“A culling of the weaker assets”: Where hedge funds are investing

Retail, hotels and office properties have been hit hard by the pandemic

(iStock)
(iStock)

It’s a loan buyer’s market and hedge funds are ready to make a deal.

Companies are looking to provide loans or invest in recently restructured commercial real estate bonds, according to Bloomberg. And malls, hotels and offices — some of the property types hit hardest by the pandemic — are ripe for the picking.

Leo Huang, senior portfolio manager and head of commercial real estate debt at Ellington Management Group, said that the pandemic has served as an excuse for businesses’ poor performance, but once the vaccine comes, some property types may not recover.

“In retail, I think there is real pain, a culling of the weaker assets,” Huang told the publication. “Properties that are well located and sponsors with deep pockets and the right demographic zone might be able to survive or reinvent themselves. Otherwise, properties may be turned over to the lender as a deed-in-lieu.”

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Meanwhile, other asset classes have seen a boon as a result of the pandemic. The industrial sector, which includes warehouses and cold-storage units, have been thriving as consumers are increasingly shopping online. The life-sciences sector is also booming, as working from home is not an option for many lab employees.

While property valuations have largely fallen, Arena Investors’ CEO Dan Zwirn said that there is opportunity in restructuring. His firm has been participating in that field “terms of hard money lending, bridge funding, and buying whole loans off of the banks.”

Huang says that his firm — an active buyer of B-pieces, the most subordinate debt and therefore most risky bond investments — expects to make a play for distressed loans next year. [Bloomberg] — Akiko Matsuda