Tom Barrack predicts commercial mortgage market failure

Colony Capital Chairman and CEO Tom Barrack thinks the commercial mortgage market in the United States is on the verge of collapse.

Barrack wrote in a white paper, posted to Medium late Sunday that the coronavirus pandemic and subsequent shutdown of sectors of the U.S. economy could lead to margin calls, foreclosures, evictions and potential bank failures. He claimed the impact of this could be greater than the impact of the Great Depression.

“Immediate concerted action must be taken to ward off this crisis and avert the need for a taxpayer-funded bailout of the housing market and banks,” Barrack wrote. “In particular, banks, mortgage REITs and debt funds must agree on a collaborative solution – implemented with the reinforcement and support of federal government policy – ​​to ensure stability in the future.”

The paper focuses specifically on the fragility of mortgage real estate investment trusts, as well as the lenders and credit funds that provide them with liquidity through buyout financing.

Barrack is advocating a bailout that would include $500 billion in public funds to inject liquidity into the financial system, temporary suspensions of mark-to-market accounting and the postponement of a new accounting rule that governs accounting for losses on receivables until 2024.

On Monday morning, the Federal Reserve announced a plan to unclog credit by expanding its facilities to include different types of municipal and corporate debt. Its purchases of mortgage-backed securities from last week are now unlimited, it plans to buy $250 billion worth of mortgage-backed securities this week, and it will begin buying commercial mortgage-backed securities that were issued by government-backed entities. government.

Barrack is a longtime friend of President Donald Trump, and much of his company’s investments are in real estate or real estate-related, including $3.54 billion in hotel real estate assets and $725 million in dollars of debt and equity investments in his real estate investment trust. Colony Real Estate Credit. [Medium, Bloomberg] —Eddie Small