Housing market’s woes hurt Desert Capital REIT
The annual report of Henderson-based Desert Capital REIT, a publicly reporting hard-money lender in Southern Nevada, shows just how awful the real estate sector turned in the wake of last year’s subprime home-loan debacle.
Desert Capital does business as a real estate investment trust, relying on short-term mortgage loans secured by real estate, to generate income for shareholders.
Hard-money lenders, like Desert Capital, are the cutting edge of risky real estate ventures, making loans secured by raw land, developments and construction projects. Investors are attracted to hard-money loans because the loans typically earn double-digit interest rates. The average interest rate was 13.4 percent at Desert Capital.
But risks came with that high return.
The ink ran red in 2007, according to Desert Capital’s annual report or 10-K, which was filed with regulators Monday.
The company lost $21.8 million or $1.35 per share, in 2007, reversing a $14.2 million profit, or $1.06 per share, in the prior year. Desert Capital foreclosed on properties with original loan balances totaling $42.9 million.
The company sold $11.5 million of the repossessed real estate by financing the buyer. Desert Capital sold $4 million of real estate for cash.
The REIT reported $143.5 million in mortgage loans at the end of 2007, down from $150.8 million a year earlier. About two-thirds of the loans were secured by real estate in Nevada, but the company had loans secured by land in other Southwestern states, too.
Because of foreclosures, Desert Capital held interests in six properties worth $15.7 million at year’s end. Desert Capital had $38.7 million in 43 loans from nine borrowers, which were classified as nonperforming loans.
“During the fourth quarter, the nationwide tightening of the credit market created a lack of funding to purchase new homes, which caused the collateral values supporting many of our properties to become impaired,” Desert Capital said in the report.
Share sales decreased during the year to $2.4 million in the fourth quarter from $9.9 million in the first quarter.
Another Southern Nevada REIT, Vestin Realty Mortgage II, had a better year. The Las Vegas-based REIT earlier reported profit of $16.9 million, or $1.14 per share in 2007, up from $15.9 million, or $1.06 per share, in the prior year.
Vestin II recorded a $3 million provision for potential loan losses, down from $5.5 million in the previous year. The REIT held $30.6 million in nonperforming loans. It had $336.2 million in assets, of which $278.2 million was invested in real estate loans.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.