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Sharks circle as mortgage lenders shed portfolios at steep discounts

“Blood in the water” as opportunistic funds chase returns of more than 20 percent

Wesley Edens’s Fortress Investment Group picked up a mortgage bond portfolio for a steal (Credit: Drew Angerer/Getty Images, iStock)
Wesley Edens’s Fortress Investment Group picked up a mortgage bond portfolio for a steal (Credit: Drew Angerer/Getty Images, iStock)

With mortgage lenders under pressure as homeowners miss payments, you better believe the sharks are circling.

Opportunistic funds including Elliot Management and Appaloosa Management are reportedly in talks to buy discounted assets from troubled real estate investment trusts, according to Bloomberg. Oaktree Capital Group and Apollo Global Management are also reportedly interested in some of those assets.

Some REITs have sold off mortgage portfolios to raise cash. Others are in discussions with hedge funds to hand over equity stakes for cash. In some cases, REITs that have already sold off mortgage portfolios are in talks to sell equity stakes to the same parties that bought their discounted mortgages.

“There’s blood in the water,” said Westwood Capital’s Daniel Alpert. “They’re selling everything they can to raise cash.”

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Some hedge funds and private equity firms are seeking returns of 20 percent to 30 percent in their negotiations with REITs, an indication of just how vulnerable they see the latter to be.

REIT stocks plummeted as the coronavirus pandemic worsened over the last few weeks. Some have postponed their dividends. Apollo Global Management’s own mortgage REIT is seeing its borrowers stop payments.

A handful of deals have closed recently. Two Harbors Investment sold “substantially all” of its non-agency portfolio — valued at $3.6 billion late last year — for $1.7 billion to an unnamed buyer.

A group of buyers led by Fortress Investment Group picked up a mortgage-bond portfolio with a $6.1 billion face value from New Residential Investment Corp for just $3.3 billion. [Bloomberg] — Dennis Lynch 

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