Mortgage REITs, debt funds face catch-22 between banks, developers

Apollo Global Management’s REIT has at least one developer no longer making mortgage payments

TRD NATIONAL /
Apr.April 01, 2020 09:15 AM
As banks demand more collateral and developers stop making mortgage payments, analysts expect a world of pain to befall debt funds, mortgage REITs (Credit: iStock)

As banks demand more collateral and developers stop making mortgage payments, analysts expect a world of pain to befall debt funds, mortgage REITs (Credit: iStock)

The cash crunch continues for nonbank lenders that relied on bank credit facilities to fund deals.

Many of the lenders beginning to feel the squeeze are publicly held mortgage real estate investment trusts, and it’s likely that private debt funds will soon feel the same pain, according to the Wall Street Journal. That pressure is expected to come from the one-two punch of banks demanding more cash collateral as borrowers halt loan payments, analysts say.

The first signs of struggle are beginning to appear. Apollo Global Management’s mortgage REIT, Apollo Commercial Real Estate Finance, disclosed in a public filing that developer RedSky Capital has stopped making payments on its $154.6 million mortgage for a mixed-use skyscraper development in Downtown Brooklyn. The payments stopped March 1.

The mortgage-backed securities market is seeing more of a crunch, because prices move faster than in private markets. Residential mortgage REITs, which finance bond buys with short-term debt, are feeling the pinch when lenders ask for margin calls. Commercial mortgage REITs, which buy fewer bonds, have been more insulated from the turmoil.

Meanwhile, other mortgage REITs are cutting or suspending dividends, or paying in stock to retain cash on hand, as stock prices continue to be hammered. The trusts are trying to maintain cash on hand to pay margin calls that are coming with greater frequency. Among them is TPG Real Estate Finance Trust and Granite Point Mortgage Trust, according to the Journal.

Last week, the Federal Reserve announced an unprecedented $10 billion program to buy corporate bonds, but many REITs, notably trusts that own malls or hotels, have seen ratings fall below investment-grade and are shut out from benefiting from the program.
[WSJ] — Erin Hudson


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