Distressed real estate investors who are in short supply of troubled real estate turned to their favorite of the crisis era to clarify potential deals: commercial real estate bonds.
Hedge fund Axonic Capital and startup Metamorphosis Hotel Capital Partners are looking at mortgage-backed commercial securities for opportunities to seize, fix and return distressed real estate for profit, Bloomberg reported, citing sources familiar with the matter.
Firms adopted a similar strategy during the global financial crisis. Now investors are looking for mortgages that could be combined into bonds, in anticipation that these debts are more likely to be sold if they missed a payment.
Earlier in the pandemic, wealth management firms made billions by promising investors massive profits from a massacre in commercial real estate – hotels, offices and malls that couldn’t pay off their mortgages. But lenders have proposed an extension, betting that a return to normalcy will give property owners the ability to make payments, the newspaper said.
Axonic and Metamorphosis, who declined to comment on the posting, are betting that some owners still can’t.
“This is an interesting strategy that has proven successful for other asset classes,” Paul Norris, head of securitized loans at Conning & Co., told Bloomberg. for asset management. “We expect more hedge funds to do this.” Norris said that he himself does not adhere to this strategy.