|
|
Post by rationalinvestor on Sept 17, 2020 21:48:03 GMT
And it is not clear to me what happens if a mortgage goes bad? Does the property get switched over to HRAC? Or does the HMIC get stuck with the property to sell or complete it's self, in which case we're back where we started! , this is a very good question. If a mortgage goes bad as it did and it will in this business, the property is not switched to HRAC that, in the new structure, will be wound up. The properties taken as settlement of debt we'll stay in HMIC mixed with the mortgages, which in other posts are referred as "clean assets". The obvious results is that the current investors will have real estate in both HRAC and HMIC as they do today. Take a look at the the status provided in July 2020 and you'll find out on page 1-2 that HMIC already has defaults: - 6 mortgages out of 45 (13%) are in default - 4 files are currently in litigation, which we'll end up with new real estate assets taken as settlement of debt This example based on the updates received from HE clarifies the "clean assets" debate: the mortgages, also referred as performing assets because they generate our dividends, are clean at a certain moment in time, but for various reasons a perfectly "clean", performing mortgage could go wrong and then run into default. - you are correct. That's the business HE is in - the shoulder market. High rate mortgages to borrowers that banks won't lend to for various reasons. Some of them go bad and the lender (HE) hopefully has sufficient collateral in the property to recover our capital. Romspen was referred to earlier — they have this happen all the time and at significant levels. It's expected. What Romspen does have is a strong ability to take over a property and derive value from it. Net: mortgages will still go bad. They'll remain in the MIC. Each of us needs to make the investment decision based on whether we believe HE has the skill to manage this, especially now that important lessons have been learned and the package of properties has largely been cleaned up. If you don't believe that, you should be happy the opportunity will be there to redeem at a 90% NAV. |
|
|
|
Post by nemesis on Sept 17, 2020 22:23:11 GMT
harry , this is a very good question. If a mortgage goes bad as it did and it will in this business, the property is not switched to HRAC that, in the new structure, will be wound up. The properties taken as settlement of debt we'll stay in HMIC mixed with the mortgages, which in other posts are referred as "clean assets". The obvious results is that the current investors will have real estate in both HRAC and HMIC as they do today. Take a look at the the status provided in July 2020 and you'll find out on page 1-2 that HMIC already has defaults: - 6 mortgages out of 45 (13%) are in default - 4 files are currently in litigation, which we'll end up with new real estate assets taken as settlement of debt This example based on the updates received from HE clarifies the "clean assets" debate: the mortgages, also referred as performing assets because they generate our dividends, are clean at a certain moment in time, but for various reasons a perfectly "clean", performing mortgage could go wrong and then run into default. - you are correct. That's the business HE is in - the shoulder market. High rate mortgages to borrowers that banks won't lend to for various reasons. Some of them go bad and the lender (HE) hopefully has sufficient collateral in the property to recover our capital. Romspen was referred to earlier — they have this happen all the time and at significant levels. It's expected. What Romspen does have is a strong ability to take over a property and derive value from it. Net: mortgages will still go bad. They'll remain in the MIC. Each of us needs to make the investment decision based on whether we believe HE has the skill to manage this, especially now that important lessons have been learned and the package of properties has largely been cleaned up. If you don't believe that, you should be happy the opportunity will be there to redeem at a 90% NAV. I am just going to add a little color commentary to the bolded statement. These mortgages were supposed to be short term mezzanine financing for developers who haven't proceeded far enough into a project to get regular bank financing. Hence, short term - months, not years. As soon as the builder/developer has reached a preliminary level of progress, they are then supposed to pay back this short term mortgage and go to a bank for the balance of the funds required to complete. Somewhere along the line, this short term financing proposition seems to have been lost. If the builder was never intending to get out of the mezzanine high interest loan, then of course he was going to be underwater early in the process and had to hand over the real estate in lieu of paying off the mortgage. |
|
harry
Junior Member
Posts: 15
|
Post by harry on Sept 18, 2020 2:35:20 GMT
and management assured me they only gave the borrower enough cash to buy materials to get to the next phase of the project. Always leaving enough value to get our money back if they defaulted. That seemed to go out the window as the projects got bigger.
|
|
|
|
Post by rationalinvestor on Sept 20, 2020 15:30:52 GMT
In the last update received today, HE indicates in two places (page 3 and 4) that "There will be a minimum redemption of $1M/monthly based on available capital" which contradicts the statement made in 3 places in the Information Circular, including in the Declaration of Trust: “total amount payable by the Trust in respect of such Units tendered for redemption in the same calendar month must not exceed $1,000,000 (the “Monthly Limit”). I am totally confused: is $1M/monthly the Minimum paid to redemptions or the Maximum? I’ll place an inquiry, but in case somebody finds out first, please, please, share the finding Thx I have an answer for the apparent (but not real) conflict. The language reads as follows (I emphasized the parenthetical part in red italics): That just means they reserve the right, like all similar funds, to limit redemptions in any month. That's smart for the rest of the investors who don't want assets discarded at a big loss (or even worse, go insolvent) to satisfy the subset of redeemers. Every fund wants to do things in an orderly way, as should their investors. Nevertheless, they're also saying they have the cash in place to handle redemptions of $10M immediately and also believe they can handle at least $1M a month thereafter. So no conflict. One is about the reasonable right and practice as a fund. The other is about current plans and expectations. For those of you who see only darkness in anything that HE says or does, you can likely still take them to court if they don't follow through on their intentions, especially the "immediate" $10M). So as I see it, voting for their proposal is the best chance I have of being made whole and being able to at least redeem some of my holdings in the near future. |
|
