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For Sale: A New Home Built by Your Local Private Equity Firm

While private equity firms bought thousands of homes to rent out after the housing crash a decade ago, they don’t usually build and sell them.

(Bloomberg)—Private equity wants to build your home.

Encore Capital Management is talking with institutional investors to raise a new fund to buy land and build homes for sale, focusing on affordable, entry-level and senior housing, according to people with knowledge of the matter. The asset manager and real estate developer is seeking to raise $400 million, said the people, who asked not to be named because the talks are private.

While private equity firms bought thousands of homes to rent out after the housing crash a decade ago, they don’t usually build and sell them. The market for construction has long been dominated by individual builders and by corporations such as Lennar Corp. and DR Horton Inc.

Those groups haven’t kept up with demand in recent years, especially for homes for first-time buyers, leading to a chronic shortage of available properties. Bidding wars and price spikes are frequent news in hot coastal markets like Seattle and Silicon Valley. The dearth of supply is also driving up home values elsewhere and making it harder for buyers to get into the market.

Encore has sought to capitalize on this underserved sector. An earlier fund, which closed to new investors in 2012 and was oversubscribed, has a projected annual return after fees of 26 percent, according to a marketing document seen by Bloomberg News.

Encore Chief Operating Officer Oscar Vasquez declined to comment on the new fund and Encore’s plans for it.

Part of the firm’s strategy is to buy land in bulk that it can develop itself or sell to other builders. That option has helped it realize higher returns for investors, according to the document. The firm said it will also lend money to other developers to buy and build homes. Most of its investments are in California and Florida, where its principals are based, but it has also invested in Oregon, Texas and Arizona.

Encore was founded almost a decade ago by Tony Avila, former head of real estate investment banking at JMP Securities LLC, and Art Falcone, who built Transeastern Properties Inc. into one of the largest privately held homebuilders in Florida before selling it in 2005. In addition to New York, Encore has offices in San Francisco, Los Angeles, and Orlando and Boca Raton, Florida.

The firm recently hired Jeff Gardner, a former executive with Invesco Ltd. and Carlyle Group LP, to help raise capital and open a New York office. The news of his hiring and the latest fund was previously reported by PERE, a trade publication.

To contact the reporters on this story: Noah Buhayar in Seattle at [email protected]; Gillian Tan in New York at [email protected] To contact the editors responsible for this story: Daniel Taub at [email protected] Peter Jeffrey, Kara Wetzel

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