IPOs Focused on Financials

NEW YORK ( TheStreet -- The IPO market is certainly tilted towards online offerings, but some offerings from financials are on the way.

While Yelp ( YELP), which compiles online reviews for local businesses, came out of the starting gate strong with a 63.9% return from pricing, the Cayman Island's Home Loan Servicing ( HLSS) dropped 1.7%. Three financial sector companies are hoping to launch this week, bringing a focus on real estate and the mortgage market. Last week, Provident Mortgage opted to postpone its deal, highlighting the uncertainty facing financial initial public offerings.

National Mortgage Holdings ( NSM) is the largest as it tries to raise $300 million which it can use to make acquisitions. National Mortgage is a residential mortgage servicer that earns fees for taking mortgage payments from borrowers and sending them to the mortgage owners. It is the largest non-bank servicer in the U.S. but it faces competition from banks with much lower costs. It has to follow the guidelines of the government-sponsored enterprises like Fannie Mae ( FNMA), and unfortunately, it doesn't get all the government subsidies the GSEs receive.

National Mortgage also has increased costs as a result of no exemptions since it isn't a depository institution and it could also be adversely affected by implementation of Dodd-Frank.

That other companies can provide these services with a lower cost structure is what troubles IPO Desktop President Francis Gaskins. He is concerned that investors could get into this IPO thinking that National Mortgage is making millions for holding mortgages. The company did generate a profit of $21 million in 2011, a swing from a year-earlier loss of $10 million, but that was from selling mortgages, not the fee-based business. If National Mortgage has trouble selling mortgages that will affect its profitability.

While National Mortgage is dealing with foreclosures and mortgages, Select Income REIT ( SIR) is enjoying sunny Hawaii. This REIT gets 68% of its income from Hawaiian property rentals, which reset periodically, and the rents, on average, increase 30%.

SIR is a spinoff from Commonwealth REIT ( CWH) and the proceeds from the $176 million offering will go to paying back the parent. Commonwealth REIT will still retain 73% of the company. Gaskins said if an investor is looking for income, then SIR would be a good fit; if the investor is looking for gains in the stock, then he should look elsewhere. SIR is expected to make a 7.3% payout and the payments look secure. Gaskins pointed out, however, that the parent Commonwealth has a 9.6% payout.

The growth for Select Income will come from taking advantage of real estate opportunities now as there is less competition from well-capitalized investors. But that cuts both ways, as SIR is affected by declines in tourism in Hawaii. Investors in SIR will be making a stand on a strong rental market in Hawaii. If the economy continues in its recovery, then more people will be heading to Hawaii.

Crescent Capital ( CCFG) is the third financial company that plans to go public as it tries to raise $125 million. The shares are expected to price at $15.

Crescent Capital is planning to buy a portfolio of $75 million in junk bonds from Trust Company of the West . Crescent's structure is a little different in that is it a business development corporation. It is a registered investment company and is taxed like a REIT. REIT's pay out the income from real estate properties and Crescent will pay out the income it earns from its junk bonds. However, Crescent doesn't know its expected payout.

Gaskins suggested investors go with an established BDC, like Apollo Investments ( AINV) or Blackrock Kelso ( BKCC). He is also concerned that Crescent said it had $11 billion in assets when TCW spun it off, but lately it said it only has $9 billion.

"Just where did that $2 billion go?" asked Gaskins.

CCFG Advisors seems to do pretty well in the deal. CCFG will pay CCFG Advisors a 2% management fee and a 20% incentive fee and give CCFG Advisors stock at the closing.

--Written by Debra Borchardt in New York.

>To contact the writer of this article, click here: Debra Borchardt.

>To follow the writer on Twitter, go to http://twitter.com/wallandbroad.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.