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


Related Articles

arrow_forward_ios
Despite record-low interest rates, tightened mortgage lending standards which may hamper the economic recovery. (iStock)

Tightening mortgage market threatens economic recovery

Tightening mortgage market threatens economic recovery
From left: SL Green CEO Marc Holliday, Land & Buildings Investment Management founder Jonathan Litt and Vornado chairman Steven Roth (Unsplash; Land & Buildings Investment Management; Getty)

Activist investor Jonathan Litt is shorting big NYC office landlords

Activist investor Jonathan Litt is shorting big NYC office landlords
A rendering of 1998 Second Avenue in Harlem and Peter Fine (Credit: GF55 Architects)

Peter Fine inks $70M construction loan for Harlem resi project

Peter Fine inks $70M construction loan for Harlem resi project
(Credit: iStock)

Loan applications to buy homes rise for fifth week

Loan applications to buy homes rise for fifth week
(Credit: iStock)

TRD INSIGHTS: MBA finds 8% of home loans in forbearance

TRD INSIGHTS: MBA finds 8% of home loans in forbearance
(Credit: iStock)

Applications to buy homes rise for fourth week with New York leading the way

Applications to buy homes rise for fourth week with New York leading the way
(Credit: iStock)

TRD Insights: MBA finds 8% of home loans in forbearance

TRD Insights: MBA finds 8% of home loans in forbearance
Colony Capital CEO Tom Barrack (Photo by Michael Kovac/Getty Images)

Tom Barrack’s Colony Capital defaults on $3.2B in loans

Tom Barrack’s Colony Capital defaults on $3.2B in loans
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...