Landlords take on short-term debt to spruce up struggling assets
CLOs up 46% as vacant hotels, malls and apartments provide chance to renovate
Landlords are increasingly taking on short-term debt to fix up their empty stores, hotels and apartment buildings.
JPMorgan found that lenders this year had issued $4 billion of collateralized loan obligations — short-term financing popular with developers — through mid-February, a 46 percent increase from the same period last year, the New York Times reported.
Commercial mortgage-backed securities, which typically have longer-term financing, declined 8 percent during that time.
For investors, the financing provides a higher return to reflect the risk they are taking — that shoppers, renters and travelers will resume pre-pandemic activities and the loans will be repaid. For borrowers, the pandemic presents an opportunity to renovate, as social distancing keeps many assets empty.
In January, Philadelphia-based private equity firm Stoltz Real Estate Partners raised $45 million in collateralized loan obligations to fix up a mall in Long Beach, California. The property was 20 percent vacant, and its top two tenants, Regal Cinemas and Equinox Fitness, had closed and stopped paying rent. The mall’s owners used $8 million to repurpose some of the property into office space and spruce up the common areas and retail space.
Jake Pine, development director at L+M Development, said the financing makes sense for those with vacancies. In a joint venture with other developers that predates the pandemic, L+M is repurposing a former Winchester gun factory in New Haven, Connecticut, with three-year financing.
“If you can get a transitional lender that’s willing to take a bit of the risk, stay with you for a two-, three-year period, allow you to kind of come out of Covid, or rebound from Covid, it makes a lot of sense,” Pine told the Times.
[NYT] — Georgia Kromrei