It's an area the International Monetary Fund pointed to earlier this week as a potential source if financial instability. It also is a lender in the sector, where banks have recently retrenched.Ĭoncerns in this cycle have been centered on smaller banks will less than $250 billion in assets, which account for three-quarters of commercial-real estate bank lending. Ready Capital has been one of the biggest buyers of distressed small-balance property loans, with some $5 billion of total purchases in past down cycles. "Our trading desk is definitely hearing more inquiries from potential sellers of select, target portfolios from smaller and midsize banks," he said, adding that this activity picked up since the collapse of Silicon Valley Bank and Signature Bank in March. "We've seen this movie before," Capasse said. But he also anticipates enough distress coming down the way to gear up Waterfall, and its small-balance loan affiliate Ready Capital, to seize the moment. Instead, Capasse sees an more orderly process of loan sales from lenders able to better absorb some level of loss, rather than the flood of bank failures that led to the RTC and fire sale prices. "People who say this is the new RTC, they are like Chicken Little," Capasse told MarketWatch "That's not going to happen." Back in the 1980s, he was helping Merrill Lynch navigate the Resolution Trust Corporation (RTC), a sweeping federal program that purged problem assets from failed banks, but also built the early fortunes of real estate titans Barry Sternlicht and Thomas Barrack. Waterfall closed a new $485 million Atlas Fund this week to invest in commercial real estate, distressed loans and bonds.Ĭapasse had a front-row seat to four decades of past commercial real estate boom and bust cycles. Ready Capital is externally managed by Waterfall Asset Management, an alternative investment manager with $11.6 billion in assets. See:Fed needs to keep raising interest rates, Waller says It is going to have a traditional cyclical decline in real estate," he said. "You are going to see a lot more of that in the office sector."Īfter an era of easy credit and low interest rates, property values are expected to fall, eroding the equity that borrowers have in properties and likely leading to climbing defaults. (RC) and co-founder of Waterfall Asset Management, of landlords walking away from properties or handing the keys back to lenders. "You are going to see strategic defaults," said Capasse, CEO of Ready Capital Corp. commercial real-estate market.īut Capasse does see a wave of distress unfolding in the coming months as more borrowers buckle under the weight of higher interest rates, tighter credit and other pandemic aftershocks. Tom Capasse, a veteran of distressed property investing, won't say the sky is falling when it comes to a credit crunch bearing down on the estimated $21 trillion U.S. Capasse's Waterfall Asset closes a new $485 million Atlas Fund to invest in commercial real estate, distressed loans and bonds
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