TPG Real Estate Finance delays dividend as cash crunch hits nonbank lenders

Nonbank commercial property lenders risk running out of money: report

Mar.March 25, 2020 04:00 PM
Nonbank commercial property lenders risk running out of money as banks demand more collateral (Credit: iStock)

Nonbank commercial property lenders risk running out of money as banks demand more collateral (Credit: iStock)

TPG Real Estate Finance Trust is one of several nonbank property lenders feeling the squeeze as markets fall.

Real estate investment trusts, hedge funds and private equity firms that have issued billions in construction loans, mortgages and bonds backed by property debt are now facing a cash crunch, the Wall Street Journal reports.

TPG is delaying its first-quarter dividend payments in preparation for needing additional cash collateral, but the company noted in a statement that there’s “no certainty” it can continue paying, according to the Journal.

The Angelo, Gordon & Co.-managed AG Mortgage Investment Trust said last Friday that it had “received an unusually high number of margin calls from financing counterparties” and admitted to missing some of the deadlines.

Nonbank lenders stepped into the commercial real estate space after banks withdrew following the 2008 crash, but many funded deals using bank debt facilities secured by corporate guarantees, loans and bond holdings.

With those holdings’ values having been sunk by the coronavirus pandemic crashing the economy, banks are asking these lenders to put up more collateral. For some, that’s causing a liquidity crunch.

For banks, an analysis by data firm Trepp said the institutions’ commercial real estate loans would in the worst-case scenario see a 2.7 percent loss rate, less than what banks saw following the 2008 financial crisis. Trepp pegged the peak default rate between 2008 and 2011 at 4.4 percent. [WSJ] — Erin Hudson

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