Private Equity Readying a Run on Foreclosures

By Diana Olick, CNBC Real Estate Reporter

NEW YORK (CNBC) -- As the Obama administration and federal regulators work on a program to sell government-owned foreclosures in bulk to investors, those investors aren't wasting any time stockpiling cash and buying foreclosed properties at auction and from the major banks.

Oakland, California-based Waypoint Real Estate Group, a major acquirer of so-called "REO to Rental" (Real Estate Owned) just announced a partnership with a private equity firm, Menlo Park, California-based GI Partners, to buy foreclosed properties.

GI Partners has approximately $6 billion of capital under management, according to its Web site.

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"Our approach to buying distressed single-family houses, renovating them, and leasing to residents who are committed to a path to future home ownership is a viable solution to our nation's housing crisis," said Colin Wiel, managing director and co-founder of Waypoint in a press release. "Our partnership with GI Partners ensures we can take the next step in our company's evolution."

GI is taking an increasingly popular bet on distressed real estate, closing on a $400 million fund with Waypoint, which has plans to purchase $1 billion in distressed real estate assets over the next two years, according to its release. Waypoint already owns nearly 900 single family rental homes in California.

This deal is clearly a sign of things to come, as millions of distressed properties will likely come to market over the next few years. As reported Monday on CNBC , the conservator of Fannie Mae and Freddie Mac is working with the Obama administration on a plan to sell not just the quarter of a million foreclosed properties already owned by the GSE's, but hundreds of thousands more in the pipeline heading to foreclosure.

Waypoint is likely positioning itself to be a player in a government bulk REO program. When the Federal Housing Finance Agency (FHFA) last August put out a request for information regarding what to do with all the foreclosed properties on the GSEs' books, Waypoint filed a response. Those responses are so far not public.

Other private equity firms, such as Greenwich, Connecticut-based Carrington Mortgage Services, are working on deals with major banks to buy foreclosures in bulk. Carrington says it is planning to invest nearly $1 billion in foreclosed single-family homes and turn them into rental housing.