes as another way to gain exposure to a distressed real estate product. With distressed debt, these are often properties that come from a foreclosure or a Sheriff's sale. From an investor standpoint, at first, Dave liked the idea that there was something to buy at a discount with a yield that had collateral. These notes are passive income that are backed by real estate. In some ways, this is easier to scale. Banks have figured this out - why do banks own millions of mortgages instead of millions of homes?
Senior lien mortgages have more predictable outcomes and a higher rating than junior liens. Junior liens are a bit riskier and are more difficult to manage.
PPR Note Co. Funds
PPR has an 8% Income Fund and a 6% Liquidity Fund.
The 8% income fund is primarily non-performing loans with all different returns and margins. They pay a higher yield but have a higher rate. The 6% liquidity fund is more liquid, falling from 6 months to 3 years in length. This fund is primarily backed by re-performing loans. The loans are packaged up in bulk and sold. The assets themselves are very liquid, generally between 60 and 90 days after maturity. PPR Note Co. caps investors at $1MM. This prevents one entity or individuals from dominating a fund or becoming over-exposed to a fund.
Current Environment with Evictions and Moratoriums
PPR has been selling more notes than normal during this time, but is still operating with some consistency. Debt may be a bit safer than hard real estate, despite a robust residential real estate market. It's still a sellers market on the residential market, a bit different from commercial. Much of this is driven by cheap capital and cheap debt. Despite high values, the cheap capital available can provide appeal. For Dave, unemployment is the single largest driver. Dave is keeping an eye on unemployment, government stimulus, and statewide legislation on evictions and moratoriums.
Learn more about Dave and his work: https://pprnoteco.com/