[Note: To follow is an excerpt of an interview with David O. Kingston, Chairman and CEO of Kingston Companies, an Idaho Falls, Idaho privately held group of 25 enterprises with a concentration in real estate development, agriculture, and power generation; Michael Anderson, Founder and co-owner, Nate Hanks, Co-Owner and Blaine Walker, President, all with RealSource in Salt Lake City, a commercial real estate provider of a full menu of institutional level services and products to help the entrepreneurial real estate investor invest well. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/052709.]

Mosca: The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the US financial system by ensuring deposits in banks and institutions for at least $250,000. Since the start of FDIC insurance on January 1, 1934 no depositor has lost a single cent of insured funds as a result of a failure. Over the past 20 years there have been a number of failed banks, an average of nine a year throughout the United States. However, as of March 1, 2009 there were 29 failed banks this year alone. Why did you decide to get involved with FDIC and invest in distressed assets?

Kingston: As you look around at investment opportunities you realize there is a huge slowdown in the acquisition or buying and development of raw property. FDIC assets appear to be the best investment vehicle to preserve, accumulate or make profit.

Mosca: Is working with the FDIC a straightforward process or is there a complex series of rules and regulations one needs to understand in order to successfully steer through to secure these types of packages?

Anderson: We are an investor with the Kingston Group. There was a process that they went through and there are defined rules that they have to follow as a fiduciary responsibility both to the FDIC but more importantly to the taxpayers.

Kingston: The real key with the FDIC is that normally they give you a very short time horizon in which to qualify. In this case we had just a few weeks to put together a package, to show our qualifications, to submit a bid and then we just have a few days to post 10% of your bid and a few weeks to close. It takes an incredible articulate team to put these kinds of bid packages together and ultimately win the bid. It's something the timing has a lot to do with.

Mosca: This team that you referred to is the team that we have on the air with us right now. You are talking about the Kingston Companies, RealSource, and various other members of this particular team. Right Dave?

Kingston: In this case that team actually predates some of our current partners. It was a group of Kingston employees that put the package together and then submitted it. Once we were the winning bidder than some of our partners joined us. In fact, that's when most of like I said the requirement to fund this happens very quickly and that's when the rest of the group got involved subsequently.

Mosca: There are a number of assets that the FDIC actually offers investors from failed banks like loans, real estate, and even things such as office equipment, furniture, computers, copiers, printers, all of these different things. For the purposes of our show here today, can you tell our listeners at about the package that you have?

Kingston: It’s a package of distressed loans and some performing loans, and a lot of raw land. Our package is primarily in five states -- Utah, Nevada, Arizona, Idaho, and Arkansas. It consists of a lot of raw land and developments in various stages, some hotels, mini storages, some office buildings, some apartment buildings, golf courses, and a variety of similar assets.

Mosca: What are the opportunities that exist for investors right now?

Walker: The opportunities for the investor are to purchase loans that are below the original market value. It provides an opportunity for an investor to get in and purchase a loan depending on their interest level whether it's a subdivision, lot, or multiple lots, or some houses as Dave has indicated. There are office buildings, a few mini storage units or just raw land. So, it depends on the investor and what their interest level is and the type of property they are looking for. They come in and make an offer that the group would then evaluate and decide whether or not it was one they are willing to accept. We’ve seen a realization of anywhere from as high as 60%, 74% of the original loan value which gives a tremendous opportunity for an investor to come in and purchase a property or the note at way below the original appraised value of the property. Most of these loans were obviously less than the original appraised value so they may be 80% or 70% of the original loan value. Most of them have personal guarantees by the borrowers so give the investor and opportunity to come in and make an offer on property that they are interested in and buy those notes substantially below what their original value was.

Mosca: That sounds like it is a win-win for everyone involved. Can you talk to us about the win-win situation that this creates?

Hanks: The biggest win-win is that several parties are involved: the FDIC, the taxpayer, the investors who have invested in this project and then the possible opportunities for investors looking to buy notes. Many people can be helped on this as long as they are able to expose these notes and get them out there to the general public and get them to an end user that is most interested in taking care of that asset.

Anderson: I’ve been through this process before in the late 80s and early 90s with the Resolution Trust Corporation. Anyone who has been around the business for that long realizes that there was a tremendous resetting of property values in the country and all of that spelled doom and gloom for a lot of people that were invested prior to that hyper inflated condition. My biggest remembrance of that is the opportunity that presented to everybody that had cash and had the ability to invest after that time. I think there was more money made in the three or four years after the 1989 collapse of the S&L and the Resolution Trust Corporation coming in and selling off those assets. I know several people that made tens of millions of dollars during that period of time. I think the opportunities today are far greater. If you have the ability to invest, this is the time to do it. This is where you can make a fortune in buying these distressed assets.

Mosca: Do you think that the government and the professionals at the FDIC are more flexible with firms and groups like yours to accommodate the interests by investors and its need for capital?

Kingston: Absolutely. They attempted to give enough latitude in the structure to allow more entrepreneurial management of these assets. In the RTC days it was more an institutionalized process. They went to Wall Street and people closer to the FDIC. There is a major shift to try to get out and get into more Main Street America with these new packages and make it more available to property management people per se and not just somebody that goes out just wholesaling assets in large blocks. In terms of investors today, there’s a much greater opportunity and it’s been designed that way so the small investor can actually participate in this as opposed to the RTC days when many of those packages were very large packages and were on a wholesale basis to other institutions.

Mosca: That’s important. The opportunity exists for the beginner, intermediate, and the advanced real estate investor to really take advantage of these opportunities. Can you talk a little bit about pooling considerations or the individual loans themselves as they relate to size, quality, type, location, all of those types of things within the package that you have available to the investor today?

Walker: Our scope is to help expand the offerings and expose them to more and more investors, which hopefully will get a greater return to the FDIC and hence a greater protection to the taxpayer. The Kingston Group currently has a system that has worked well whereby offers come in and are reviewed by their staff and workout specialists.

Mosca: Is there a way for you to be able to work with an investor and figure out what asset or assets might be more advantageous than another?

Hanks: We will take an investor and sit down and talk with them and understand where their risks are and what they are mostly interested in and what makes sense for them. For me, it’s going to depend on their experience. Do they know developers? There are some homes that are finished and do they or are they interested in being an end-user in a home? There is such a wide variety of assets all the way from what are called paper lots or raw ground with subdivisions to completed homes that are worth millions of dollars. It really depends on the level of expertise of the end-user and of the investor.

Mosca: All prospective purchasers or investors do not have the financial sophistication or the resources sufficient enough to evaluate and bear the economic risks of purchases like these. Is that where the value of having someone like RealSource on your side comes into play?

Hanks: You hit it on the head. The key in the industry right now is to be able to find a good opportunity and a good deal in a good market that makes sense for that investor.

Stay tuned next week for Part 2 of this interview.

Published: June 25, 2009

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Peter L. Mosca is president and founder of BAK Communications, Inc. He has over 22 years of communications and media consulting experience, serving a variety of nonprofit organizations, including the CCIM Institute and the REALTOR Association on all three levels – national, state and local. He is the Spokesperson Trainer for the CCIM's Jay Levine Academy and trains hundreds of residential REALTORS nationwide to be effective industry spokespeople. He is consistently ranked as "excellent" by about 90% of those who attend his presentations. While his principal consulting focuses are public speaking and media relations development and content delivery and management, Peter is also the host of the Voice America Network's weekly radio program, "Income Property Investment Talk," a one-hour program that brings the powerhouses of commercial and residential real estate to property investors every Wednesday at 11 a.m. EST. Peter is married 17 years to his wife Barbara. They have two children: Ashley, 15 and Kelli, 12. Hence, the name BAK Communications, Inc.