Vestin Group’s two real estate investment trusts, which make short-term loans secured by real estate, have disclosed that borrowers are late in making interest payments on more than two-thirds of their total loans, surprising industry professionals already reeling from Southern Nevada’s credit crunch.
“This increase in problem loans is a direct result of the deterioration of the economy and credit markets,” Michael Shustek, chairman and CEO of the two REITs, said in a statement late Wednesday.
Shustek said the company is “working aggressively to resolve these loans” but he said “near-term operating results are likely to suffer.”
Company officials declined to elaborate.
Vestin Realty Mortgage II reported $201.3 million, or 70 percent, of $288 million outstanding loans were not current on interest payments. The company counted 24 loans that are nonperforming.
The smaller of the two REITs, Vestin Realty Mortgage I, reported that $41.5 million, or 77 percent, of its $54.1 million in loans are not current. The company counted 18 problem loans in the portfolio. Shustek has said he doesn’t know how many investors own shares of the two publicly traded REITs.
The Vestin companies reported on June 27 that they were suspending dividends.
“I have (on paper) lost most of my life savings,” said Kurt Sipolski, a Vestin investor who has polio and lives in Palm Desert, Calif. Sipolski blamed Shustek for advocating the conversion of the funds into REITs. In an e-mail, the investor said his lawyer asked Vestin for a settlement.
Other real estate lenders also are struggling. Cetus Mortgage, a hard-money lender in Reno, ceased operations, the Mortgage Lending Division reported Thursday. Information was not available from the state about the amount of real estate loans at Cetus or the number of investors involved.
Cetus is one of the largest construction lenders in the Reno area, said Cathie Jackson, manager of Mortgage Options in Carson City and a friend of Cetus principal Marcie Benvin.
Benvin decided to close the business because of he large number of delinquent construction loans, Jackson said. She said Benvin and Michael Whitaker, vice president of regulatory compliance at Vestin, always sought to protect the interests of their shareholders.
The Reno-Carson City economy is more diversified, more stable and stronger than the once-booming Las Vegas market, Jackson said.
Many Nevada hard money lenders are renting foreclosed homes and apartments rather than trying to sell them at deep discounts, said Leo Davenport, owner of GFD Investments of Las Vegas, said. The lender should take legal action to take rental payments of properties as soon as foreclosure proceedings start, he said.
“This is a very tight market, and, unless you’re willing to really cut those suckers down (in price), you’re probably not going to sell them,” Davenport said.
With loans on raw land, “you’re going to sit on it,” Davenport said.
Despite dire news reports about real estate loans, “I think we’re on our way back,” Davenport said.
It’s difficult to obtain information about Nevada’s hard-money lenders because most are privately held and only disclose their financial information to the mortgage division, which has refused to disclose information about them in the past.
However, Desert Capital REIT of Henderson files public reports with the Securities and Exchange Commission, and Desert Capital also is dealing with numerous problem loans.
In the quarter ending March 31, Desert Capital reported that $59.2 million, or 46.7 percent, of its total loan were nonperforming, up 37 percent at the end of 2007. Desert Capital’s net income fell to $806,000 in the first quarter from $3.9 million in the same period last year.
An investigator said the California attorney general’s office is getting “a zillion” of complaints from investors who purchased fractional interests in real-estate secured loans, the Los Angeles Times reported Tuesday.
Vestin said that many of its loans started to go bad in June. Vestin II said that nine loans with $92.2 million in principal became delinquent during the last week of June. The company said seven loans totaling $56.7 million are more than 90 days delinquent.
Vestin I reported that eight loans totaling $19.9 million became delinquent in the last week of June. Vestin I counted seven loans for a total $16 million that have been delinquent 90 days or more.
Vestin II shares fell 27 cents, or 8.57 percent, to $2.88 on the Nasadaq Global Select market on Thursday. Vestin I shares decreased 5 cents, or 3.11 percent, to close at $1.56 on Nasdaq GS.
Contact reporter John G. Edwards at email@example.com or 702-383-0420.