Hedge funds eye distressed malls and hotels
Hedge funds eye distressed malls and hotels
Hedge funds eyes malls, hotels and offices that have been thrown in shambles by the COVID-19 pandemic. Investors and companies are looking to provide loans or invest in bonds for restructuring real estate assets in trades that worths hundreds of billions of dollars. Vaccine developments have charged commercial real estate, along with other risk assets.
Leo Huang, the senior portfolio manager and head of commercial real estate debt at Ellington Management Group said distressed loan pipeline is building and the cycle is a good opportunity as it is sector-specific. Commercial real estate and mortgage-backed securities have become a credit pickers’ market, bringing a wide dispersion in performance and losses among deals. Market participants say that asset selection and credit work in the coming year will be very important.
Huang said commercial real estate loans and first mortgages need to sourced and underwritten. says that his firm will be able to make investments into distressed loans next year. Ellington has been an active buyer of the riskiest slices of transactions known as B-pieces, which are the first to take losses but potentially the most lucrative.
Arena Investors’ chief executive officer Dan Zwirn says though there will still be numerous opportunities, property valuation may generally lower going forward. Assets may need to be fitted with capital structures that make sense for what will now be reduced values.
The CMBS market has struggled this year as COVID-19 kept shoppers out of malls, travellers away from hotels and workers home from offices. But some property such as warehouses and cold storage units have benefited, and even among troubled malls and hotels. Market observers say that many will survive and even thrive. This is why investors are not viewing the downturn as black and white. They assume that certain properties will recover, depending on how well borrowers are capitalised and on a variety of other factors, such as location and demographics.
The retail and hospitality sector has suffered the most, parts of the multifamily sector may benefit from the move away from cities, while life science australian casino games research centres, telecom towers, cold storage and industrial properties have all seen an increased flow of business during the pandemic.
Mr Zwirn says the valuation for troubled sectors is a different world now that assets do not have zero value but a substantially diminished value. While hotels may yet recover, and experts offer varying opinions on the return of urban offices, weaker regional malls, which were troubled even before COVID-19, may never come back. Properties that are well located and sponsors with deep pockets and the right demographic zone might be able to survive or reinvent themselves. Otherwise, properties may be turned over to the lender as a deed-in-lieu.
He also said the need for a vaccine could be used as an excuse for short-term poor performance but when that excuse is removed, and we see what the new world looks like especially for retail, it will be bad.
References:
- This time is different, says Arena Investors’ CEO Daniel Zwirn
- Hedge Funds Eye Distressed Malls and Hotels
By Adam Tempkin
- Hedge funds eye distressed,d malls and hotels
by Adam Tempkin
https://www.afr.com/property/commercial/hedge-funds-eye-distressed-malls-and-hotels-20201215-p56noy