Tax Liens:Trading Liens to Get to the AssetSeptember 22nd , 2011Presented by: Thomas McOsker, Head of GFI Tax Receivables ...
Primary Market Overview                          1
How Tax Liens Work1.                       Municipalities sell tax liens at public auction when                           ...
Tax Lien BenefitsFor Municipalities:               For Responsible Taxpayers:• Ensures predictable cash flow   • Lowers re...
Why Invest In Tax Liens? • $30 Billion in tax liens issued annually. • Increase of 30% in 2008, and 15% in 2009*. • Earnin...
Tax Lien MethodologyInterest Bid Down       Sale Rotational SalePremium/Overbid          Tax Lien Certificate      Sale   ...
Tax Receivables by Auction Type                                  6
Tax Receivables by Bidding Type                                  7
Select State Interest Rates              & Redemption Periods             Max   Redemption                    Max   Redemp...
Associated Risks & Mitigation    Maturity Risk             Long Term Focus    Liquidity Risk         Creation of Secondary...
Common Investment TenantsInvest in the right place:• Relative yields• Competitive bidding environment• Trends and valuatio...
Sample Investment Process                                         • Acquire tax sale list from appropriate municipalities ...
Overview of Florida TLC Market•   Florida is a bid down state; bidding starts at an 18% rate and investors bidding the    ...
Drivers of Florida TLC Market                           Support from        “Fast Five”: Procedural Advantages      County...
Florida Tax Lien Sales Growth (2007-2009)         CAGR Value of TLCs (2007-            CAGR Number of TLCs (2007-         ...
Value of TLC’s Sold in Key Florida CountiesCounty Name  Year of Sale   2007             2008             2009         CAGR...
Secondary Market Overview                            16
Agenda• GFI Company Snapshot• GFI Tax Receivables Brokerage Overview• Power of the Hybrid Brokerage Model• Market Particip...
Overview: Leading Inter-Dealer BrokerIntermediary Company                 GFI Group Inc. Founded                 1987 List...
GFI Tax Receivables Overview• Provides tax lien investors with crucial liquidity enhancement through:   – In-depth market ...
Power of the Hybrid Brokerage ModelOld Fragmented Marketplace     New Competitive GFI Marketplace• Pricing Discrepancies  ...
Market Participants • 150+ current clients • 98% of institutional market participants are both buyers and sellers   Real E...
Benefits  Buyers:                                     Sellers:  • Unique investment                          • Liquidity  ...
Sellers Maintain Complete Control  Sellers control all aspects of listing including:                                    • ...
Product Available                    24
How it Works                                                      Online Registration                                     ...
1. Online Registration• Fill out company profile• Sign GFI Standard Brokerage Agreement                                   ...
BUYER2. Due Diligence    – Filter online inventory for suitable pools    – Download lien pool details3. Bidding Process   ...
SELLER2. Lien Valuation     – Work with GFI Broker to value pools for initial listing3. Product Listing    – Enter lien po...
4. Negotiation• GFI discloses bid to sellers; seller has an opportunity to improve offers• GFI continues to narrow the bid...
5. Execution• Buyer and seller agree on  price• GFI Trade Confirmations are  sent to both parties• Commission paid upon  s...
6. Transfer• GFI releases counterparty information to the buyer and seller• Trade is completed directly between counterpar...
7. Data Recording• GFI documents and archives trade data• All client information is kept confidential                     ...
GFI DART – The Technology Behind the Brokers•   Distressed Asset Receivables Trading (DART) is the secure technology platf...
Summary• Provides tax lien investors with crucial liquidity enhancement through:    – In-depth market knowledge    – Acces...
Contact InformationEurope and North AmericaTom McOskerNew York+1 212 968 2776Tom.McOsker@GFIgroup.comwww.GFIgroup.com/taxr...
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Tax Liens - Tom McOsker

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Tax Liens - Tom McOsker

  1. 1. Tax Liens:Trading Liens to Get to the AssetSeptember 22nd , 2011Presented by: Thomas McOsker, Head of GFI Tax Receivables Desk
  2. 2. Primary Market Overview 1
  3. 3. How Tax Liens Work1. Municipalities sell tax liens at public auction when property taxes become delinquent. Proceeds from tax lien sales are used to fund2. municipal services such as construction, schools, and police.3. Investors earn interest on their investment in the form of a penalty rate paid by the property owner. If the property owner fails to pay the penalty4. within the requisite period, the lien holder has the right to foreclose on the propertyFor more information on the tax lien industry visit the National Tax Lien Association website. 2
  4. 4. Tax Lien BenefitsFor Municipalities: For Responsible Taxpayers:• Ensures predictable cash flow • Lowers realized taxes• Decreases cost of borrowing • Funds public projects• Reduces future tax • Decreases risk of future tax delinquencies increases Predictable cash flow and increased transparency mean higher credit ratings and a decreased cost of capital for municipalities. 3
  5. 5. Why Invest In Tax Liens? • $30 Billion in tax liens issued annually. • Increase of 30% in 2008, and 15% in 2009*. • Earnings rate ranges from 8% to 50%. • Senior creditor position and low lien to value ratio. • Low correlation to traditional and alternative asset classes. • Enhanced return through foreclosure opportunities. • Quick redemptions may create high annualized returns. 4*Based on a Distressed Real Estate Consulting Services, LLC industry survey of counties in Florida.
  6. 6. Tax Lien MethodologyInterest Bid Down Sale Rotational SalePremium/Overbid Tax Lien Certificate Sale Penalty Rate Bulk SaleSecondary Market Sale 5
  7. 7. Tax Receivables by Auction Type 6
  8. 8. Tax Receivables by Bidding Type 7
  9. 9. Select State Interest Rates & Redemption Periods Max Redemption Max Redemption State State % (yrs) % (yrs)Arizona 16% 3 Mississippi 18% 2Colorado 14% 3 Missouri 10% 2 Florida 18% 2 Nebraska 14% 3Georgia 20% 1 New Jersey 18% 2 Illinois 36% 2.5 Ohio 18% 2Indiana 20% 1 Rhode Island 18% 1 Iowa 24% 1.75 South Carolina 12% 1Louisiana 18% 3 Texas 25% 2Maryland 24% 0.5 West Virginia 12% 1 8
  10. 10. Associated Risks & Mitigation Maturity Risk Long Term Focus Liquidity Risk Creation of Secondary Markets Bankruptcy Risk Due Diligence and Legal Support Redemption Risk Settlement and Reconciliation Process Litigation Risk Seasoned Legal Team Environmental Risk Pre-Purchase Environmental ScreensProperty Improvement Due Diligence and Zoning Risk Analysis 9
  11. 11. Common Investment TenantsInvest in the right place:• Relative yields• Competitive bidding environment• Trends and valuations for specific geographical locationsInvest at the right time:•Stagger lien maturation dates to facilitate serial realizations of profits•Time window for tax lien maturities•Perform foreclosure analysisInvest at the right price:• Lien bids based on proprietary algorithms• Purchase liens within buying parameters and price bands 10
  12. 12. Sample Investment Process • Acquire tax sale list from appropriate municipalities Phase I • Narrow the universe of investment ideas through Data Collection & Screening quantitative and qualitative screens • Conduct Quantitative and Fundamental research Phase II to identify alpha generating investment ideas Research & Analysis • Perform thorough on-site inspections • Purchase tax liens in accordance with yield Phase III parameters and price bands • Balance lien weightings to maximize risk/reward Portfolio Construction trade off and maintain reasonable risk parameters • Consistently monitor risk and validate holdings Phase IV • Balance cash flows and leveragePortfolio Monitoring & Quality Control • Collect investment principal and statutory interest Phase V from municipality Settlement & Reconciliation • File for deed/work-out if lien does not redeem during redemption period 11
  13. 13. Overview of Florida TLC Market• Florida is a bid down state; bidding starts at an 18% rate and investors bidding the lowest interest rate are awarded the TLCs• Florida also imposes a penalty on delinquent property taxes; investors bidding on liens either get the interest rate they bid down or a 5% penalty, whichever is greater• Since 2008, major players significantly reduced participation in Florida due to the credit crunch• Several new and old institutional investors are still participating in Florida tax sales for multiple reasons, such as low redemption period (two years) and attractive penalty rates, among others – Merrill Lynch, a dominant investor in Florida, scaled down tax lien activities but was replaced by JP Morgan Chase; several new funds have also started investing in Florida tax certificates – In 2008, BankAtlantic stopped buying tax certificates in all its major investment states; in 2009, the company resumed acquiring TLCs exclusively in Florida• High unemployment rate in the state is translating into more delinquent property taxes and are driving tax certificate sales; TLC sales in Florida1 grew from $902.6 million in 2007 to $1.3 billion in 2009, a growth of 45.6%• With easing credit situation, expected growth in TLC interest rates, and opportune economic conditions, institutional investors are expected to further continue acquisitions in Florida 12
  14. 14. Drivers of Florida TLC Market Support from “Fast Five”: Procedural Advantages County Tax Attractive Collectors Office Penalty Mature Predominant Online Market Driven Residential Sales Returns Property Market 13
  15. 15. Florida Tax Lien Sales Growth (2007-2009) CAGR Value of TLCs (2007- CAGR Number of TLCs (2007- 2009): 20.6% 2009): 13.3% 1.80 1.29 1.30 304.1 0.90 300.0 240.2 2007 2008 2009 2010 Value of TLCs ($ billion) No. of TLCs (000s) 14
  16. 16. Value of TLC’s Sold in Key Florida CountiesCounty Name Year of Sale 2007 2008 2009 CAGR (2007-09)Miami - Dade 258,482,749 397,656,617 373,385,519 20.2%Broward 162,064,588 248,309,507 223,400,611 17.4%Palm Beach 124,776,025 167,619,939 147,955,751 8.9%Orange 62,232,986 87,353,658 110,999,321 33.6%Hillsborough 73,175,277 97,310,356 109,011,042 22.1%Pinellas 62,203,116 76,373,806 87,686,041 18.7%Duval 34,253,234 47,191,624 58,147,824 30.3%Sarasota 23,849,618 36,474,133 38,042,018 26.3%Brevard 21,554,539 25,667,899 27,909,211 13.8%Volusia 32,078,508 40,118,980 48,121,443 22.5%Polk 22,091,191 29,633,729 33,560,140 23.3%Seminole 14,018,275 20,164,805 23,117,955 28.4%Manatee 11,835,177 21,204,368 23,187,145 40.0%Total 902,615,284 1,295,079,422 1,304,524,021 20.2% 15
  17. 17. Secondary Market Overview 16
  18. 18. Agenda• GFI Company Snapshot• GFI Tax Receivables Brokerage Overview• Power of the Hybrid Brokerage Model• Market Participant Breakdown and Motivations• Current Product Available• How it Works• GFI Distressed Asset Receivables Trading (DART) Platform Demo 17
  19. 19. Overview: Leading Inter-Dealer BrokerIntermediary Company GFI Group Inc. Founded 1987 Listing GFIG (NYSE) Market Capitalization Approximately $800 Million (09/30/2009) Headquarters New York Offices New York, London, Paris, Dublin, Hong Kong, Seoul, Tokyo, Singapore, Sydney, Cape Town, Santiago, Dubai, Tel Aviv, Calgary, Englewood (NJ) and Sugar Land (TX) Employees 1,700+, including over 1,000 brokerage personnel Markets Credit, Financial, Equity and Commodity Instruments Clients >2,100 Clients Globally 18
  20. 20. GFI Tax Receivables Overview• Provides tax lien investors with crucial liquidity enhancement through: – In-depth market knowledge – Access to range of potential counterparties – Singular focus on efficient execution GFI Tax Receivables Brokerage Department GFI Distressed Asset Receivables Experienced GFI Trading Platform (DART) Brokerage Team 19
  21. 21. Power of the Hybrid Brokerage ModelOld Fragmented Marketplace New Competitive GFI Marketplace• Pricing Discrepancies • Centralized• Inefficient • Transparent• Local • Efficient• Off-line • Global 20
  22. 22. Market Participants • 150+ current clients • 98% of institutional market participants are both buyers and sellers Real Estate Players Yield Players • Global Financial Institutions • REO Funds • Hedge Funds • REITS • Private Equity Funds • Regional Real Estate Pools • Regional Lien Pools • Venture Capital Investors • Corporations • Corporations • Family Offices • Family Offices • Local and State Taxing Authorities 21
  23. 23. Benefits Buyers: Sellers: • Unique investment • Liquidity opportunities • Transparency • Access to objective data • Product analysis • Immediate availability Matches counterparties with reciprocal interests while preserving pre-trade anonymity and transaction confidentiality 22
  24. 24. Sellers Maintain Complete Control Sellers control all aspects of listing including: • Liens listed • Pool size • Pool composition • Timing • Initial offer price • Minimum execution price 23
  25. 25. Product Available 24
  26. 26. How it Works Online Registration Fill out company profile Sign GFI Brokerage Agreement Buyer Seller Due Diligence Lien Valuation Filter online inventory for suitable pools Work with GFI Broker to value pools for initial listing Download lien pool details Bidding Process Product Listing Enter lien portfolio information into Standard Lien Template Contact GFI Broker to place bids on desired pools Work with Broker to divide portfolio into mini-pools Negotiation GFI discloses bids to sellers; seller has opportunity to improve offers GFI continues to narrow bid/offer spread Execution Buyer and Seller agree on price GFI Trade confirmations are sent to both parties Commission paid upon successful completion Transfer* GFI releases counterparty information to buyer and seller Data Recording GFI documents and archives trade data 25
  27. 27. 1. Online Registration• Fill out company profile• Sign GFI Standard Brokerage Agreement 26
  28. 28. BUYER2. Due Diligence – Filter online inventory for suitable pools – Download lien pool details3. Bidding Process – Contact GFI Broker to place bids on desired pools 27
  29. 29. SELLER2. Lien Valuation – Work with GFI Broker to value pools for initial listing3. Product Listing – Enter lien portfolio information into Standard Lien Template – Work with GFI Broker to divide into mini-pools 28
  30. 30. 4. Negotiation• GFI discloses bid to sellers; seller has an opportunity to improve offers• GFI continues to narrow the bid/offer spread 29
  31. 31. 5. Execution• Buyer and seller agree on price• GFI Trade Confirmations are sent to both parties• Commission paid upon successful completion 30
  32. 32. 6. Transfer• GFI releases counterparty information to the buyer and seller• Trade is completed directly between counterparties or through a third party agent 31
  33. 33. 7. Data Recording• GFI documents and archives trade data• All client information is kept confidential 32
  34. 34. GFI DART – The Technology Behind the Brokers• Distressed Asset Receivables Trading (DART) is the secure technology platform supporting GFI’s voice brokered tax receivables business.• This hybrid approach matches investors in an otherwise fragmented and geographically diverse network.• GFI DART assists in providing crucial liquidity in the tax receivables asset class.• GFI DART is the only competitive, transparent and independent marketplace for buyers and sellers of tax receivables. http://dart.gfigroup.com 33
  35. 35. Summary• Provides tax lien investors with crucial liquidity enhancement through: – In-depth market knowledge – Access to range of potential counterparties – Singular focus on efficient execution• Matches counterparties with reciprocal interests while preserving pre -trade anonymity and transaction confidentiality• Buyers: – Unique investment opportunities – Access to objective data – Immediate availability• Sellers: – Liquidity – Transparency – Product analysis• Hybrid brokerage model combines powerful DART technology with experienced voice brokers to match reciprocal interests 34
  36. 36. Contact InformationEurope and North AmericaTom McOskerNew York+1 212 968 2776Tom.McOsker@GFIgroup.comwww.GFIgroup.com/taxreceivablesGFI DART Platformhttp://dart.gfigroup.com 35

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