Nothing like the weekend to get the real estate buzz brewing. Almost every developer I spoke with — three, all off the record, of course — is scratching their head about the way Hayman Capital Management’s Kyle Bass has brought Mehrdad Moayedi, founder and CEO of Centurion Development, into the United Development Funding story spotlight.
Bass is accusing United Development Funding of running a Ponzi scheme at the Grapevine-based institution. The company was raided by the FBI on Thursday. United Development Funding has financed more than $1 billion in residential development across Texas.
Agents carried boxes out the company door all day Friday to see what UDF is up to. We think it’s because, starting last month, Bass began posting reports and sending letters to the media with claims that UDF is mishandling investor REIT funds, overstating the value of its assets and making improper loans to developers.
A “billion dollar house of cards” and a “Ponzi-like real estate scheme,” is what he called it. Kyle Bass’s website is udfexposed.com.
It’s hard to tell exactly what the company has been doing, unless we look at one of their prospectuses. What a firm does with investor money is supposed to be outlined in a prospectus, and the client is supposed to read it (even the fine print) and understand.
One of Bass’ beefs is that UDF is overly concentrated with lending to two clients, one being Centurion America.
“The concentration issue becomes that much more problematic if the borrowers cannot repay the loans,” said Bass, whose hedge fund, Hayman Capital Management LP, claims that UDF is operating like a Ponzi scheme by “using new investor money to pay existing investors.” At a website put together by his team at Hayman Capital — UDFexposed.com — the likely outcome is bankruptcy, he predicts.
But here’s my confusion: Centurion’s acres of dirt are tangible assets — secured by lots. And they are located in some of the hottest parts of North Texas, too, like The Normandy in Plano, Prosper, Flower Mound. And our real estate market is not in trouble as of this date and time, though house flipping is making a comeback in Vegas — yikes! Not saying our market will always be so strong, and maybe that’s one of Bass’ points. But Centurion usually makes damn good buys — many of the company’s assets were bought back when the market was low and the company held them. Kind of a bottom-feeder. Mehrdad bought the Stoneleigh out of bankruptcy, for example.