THE initial public offering of 208 million units by OUE Commercial Real Estate Investment Trust (OUE C-Reit) has been 2.75 times subscribed.

The IPO at 80 cents a unit - comprising a public offer of 56.25 million units and a placement tranche of 151.75 million - drew valid applications for about 572.83 million units. The public offer was 4.76 times subscribed and the placement portion 2.01 times subscribed.

The Reit, the first initial public offering on the main board this year, is expected to make its trading debut at 2pm on Monday. The flotation was to raise gross proceeds of $346.4 million, consisting of $166.4 million from the offering and a separate $180 million from cornerstone investors. The market capitalisation upon listing will be $692.8 million.

-By Andrea Soh

Starhill Global Reit's Q4 DPU rises 8.8% to 1.23 cts

Source: Business Times / Companies

STARHILL Global Reit saw distribution per unit (DPU) rise 8.8 per cent to 1.23 cents for the fourth quarter ended December, as income to be distributed to unitholders rose 20.6 per cent to $26.5 million.

About $0.5 million of income available for distribution for Q4 was retained for working capital requirements. For the full year ended December, the amount retained was $3 million.

For the quarter under review, net property income (NPI) rose 3.4 per cent to $38.8 million while revenue rose 3.6 per cent to $49.1 million.

- By Mindy Tan

PLife Reit's Q4 DPU up 4.5% at 2.82 cents

Source: Business Times / Companies

PARKWAY Life Reit's (PLife Reit's) distribution per unit (DPU) for the fourth quarter ended December rose 4.5 per cent to 2.82 cents, as distributable income went up 4.5 per cent to $17 million. This was driven by recent acquisitions and rental growth from existing properties.

For the quarter under review, net property income (NPI) rose 3.4 per cent to $23.2 million from $22.4 million. Gross revenue rose 3.1 per cent to $24.7 million, mainly due to rental income contribution from properties acquired in July and September. Additionally, higher rent from the Singapore properties - due mainly to the increased growth rate of 4.44 per cent for Year 7 of lease term commencing August - also contributed to the revenue growth. However, this increase was offset by the depreciation in the yen in the quarter.

For the full year ended December, DPU rose 4.2 per cent year-on-year to 10.75 cents. Excluding a one-off IRAS tax adjustment of $0.7 million in 2012, DPU growth would have been 5.5 per cent. Income available for distribution rose 4.2 per cent to $65.1 million from $62.4 million.

-By Mindy Tan

Suntec Reit

Source: Business Times

Results in line with expectations. Following the massive $410 million asset enhancement initiative (AEI) on Suntec City, Suntec's FY2013 revenue contracted by a modest 10.6 per cent y-o-y to $234 million, forming 96.5 per cent of our and 98 per cent of consensus estimates. Full-year DPU declined 1.7 per cent y-o-y to 9.328 cents, constituting 101 per cent of our and 102.5 per cent of consensus forecasts. The amount included a top-up of 0.839 cents (total $19 million) from the sales proceeds of CHIJMES for capital distribution.

http://www.businesstimes.com.sg/archive/saturday/premium/wealth/others/brokers-take-20140125

Give your views on Singapore's green future

Source: Straits Times

What kind of green Singapore would you like for your children - a place where nature spots abound or maybe where recycling is a national habit? The public's views are wanted to reshape the country's blueprint for sustainable growth. The Singapore Environment Council announced yesterday that it will lead a three-month "national conversation" - beginning next month - to understand Singaporeans' "common vision and values" for their environmental future.

http://www.straitstimes.com/archive/saturday/premium/singapore/story/give-your-views-singapores-green-future-20140125

Rising rents hurting businesses

Source: Straits Times

First, the buoyant real estate market has increased property valuations. And when properties change hands, the buyer has to raise rents in order to achieve a sensible yield. Second, many landlords have turned over their properties to real estate investment trusts (Reits). Reits spell bad news for tenants because rental income is the major contributor to the profits of these trusts. And the easiest way to continually provide higher payouts to their unitholders is to increase rent.

http://www.straitstimes..com/archive/saturday/premium/forum-letters/story/rising-rents-hurting-businesses-20140125

HDB should adopt retirement village model

Source: Straits Times

I agree that retirement villages should be for the elderly and not for investment purposes ("Keep to spirit of retirement housing" by Mr Lawrence Loh Kiah Muan; Tuesday). I applaud the HDB for building studio apartments for the elderly, but this is far from the retirement village model. The HDB should take another step forward by developing retirement villages exclusively for the elderly.

http://www.straitstimes.com/archive/saturday/premium/forum-letters/story/hdb-should-adopt-retirement-village-model-20140125

E&O's gamble puts Penang on the map

Source: Straits Times

It has long been a food paradise, but these days Penang is seen by savvy investors as a coveted destination for luxury homes. Much of the Malaysian state's rise as a prime property hot spot is down to high-end developer Eastern & Oriental.

http://www.straitstimes.com/archive/saturday/premium/money/story/eos-gamble-puts-penang-the-map-20140125

HSBC bullish on M'sia economy this year

Risanamento Agrees to Sell 9 Paris Properties for $1.7 Billion

Source: Bloomberg

Risanamento SpA (RN) of Italy agreed to sell nine commercial properties in Paris to Chelsfield Partners LLP and Olayan Group for 1.23 billion euros ($1.7 billion)

The sale requires the city of Paris to waive its right to acquire the properties and is contingent on the completion of due diligence, Milan-based Risanamento said today in a statement. The company’s shares rose as much as 8.3 percent to about 24 cents in Milan trading, the highest since Aug. 1.

Risanamento will realize a gain of more than 230 million euros from the deal after paying debt related to the assets, according to the statement.

Risanamento’s properties in France total 82,000 square meters (880,000 square feet) and include commercial buildings in Paris’s Golden Triangle fashion district, according to the company’s website. Chelsfield, based in London, was involved in the development of U.K. regional shopping centers including Merry Hill and White City, the company said on its website. Olayan Group is based in Riyadh.

- By Ross Larsen

Sochi’s Hotel Scarcity Deters Late Travel Bookings From U.S.

Source: Bloomberg

Sochi may attract the fewest American visitors to a Winter Olympics in 20 years amid terrorism concerns, a lack of luxury hotel rooms and difficulties procuring visas, according to U.S. tour operators.

Russia’s plan to spend $50 billion on hotels and other infrastructure to convert a small city on the Black Sea into a year-round resort hasn’t resulted in enough high-end hotels, and the existing facilities have raised prices by 121 percent for the event, according to trivago.co.uk, a U.K. website.

Russia’s Olympic organizing committee said yesterday that 30 percent of tickets remained unsold three weeks before the Feb. 7 opening ceremony. The Vancouver Games in 2010 wound up selling 97 percent of its seats. With few international flights directly into the Sochi airport, and most Westerners requiring visas, a last-minute rush is unlikely, tour operators say.

“There was a little hesitancy to start and now with everything going on, I don’t expect that we’re going to have a lot of people still coming to us,” said Robert Tuchman, president of New York-based Goviva, a sports and entertainment travel company. “This is definitely, from a travel perspective, a low point in terms of a Winter Olympics that I’ve seen in the 20-plus years I’ve been doing it.”

The U.S. State Department on Jan. 10 issued a travel alert for Russia after two suicide bombings in the city of Volgograd late last year killed more than 30 people. The warning urged Americans to “remain vigilant and exercise good judgment and discretion when using any form of public transportation.”

Previous Games

Sochi has planned to sell 1.1 million tickets, according to an International Olympic Committee marketing document, meaning about 330,000 remained available as of the latest update from the organizing committee. Of 1.54 million tickets available for the Vancouver Games in 2010, 97 percent, or 1.49 million, were sold. The Canadian Olympic Committee said it didn’t have information on last-minute sales for the 2010 games.

Sochi still can approach Vancouver’s sales, even if the organizers have to offer discounts to local schools or community groups, according to Janice Forsyth, director of the International Centre for Olympic Studies in London, Ontario.

“It’s difficult to say how close to the mark Sochi will be considering the terrorism threat -- that was something Vancouver didn’t have to deal with,” Forsyth said in an e-mail. “They need to show that they can run a successful games, and selling tickets, even if they almost have to give them away, is one way to demonstrate that.”

Five-Star Hotels

Bookings at Chicago-based Sports Traveler for the Feb. 7-23 Olympics are down by 80 percent of what was expected, according to Anbritt Stengele, its president and founder.

“It’s been a disappointing piece of our business,” Stengele said in a telephone interview. “It started to fall apart when the pricing came in from our hotel suppliers.”

Accommodation, particularly the absence of four- and five-star properties, has been the biggest obstacle, according to several tour operators.

“Olympic travelers tend to be high-end travelers and most of our hotels have been three stars,” Stengele said. “We only have access to one four-star property in the mountains. It’s really put a damper on our sales.”

Russian President Vladimir Putin is trying to turn the resort into a destination for wealthy tourists. Along with a stadium, ice rinks and ski slopes, there are some top-class hotels being built, though not enough for the clientele the Olympics draw.

Russian Celebration

U.S. travel agents aren’t the only ones facing hotel shortages. At Sportsworld, a TUI AG-owned company in Abingdon, England, that’s the official Sochi ticket agent for Denmark and Liechtenstein, accommodations have been the “No. 1 bottleneck,” according to Len Olender, its sponsor services director.

Olender said international attendance will be on a par with Lillehammer, Norway, in 1994, and Turin, Italy, in 2006.

“It’s a celebration for Russia, for Russians,” Olender said in a telephone interview.

It also has the potential to be the focus of some of the country’s disputes. The U.S. State Department alert said Doku Umarov, head of the terrorist organization the Caucasus Emirate, called for attacks on the Winter Olympics and rescinded a directive banning attacks on civilians.

Jeffrey Mankoff, a fellow in the Russia and Eurasia program at the Center for Strategic International Studies in Washington, said that while the Caucasus Emirate generally focuses on Russia, it might be willing to accept international casualties during the Olympics.

“So many foreign participants at a high-profile event like the Olympics increases the likelihood of foreigners getting caught up in any successful attack, whether or not they are the intended victims,” Mankoff said in an e-mail.

Stay Home

Some U.S. Olympians have asked family to stay home. Speed skater Tucker Fredricks told his family not to attend because the security concerns would be a distraction, ABC News reported, citing interviews with his parents. Hockey players Ryan Suter and Zach Parise, who play for the Minnesota Wild, also told their families to stay away, according to the Star Tribune of Minneapolis.

IOC President Thomas Bach said Jan. 22 that organizers are confident the games will be safe.

“Security is always a matter of concern, not only at an Olympic Games but at every big event,” Bach told reporters in Rio de Janeiro. “We know the Russian authorities together with their many partners internationally are doing everything to organize the games in a safe and secure way.”

Pre-Olympic Tour

Dmitry Feld, a former luge racer from the Ukraine who now works for USA Luge as its marketing and sponsorship director, said he wasn’t worried about terrorism as he prepared to lead a pre-Olympic tour in Russia. Feld, 58, will escort 24 people to Moscow for three days before the Feb. 7 opening ceremony. None of his guests backed out of the trip after the alert was issued, he said.

“When the Olympics come it shows that Russia is trying to enter the modern world and become friends with the United States,” Feld said in a telephone interview. “In a lot of ways we treat Russia as this mysterious big Russian bear who might bite us without really trying to understand what it’s really all about.”

Jason Berger, president of the National Association of Ticket Brokers, said the Sochi Olympics are “almost a non-event” and that there are now great deals on tickets, airfare and hotels in Sochi.

‘Lack of Turnout’

“In my almost three decades of selling Winter and Summer Games, I have yet to see this lack of turnout,” Berger, chief executive officer of AllShows.com of Rye, New York, said in an e-mail.

Visa issues and distance are likely to keep American travelers from making last-minute plans to attend the Olympics as they have in the past, according to Adam Dailey, chief strategy officer of Austin, Texas-based Ludus Tours, the official sponsor of USA Luge, USA Curling, US Bobsled & Skeleton and the Canadian Curling Team.

“I don’t think many people are going to see this Russian destination they’ve never heard of in the opening ceremonies on TV in the dead of winter and say, ‘You know, that’s where I want to go next weekend,’” Dailey said.

- By Mason Levinson

Super Bowl Homes Command $1,600 a Night as Listings Jump

Source: Bloomberg

Larry Kennedy was rooting against the New England Patriots this week, and not just because they often beat his favorite team, the Buffalo Bills. He figured a Denver Broncos win would provide a better chance to make money renting out his Manhattan apartment for the Super Bowl.

Kennedy, 26, listed the home on Craigslist and Airbnb three days ago after the Broncos and Seattle Seahawks secured spots in the National Football League championship game in nearby East Rutherford, New Jersey. He and his roommate are seeking $750 a night for the two-bedroom apartment in Greenwich Village, which may help cover some of the $3,300 monthly rent.

“Seeing as the Broncos and Seahawks are both far away, this is just about the best outcome I could have hoped for,” said Kennedy, who will be skiing in Utah during the Feb. 2 Super Bowl. “I knew I was going to be gone so I figured it was a good opportunity to make a few dollars.”

New York-area residents are finding the opportunity to profit from their homes as a swarm of football fans converge on the region to attend the Super Bowl at MetLife Stadium, located 8 miles (13 kilometers) from midtown Manhattan. With the teams now decided, listings for rentals are climbing as more locals seek to accommodate Broncos and Seahawks devotees rushing to make plans for the game, according to HomeAway Inc. (AWAY)

New Jersey

The Austin, Texas-based vacation-rental website had a more than 20 percent jump in listings for Super Bowl weekend in the “gateway” region of New Jersey -- which includes towns just outside New York City such as Hoboken, Jersey City and Montclair -- in the week through Jan. 22. That brought the total listings available on the site in that area to 170, more than triple the number available at the same time last year.

The average nightly price of a home for rent in the New Jersey gateway region during Super Bowl week was almost $1,600 as of two days ago, according to HomeAway. In Manhattan, the average rate has jumped to $1,740 a night, compared with about $530 during a more typical time.

“Super Bowls generally drive a very large increase in supply from owners and demand from travelers,” Jon Gray, a senior vice president at HomeAway, said in a telephone interview. “We expect bookings to be pretty strong right up until the last minute.”

Rising Inquiries

In the three days after the conference championship games there was a surge in travelers from Seattle and Denver contacting homeowners in the New York area, Gray said. Seattle traffic was up 92 percent over the prior week and inquiries from Denver jumped 69 percent, according to HomeAway.

The Seahawks and Broncos were allocated about 35 percent of the tickets at MetLife Stadium, which seats about 82,500, according to the NFL.

Tyson Thorne, a 37-year-old graphic designer at Johnson & Johnson, is among the New Jersey homeowners jumping into the rental market in the past week. He spent the the day of the conference championships photographing his newly renovated basement in Lodi to prepare for a Super Bowl listing. After hearing neighbors talking about renting out houses, he and his wife decided to offer the space with hopes of recouping costs from fixing up the area, which has a separate entrance and room for four guests.

Thorne listed the space at his home, less than 6 miles from MetLife Stadium, for $1,000 night on HomeAway, Airbnb and Craigslist on Jan. 19, not long after Seahawks cornerback Richard Sherman helped seal the National Football Conference title with a pass deflection that prevented the San Francisco 49ers from scoring a potential winning touchdown.

Awaiting Outcome

“We realized people might be tuning into the games and waiting to see who won before finalizing their plans,” Thorne said. “We just put two and two together and thought this would be a good opportunity for us.”

Matt Haraburda, a 23-year-old 49ers fan, awaited the outcome of the NFC championship game before listing his four-bedroom apartment at 57th Street and 10th Avenue in Manhattan on Craigslist. The fixed-income analyst and one of his roommates were contemplating attending the Super Bowl if San Francisco won. Instead, they’re looking to avoid the festivities and are asking $2,000 a night for three of the home’s four bedrooms. The monthly rent on the apartment is about $5,600 with utilities.

“There’s no need to stay there if we can make up a month’s rent,” Haraburda said.

English Manor

On HomeAway, the most expensive property available for the Super Bowl is an 8,200-square-foot (760-square-meter) English manor-style home in North Caldwell, the town that was the home of fictional TV character Tony Soprano. The asking price is $119,500 for the entire week of the game.

The home, which sits on a 3.5-acre (1.4-hectare) lot about 15 miles from the stadium, has six bedrooms, five and a half baths, 10 flat-screen televisions, a hot tub, home gym, three fireplaces and daily maid service. The rental also comes with a French-trained chef who will provide three meals a day and access to a wine cellar with a selection of 600 bottles.

Donald Salmon, who is marketing the property on behalf of the owner, said he first listed the home in December. He had a few calls on it before the Super Bowl teams were settled and got a “serious” inquiry from a potential renter in Washington state this week.

“It’s not cheap, clearly, so we’re looking for something corporate, or a wealthy individual,” Salmon said. “Who knows? Maybe Peyton Manning’s family wants it,” he said, referring to the Broncos quarterback.

Hotel Rates

For travelers on more of a budget, hotel rooms were still available as of earlier this week. The average price for a room in the New York area for Super Bowl weekend was $327 as of Jan. 20, a 63 percent increase over that same time period last year, according to Orbitz Worldwide Inc. (OWW) Prices are highest close to the stadium, with rooms in towns such as East Rutherford and Secaucus going for $382 a night. They still have 12 percent availability for the night before the game, data from the Chicago-based company show.

In the area that includes Jersey City, where the Broncos and Seahawks will stay in the week leading up to the game, the average price was $258, with 29 percent availability.

“If you’re looking to stay close to the stadium, it’s going to sell out,” said Jeanenne Tornatore, senior travel editor at Orbitz. “There will be rooms available in Manhattan, but the prices will rise steadily as the game gets closer.”

Hotel rates are cheaper than with last year’s game in New Orleans, where the average room went for $500 a night during the weekend of the game because of less supply, according to Orbitz. There are almost 109,000 hotel rooms in the New York market, compared with about 37,000 in the Big Easy, according to the travel-research firm STR.

Tickets Available

Demand for Super Bowl tickets on the secondary market has so far been average at best, Chris Matcovich, vice president of data for ticket aggregator TiqIQ, said Jan. 21. Ticket availability this week was the most in TiqIQ records going back to 2010, with 9,987 available as of yesterday. The average price was $3,804, compared with an average of $3,295 on that date last year, when 3,460 tickets were available.

The fans who do travel for the game also have untraditional options. Patrick Rossi, an oncologist with Novartis AG, this week listed a yacht docked in Jersey City on Craigslist Denver for $4,500 a day.

The 70-foot (21-meter) boat has four staterooms and three full bathrooms, and comes with maid service and a pick-up at Newark Liberty International Airport. There is also a full kitchen, and Rossi said he knows a chef who will be happy to prepare meals there.

Total Access

“You tell me what you want, I’ll work it out,” Rossi said. “They’ll have total access to the boat.”

While Rossi has previously made the boat available for parties and other events, Kennedy, the Greenwich Village resident, is new to renting out his home. He doesn’t see himself doing it again in the future, no matter the outcome of his Super Bowl experience.

“I’m trying to take advantage of the circumstances,” Kennedy said. “I just figured if I can get this basically free money, why not?”

- By Craig Giammona

Chatham-Cerberus Venture to Sell 51 Innkeepers Hotels

Source: Bloomberg

Chatham Lodging Trust (CLDT)’s joint venture with Cerberus Capital Management LP is offering for sale 51 extended-stay hotels operated under the Innkeepers brand two years after they were acquired.

The U.S. properties, with 6,847 rooms, have $950 million of interest-only debt and are unencumbered by management contracts, Palm Beach, Florida-based Chatham said today in a statement. The venture has made back 92 percent of its original capital investment, and the value to Chatham of a sale “could be meaningful,” Chief Executive Officer Jeffrey Fisher said.

Chatham and New York-based private-equity firm Cerberus paid $1.02 billion in October 2011 for 64 Innkeepers hotels. The price was less than the $1.12 billion the companies had previously offered after a dispute over whether the deal could be called off because of signs of a slowing economy at the time. Now the partnership is seeking to sell the properties as hotel occupancies and revenue climb.

“We know these hotels very well,” Fisher said in the statement. “Results are very strong, and with industry experts projecting attractive growth in the future, we would expect the portfolio to continue to produce great results.”

Cancellation Sought

After Innkeepers won approval of the terms of a bankruptcy reorganization in August 2011, Cerberus and Chatham sought to cancel their purchase of the bulk of the company’s extended-stay, mid-priced and upscale hotels. They cited a clause that allowed them to back out if there was an adverse change to Innkeepers’ business or the economy. Innkeepers sued, saying there had been no such change since reaching the binding agreement in May of that year.

The U.S. hotel industry has since recovered, with revenue per available room, an industry measure of average daily room rates and occupancies, climbing 5.3 percent in January through November of 2013 from a year earlier, according to Hendersonville, Tennessee-based research company STR.

Chatham last year rejected a takeover bid from New York-based shareholder BlueMountain Capital Management LLC. Shares of Chatham, which said it could achieve greater returns for its stockholders on its own, are trading close to the company’s $20 initial public offering price from April 2010. V3 Capital Management LP, Chatham’s largest shareholder, with an 8.2 percent stake, also is pushing for a sale.

Chatham rose 1 percent to $20.50 at 12:03 p.m. in New York.

About $171 million, or about $25,000 per room, has been invested in the Innkeepers properties since 2007, Chatham said today. The portfolio’s revenue per available room grew by an estimated 5.5 percent last year, with earnings before taxes and other items of about $101 million.

Eastdil Secured LLC is the adviser on the offering.

- By Nadja Brandt and David M. Levitt

China’s Wang Plans Up to $5 Billion Investment in U.K. Projects

Source: Bloomberg

Dalian Wanda Group, the property company owned by Chinese billionaire Wang Jianlin, plans to invest as much as 3 billion pounds ($5 billion) in U.K. developments after a meeting with British Prime Minister David Cameron aimed at bolstering trade.

Wang and Cameron announced the investment in Davos, Switzerland, according to a statement today. The main part of the 2 billion-pound to 3 billion-pound venture will be a cultural and travel development. The Chinese company didn’t provide details of the project.

Dalian Wanda is already investing 1 billion pounds in a British yacht-maker and a London site to build Western Europe’s tallest residential tower. Cameron went to China last month for the first time in three years, traveling with a delegation of about 100 business leaders and seeking improved trade. Chancellor of the Exchequer George Osborne visited China in October, as did London Mayor Boris Johnson.

“When I met Chairman Wang Jianlin during my recent trade visit to China, I encouraged him to make further investment into Britain,” Cameron said in the statement. “I’m delighted that Wanda has decided to invest 2 billion pounds to 3 billion pounds in regeneration projects so soon after.”

Wang is China’s third-richest person with a net worth of $12.8 billion, according to the Bloomberg Billionaires Index.

“The U.K. has huge investment opportunities, there are strong and stable returns to be had and the U.K. government has made it very clear that it welcomes overseas investment,” Wang said in the statement.

- By Jeffrey St.Onge

Gundlach Counting Rotting Homes Makes Subprime Bear

Source: Bloomberg

For Jeffrey Gundlach, the U.S. housing recovery isn’t so rosy.

The founder of $49 billion investment firm DoubleLine Capital LP is largely avoiding the subprime-mortgage bonds that jumped about 17 percent last year after home prices surged by the most since 2006, deterred by the lengthy process to sell foreclosed houses and the destruction that’s creating.

“These properties are rotting away,” Gundlach, 54, said last week on a conference call with investors, about homes stuck in foreclosure pipelines, adding that it could take six years to resolve defaulted loans made to the least creditworthy borrowers before the real-estate crash.

DoubleLine is giving up potentially higher yields that last year attracted money managers including Western Asset Management Co. along with hedge funds as 21 percent of foreclosed homes across the U.S. are in limbo, vacated by former owners and not yet seized by lenders, according to data company RealtyTrac.

Those residences are a sign of an uneven U.S. recovery, which has left blighted neighborhoods in cities from Los Angeles to Detroit and about 8 million borrowers still owing more on their mortgages than their homes are worth.

“The housing market is softer than people think,” Gundlach said, pointing to a slowdown in mortgage refinancing, the time it’s taking to liquidate defaulted loans and shares of homebuilders that have dropped 14 percent since reaching a high in May. D.R. Horton Inc., the largest builder by revenue, fell 1.9 percent to $21.54 at 9:43 a.m. in New York trading, extending its drop since May to 22 percent.

Loss Severities

A measure of losses on mortgage debt rose last quarter for the first time since 2011, Fitch Ratings said in a report yesterday. The reversal was driven by an aging pool of loans in the foreclosure process, particularly in states such as Florida and New Jersey which give added legal protections to homeowners against repossessions.

About 32 percent of seriously delinquent borrowers, those at least 90 days late, haven’t made a payment in more than four years, up 7 percent from the beginning of 2012, according to Fitch analyst Sean Nelson.

“These timelines could still increase for another year or so,” Nelson said, leading to even higher losses because of added legal and tax costs, and a greater potential for properties to deteriorate.

Loss severities on subprime debt, tied to risky mortgages that inflated the housing bubble, increased to 75.9 percent from 74.1 in the last three months of the year. The severities -- a measure of losses suffered on a liquidated loan -- peaked at 77.1 percent in early 2012 from 12.8 percent at the end of 2006, during the property boom.

Keeping Pace

Improvements in loss severities have failed to keep pace with the 24 percent gain in house prices since the 2012 trough. Real-estate values have been recovering for about two years, with prices climbing in October at the fastest pace since 2006, according to a Case-Shiller index of 20 cities.

“You see Case-Shiller price data showing strong markets, and you expect in a certain logical way that these loss severities should be coming down as home values are increasing,” said Gundlach, who started Los Angeles-based DoubleLine Capital in December 2009 and built it into the fastest growing mutual-fund firm ever in its first year. “Unfortunately, that’s being trumped or neutralized by this rotting away problem.”

Investors including Blackstone Group LP and Colony Capital LLC have been central to the rebound, buying more than 366,200 single-family homes in cities such as Phoenix, Las Vegas and Atlanta, since January 2011 to turn into rentals, according to Port Street Realty and RealtyTrac data. Federal Reserve policies that reduced borrowing costs and increased homeowner refinancing also lifted the market.

Improving Economy

While rising prices, and an improving economy have resulted in a steep drop in foreclosures, there are more than 1.2 million properties in the repossession process or owned by banks that the market is absorbing, according to RealtyTrac.

“With the average timeline for foreclosure increasing, these properties are sitting in limbo for a longer period,” said RealtyTrac Vice President Daren Blomquist.

Florida had the highest foreclosure rate last year, with more than 3 percent of households receiving a filing. It’s one of about 20 judicial states including New Jersey, New York and Connecticut, requiring a court review of home repossessions, and lengthening the time it takes to seize a property.

There are about 8 million borrowers still underwater, who owe more on their mortgages than their homes are worth, which increases the probability of default, Deutsche Bank AG wrote in a report this month. Florida and California have the highest concentration, each with more than one million single-family houses in negative equity.

Negative Equity

Subprime and option adjustable-rate mortgages originated at the peak of the market, with weaker underwriting standards, have the highest exposure to negative equity, Deutsche Bank analysts led by Steven Abrahams wrote in the report. Defaults and losses to bondholders are expected to decline as home prices continue to rise, with estimated gains of about 6.8 percent this year, the report said.

An index tied to subprime bonds created in the second half of 2006 that were issued with AAA ratings rose to 59.5 cents on the dollar this month from a low of 31.1 cents on the dollar in October 2011, according to London-based administrator Markit Group Ltd. The debt last year outpaced returns for less risky non-agency mortgage debt, such as Alt-A, which is backed by borrowers who often qualified with limited documentation.

‘Very Bullish’

“In 2013, we were very bullish on subprime,” said Anup Agarwal, head of mortgage-backed and structured products at Pasadena, California-based Western Asset Management. “It was overall a big winner and you saw that reflected in prices.”

Agarwal, whose firm managed $443 billion in fixed-income assets as of Sept. 30, has in the past six months turned more negative on subprime and started shifting money into Alt-A securities.

One William Street Capital Management LP, a hedge fund firm with $2.7 billion in assets, is expecting reduced losses as home prices continue to rise, according to a letter sent to investors this month. The investment firm said increased regulations have added to costs for firms that deal with troubled mortgages.

For subprime prices to make sense, recoveries must improve but won’t because of the backlog of loans, Gundlach said.

The money manager has cautioned investors before about avoiding subprime. In 2012, he said investors can’t assume the “lines will head south” speaking about loss severities for loans and then last year, referred to the debt as being stubborn.

Brash Pronouncements

Gundlach has a history of making contrarian and brash pronouncements. After a conference in April 2012, he said he thought the Federal Reserve should be abolished, and that same month that investors should short Apple Inc. (AAPL), after it had risen more than sevenfold from January 2009.

Most of DoubleLine’s assets are in the $31 billion Total Return Bond Fund, which as of last year had 31 percent, the highest allocation, in residential mortgage-backed securities not backed by the U.S. government. Subprime bonds accounted for 2 percent of the fund’s holdings.

Gundlach has traditionally favored higher quality non-agency debt in the fund rather than subprime. He balances those securities with bonds that are backed by the government and adjusts the mix to help the fund weather different scenarios in the housing market and changes in interest rates.

Gundlach’s fund returned 6.3 percent over the past three years, ahead of 93 percent of peers, according to data compiled by Bloomberg. Last year was the fund’s worst absolute and relative returns since opening in April 2010, with it gaining just 0.02 percent and beating 80 percent of peers. Investors pulled $6 billion, according to estimates from Morningstar Inc., its first year of net withdrawals.

During a webcast this month Gundlach said that he’s “re sculpted” DoubleLine Total Return Bond Fund (DBLTX), decreasing its holdings of agency mortgages and adding holdings of non-agency and commercial mortgage debt. This year through Jan. 22, the fund returned 1.5 percent, moving it ahead of 99 percent of similarly managed funds, Bloomberg data show.

- By Heather Perlberg and Alexis Leondis