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Real Estate Investors Skip Paying Loans While Raising Billions
BySome of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic.
The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors.
“Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.”
While cutting losers to buy winners is an age-old investment proposition, the Covid-19 pandemic may create even more openings than the past crises that became bonanzas for real estate investors. The mass exodus of Americans from public spaces has hammered already-weak retailers and their landlords, crippled business travel, crushed restaurants unable to fill all of their tables, and sown chaos for office towers whose tenants may never need as much space again.
Hotels and malls have been the biggest CMBS losers during the pandemic. Lodging and retail debt turned over to so-called special servicers — workout specialists — is at the highest level since 2010, according to industry tracker Trepp.
About the Author
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Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
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