Distressed investors consider commercial mortgage bonds

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Distressed real estate investors dig into commercial mortgage-backed securities to foreclose, repair and return distressed properties. (iStock)

Distressed real estate investors, strapped for distressed properties, turned to a crisis-era favorite for potential deals: commercial real estate bonds.

Hedge fund Axonic Capital and startup Metamorphosis Hotel Capital Partners are looking in commercial mortgage-backed securities for opportunities to seize, repair and make a profit on distressed properties, Bloomberg reported, citing sources familiar with the matter.

Companies adapted a similar strategy during the global financial crisis. Today, investors are looking for mortgages that may have been bundled into bonds, knowing that these debts are more likely to be sold in the event of a missed payment.

Earlier in the pandemic, fund managers made billions of promising investors in big returns on the carnage of commercial real estate – hotels, offices and malls that couldn’t pay their mortgages. But lenders have offered extensions, betting that a return to normalcy would provide landowners with the business to make payments, the publication reported.

Axonic and Metamorphosis, who declined to comment on the post, are betting there are still some owners who can’t.

“This is an interesting strategy that has proven successful in other asset classes,” Paul Norris, head of securitized loans investing at asset management firm Conning, told Bloomberg. & Co .. “We expect to see more hedge funds doing this.” Norris said he is not pursuing the strategy himself.


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