Greg Owen, the president of Blue Mountain Realty, tours a foreclosed MacDonald Ave. home his company bought and remodeled in Santa Rosa.

In past six months, Vacaville company has spent $15 million on more than 70 Sonoma County foreclosures, fixing them up to sell at a profit

ROBERT DIGITALE
THE PRESS DEMOCRAT

In an unprecedented effort to buy and flip distressed properties in Sonoma County, a Vacaville company has purchased more than $15 million worth of foreclosed homes across the county in the past six months.

Blue Mountain Realty, which acquired its first home locally in November, has quickly become the single largest buyer of homes in the county. The company has purchased more than 70 area homes in foreclosure since December.

Blue Mountain seeks to buy the vacant properties, fix them up and sell them at a profit. It is targeting Sonoma County partly because the local economy and housing market seem to be improving -- and partly because it's become more difficult to find foreclosure properties elsewhere in Northern California.

"What we're constantly in the hunt for is, where are those opportunities?" said Rick Revetria, the company's vice president of operations.

Privately, some local real estate agents are questioning the wisdom of its aggressive entry into the local real estate market. Others say the flurry of purchases by Blue Mountain is a multimillion-dollar vote of confidence that the housing market has hit bottom.

John Duran, a broker with Frank Howard Allen in Santa Rosa, said the volume of purchases will have potential homebuyers asking, "What do they know that I don't know?"

While real estate speculators have been buying homes in Sonoma County since the market hit bottom in early 2009, none have done so at the scale of Blue Mountain.

In other U.S. cities, even larger investment firms are attempting to buy thousands of foreclosures and convert them to rental properties. Foreclosure specialists said such money also is flowing into Northern California, but Sonoma County appears less attractive for such ventures because other regions can provide bigger investment returns on rental properties.

Blue Mountain officials estimate they will flip about 1,200 homes this year, mostly in California.

However, the company may be slowing its purchases in Sonoma County in the coming months, said Greg Owen, president of Blue Mountain. The number of available foreclosures in the region appears to be declining.

"There's more cash than there is opportunity right now," said Owen, who added that his company has the ability to buy and resell 2,400 homes this year.

Six homes in one day

Even so, no other buyer comes close to the company's purchases at foreclosure auctions this year, according to county records. On Feb. 15, an investment group affiliated with Blue Mountain paid $1.7 million in cash for six homes in Santa Rosa, Windsor, Petaluma and Sebastopol. The purchases by the investment group, Polymathic Properties Inc. of Vallejo, represented half of the foreclosed homes that changed hands at county auctions that day.

Blue Mountain's three divisions employ more than 500 people around California, Owen said. Related companies include an acquisition group, a construction group that repairs homes and Blue Mountain Realty, whose agents sell the foreclosures.

Owen said the company's investment money comes from friends and associates from his 30-plus years in the construction industry. The auction purchases are recorded to investment groups with names such as Blue Mountain Homes LLC or Residential Foreclosure Fund II, whose addresses are the Blue Mountain offices in Vacaville.

Individual buyers

Historically, small-scale buyers were the ones buying foreclosures at auctions in Sonoma County, fixing up the homes and flipping them.

"It was all local individual operators who worked on their own and did a few deals a year," said Brian Burke, a longtime buyer at the auctions.

That changed in 2009, when Burke teamed up with longtime builder Chris Peterson to raise money for acquiring foreclosures. In 2010 they consolidated their efforts in Praxis Capital, a Santa Rosa investment firm that finances the purchase of distressed properties for both resale and to hold as rentals. The two said they will buy about 100 homes around Northern California this year.

Similar companies have long existed, though mostly in large metropolitan areas, said Sean O'Toole, CEO of ForeclosureRadar, a Discovery Bay company that tracks foreclosure data.

The growth in foreclosure-acquisition companies was fueled by a record number of auctions of distressed properties in the past five years.

In Sonoma County, nearly 10,000 homes have been lost to foreclosure since January 2007. During that time, median single-family home prices dipped to levels last seen in 2000.

Historically, the majority of foreclosures at auction are taken back by banks rather than sold to private investors. For example, nearly 1,900 homes were lost in foreclosure last year. During the same period, almost 1,250 homes were sold by real estate agents as bank-owned properties.

O'Toole said flipping companies are expanding into new territories in part because banks and government have artificially held down the number of distressed properties going to auction.

"With foreclosures slowing down, those companies have moved into smaller markets," O'Toole said.

Construction slump

Owen, 53, said he got his start in the heating and air conditioning business more than 30 years ago. The collapse of the construction industry about five years ago prompted him to consider opportunities in the foreclosure market. He founded Blue Mountain Realty with his wife, Linda, in 2008.

A year ago, the company was buying homes at a pace of about 600 a year, or half the current rate, Revetria said. In California, the counties with the most purchases are Solano, Contra Costa, San Diego and Sonoma. Blue Mountain also has bought 120 homes around Phoenix and Scottsdale, Ariz.

The company entered Sonoma County in a prominent way in November when it purchased a home on McDonald Avenue that had made headlines because of a dispute over a carport that extended several feet into a neighbor's property. County records indicate the price was $560,000.

Last week, Owen visited the home as workers continued its rehabilitation in keeping with guidelines for a city historic district. Once improvements are complete, he plans to list the property for $1 million to $1.2 million.

In December, Blue Mountain made its first purchase at the foreclosure auctions in Sonoma County. By April, the Blue Mountain Realty website featured more homes from Sonoma County than for any other except Solano.

The company's average home sells for between $200,000 and $300,000, though the company is willing to buy more expensive homes, as with the McDonald Avenue property. The key, Revetria said, is examining the potential profit and the time it will take to fix and resell the home.

It would be wrong to conclude that Blue Mountain makes $50,000 by buying a home for $150,000 and selling it for $200,000, Revetria said. Rehab costs typically approach 10 percent, or $20,000, he said, and nearly another $20,000 would be needed for real estate commissions, concessions and closing costs.

After paying investors and accounting for overhead costs, Blue Mountain's profit would amount to about 2 percent, or $4,000 on such a sale, Revetria said.

Benefit to community

Owen said the company provides communities a benefit. Besides providing its workers jobs, Blue Mountain is selling homes mostly to first-time buyers and raising the value of surrounding homes by adding such features as granite countertops and travertine stone floors.

Among those who follow the foreclosure market, some suggested privately that Blue Mountain may have benefited from good timing by entering the county when demand for homes is increasing and inventory is at a seven-year low. Others, however, maintained the company pays too much for the auction properties.

"We thought the wheels would have come off a long time ago, but who knows," said Peterson of Praxis Capital. He still takes the view that Blue Mountain investors aren't "making any money on the homes."

Revetria insists they are. "We wouldn't have investors if we couldn't make them a certain amount of money," he said.

(Staff Writer Robert Digitale blogs about local real estate at realestate.blogs.pressdemocrat.

com. He can be reached at 521-5285 or robert.digitale@pressdemocrat.com.)

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