The History of Cherrybrook Capital
Cherrybrook Capital began its existence with a simple question “Does opportunity exist to acquire undervalued assets in the US real estate market?
In 1977, the Carter administration enacted the “Community Reinvestment Act” as a means to promote affordable housing for every American citizen. The Clinton administration took this idea much further and criticized the mortgage industry for looking at "outdated criteria" such as the mortgage applicant's credit history and ability to make a down payment. This was arguably the genesis of the credit crisis as we know it today. Clinton's administration threatened lawsuits demanding that banks treat household welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. To compound the problem, the Federal Reserve chairman of the time, Alan Greenspan, accelerated the housing boom by allowing a prolonged period of low interest rates.
Today, banks are grappling with huge residential foreclosures. In 2010 there are likely to be as many as 3 million foreclosures, up from 2.82 million foreclosures in 2009. The continuing decline in the performance of these loans has severely affected bank capital and therefore available lending.
The legislative changes and the subsequent US real estate crash in 2008 provided an interesting opportunity that appeared to warrant further investigation. Cherrybrook Capital’s investigation involved relocating to the US to witness and understand the situation first hand. It extensively researched the drivers of the credit crisis, changes in credit requirements, uncertain market valuations, new growth opportunities and the micro and socio-economic factors of the current investment opportunity.
From the determination that significant opportunity does exist in US real estate, Cherrybrook Capital broadened its research from looking at the causes of the credit crisis to the impact and the wider social implications thereof. Its analysis focused on the significant decline in personal wealth and its affect on the lifestyle choices available to retiring “Baby Boomers”.
By putting a face on the crisis, it became obvious that financial security is not certain unless one has both traditional capital instruments (stocks and bonds) with significant cash flow generating assets. The lack of cash flow generating assets held within the portfolios of “Baby Boomers” coupled with the significant decline in household wealth now makes the prospect of having to return to the workforce or delaying retirement a very real issue facing this generation.
With this in mind, Cherrybrook Capital was created to acquire cash flow generating assets. Given the sharp decline in real estate values, the source of this cash flow was identified to be real estate. However, real estate is a generic and far-reaching asset class. Cherrybrook Capital’s analysis determined that Multi-Family / Commercial Residential was an optimum investment sub-sector in achieving its stated aim of delivering superior medium to long-term risk adjusted returns.