NEW YORK – Hedge funds are zeroing in on America’s malls and hotels.
Axonic Capital, LibreMax Capital and Saba Capital Management are among firms positioning to provide loans as more than $1 trillion in commercial real-estate debt originated before the property crash comes due over the next three years, aiming to bridge the gap for borrowers needing more cash than banks are willing to lend.
New participants are capitalizing on that void, said Richard Hill, an analyst at Morgan Stanley, who said he’s surprised by the range of investors entering the market.
The wave of loans coming due is going to create a bottleneck. The image I get is a snake trying to swallow an elephant.
Funds that buy corporate debt or mortgage-backed securities that package dozens of loans are targeting individual buildings, drawn by yields as high as 15 percent after returns elsewhere in credit markets shrunk. The firms are wagering commercial property values will continue to rebound after recouping 75 percent of their decline since 2009 even with the record wave of maturing loans.
About $350 billion in commercial-real estate debt comes due every year through 2017 after a borrowing binge last decade, according to Morgan Stanley.
The firms are aiming to provide mezzanine loans, which are eventually repaid after traditional commercial mortgages if a borrower defaults, making them a riskier bet in exchange for higher yields.