Hedge Funds Eye Distressed Retail and Hotel Real Estate
It’s a market for credit buyers, and hedge funds are ready to strike a deal.
According to Bloomberg, companies want to extend loans or invest in recently restructured commercial real estate bonds. And shopping malls, hotels and offices – some of the property types hardest hit by the pandemic – are ripe for the harvest.
Leo Huang, senior portfolio manager and head of commercial real estate debt at Ellington Management Group, said the pandemic has served as an excuse for companies’ poor performance, but once the vaccine comes, some types of property may not be able to recover.
“In retail I think there is real pain, eradication of weaker assets,” Huang told the publication. “Well-located properties and sponsors with deep pockets and the right demographic zone may survive or reinvent themselves. Otherwise real estate can be handed over to the lender as a replacement. “
Meanwhile, other asset classes have seen a boon as a result of the pandemic. The industrial sector, which includes warehouses and cold stores, is thriving as consumers increasingly shop online. The life science sector is also booming, as working from home is not an option for many laboratory workers.
While property valuations have largely declined, Arena Investors CEO Dan Zwirn said there is an opportunity for a reorganization. His company has participated in this area “Conditions for the issuing of hard money, bridging financing and the purchase of entire loans from the banks”.
Huang says his company – an active buyer of B-shares, the most senior debt, and therefore the riskiest bond investments – will be playing a bad debt game for the next year. [Bloomberg] – Akiko Matsuda