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Nine months into the credit crisis, a number of investment managers are putting together funds to cherry-pick distressed loans. Miami-based ARE Asset Management is one of them. Jeffrey Kirsch, managing principal of the firm, has launched two offshore investment funds, both of which are registered here, with $600 million in committed funds in total. The goal is to invest in non-performing residential mortgages, purchased at a discount, which will be managed to either recovery or foreclosure. Newly originated, low-LTV hard money and bridge loans on commercial properties will also be targeted.What is interesting — for both his investors and the market at large — is that ARE has a long history of acquiring and liquidating non-performing residential first mortgages. The company got out of the market two years ago, though, when signs of an upcoming crash were apparent, at least to Kirsch. “We didn’t like what we saw,” he tells GlobeSt.com.Now, he says, “after two years of sitting on the sidelines, we are getting back in the market because we believe the bottom is forming in first mortgages.”

GlobeSt.com: Let’s start with the two funds. There is $300 million each committed for both. Is that levered or unlevered?

Kirsch: Unlevered, and we don’t have any plans to do so. That is why we are still in business.

GlobeSt.com: What have you been doing for the past two years while you have been sitting out the market?

Kirsch: We’ve been building out a servicing platform, because we knew we would need our own internal servicer for our loan portfolio once we did get back into the business. We acquired Strategic Recovery Group LLC in Plano, Texas, which specializes in non-performing loans.

GlobeSt.com: You view this as essential to your strategy?

Kirsch: Yes. There is not a lot of capacity among larger servicers for non-performing residential mortgages. The largest are owned primarily by Wall Street firms and those servicers will look after their parents’ assets first.If you don’t have that kind of relationship, you need to think now where you will have those loans serviced, and it is also a good idea to shadow service the servicer.

GlobeSt.com: Your strategy, as you’ve explained it, is primarily to buy assets from financial institutions as they sell off commercial and residential loans, and then use aggressive loan servicing for this portfolio to deliver above-average returns. Is there any room for MBS or other assets in this strategy?

Kirsch: Nope. We have no interest in acquiring MBS. We like to have control over our own destiny.

GlobeSt.com: You are investing now?

Kirsch: We are getting the funding in place this month, (then) next month we will be begin acquiring loans. We will be going through the US by zip code, as opposed to a state-focused strategy.

GlobeSt.com: When will you have finished investing?

Kirsch: Within 90 days. We think prices will rise dramatically once Wall Street believes we have hit bottom.

GlobeSt.com: How are you going to liquidate your assets?

Kirsch: There are number of ways to do that. The objective is to get them to re-perform. The typical liquidation period for a pool of loans is 12 to 16 months.

GlobeSt.com: Who were the investors in your fund?

Kirsch: Mainly high-net-worth and institutional investors overseas, in Latin America, Asia and Europe.

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