BH Capital is in the midst of raising equity for its first fund, McKinney says. Initial plans call for a $25 million equity fund leveraged to $50 million in buying power. The fund will buy a combination of performing and non-performing, but will likely end up buying more performing loans, he adds.

Although McKinney readily agrees that there are many firms that exist today to acquire loans, he contends that BH Capital differentiates itself on several points. Perhaps most importantly, the firm will focus on acquiring loans from smaller banks rather than large national financial institutions. Additionally, its deal size is considerably smaller than its competitive set.

“There are a substantial number of nationally recognized funds that have raised hundreds of millions of dollars to buy loans,” McKinney says. “They are all elephant hunting, and we have no delusions to compete with them. We’re going to play in the smaller balance market, targeting community and regional banks that are really experiencing the most stress in the financial world. And our average loan price is $10 million.”

McKinney adds that BH Capital is positioned to serve lenders addressing maturing debt placed during the U.S. commercial real estate market’s peak years of 2005 to 2007. Loan sales are expected to increase as the Federal Deposit Insurance Corporation, which manages asset liquidation for failed member financial institutions, prepares to bring to market hundreds of billions of dollars of commercial loans secured by commercial real estate or other business assets.